Home prices may rise soon as more and more people start filling out mortgage application forms. If you’re putting off plans to buy a home, hoping for lower mortgage rates, then now may be time to reconsider.

In a recent Reuters report, consumer demand for housing and refinancing loans rose in the week ended January 6, indicating a potentially bullish market throughout the year.

The Mortgage Bankers Association’s (MBA) mortgage application index, a major gauge of ongoing housing market activity, went up by almost 5 percent last week.

Despite a modest increase of 4 basis points for 30-year mortgage rates (4.7 to 4.11 percent) in the last week of 2011, refinancing applications still grew more than 3 percent while home purchase loan applications rose by a whopping 8.1 percent.

Statistics also show that the share of refinancing in total amount of mortgage loans dropped by 1.1 percent, indicating a strengthening national economy.

The MBA survey covers three-fourths of the entire US housing market.

The Good News and the Bad

Positive development in the housing market serves as a major indicator of the economic improvement, a welcome respite for the average American who has been tormented by a stagnant economy since it crashed in 2008.

However, with the simple law of supply and demand, a constantly increasing number of mortgage applications will inevitably cause another housing boom, which will drive home prices up north.

Citing an earlier post, mortgage rates was already at a historic 60-year low in the last weeks of 2011. However, recent developments indicate that this record may not be broken anytime soon. That is, the 6-month forecast of stable home prices may be cut short.  These figures may go up in no time.

When is the right time?

There are many other factors to take into account before you start filling out forms, such as your current employment situation, your current debts, and other financial contingencies. However, considering the probability of a near-term housing boom, delaying the purchase of a home may translate into higher interest payments, coupled with subsequent increases in real estate prices.

If you need more help in deciding when to buy a home, Paradigm Mortgage Services will be glad to help.

A federal housing agency considers temporarily eliminating interest in mortgage debts held by bankrupt homeowners.

In a report from the Financial Times, the Federal Housing Finance Agency (FHFA) said it was seriously considering proposals for setting interest rates to zero for mortgage loans for borrowers who:

1. Are undergoing Chapter 13 Bankruptcy proceedings
2. Owe more than their home’s value
3. Acquired the loan via government-controlled home loan financier, AND
4. Secures approval from the pertinent bankruptcy judge

The proposal, called the “principal paydown plan”, will relieve debt-ridden Americans from interest rate payment for a period of five years. Through several studies, real estate market research firm CoreLogic found out that almost 11 million US homeowners – or 25 percent – have negative equity on their homes. This translates to more than two-thirds of a billion dollars worth of negative equity in the entire United States.

Principal Paydown Plan: The Pros and Cons

A Boost for the Debt-Ridden

Of course, this plan is good news for those who are underwater. Zero interest loans, while not entirely erasing debt, is a great way to help distressed Americans make ends meet. Moreover, studies show that many housing experts feel that this proposal may even serve as the panacea for today’s national economic woes.

Lack of incentive for lenders et Al

However, the proposal seems to be a zero-sum game. Yes, it may help borrowers but what’s in it for lenders and the rest of the pack? Financial institutions are businesses that care about their bottom-line, so this plan may actually serve as an impetus for these money managers to find new and more creative ways to get around the law.

There’s no other choice

Eleven million families are already underwater, and very few of them know how to swim. For advocates, the proposal serves a middle ground between the interest of these debtors and that of corporate America. In short, it’s better than no relief at all.

The Principal is still there

Others argue that the problem is like having four flat tires on an SUV in the middle of nowhere. The spare tire won’t be enough to put the car back on the road. The proposal addresses nothing but the interest and rate a miniscule part of the debt equation vis-à-vis borrowed principal. That is, it’s not quite enough.

Status Quo

The FHFA told the media is already under discussion in back rooms of Congress, but it still has a long way to go before it gets signed into law. However, for an extremely large number of Americans, this proposal may actually serve as their long awaited glimmer of hope.

The Federal Reserve now officially blames mortgage servicers for the chronically problematic housing sector, saying these companies make the housing market harder to fix.

In a United Press International Report, Federal Reserve Governor Sarah Bloom Raskin said, “Severe misconduct that has been uncovered in the mortgage servicing sector [should] be addressed,”  adding that an alarming number of  mortgage servicers are negligent and misleading in their business practices.

What are Mortgage Servicers?

Mortgage services are private companies who receive mortgage payments from homeowner-borrowers. They are the same companies that compute for interest rates in adjustable-rate loans, negotiate with borrowers who are on the verge of default, and administer foreclosures if need be. Contrary to popular belief, these institutions are usually distinct from the lender, as the latter typically sells mortgage loans to investor companies like Freddie Mac and Fannie Mae, who will then package these loans into mortgage-backed securities.

What did they do wrong?

Throughout the past several years, mortgage servicers have been grilled for shady business practices, to the detriment of borrowers and the economy as a whole.

