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For a few years now, we have heard countless stories about how the Dodd-Frank legislation is making the home loan process worse for consumers and home finance processors. What’s worse is that most surveys reveal that lending costs have risen since these laws were enacted. Sure the Federal Government passed these bills to help better educate consumers in hopes that the costs for a mortgage would be reduced at the same time. Unfortunately the reality is that when you add more paperwork to the private sector it typically raises the costs of a product rather than lowering it. The so-called “Wall-Street Reform” is supposed to keep house lenders in check, but so many mortgages are exempt. (ie. FHA, Fannie Mae, Freddie Mac, etc.)
According to Forbes, in June, State National Bank of Big Spring, Texas, along with the Competitive Enterprise Institute and the 60 Plus Association, filed a lawsuit challenging the constitutionality of Dodd-Frank. The suit asserts that the Financial Stability Oversight Council and the Consumer Financial Protection Bureau are inconsistent with the constitution’s separation of powers.
Last month, three states joined the case, alleging that Dodd-Frank’s Orderly Liquidation Authority effectively setting up corporate death panels is also unconstitutional. The Obama Administration’s response has been that the lawsuit ”just rehashes old arguments of those who oppose Wall Street reform.” Contrary to this simplistic characterization, this lawsuit raises issues that go beyond current legal precedent. And it will test the extent to which our Constitution’s limitations on government power can be used to protect community banks from overreaching and unaccountable bureaucrats and the big banks with which they collude.
A premise of the constitutional challenge is that an unchecked and uncertain regulatory structure violates the constitution; agencies can’t regulate without meaningful oversight. The left naively thinks that unchecked bureaucratic experts can free agencies from the influence of special interest groups, including big banks. Under this theory, Dodd-Frank cut the CFPB off from meaningful legislative, judicial, or executive oversight, while granting it broad discretion to regulate “abusive practices.” Through the newly established “Orderly Liquidation Authority,” it also allowed for the liquidation of financial companies, “with little or no advance warning, under cover of mandatory secrecy, and without either useful statutory guidance or meaningful legislative, executive, or judicial oversight.”
This creates economic uncertainty, hurting our economy in the process. Why would companies expand or invest without knowing their regulatory burden? And how can they predict what Dodd-Frank’s unchecked bureaucrats will do? Alan Greenspan quantified this kind of destructive force two years ago, when he evaluated why the economy was experiencing significantly reduced long-term investment. He inferred that ”a minimum of half and possibly as much as three-fourths of the effect can be explained by the shock of vastly greater uncertainties embedded in the competitive, regulatory, and financial environments faced by businesses.”
This uncertain regulatory regime also hurts community banks, which are an essential element of our economy; the GAO explains that about 20% of community bank loans go to small businesses, and their loans– based on a relationship model of banking– disproportionately help farmers and rural customers. Read the original Forbes article on Dodd-Frank.
When you refinance a home there are many fees that you incur that must be paid including closing costs, courier fees, and recording fees among other things. It is estimated that $3,800 is the average closing costs for a refinance loan in 2011. Even though you are refinancing the loan for your house the fees must be paid out of pocket. However, there are a few loan types that pass those costs to other people and that include the no-cost refinance. With this loan type, the bank pays the fees associated with refinancing allowing you to keep more money in your pocket to spend on other things.
However, the bank does not give this money away for free. Typically the bank will charge a higher interest rate on no cost refinancing to recoup the money they paid for the closing costs. Exactly how much higher is the interest rate on the no cost mortgage? This could be anything from .25 to .375 cost to the closing costs or .125 or .25 is factored to the interest rate to compensate for the lender paying your closing costs. Although it may seem like a small percentage point it can translate into several hundred dollars on a $200,000 or $300,000 loan.
One of the main benefits of the no cost mortgage is the fact that the money is not coming out of your pocket. This is great for people who are strapped for cash but want to take advantage of low interest rates. If you could potentially lower your interest rate at least 2%, you would still come out ahead every month when it comes time to cut the mortgage check. This type of loan is also good for people that refinance their home frequently for investment purposes. In this instance a no cost refinance makes sense because that is money you don’t have waste every 5, 10, or 15 years you decide to refinance.
Doing a no cost refinance allows you to get more money out of your home. This is particularly beneficial if you are tapping into the equity of your home so you can pay off debts with higher interest rates or remodel your home. That extra $3,800 can be used to pay off credit cards, auto loans, or to make needed repairs that increase the value of your home. Make sure you shop around and compare interest rates of different banks to ensure you are getting the best interest for your investment.
Many homeowners seem perplexed as they reach out to lenders for advice on whether or not it is the best time to refinance. Since the rates crept up in January, many people have been sitting on the sidelines, waiting for mortgage rates to fall again to record levels. If you were to look at the interest rates over the last 30 years on a graph you would realize that we are at the bottom. Even though the refinance rate was slightly lower in fourth quarter of 2010, they are still extremely low. It means that homeowners, who are on the fence for a “house refinance” because the rates are not low enough, may be waiting for a very long time. It is much more likely that rates will rise than they will drop. The Federal Reserve cannot keep interest rates this low forever, because inflation fears will cause them to begin a trend of rate hikes. The FTC recommends comparing mortgage refinancing options from lenders that provide disclosures within the time-frame that the law allows.
Here are some questions to ask yourself as you contemplate if it is time to refinance.
Do you meet the 2011 lending requirements for home refinancing?
- Lenders have tightening refinance guidelines significantly in the last few years.
