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Mortgages: Refinancing, Despite a Rate Rise

July 18, 2013 by Leave a Comment

As of the end of June, refinancing activity represented 64 percent of all mortgage applications, the lowest volume since May 2011, according to the Mortgage Bankers Association.

The rise in rates by “better than a point” since early May has effectively killed off a lot of the refinancing business, in what amounts to a “purely an interest-rate-driven decision,” said Keith T. Gumbinger, the vice president of HSH.com, a financial publisher. But getting into a new mortgage still makes sense for some categories of homeowners.

The most obvious candidates are borrowers whose rates are 5.5 percent or higher. The rate for a 30-year fixed-rate mortgage has lately hovered around 4.5 percent; the 15-year fixed rate is around 3.5 percent.

Borrowers who couldn’t refinance when rates were lower because their homes were barely worth what they owe may be better positioned now, Mr. Gumbinger said. “Maybe you didn’t have a deep enough equity position before,” he said, “but with home prices rising — in some places, up 10 percent over last year — market forces may be more favorable for you, even with the rise in rates.”

He noted that although the federal Home Affordable Refinance Program, or HARP, was set up to help underwater borrowers refinance, not everyone qualifies. So some borrowers could still be “sitting on a loan in the sixes or sevens.”

Borrowers with a variable-rate mortgage that is about to go up might consider refinancing if they plan to stay in the house for a long time, said Gary Schatsky, a financial adviser and lawyer in New York. Also, those with “a good chunk” of their equity in a home equity line of credit, and no likelihood of paying it off in the short term, could possibly benefit from consolidating, depending on the closing costs, he added.

If refinancing just doesn’t make sense, there are other ways to reduce the amount of interest paid. One strategy is to pay more toward the principal every month than required, lowering the balance upon which interest is figured.

HSH.com offers two online calculators to help borrowers figure out how much they can save. The prepayment calculator asks how much you can afford to send in each month, and then calculates how much interest you would save over the life of the loan. The lower-rate calculator asks what interest rate you would prefer to your current rate, and then calculates how much you would need to prepay each month to save an equivalent amount of interest.

Borrowers considering a prepayment strategy should remember, however, that they will lose some liquidity. They might also think about whether the money might be better applied elsewhere (i.e., life insurance and cash reserves).

“You have to not need the money for a prolonged time in the future,” Mr. Schatsky said. “And if you can afford the larger payments, you might want to look at a 15-year mortgage because shorter-term rates are still extraordinarily low.”

Some lenders also offer biweekly payment programs. By having half of your mortgage payment deducted every two weeks, instead of making one monthly payment, you will effectively make an extra month’s payment every year.

“If you start doing this at the beginning of the loan,” Mr. Gumbinger said, “you can trim your loan down to 23 years.” But many lenders charge fees for automated biweekly billing; a disciplined borrower could achieve the same goal by simply cutting one extra check each year, he pointed out.

Article source: http://www.nytimes.com/2013/07/21/realestate/refinancing-despite-a-rate-rise.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Mortgages: Reducing Refinancing Expenses

May 23, 2013 by Leave a Comment

The state charges a recording tax on new mortgage debt. The rate varies by county, with the minimum being 1.05 percent of the loan amount. The rate is highest in New York City, where borrowers pay 1.8 percent of the loan amount for mortgages under $500,000, and 1.925 percent above that amount.

A city resident borrowing $600,000, for example, would be charged around $11,500 for the recording tax.

But fortunately, homeowners aren’t required to pay the tax again when they refinance. “The borrower already paid the tax on the existing mortgage and is entitled by statute to an exemption from payment of the tax with respect to an existing principal balance a second time,” said Guy Arad, a lawyer with Adam Leitman Bailey in Manhattan.

Still, borrowers who choose to switch lenders when refinancing sometimes get stuck paying it anyway.

Here’s why: in order to skip the tax when switching lenders, borrowers must arrange for their existing lender to assign, or transfer, the mortgage to the new lender. The new lender then recasts the old mortgage to meet the new terms. But lenders don’t always agree to do what’s known as an assignment — a 1989 amendment to state law gives them discretion to reject such requests, according to Douglas Wasser, a Manhattan real estate lawyer.

“The resulting cost to borrowers can be thousands of dollars in taxes which could otherwise be easily avoided,” Mr. Wasser said. “I’ve personally seen borrower frustration on this issue many times.”

Rolan Shnayder, a partner and the director of new-development lending for H.O.M.E. Mortgage Bankers in Manhattan, says this problem arises “all the time.” In his opinion, some banks refuse to do transfers to encourage customers to refinance with them. “Even if their bank is offering the best interest rate, what if the borrower just doesn’t want to deal with their bank anymore, or wants to transfer to a different lender because they have other business there?” Mr. Shnayder said. “There are a lot of customers who wish they’d known their lender wouldn’t do an assignment before they signed their mortgage.”

The assignment process (a Consolidation, Extension and Modification Agreement) requires more time and paperwork than the usual practice of just paying off the old mortgage. And both the old and new lenders must be represented at the closing table, Mr. Wasser said.

Borrowers will likely have to pay extra legal fees, along with the old lender’s assignment fee. Those fees should be weighed against the tax savings.

