Category Archive : Mortgage

Timing the market for the best possible opportunity to lock a mortgage rate on a new loan is certainly a challenge, even for the professionals. While there are several several generic interest rate trend indicators online, the difference between what’s advertised and actually attainable can be influenced at any given moment by at least 50 different variables in the market, and with each individual loan approval scenario.

Outside of the borrower’s control, the mortgage rate marketplace is a dynamic, volatile living and breathing animal. Lenders set their rates every day based on the market activities of Mortgage Bonds, also known as Mortgage Backed Securities (MBS). On volatile days, a lender might adjust their pricing anywhere from one to five times, depending on what’s taking place in the market.

Factors That Influence Mortgage Backed Securities:

1.  Inflation –

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the price level rises, each unit of currency buys fewer goods and services; consequently, annual inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.

A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.

As inflation increases, or as the expectation of future inflation increases, rates will push higher.

The contrary is also true; when inflation declines, rates decrease.

Famous economist Milton Friedman said “inflation is always and everywhere a monetary phenomenon.”

Public Enemy #1 of all fixed income investments, inflation and the expectation of future inflation is a key indicator of how much investors will pay for mortgage bonds, and therefore how high or low current mortgage rates will be in the open market.

When an investor buys a bond, they receive a fixed percentage of the value of that bond as ‘coupon’ payments.

With MBS, an investor might buy a bond that pays 5.000%, which means for every $100 invested, they receive $5 in interest per year, usually divided up over 12 payments.

For the buyer of a mortgage bond, that $5 coupon payment is worth more in the first year, because it can buy more today than it can in the future, due to inflation.

When the markets read signals of increasing inflation, it tells bond investors that their future coupon payments will be less valuable by the time they receive them. So basically, this causes investors to demand higher rates for any new bonds they invest in.

2. The Federal Reserve –

As part of its 2008-2010 stimulus effort, the NY Fed spent almost all of its $1.25 TN budget buying mortgage bonds. Many believe this strategy kept mortgage rates lower over a 15 month period.

The lending environment significantly changed between 2008, when the Fed began its mortgage bond purchasing program, and early 2010 when the market was left to survive on its own.

When the MBS purchase program was announced in November 2008, mortgage bonds reacted immediately and dramatically.

But at that time, there weren’t any investors willing to take a risk in buying mortgage bonds.

The meltdown in the mortgage market and world economies lead many investors to shy away from the risks associated with MBS, which is why the Fed had to step in and basically assume the role as the sole investor of mortgage bonds.

However, loan underwriting guidelines drastically tightened up by 2010, which may create a little more confidence in the mortgage bond market.

3. Unemployment –

Decreasing unemployment will suggest that mortgage rates will rise.

Typically, higher unemployment levels tend to result in lower inflation, which makes bonds safer and permits higher bond prices.

For example, the unemployment rate in March 2010 was at 9.7%, just slightly below it’s highest mark in the current economic cycle.

Every month, the BLS releases the Nonfarm Payrolls, aka The Jobs Report, which tallies the number of jobs created or lost in the preceding month.

The previous report indicated a loss of 36,000 jobs. Not necessarily a number that will move the needle on the unemployment gauge, but some economists suggest we need about 125,000 new jobs each month just to keep pace with population growth.

So that negative 36,000 is more like -161,000 jobs short of an improving unemployment picture.

One flaw to pay attention to with unemployment rates is that the method of surveying fails to capture part-time workers who desire full-time employment, discouraged job seekers who have taken time off from searching and other would-be workers who are not considered to be part of the labor force.

4. GDP –

GDP, or Gross Domestic Product, is a measure of the economic output of the country.

High levels of GDP growth may signal increasing mortgage rates.

The Federal Reserve slashes short-term rates when GDP slows to encourage people and business to borrow money.

When GDP gets too hot, there might be too much money floating around, and inflation usually picks up.

So high GDP ratings warn the market that interest rates will rise to keep inflation concerns in balance.

Spiking GDP with flat/increasing unemployment begs some questions.

There are two major indicators that help provide more context:

1. Increases to worker productivity – employers are getting more work out of their current employees to avoid hiring new ones

2. Surges in inventory cycles – when the economy first started contracting, manufacturing slowed down to cut costs, and sales were made by liquidating inventory.

This is like a roller coaster cresting a hill, where one part of the train is going up, the other down. Eventually, the other side catches up, inventories are rebuilt by manufacturing more than is being sold. Both surges can throw off periodic reports of GDP.