Let’s cite the two most (in)famous issues:

• Unwillingness to lower rates despite high risk of default – In 2009, the New York Times reported the despite calls from the White House, mortgage servicers did little in the way of giving consideration for financially troubled borrowers, even if impending default is almost certain. Instead, these companies let borrowers stay delinquent for as long as possible, so that the former can milk the system through various fees like insurance and legal services. Furthermore, these companies may have actually encouraged foreclosures, since they get to keep all the payments made, the junk fees, and the proceeds from foreclosed homes –all at the same time.

•  Falsifying Legal Documents and Circumventing Legal Requirements – In another NY Times article, mortgage services were also castigated for “robo-signing” a countless number of mortgage foreclosures. Basically, independent research showed that thousands of foreclosure proceedings that were enacted in the peak of the subprime mortgage crisis were actually based on documents that were either dubious in nature or simply incomplete. Because of this, many people lost their homes without being afforded the right to due process.

Aside from these, some mortgage servicers even went so far as to defy the Servicemembers Civil Relief Act, which protects military personnel from civil suits while they are on active duty. Just last year, JP Mortgage Chase admitted to having overcharged thousands of active military personnel, and that’s just the tip of the iceberg. However, until recently, the Federal Reserve has stayed mum on these controversies.

Raskin’s announcement may be long overdue, but it is good news that the Federal Reserve – the bank of banks – is starting to crack down on these corporations who take advantage of the less fortunate.

Many future homeowners often confuse the terms “pre-qualified” and “pre-approved” with each other. After all, once someone is qualified is he’s approved, right? Well, not exactly. In the world of mortgage jargon, each of the terms refers to an entirely different thing. Let’s discuss each of them in greater detail.

Pre-Qualification

The term pre-qualification for mortgage loans is an approximation of the loan amount that your current state of finances can handle, along with the amount that financial institutions will most likely lend to you. This lets you get a rough idea of the possibilities in store, along with probable limitations. (more…)

Adjustable-rate mortgages, in a nutshell, are housing loans whose interest rates vary based on a specific index or a specific combination of several indexes. Unlike fixed-rate mortgages, the amount required for periodic payments for ARMs fluctuate, depending on the index upon which the loan was based upon.

The Index

The most common indexes used are the Cost of Funds Index (COFI), London Interbank Offered Rate (LIBOR), and 1-year constant-maturity (CMT) securities). To derive the interest rate for your loan, lenders typically add a few percent so that they can make a profit out of the venture. Moreover, this additional figure is constant throughout the loan’s lifetime. (more…)

Many Americans get a second mortgage for a variety of reasons. In your case, it may be for home improvement and repair or for some other financial emergency. However, second mortgages typically come with higher interest rates compared to first mortgages because the latter gets prioritized in the event of a foreclosure. Because of this, it is essential to make sure that a prospective second mortgage is worth all your time and effort, and that’s what we’ll talk about.

Considerable Home Equity

First mortgage lenders typically secure the loan by putting a lien on your whole property. That is, they may be able to assume ownership of your property in the event of a credit default. On the other hand, second mortgage lenders usually put a lien on your home equity, or the fraction of your home that you already paid off. For example, if you still owe the bank $100,000 for your home that’s currently worth $150,000, it can be said that your equity is $50,000.

The amount of your home equity compared to the amount of your second mortgage loan application is one of the primary considerations when banks decide on whether to say yes or no. Essentially, a loan application that’s backed by a high home equity are more likely to be approved.

Note, however, that home equity isn’t enough to seal the deal. After all, the bank would rather have you pay your new loan on time instead of having to foreclose your property. To gauge your ability to meet your prospective financial obligations, three major indicators are used:

Credit Score

Just like applying for any other credit instrument, your bank will check your credit rating and see if it fits within an acceptable range. Thus, it’s important to read the yearly credit reports that you receive so you can have a better idea of what’s going to happen. Moreover, different banks consult different credit rating agencies (TransUnion, Equifax, Experian), so it’s best to know what all these three companies say about you.

Employment History

Next will be your employment history. A person who’s been continuously employed for a long time will have better chances than someone who changes jobs all the time (or worse, someone who is often unemployed). Thus, a good way to start is to love and keep your job at all costs, even if your boss isn’t exactly the nicest human being on earth.

Low Debt-to-Income Ratio

As the name suggests, it is the sum of all your monthly (or annual) loan payments money versus your monthly (or annual) income. Basically, this figure helps banks decide whether your finances can make room for another line of credit. Keep this ratio low to increase your chances of getting approved.

For more information about second mortgage applications, experienced and friendly consultants at Paradigm Mortgage Services will be able to help.

• Is your interest rate too high?
• Are multiple loans confusing you?
• Are you paying too much monthly?
• Do interest rates fluctuate too much?
• Do you need extra cash for very urgent purposes?