“I tell clients, if the mortgage tax savings are less than a couple of thousand dollars, the time, effort, aggravation and cost may not be worth the result,” Mr. Wasser said.

Also, borrowers should be aware that if their new loan is larger than the outstanding debt on the previous loan, they will be taxed on the difference. For example, if the unpaid balance on an old loan is $300,000, and the new loan is for $500,000, the borrower will be taxed on $200,000 in new mortgage debt.

Mr. Wasser recommends that borrowers always ask what a lender’s policy is on transfers before signing on. “An educated borrower,” he said, “might know that uncooperative lenders should be avoided.”

Article source: http://www.nytimes.com/2013/05/26/realestate/reducing-refinancing-expenses.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Investors Scrutinizing JPMorgan’s Mortgage Bonds

December 17, 2011 by Leave a Comment

Lawyers representing investors that settled billions of dollars of mortgage bond claims with Bank of America last summer announced on Friday that they had opened investigations into $95 billion worth of mortgages held in JPMorgan Chase securities.

The investors are concerned that there were mortgages put inside those securities before the housing bubble burst that were subpar from the beginning, and they are investigating whether JPMorgan should repurchase those loans.

JPMorgan is among the banks with the most mortgage-related litigation and claims, having inherited much of its exposure from its acquisitions of Bear Stearns and Washington Mutual, which both ran into trouble partly because of troubled mortgages. Of the 243 mortgage bonds at JPMorgan that the investors are targeting, at least half were created by Bear Stearns or Washington Mutual.

For the banking sector in general, mortgage bond investigations have left a looming question mark over the industry’s prospects. Banks face investigations and potential litigation from private investors as well as state attorneys general and also from the Federal Housing Finance Agency, which oversees the mortgage financing giants Fannie Mae and Freddie Mac.

The potential dollar cost of the mortgage mess has kept growing this year; many analysts estimate it may be more than $100 billion for the industry. But as a team of bank analysts at FBR, a firm in Arlington, Va., put it in a report that estimated the liabilities: “Does anyone really know?”

For banks, the continuing doubts about their old mortgage businesses also makes it difficult to move on with new mortgage origination, because the companies may be concerned about the way they describe new mortgages in filings, analysts say. The lack of lending, in turn, is seen as a drag on the economy.

“It is inhibiting people from lending,” said Tom Cronin, a managing director of the Collingwood Group, a housing consulting firm in Washington. “You’re only going to make the very best loans, if you don’t know how enforcement is going to be handled.”

Joseph M. Evangelisti, a spokesman for JPMorgan, declined to discuss the bank’s mortgage liability exposure in depth, saying only: “We stand by our obligations under the agreements in question and we will honor our obligation to repurchase any loan that should be repurchased under the terms of those agreements.”

Banks like JPMorgan have benefited in recent years from the slowness of investors to investigate the bonds they bought before the financial crisis.

Under the terms of those bonds, investors who own small slivers of mortgage bonds — as most investors do — have been stymied from obtaining much data on the mortgages within the deals. The rules vary for each bond, but typically banks have to turn over detailed information only to investors who own more than a quarter of a bond. That has meant that large investors like Pimco, BlackRock and even the Federal Reserve Bank of New York have had to combine their interests to cross that threshold.

Many of the investors are coordinating their efforts through Gibbs Bruns, a law firm in Houston. That firm announced its plans to investigate the 243 JPMorgan deals on Friday.

It was also that firm that struck an $8.5 billion settlement with Bank of America to settle similar issues with $424 billion of mortgage bonds in July, though that settlement has yet to be approved by a court.

Gibbs Bruns did not return requests for comment.

It will most likely take months for the investors to determine how much money they think they are owed, but when they do, they may try to reach a settlement with JPMorgan or they may take the bank to court.

JPMorgan is currently in litigation with the Federal Deposit Insurance Corporation over the terms of its deal to acquire Washington Mutual, and it is unclear if it would be the F.D.I.C. or JPMorgan that would pay out on claims related to the failed bank’s mortgage bonds.

JPMorgan has set aside billions in reserves to cover mortgage-related litigation, according to a recent company presentation.

If the bank settled with the investors using the same loss ratio that was applied in the Bank of America settlement, it would cost JPMorgan about $1.9 billion. Still the bank would have other exposure outstanding. JPMorgan faces about $31 billion in class-action cases, according to McCarthy Lawyer Links, a legal consulting firm.

Elizabeth Nowicki, a professor of securities law at Tulane University and a former lawyer at the Securities and Exchange Commission, said that the efforts by investors might turn out to be the costliest and most important way that banks are held accountable for their mortgage security creations, because the push for accountability is coming from bank clients. For instance, in the one mortgage security case the S.E.C. has brought against JPMorgan, the bank settled the allegations in June for $153.6 million.

“I think this is going to have much more of an impact in terms of fear and Wall Street sort of shaking in its boots than anything the S.E.C. or Congress can do,” Ms. Nowicki said.

“Without a confident client base, the banks can’t make any money, and now that the client base is really trying to probe into these packages to see what really went on, they are going to have to give some answers.”

Article source: http://feeds.nytimes.com/click.phdo?i=31bbe6c3b9b534200c484374168a0f9a

Filed Under: Business News Tagged With: , ,