5. Geopolitics –

Unforeseen events related to global conflict, political events, and natural disasters will tend to lower mortgage relates.

Anything that the markets didn’t see coming causes uncertainty and panic. And when markets panic, money generally moves to stable investments (bonds), which brings rates lower.

Mortgage bonds pick up some of that momentum.

Acts of terrorism, tsunami’s, earthquakes, and recent sovereign debt crises (Dubai, Greece) are all examples.

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Putting It All Together:

Economic data is reported daily, and some items have a greater tendency to be of concern to the market for mortgage rates.

If you are involved in a real estate financing transaction, it’s helpful to be aware of these influences, or to rely upon the advice of a mortgage professional who is already dialed in.

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Related Mortgage Rate Articles:

• Mortgage Rate Overview
• What’s The Difference Between APR and Note Rate?
• How Are Mortgage Rates Determined?
• How Do Mortgage Rates Move When The Fed Lowers Rates?
• 8 Questions Your Lender Should Answer About Mortgage Rates

The difference between APR and actual note rate is very confusing, especially for First-Time Home Buyers who haven’t been through the entire closing process before.

When shopping for a new mortgage loan, you may notice an Annual Percentage Rate (APR) advertised next to the note rate.  The inclusion of an APR is actually mandated by federal law in order to help give borrowers a standard rule of measurement for comparing the total cost of each loan.

The APR is designed to represent the “true cost of a loan” to the borrower, expressed in the form of a yearly rate to prevent lenders from “hiding” fees and up-front costs behind low advertised rates.

What Fees Are Typically Included In APR?

• Origination Fee
• Discount Points
• Buydown funds from the buyer
• Prepaid Mortgage Interest
• Mortgage Insurance Premiums
• Other lender fees (application, underwriting, tax service, etc.)

Since origination fees, discount points, mortgage insurance premiums, prepaid interest and other items may also be required to obtain a mortgage, they need to be included when calculating the APR.

Fees such as title insurance, appraisal and credit are not included in calculating the APR.

The APR can vary between lenders and programs due to the fact that the federal law does not clearly define specifically what goes into the calculation, .

What Does APR Not Disclose?

• APR on a loan tied to a market index, like a 5/1 ARM, assumes the market index will never change.  But Adjustable Rate Mortgages always change over the course of 30 years.
• Balloon Payments
• Prepayment Penalties
• Length of Rate Lock
• Comparison between loan terms – EX:  A 15-year term will have a higher APR simply because the fees are amortized over a shorter period of time compared to a similar rate / cost scenario on a 30-year term.

APR Comparing Examples:

• Bank (A) is offering a 30 year fixed mortgage at 8.00% APR
• Bank (B) is offering a 30 year fixed mortgage at 7.00% Note Rate

Easy choice, right?

While Bank (B) is advertising the lowest Note Rate, they’re not factoring in the origination points, underwriting / processing fees and prepaid mortgage interest (first month’s mortgage payment), which could essentially make the APR much higher than the one Bank (A) is advertising.

However, Bank (A) may show a higher rate due to the APR, but they could actually charging a lot less in total fees than Bank (B).

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Before lenders and mortgage brokers were required to state the APR, it was more difficult to find the truth about the total borrowing costs of one loan vs another.

When comparing mortgage rates, it’s a good idea to ask your lender which fees are included in their APR quote.

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Related Mortgage Rate Articles:

• Mortgage Rate Overview
• Top Five Market Factors That Influence Mortgage Rates
• What’s The Difference Between APR and Note Rate?
• How Are Mortgage Rates Determined?
• 8 Questions Your Lender Should Be Able To Answer About Mortgage Rates?

Many people believe that interest rates are set by lenders, but the reality is that mortgage rates are largely determined by what is known as the Secondary Market.

The secondary market is comprised of investors who buy the loans made by banks, brokers, lenders, etc. and then either hold them for their earnings, or bundle them and sell them to other investors.

When the secondary market sells the bundles of mortgages, there are end investors who are willing to pay a certain price for those loans.

That market price of those Mortgage Backed Securities (MBS) is what impacts mortgage rates.

Typically, investors are willing to accept a lower return on mortgage backed securities because of their relative safety compared to other investments.

This perception of safety is due to the implied government backing of Fannie Mae and Freddie Mac and the fact that the Mortgage Backed investments are based on real estate collateral.

So, if the loan defaults there is real property pledged against potential losses.

In contrast, other investments are considered more risky, specifically stocks which are based on earnings and profit vs real property.  The movement between the two investment vehicles often dictates mortgage rates.

