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  • The real estate collapse of the last three years has caused the federal government to come up with regulations designed to avoid this from happening again. Mortgage regulation rules are being presented under the Dodd-Frank Act of 2010. The Dodd-Frank Act is part of the far-reaching financial regulatory reform that sets out to promote financial stability and improve the accountability and transparency of the financial system as a whole. This was a reaction to the list of bail-outs of companies that were “too big to fail” and required on-going hand-outs from taxpayers to stay in business.

    One of the changes proposed under this Act is to force mortgage lenders to take 5 percent of the credit risk of mortgages pooled in securities if the mortgages do not meet certain requirements. These are mortgages that are put together as an investment unit and which can be bought or sold in a similar way to stocks in a company. One of these requirements, which is making mortgage lenders unhappy, is that borrowers must pay at least 20 percent of the home’s purchase price as down payment. The idea behind this rule is to stop borrowers from buying homes they can’t afford just because loans are available. According to some analysts, cheap and available loans were one of the reasons house prices increased artificially and later crashed when the market came to its senses and corrected itself. Canada has a similar down payment requirement as part of their comparatively stricter financial regulatory system, which may have had a lot to do with why Canada was not affected as seriously by the real estate driven recession of 2009.

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    Critics of the 20 percent down payment rule claim this will price out many borrowers who can’t afford to come up with 20 percent of a home’s purchase price. Figures from 2010, seem to support this claim. Around 39 percent of home buyers in 2010 put a down payment of less than 20 percent, according to a poll by CoreLogic. The question, of course, is if the low down payments are because people can’t afford to pay 20 percent or because they are not required to do so? Additionally, even if many buyers can’t afford the 20 percent rule, is that necessarily a problem? Could it be argued that buyers who can’t afford to pay 20 percent of their mortgage are simply not in a position to buy and should focus their efforts on saving for a down payment? Of course, the real estate mortgage industry claims it is time for the government to stimulate the mortgage industry not weigh it down with restricting regulations. How do you feel? Is this regulation a much needed protection against another crash, or is it an example of federal government choking the growth the real estate industry so desperately needs?

    Mortgage assistance programs have been created nationwide since the real estate crisis of 2007. However, few states have experienced the success Connecticut has had with its mediation and mortgage assistance program. To illustrate, In 2007, Connecticut ranked 8th in the United States foreclosure rate (foreclosures per total number of houses), while today it ranks 26th and boasts a foreclosure rate of one in 695 homes in contrast with the nation’s average of one in 389. Families and individuals who are facing foreclosure in Connecticut can save their home by applying for the Emergency Mortgage Assistance Program.

    The Emergency Mortgage Assistance program was revamped in 2008 to help families face the housing crisis caused by the 2007 – 2010 recession by providing temporary mortgage payment assistance. This assistance covers monthly mortgage payments for up to five years as part of a fixed-rate subordinate mortgage. Although this mortgage is a conventional loan, in the sense that it has to be repaid, repayments only start once the family financial situation improves to a degree where they can afford the payments.

    The program is only open to families who are suffering from financial difficulties due to issues out of their control, such as unemployment, medical emergencies and a rise in interest rates. This article will provide practical information for homeowners in Connecticut who want to apply for the Connecticut Housing Finance Authority’s EMAP (Emergency Mortgage Assistance Program).

    Eligibility

    To qualify for the EMAP you must own only one home and this home must be your principal address. This is a strict requirement. You cannot have any ownership in a second piece of real estate if you want to qualify for an EMAP loan.

    You must also prove your financial reliability, payment history and credit record before the hardship was good. This means you must prove you were regular in your mortgage payments before the current hardship began. By good, the CHFA means you must have three or less 30-day late payments in the year prior to the hardship. On the other hand, if your payment history reflects a trend of financial recklessness, you are very unlikely to qualify for an EMAP loan.

    You must also prove you currently cannot afford your mortgage payments. The CHFA determines the affordability of your mortgage based on income limits that vary by area, number of dependents, illness and disabilities of family members.

    Applicants for an EMAP mortgage must apply directly to the CHFA’s Customer Call Center (877.571.2432). This program is especially important for homeowners who have attempted unsuccessfully to negotiate a mortgage modification with their lender.

    Millions of homeowners in the United States are stuck with a mortgage they can barely afford and that is worth more than the property. Worse still, many of these mortgages are based on a variable interest-rate and could increase at any moment and force their owners into foreclosure. To help these cases the government has set the Short Refinance Program. It is designed for homeowners who can afford their current mortgage payments but do not qualify for a mortgage refinance because their home is underwater.

    Does a Refinance Make Sense For Senior Homeowners?

    This is a good question for all homeowners, not just seniors. However, seniors are in a specially vulnerable position because their income may be reduced if they retire. Seniors who are already retired, often have a fixed income and their capacity to adapt to an increase in mortgage payments is small. For these reasons, a mortgage refinance may be especially advantageous for seniors.

    To illustrate, if you refinance your current $150,000 mortgage with a 5.5 percent interest rate for a fixed-interest rate of 4.25 percent, you will achieve two things. First, you will reduce your yearly mortgage payments by $1,800 and, second, you will guarantee your mortgage payments don’t change in the future when your pension or retirement savings are the only income you have.