If you answered “yes” to any of these, then refinancing may be right for you. Refinancing a mortgage, or the replacement of a mortgage with a new mortgage that’s under different terms, is a great way to make financial obligation easier to handle. In this article, let’s discuss the most common reasons why people refinance, and see if it is indeed the best way to go. (more…)

Whether you need a new home loan or want to refinance your home, shopping for a mortgage is an important part of the process. Here are a few tips that may make finding the perfect mortgage for your needs easier.

1. Decide what type of mortgage product you need first. Is it a 15-year mortgage, a 30-year mortgage, or an ARM (adjustable-rate mortgage)? To complicate things even further, ARMs are available as three year, five year, seven year or even an Option ARM (typically a 30-year ARM). Which product you choose will determine which interest rates are available to you as well as your monthly payment. For calculating payments and making a good decision on which product is best suited for your needs, a reputable mortgage brokerage firm can be of tremendous help in ascertaining which product should be selected for your unique situation.

2. Once you’ve selected a loan product, then you will want to shop for an interest rate and loan provider. Here’s where your credit score will make the difference. You may want to make a number of phone calls or check the current interest rates online. You may even want to drop by several banks and chat with a loan officer. Although you may want to use a name brand bank for your loan, it is important to understand that it is not unusual for your mortgage, once secured, to be sold to another bank; changing who you make your check out to monthly. As a result it is very important to properly select your mortgage product type, more so than to select your mortgage lender, as your mortgage lender may change once or even several times over the course of your loan term.

Seems like a lot of work right? It can be, or you can select a mortgage service like Paradigm Mortgage Services to do all the work for you. With quality counseling done by mortgage broker professionals, we offer suggestions on the loan products that fit your needs. Then we “shop” your loan for you within our network of quality lenders, letting them bid for your loan; saving you the most money possible.

At Paradigm Mortgage Services, we’ll help you get the best deal for your loan or refinance. Please visit our website and read a few of the testimonials from people we’ve helped who are just like you.

Your credit score is used by mortgage lenders and banks to evaluate your credit worthiness. Credit scores range from 300 to 850. The higher your credit score, the better a credit risk lenders consider you to be and the more likely they feel you will be to pay back your loan. A high credit score significantly improves your chance of being approved for a mortgage loan. A high credit score can also qualify you for a larger loan which can allow you to purchase a more expensive home. But, most importantly, a high credit score qualifies you for the most favorable (i.e., lowest) mortgage interest rates.

The three numbers of your credit score hold tremendous power over your personal buying power. Your credit score affects not only your ability to buy a home; it can also impact your ability to obtain a credit card, get an auto loan, refinance your home or obtain a home improvement loan. In some instances, your credit history can affect your ability to get a job. Numerous businesses now consider applicants’ credit scores as part of their hiring process.

How is your credit score determined? There are three major credit bureaus in the U.S.: Experian, Equifax and TransUnion. Each credit bureau collects borrowing and repayment data about consumers from creditors and lenders which they compile into a credit report that documents your credit history. Your data is then weighted and plugged into a mathematical formula to generate your credit score. Here’s the breakdown credit bureaus use to determine credit scores:

35% Payment history
30% Outstanding debt
15% Length of credit history
10% Number of credit inquiries
10% Types of credit used

Because the credit score computed by each of the three credit bureaus may be somewhat different due to variations in data collected and computation method, mortgage lenders rely on your FICO credit score to make their decisions.

Next time: What is FICO?

When you decide to buy a house, you seek out a real estate broker. When you want to get the best rate on homeowner’s insurance, you contact an insurance broker. Why? Because brokers work with multiple providers, not just one, which allows them to offer their clients a broader range of options and prices to ensure that their clients get the best deal possible.

The same is true in the mortgage industry. Unlike a banker or mortgage lender who is limited to selling only the home loan products offered by the bank or lender he represents, a mortgage broker like Paradigm Mortgage Services represents multiple mortgage investors, ensuring that you will get the best mortgage interest rate and loan terms possible.

Banks have come under fire in recent months for their failure to meet the mortgage loan demands of home buyers. The National Association of Realtors has been critical of bank lending policies, citing home buyers’ inability to obtain financing as a primary cause of home sale failure. According to the Federal Reserve, approximately 25% of all mortgage applications are denied. With their unfriendly mortgage policies and strict application requirements, many banks appear to have taken an adversarial approach to mortgage lending, hindering rather than helping prospective home buyers navigate the mortgage process successfully.

Mortgage brokers take a different approach. Because mortgage brokers represent multiple mortgage investors, they are able to offer home buyers a greater variety of mortgage loan options. A mortgage broker can research and compare the interest rates and loan terms offered by multiple lenders and tailor a home loan designed to meet your specific financial needs.

At Paradigm Mortgage Services we are dedicated not only to finding you the best mortgage rate and terms available, but we’ll also use our considerable expertise to help you successfully navigate the mortgage process and obtain the financing you need to buy the home you want.