Why Do Mortgage Rates Change?

• Mortgage rates fluctuate based on the market’s perception of the economy.
• Stocks are considered riskier investments, and therefore have an expected higher rate of return to compensate for that risk.
• When the economy is thriving, it is presumed that companies will perform better, and therefore their stock prices will move higher.
• When stock prices move higher – MBS prices generally move lower.  Mortgage Backed Securities, however, thrive when the economy is perceived as not doing well.
• When investors forecast a faltering economy, they worry that the return on stocks will be lower, so they frequently engage in a ‘flight to safety’ and buy more secure investments such as Mortgage Backed Securities.  Mortgage rates are actually based on the yield of those Mortgage Backed Securities.
• Bonds are sold at a particular price based on their value in relation to other available investments.  When a bond is sold it yields a certain return based on that original purchase price.  As the prices of the MBS increases because investors seek their safety, the yield decreases.
• Conversely, when investors seek the higher returns of stocks and the MBS are purchased in lesser quantities the price goes down.  The lower price results in a higher yield, and this yield is what determines mortgage rates.

How Would I Know if Rates are Expected to Go Up or Down?

UP:

• When the economy is growing or is expected to grow, stocks will likely become the more favored investment.
• When investors buy more stocks, they purchase fewer MBS, which drives the price down.
• When the price of the MBS is lower, the yield increases.
• Since mortgage rates are based on the yield of the 30 Year MBS, you would expect rates to increase in this environment.

DOWN:

• When the economy appears to be slowing or is doing poorly, investors typically move their money out of the stock market and into the safety of the MBS.
• This drives the price of these investments higher, which results in a lower yield.
• Since mortgage rates are based on the yield of the 30 Year MBS, you would expect rates to decrease in this environment.

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Since these market variables and expectations change multiple times as economic reports are released throughout the course of a week, it is not uncommon to see mortgage rates change several times a day.

Understanding how rates move is not necessarily as important as having a loan officer that is equipped with the technology and professional services to track and stay alerted at the precise moment rates make a move for the better or worse.

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Related Mortgage Rate Articles:

• Mortgage Rate Overview
• Top Five Market Factors That Influence Mortgage Rates
• What’s The Difference Between APR and Note Rate?
• How Are Mortgage Rates Determined?
• 8 Questions Your Lender Should Be Able To Answer About Mortgage Rates?

Lower mortgage rates is a common misconception that is perpetuated by the mainstream media perpetuates when the Fed makes an announcement of lowering rates.

However, when the Fed cuts interest rates, mortgage rates tend to increase.

Fed 101:

According to Wikipedia:

The Federal Reserve System (also referred to as the Federal Reserve, and informally as the Fed) is the central banking system of the United States.

This system was conceived by several of the world’s leading bankers in 1910 and enacted in 1913, with the passing of the Federal Reserve Act. The passing of the Federal Reserve Act was largely a response to prior financial panics and bank runs, the most severe of which being the Panic of 1907.

Over time, the roles and responsibilities of the Federal Reserve System have expanded and its structure has evolved.Events such as the Great Depression were some of the major factors leading to changes in the system.

Its duties today, according to official Federal Reserve documentation, fall into four general areas:

1. Conducting the nation’s monetary policy by influencing monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.
2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system, and protect the credit rights of consumers.
3. Maintaining stability of the financial system and containing systemic risk that may arise in financial markets.

The Federal Reserve controls two key interest rates in this country:

1. The Federal Funds Rate
2. The Discount Rate

These are overnight lending rates used by banks when they lend money to each other.

When these rates are low, money is cheaper for banks to borrow, and that “cheap” money spreads throughout the economy.

The aim of the Federal Reserve in it’s interest rate policy is to either speed up or slow down the economy.

In times of economic downturn, the Federal Reserve will cut rates to help create a boost.

Conversely, in times of heavy inflation, the Fed will raise rates to help slow down the economy.

That’s it; speed up or slow down….no tricks.

When the credit crisis begin to spiral in 2007, the Fed cut rates dramatically in hopes of jump-starting the economy.

The Fed keeping rates near zero is an indication that the economy is moving along at a steady pace.

If the economy improves to the point where inflation starts to creep the Fed will begin hiking rates.

The Fed And Mortgage Rates:

Mortgage rates are tied to mortgage bonds, which are traded every day on the secondary market just like stocks.

Bonds are often considered a safer investment than stocks since they yield a constant rate of return.

During times of market turmoil, investors sell their stock holdings and move into bonds (called a “flight to safety” in financial jargon).