    However, this does not mean a refinance always makes sense. There are two main issues you should look at carefully. One, what is the cost of refinancing and how long it will take to recoup the costs. Two, how much do you have left on your mortgage.

    COST OF REFINANCING

    Refinancing can save you thousands of dollars but, as is often the case, it takes money to make (or save) money. The cost of refinancing a mortgage ranges from 3 to 6 percent. On a $200,000 mortgage that represents anything from $6,000 to $12,000. Before even considering a mortgage refinance you must look carefully at the savings you make. If it is going to take five years to recoup your refinance costs and you are planning to sell the house in five or less years, refinance may not be a good idea.

    TIME AND INTEREST

    The second issue to consider is how long you have left on your mortgage. When you start paying a mortgage most of your payments go to paying the mortgage’s interest. The longer you have been paying a mortgage the higher the percentage of your payments that goes towards reducing your mortgage balance. If you restart your mortgage with a 30-year loan and you only had 15 years left, it is unlikely the savings from your refinance will cover the cost of paying interest for 15 years more. Another option is to refinance your mortgage for a shorter refinance to offset the cost of restarting the clock on your mortgage.

    Wells Fargo offers existing customers help applying for a loan modification.

    Wells Fargo offers existing customers help applying for a loan modification.

    With over 8.5 million workers losing their job in 2010 and over 7 million homes at risk of foreclosure, you are in good company if you are struggling to pay your mortgage payments. Wells Fargo and other banks know this and have designed loss mitigation programs to help you get on track with your mortgage payments and avoid foreclosing on your home.

    If you own a mortgage, the odds are it is with Wells Fargo. One in every six mortgages are managed by Wells Fargo. Wells Fargo’s loan modification figures are not bad, which is encouraging if you are struggling to make ends meet and own a Wells Fargo mortgage. In 2010, less than 2 percent of Wells Fargo’s mortgage ended in foreclosure and delinquency and foreclosure rates were a 25 percent lower than the of the banking industry’s average.

    There are three main programs you can apply for if you are an existing Wells Fargo customer and would like to improve your mortgage terms: The Refinance Program, the Repayment Plan and the Loan Modification Program. Whether you simply want to take advantage of lower interest rates or are on the brink of losing your home, there is a program for you.

    Our previous article in this series dealt with Wells Fargo’s Refinance Program for Existing Customers. In this article we will look into Wells Fargo’s Loan Modification program. This program is designed to lower your monthly mortgage payments by giving you a better deal on your interest rate, the length of your mortgage (for instance, reducing your term from 30 to 20 years) or in some cases (rarely) by reducing the balance on your loan.

    Loan Modification

    Wells Fargo is an agent for the Obama’s Administration Home Affordable Modification Program (HAMP) and also provides in-house modification programs. You can apply for a Wells Fargo loan modification program here. You will need to supply the last four digits of your Social Security Number, your current loan’s number and your property ZIP Code books. There are several programs you might be eligible for, so Wells Fargo have prepared a questionnaire you can fill in. Once you finish filling in the form, Wells Fargo will decide what programs you are eligible for (if any). To help you collect the necessary information and explain the bank’s requirements, Wells Fargo has prepared a financial worksheet you can download and fill in. Click here to download Wells Fargo’s financial worksheet.

    Seniors can use a HECM to finance the purchase of their new home.

    Seniors can use a HECM to finance the purchase of their new home.

    HECM for Purchase is a subprogram of the FHA’s Home Equity Conversion Mortgage Program. It helps senior citizens (of 62 or older) to buy a new main home using the money from a reverse mortgage. The idea behind this program is to allow older homeowners to have the funds to buy a new home and get a reverse mortgage in one transaction. This helps to reduce the total cost (already high for a reverse mortgage) and accelerate the processing time. It also helps senior citizens to relocate to another area closer to their family or friends, or allows them to downsize their home to a more manageable size that fits their needs. Some homeowners will also use HECMs to finance the installing of ramps, handrails, walk-in baths and other support systems in a new home.

    One of the attractions of a HECM for purchase loan is customers can opt for a fixed rate loan. This helps borrowers budget more carefully the cost of a reverse mortgage and predict the buying-out cost if they decide to sell their home.

    If you are interested in buying a HECM for Purchase reverse mortgage you will need to compile a list of documents and forms, some of which are not required for other types of mortgages.

    Credit Reports

    As with all mortgages you will need to authorize a credit report so the FHA and your lender can assess your reliability as a borrower. However, you will also need to authorize a credit report for your spouse even if he or she is not signing the HECM reverse mortgage. This is done to check the financial obligations and other mortgages a spouse may have that could affect the lien status of a HECM.

    60-day Physical Requirement

    HECM for Purchase borrowers must start living in the new home as their principal residence within 60 days of buying the reverse mortgage. Although it is the job of the lender to document and prove to the FHA borrowers are living in the home, it is worth understanding this requirements because your lender might require proof of residence from you.

    Eligible Properties

    Seniors can use a HECM for Purchase reverse mortgage to buy one-to-four unit properties which have been totally completed and are habitable according to local laws. For instance, a newly constructed house without a Certificate of Occupancy or its local equivalent would not be eligible for a HECM for Purchase reverse mortgage.