- In most cases, they want higher credit scores and more home equity.
Do you have enough equity in your home to qualify for a refinance that does not require mortgage insurance?
- FHA approves rate and term refinances up to 96.5% loan to value but they require monthly mortgage insurance
- Conventional loan companies will waive mortgage insurance and PMI up to 80% loan to value.
How much money will a mortgage refinance save you?
- In most cases the bottom line is how much lower would your new payment be?
- Are the monthly savings worth adding years to your home loan?
How much will a refinance loan cost you?
- On average, refinancing costs a borrower $3,000 in lending fees and closing costs
- Do you qualify for a no cost mortgage refinance?
If you need money, do you have enough equity for a cash out refinance loan?
- VA approves cash refinancing to 90%
- FHA allows cash out up to 85%
- Conventional lenders are offering cash out to 80%
It is very important that you answer these questions before committing to a new 30-year mortgage. Every loan program is different, so you need to know what refinance programs are available with your credentials. Compare the following loan types: conventional, VA, USDA, jumbo and FHA refinance loans.
One of the most common questions our lenders get is, “How do I refinance if I have bad credit?” With many facets of everyday life experiencing price increases, a common household occurrence is reviewing the current budget. Looking for ways to lower the monthly bills and cut out nonessential items is an effective way to maintain standards of living. For the homeowner, finding out how to refinance with bad credit is suggested to lessen interest obligations and decrease the monthly mortgage payment. There are a number lending companies that would be willing to discuss options available for “bad credit refinancing”. These experts will be happy to provide quotes and discuss guidelines that affect FHA refinancing packages.
The first step in learning how to refinance with bad credit is to review personal debt obligations. Obtain a copy of the credit report. This is what the financial institutionswill use to determine if refinancing a mortgage with less than perfect credit is a viable option. Knowing what is detailed on the report allows a proactive approach to resolving any unexpected issues. Try to clear up erroneous data and pay down obligations that may significantly impact the overall rating. Working with creditors shows the banks that you are aware of issues that may affect bad credit refinancing options. Making an effort to fix these problem areas conveys a strong message to mortgage companies.
| Consider These Loans for Less than Perfect Credit
Review your Credit Report
If the credit report contains information that does not make sense, discuss these items with the financial institution. In addition to providing the loan, many banks also have special programs geared toward how to refinance with bad credit possible. Working with an advisor can help formulate effective responses to potential issues. Refinancing a bad credit loan with less than perfect credit is a possibility regardless of how severe the rating may impact creditworthiness. What really matters is how the interested parties take measures to find a resolution to the issue.
With some suggestions in hand from the financial advisor, follow through on these items as soon as possible. While it may take some change in behavior and will power, the sooner that the application toward how to refinance with bad credit can begin. Bad credit refinancing is a win-win situation for everyone involved. Not only will the family budget be more manageable, but a FHA refinance lowers the risk of a home going into foreclosure status. Refinancing a mortgage with less than perfect credit can greatly impact the ability for a household to stay afloat during trying economic times. It will also lessen the impact on other needs within the home.
Most people are not aware that the government has nearly 97% of the marketplace with FHA, Freddie Mac and Fannie Mae. Dealing with the major home financing companies can provide some useful benefits that may not be available from smaller institutions. The number of Fannie Mae and Freddie Mac mortgage refinance packages available can help establish a more affordable budget within a household. Reviewing the current Fannie Mae and Freddie Mac mortgage terms will help to establish whether seeking a new home mortgage refinancing option makes sense for the current economic situation within the environment. Past experience with these lending sources will help to pave the way for renegotiating the terms of an existing loan. Favorable interest rates may result in long term savings that can be used to fund other objectives within the household.
Before making any move to discuss the possibility of Fannie Mae and Freddie Mac refinance packages with a lending officer, take some time to review the current family financial situation. In order to achieve home affordable refinance objectives, current credit levels and debt obligations should be effectively managed. Work on paying down existing obligations and avoid late payments on regular bills. If there are some credit issues, a few months of concerted efforts to meet fiscal responsibilities will positively impact credit scores. With the proper approach, the possibility of a mortgage refinance and the act of actually securing a new home loan is more likely.
|Government Extends Alternative Refinancing with No EquityOne thing that many homeowners may not readily understand is that there are a number of Fannie Mae and Freddie Mac mortgage refinance options that aren’t commonly discussed. Researching into the topic will reveal that plans include the ability to acquire 125% refinance with no equity|
This can be extremely useful for emergency situations. Another program that is not well-known is the DU refinance plus option. The introduction of this program was to help current home owners meet their monthly payments when interest rates unexpectedly changed. This is a useful alternative to running the risk of foreclosure due to nonpayment. Taking evasive action can prevent an unwanted situation from occurring.
Government Refinance Programs
- Home Affordable Refinance Program to 125%
- Emergency Homeowners Loan Program
- DU Refinance Plus to 105%
- FHA Short Refinance Program
There is more flexibility available with Freddie Mac and Fannie Mae mortgage opportunities than most people realize. In addition to the aggressive refinance FHA programs, both Freddie Mac and Fannie Mae have extended several loan programs to help borrowers refinance their underwater mortgage. While much of the media is focused on the major issues affecting the economy, many of the different possibilities are glossed over. If you are seeking a rate and term refinance to 105%, speaking with a representative will disclose the details needed to quality for this possibility. A proactive response to the changing economy will eliminate the need to take drastic actions at a later time. The end result will leave a home owner in better financial shape.