Conversely, when the economy is booming, investors move their money away from bonds and into stocks to take advantage of the upswing in the economy.

Remember, The Fed cuts interest rates to boost the economy.

When investors see this boost, they sell their bond holdings and move into stocks.

This movement causes the rates on those bonds to increase naturally as the bonds have to attract new investors with higher rates of return.

As a result, we see mortgage rates increase.

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So, the next time you hear the Fed cutting interest rates, don’t assume mortgage rates will simply follow suit.

The rate cut is simply meant to boost the economy, which moves money from bonds to stocks, and causes mortgage rates to rise.

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Related Mortgage Rate Articles:

• Mortgage Rate Overview
• Top Five Market Factors That Influence Mortgage Rates
• What’s The Difference Between APR and Note Rate?
• How Are Mortgage Rates Determined?
• 8 Questions Your Lender Should Be Able To Answer About Mortgage Rates?

The VA Funding Fee is an essential component of the VA home loan program, and is a requirement of any Veteran taking advantage of this zero down payment government loan program.

This fee ranges from 1.25% to 3.3% of the loan amount, depending upon the circumstances.

On a $150,000 loan that’s an additional $1,875 to almost $5,000 in cost just for the benefit of using the VA home loan.

The good news is that the VA allows borrowers to finance this cost into the home loan without having to include it as part of the closing costs.

For buyers using their VA loan guarantee for the first time on a zero down loan, the Funding Fee would be 2.15%.

For example, on a $15,000 loan amount, the VA Funding Fee would total $3,225, which would increase the monthly mortgage payment by $18 if it were financed into the new loan.

So basically, the incremental increase to a monthly payment is not very much if you choose to finance the Funding Fee.

Historical Trivia:

Under VA’s founding law in 1944 there was no Funding Fee; the guaranty VA offered lenders was limited to 50 percent of the loan, not to exceed $2,000; loans were limited to a maximum 20 years, and the interest rate was capped at 4 percent.

The VA loan was originally designed to be readjustment aid to returning veterans from WWII and they had 2 years from the war’s official end before their eligibility expired. The program was meant to help them catch up for the lost years they sacrificed.

However, the program has obviously evolved to a long term housing benefit for veterans.

The first Funding Fee was ½% and was enacted in 1966 for the sole purpose of building a reserve fund for defaults. This remained in place only until 1970. The Funding Fee of ½% was re-instituted in 1982 and has been in place ever since.

The Amount Of Funding Fee A Borrower Pays Depends On:

• The type of transaction (refinance versus purchase)
• Amount of equity
• Whether this is the first use or subsequent use of the borrower’s VA loan benefit
• Whether you are/were regular military or Reserve or National Guard

*Disabled veterans are exempt from paying a Funding Fee

The table of Funding Fees can be accessed via VA’s website – CLICK HERE

The main reason for a Veteran to select the VA home loan instead of another program is due to the zero down payment feature.

However, if the Veteran plans on making a 20% or more down payment, the VA loan might not be the best choice because a conventional loan would have a similar interest rate, but without the Funding Fee expense.

The best way to view the VA Funding Fee is that it is a small cost to pay for the benefit of not needing to part with thousands of dollars in down payment.

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Related Articles – Mortgage Approval Process:

• Basic Mortgage Terms
• How Much Can I Afford?
• Common Documents Required For A Mortgage Pre-Approval
• Top 8 Questions To Ask Your Lender During Application Process
• What’s The Difference Between An Investment Property, Second Home and Primary Residence?
• Seven Items Real Estate Agents Need To Know About Your Mortgage Approval

Mortgage Insurance, sometimes referred to as Private Mortgage Insurance, is required by lenders on conventional home loans if the borrower is financing more than 80% Loan-To-Value.

PMI isn’t necessarily a bad thing since it allows borrowers to purchase a property by qualifying for conventional financing with a lower down payment.

Private Mortgage Insurance (PMI) simply protects your lender against non-payment should you default on your loan.

It’s important to understand that the primary and only real purpose for mortgage insurance is to protect your lender—not you.

As the buyer of this coverage, you’re paying the premiums so that your lender is protected. PMI is often required by lenders due to the higher level of default risk that’s associated with low down payment loans.

Consequently, it’s sole and only benefit to you is a lower down payment mortgage.

Private Mortgage Insurance and Mortgage Protection Insurance

Private mortgage insurance and mortgage protection insurance are often confused.

Though they sound similar, they’re two totally different types of insurance products that should never be construed as substitutes for each other.

• Mortgage protection insurance is essentially a life insurance policy designed to pay off your mortgage in the event of your death.
• Private mortgage insurance protects your lender, allowing you to finance a home with a smaller down-payment.

Automatic Termination

Thanks to The Homeowner’s Protection Act (HPA) of 1998, borrowers have the right to request private mortgage insurance cancellation when they reach a 20 percent equity in their mortgage. What’s more, lenders are required to automatically cancel PMI coverage when a 78 percent Loan-to-Value is reached.

Some exceptions to these provisions, such as liens on property or not keeping up with payments, may require further PMI coverage.

Also, in many instances your PMI premium is often tax deductible in a similar fashion as the interest paid each year on your new mortgage is tax deductible. Please, check with a tax expert to learn your tax options.

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Related Articles – Mortgage Payments:

• Mortgage Payment Basics
• Who Owns My Home If I Have A Mortgage?
• Why Do I Need Mortgage Insurance?
• Understanding An Amortization Schedule
• Shopping For A Hazard Insurance Policy
• Understanding the FHA Mortgage Insurance Premium (MIP)
• Do I Have To Continue Making My Mortgage Payment If My Lender Goes Bankrupt?

By committing to a mortgage loan, the borrower is entering into a financial agreement with a lender to pay back the mortgage money, with interest, over a set period of time.

The borrower’s monthly mortgage payment may change over time depending on the type of loan program, however, we’re going to address the typical 30 year fixed Principal and Interest loan program for the sake of breaking down the individual payment components for this particular article about an amortization schedule.

On each payment that is made, a certain amount of interest is taken out to pay the lender back for the opportunity to borrow the money, and the remaining balance is applied to the principal balance.

It’s common to hear industry professionals and homeowners talk about a mortgage payment being front-loaded with interest, especially if they’re referencing an amortization chart to show the numbers.

While it may appear that there is more interest being paid at the beginning of a mortgage payment term, the truth is that the amount of interest decreases over time, while the money applied to the principal increases.

We can better understand mortgage payments by looking at a loan amortization chart, which shows the specific payments associated with a loan.

The details will include the interest and principal component of each periodic payment.

For example, let’s look at a scenario where you borrowed a $100,000 loan at 7.5% interest rate, fixed for 30 year term.

To ensure full repayment of principal by the end of the 30 years, your payment would need to be $699.21 per month.

In the first month, you owe $100,000, which means the interest would be calculated on the full loan amount.

To calculate this, we start with $100,000 and multiply it by 7.5% interest rate. This will give you $7,500 of annual interest.

However, we only need a monthly amount. So we divide by 12 months to find that the interest equals $625.

Now remember, you are paying $699.21. If you only owe interest of $625, then the remainder of the payment, $74.21, will go towards the principal. Thus, your new outstanding balance is now $99,925.79.

In month #2, you make the same payment of $699.21. However, this time, you now owe $99,925.79. Therefore, you will only pay interest on $99,925.79.

When running through the calculator in the same process detailed above, you will find that your interest component is $624.54. (It is decreasing!) The remaining $74.68 will be applied towards principal. (This amount is increasing!)

Each month, the same simple mathematic calculation will be made. Because the payments are remaining the same, each month the interest will continue to be reduced and the remainder going towards principal will continue to increase.

An amortization chart runs chronologically through your series of payments until you get to the final payment. The chart can also be a useful tool to determine interest paid to date, principal paid to date, or remaining principal.

Another frequent use of amortization charts is to determine how extra payments toward principal can affect and accelerate the month of final payment of the loan, as well as reduce your total interest payments.

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Related Articles – Mortgage Payments:

• Mortgage Payment Basics
• Who Owns My Home If I Have A Mortgage?
• Why Do I Need Mortgage Insurance?
• Understanding An Amortization Schedule
• Shopping For A Hazard Insurance Policy
• Understanding the FHA Mortgage Insurance Premium (MIP)
• Do I Have To Continue Making My Mortgage Payment If My Lender Goes Bankrupt?

Calculating an exact mortgage payment without a calculator on a loan is no small task, but there are some simple rules-of-thumb you can use to get a close estimate. With the exception of the MIT Blackjack Team, performing this type of complex math in your head often leads to frustrating rants. When coming up with a rough estimate, it is important to understand the individual components that factor into the overall monthly mortgage payment.

Yes, the thousands of dollars you send to your lender every year may cover more then just the mortgage, but referring to one simple formula will help you gauge what the new payment will be as you’re out looking for new properties that may be in your price range.

What’s In A Mortgage Payment?

A mortgage consists of 4-6 parts:

• Principal – the balance of the loan
• Interest – the fee paid to borrow the mortgage money
• Property Taxes – based on county assessed value and residence type
• Hazard Insurance – in the case of fire or property damage (may include a separate flood policy)
• Mortgage Insurance – more than 80% LTV on conventional loans, or with FHA financing

Most lenders use the acronym (PITI), which includes Principal, Interest, Taxes and Insurance.

And in the case where a separate Mortgage Insurance Premium is required, we add another “I” to the end of that creative series of letters.

Another monthly expense that you have to consider is the monthly dues that come with properties that have a homeowner’s association (common in condominiums and other developments). This isn’t a payment made to your lender, but you will have to qualify with that payment and it is also best practice for you to factor that in the monthly cost of your new home.

Confused yet? Don’t worry, this is slightly easier then most state bar exams.

The Mortgage Payment Cheat Sheet:

Ok, you’ve made it this far and haven’t closed your browser, so I guess that is a good thing.

Now before I reveal this top secret formula, you have to understand that it will by no means be exact.

Mortgage Payment Formula:

For every $1000 you borrower, your TOTAL monthly mortgage payment will be $8.

So, if you purchase a home for $250,000 with a $50,000 down payment – borrowing a total of $200,000, then a good estimated total monthly PITI payment would be roughly $1600.

But don’t forget to add your homeowners association dues to that monthly payment.

What If I Pay Taxes And Insurance Separately?

Well now we’re at the easy part. If you elect to pay taxes separate from your mortgage, the cheatsheet is reduced from $8 per $1000 down to $6 per $1000.

So there you have it. $8 for every $1000 borrowed.

Again, please keep in mind that this is not going to give you an EXACT payment. You may be purchasing a property with higher real estate taxes or your insurance premiums may be higher then average depending on the state you live in.

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Related Articles – Mortgage Payments:

• Mortgage Payment Basics
• Who Owns My Home If I Have A Mortgage?
• Why Do I Need Mortgage Insurance?
• Understanding An Amortization Schedule
• Shopping For A Hazard Insurance Policy
• Understanding the FHA Mortgage Insurance Premium (MIP)
• Do I Have To Continue Making My Mortgage Payment If My Lender Goes Bankrupt?

The short answer is YES, you still have to continue making mortgage payments if your current lender files for bankruptcy or disappears over the weekend.

When mortgage banks go out of business and are essentially taken over by the FDIC, homeowners are left wondering if they still need to make a monthly payment.

Great thought, and it was a very common question for many borrowers back in 2009 and 2010.

In order to give a more thorough answer to this popular topic, we’ll need to address the relationship between mortgage loans as liens and mortgage servicers who make money by handling payments.

To put this topic in perspective, 381 banks actually filed bankruptcy between 2006 and 2010 forcing them to cease their mortgage lending activities.

A common misconception borrowers have about their mortgage company is that there agreement should become obsolete once the lender files for bankruptcy or goes out of business.

Based on the way mortgage money is made, packaged and sold on the secondary market as a mortgage backed security, the promissory note (agreement) is actually spread between many investors who rely on a servicing company to collect and manage the monthly payments.

A mortgage is considered a secured asset, where the collateral is real estate. And, the mortgage note has a separate value to investors and servicers based on the interest and servicing fees they have wrapped up in the monthly payments.

This is why many mortgage notes get sold to other servicers who pay for the rights to service your loan.

So basically, even if a mortgage company is bankrupt, someone else is willing to take on the job of collecting payments.

Also, by signing a mortgage note, the borrower is committing to continue making the requires payments, regardless of what happens to the mortgage company servicing your loan.

Bullets:

• Your house is an asset
• The mortgage note has a separate value to investors
• Regardless what happens to your mortgage company, you need to make your payments

Also , it’s important to continue making your mortgage payments on time, regardless of which servicing company is sending a monthly statement.  Obviously, keep a good paper trail of those mortgage payments in case there is a mix-up between transitions.

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Related Articles – Mortgage Payments:

• Mortgage Payment Basics
• Who Owns My Home If I Have A Mortgage?
• Why Do I Need Mortgage Insurance?
• Understanding An Amortization Schedule
• Shopping For A Hazard Insurance Policy
• Understanding the FHA Mortgage Insurance Premium (MIP)
• Do I Have To Continue Making My Mortgage Payment If My Lender Goes Bankrupt?

When shopping for a hazard insurance policy, something called “bundling” can actually save you quite a bit of money that most people aren’t aware of.

Many of the big insurance companies price their insurance rates to attract a particular segment of the market. They usually price their hazard insurance policies to attract homeowners who need to insure not only their homes with hazard insurance, but also their cars with car insurance and lives with life insurance.

The big insurance companies want customers who will stay with them for years vs shopping around for a better deal every six months.  So, to give customers an incentive to stick with them, they offer discounts if you use the company for all three (hazard, auto, life) lines of insurance.

Companies offer “multiline discounts” to attract customers who will need more than one type of insurance. These companies offer a cheaper rate to insure both your house and car than if you insured each one separately at different companies.

The same goes if you add a second car or a life insurance policy – the discounts keep adding up.

Did you know that big insurance companies will offer discounts of up to 40% on your hazard insurance if you also have your car insurance and life insurance with them?

Combining hazard, car and life insurance policies all with one company can save you money.

The big insurance companies are sometimes not competitive on price if you only have one line of insurance with them.

You can save up to 40% by combining your hazard, auto and life insurance policies with one company.

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Frequently Asked Questions:

Q. How much can you actually save when you combine insurance policies with one company?

It varies by company, but with some of the large insurance companies, it will save you up to 40%.

Q. Why are the large companies sometime so far off when it comes to price on my hazard insurance?

Large companies often give significant discounts if you have your hazard, auto and life insurance with them – and they actually *want* to be higher in price if you only have one line.

People with only one line of insurance switch more often according to the statistics.

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Related Articles – Mortgage Payments:

• Mortgage Payment Basics
• Who Owns My Home If I Have A Mortgage?
• Why Do I Need Mortgage Insurance?
• Understanding An Amortization Schedule
• Shopping For A Hazard Insurance Policy
• Understanding the FHA Mortgage Insurance Premium (MIP)
• Do I Have To Continue Making My Mortgage Payment If My Lender Goes Bankrupt?

Facts About Identity Theft:

It’s estimated that there were 10 million victims of identity theft in 2008, and 1 in every 10 U.S. consumers have reported having their identity stolen.

The U.S. Department of Justice reported in 2005 that 1.6 million households experienced fraud not related to credit cards (i.e. their bank accounts or debit cards were compromised).

And, the U.S. DOJ also reported that those households with incomes higher than $70,000 were twice as likely to experience identity theft than those with salaries under $50,000.

What Is Identity Theft?

According to the United States Department of Justice, identity theft and identity fraud “are terms used to refer to all types of crime in which someone wrongfully obtains and uses another person’s personal data in some way that involves fraud or deception, typically for economic gain.”

Such personal information may include your name, address, driver’s license number, Social Security number, date of birth, credit card number or banking information.

Victims of identity theft can spend months trying to restore their good name.

Most victims do not realize it has happened until they get denied for a mortgage or a credit card.

Ten Ways To Protect Your Identity:

1.  Dumpster Diving –

Avoid “dumpster diving” by shredding all papers that contain any personal information.

Criminals sift through trash looking for the following:

• Bank Statements
• ATM Receipts
• Canceled Checks
• Credit Card Statements
• Credit Card Purchase Receipts
• Credit Card Solicitations (unopened “pre-approval” solicitations)
• Pay Stubs
• Tax Documents
• Utility Bills
• Expired Identification Cards (Drivers License, Passports…)
• Expired Credit Cards
• Medical Statements
• Insurance Documents
•  

2. Personal Info / Phone Calls –

Never provide personal information, including your Social Security number, passwords or account numbers over the phone or internet if you did not initiate the call.

If you are asked for any type of personal information, before giving any information, ask the caller for their name, telephone number and the organization that they are representing.

You should then call the company using the customer service number the company provides with your account statement.

Do NOT call the number you were given by the caller.

To reduce the number of solicitations you receive, you can sign up at the do not call registry:

• web:    http://www.donotcall.gov

3. Look Over Your Shoulder –

Avoid “Skimming and shoulder surfing.” (Never let your credit card out of your sight)

Pay with cash. Try never to let your credit card out of your sight to avoid a fraud scheme known as “skimming”.

Skimming is the theft of credit card information used in an otherwise legitimate transaction. It is typically an “inside job” by a dishonest employee of a legitimate merchant. The thief can procure a victim’s credit card number using basic methods such as photocopying receipts or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims’ credit card numbers.

Be aware of people “shoulder surfing”. This is when they are looking over your shoulder or standing too close trying to obtain your PIN number when making purchases with your debit card.

They may also be listening for your credit card number.

4. Secure Your Mail –

Always mail your outgoing bill payments and checks from the post office or a neighborhood blue postal box and never from home.

Pick up your incoming mail as soon as it is delivered. The longer it sits the better chance a criminal has of stealing it.

• Get a P.O. box.
• Lock Your Mail Box

Contact your creditors if a bill doesn’t arrive when expected or includes charges you don’t recognize. It may indicate that it was stolen.

5. Read Credit Card Statements –

Review account statements to make sure you recognize the purchases listed before paying the bill.

If your credit card holder offers electronic account access, take advantage and periodically review the activity that is posted to your account.

The quicker you spot any unauthorized activity, the sooner you can notify the creditor.

6. Monitor Credit Report –

Review your credit report at least once a year to look for suspicious activity. If you do spot something, alert your card company or the creditor immediately.

7. Email Links –

Never click on a link provided in an email if you believe it to be fraudulent.

Keep in mind, no financial institution will ask you to verify your information via email.

Criminals may link you to phony “official-looking “ web site to confirm your personal information. This is known as “phishing”.

“Phishing” is the criminally fraudulent process of attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication.

8. Opt Out –

Opt out of credit card solicitations. (Take your name off marketer’s hit lists)

You can opt out of credit card solicitations by calling 1-888-567-8688 to have your name removed from direct marketing lists.

You can do this online at OptOutPrescreen.com, which is the official consumer credit reporting industry opt-out website for the three credit companies:

• Experian
• Equifax
• Trans Union

9. Safeguard Your Social Security Number –

Protect your Social Security number.

Never carry your Social Security card or anything else with your social security number on it in your wallet or purse, along with your driver’s license.

Do not put your Social Security number or driver’s license number on any checks you may write.

Only give out your Social Security number when absolutely necessary.

10. Read Privacy Policies –

Find out what company privacy policies are. (Know who you are dealing with)

When being asked for your Social Security number or driver’s license number, find out what the company’s privacy policy.

Inquire as to why it is being asked for.

Ask who has access to your number.

Ask if you can arrange for them not to share your information with anyone else.

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Related Credit / Identity Articles:

• Understanding Credit
• Top Credit Do’s and Don’ts To Bear In Mind When Getting A Mortgage Approval
• Is There A Rule-Of-Thumb Regarding The Number Of Credit Lines To Have Open?
• Alternate Sources For Establishing Credit

While the actual credit score has a big impact on a loan approval, it’s not the only component of the credit scenario that underwriters consider for a mortgage approval.

Since loan programs, individual lenders and mortgage insurance companies all have their own credit report restrictions, it’s difficult to define a standard Rule-of-Thumb to follow.

However, the number of “Open and Active Trade Lines” seems to be the common denominator in most approvals.

A trade line is basically a credit card, installment loan or other credit liability that is reported to the credit bureaus and displayed on a credit report.

Credit Trade Line / Approval Bullets:

• Banks usually won’t count a trade line that is less than 12 months old.
• The minimum number of trade lines most lenders find acceptable is 4 open and active trade lines.
• Lenders like to see at least one credit line of $5,000, or all credit lines to total $1,000 or more.

Exceptions To Trade Line Rules:

Interestingly enough, a recent list of Mortgage Insurance requirements included a favorable trade line requirement, which read:

Min 3 trade lines @ 12 mo reporting. Cannot be ‘authorized user’

Basically, this means as long as the lender, and the loan program allow for less than 4 trade lines, this mortgage insurance company will accept only 3 trade lines that are in the borrower’s name.

Another exception to this rule is if you have no FICO score, and no negative trade lines.

In this case you may qualify for an “alternative credit” loan. The most common loan of this type is insured by FHA, but there are select programs that are usually targeted to assist people whose culture does not trust or use banks.

Borrowers applying for a non-traditional credit loan will still need to prove they have successfully paid their bills on time for 12 months by clearly documenting at least four creditors.  A verification of rent from a property management company, power, utilities, cell phone… are alternative sources of credit that can be used.

*A letter from a landlord or creditor stating that the bills were paid on time is not acceptable forms of proof.  Lenders will need canceled checks and / or copies of bank statements to start out with.

Since not all companies report to credit bureaus, it’s possible to get a free credit report at AnnualCreditReport.com to verify your total reported trade lines.

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Related Credit / Identity Articles:

• Understanding Credit
• Top Credit Do’s and Don’ts To Bear In Mind When Getting A Mortgage Approval
• Ten Things You Can Do To Protect Your Identity
• Alternate Sources For Establishing Credit