New Proposals to Protect Homeowners

The federal government is proposing new steps to try to protect people who may be struggling with their mortgage payments.

According to a recent announcement from the Federal Trade Commission, it has proposed a rule that would prohibit companies from charging up-front fees for mortgage modification services. Under the proposal, companies would only be able to collect their fees after having provided such services, and they would be barred from telling consumers to stop paying their bills or communicating with their creditors.

"The proposed rule would outlaw up-front fees so companies can’t take the money and run," said FTC Chairman Jon Leibowitz.

Regardless of whether this rule becomes a reality, homeowners and credit card customers have long been warned to be extremely wary of any company that requires an up-front payment for loan modification or debt management services. People who patronize such companies often end up with severe damage to their credit scores or in worse financial shape than when they started, especially if they are instructed to stop paying their monthly bills or simply never get the services promised.

The FTC also noted that it has already brought 28 lawsuits against companies that fail to deliver on the mortgage modification services they promise or misrepresent themselves as being affiliated with government programs.

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FHA Loans: Waiting Will Cost You Big Time

The FHA is making proposals to change mortgage insurance premiums, FICO (credit score) and down payment combinations and seller concessions. The changes will be posted in the Federal Register next month and after a comment period would become effective early summer.

With these rule changes, an FHA loan could cost you 10% more to close. That's $25,000 on a $250,000 loan.

3.5% Down Payments and seller concessions of up to 6% will soon be a thing of the past for many. Mortgage insurance premiums will also increase by 1/2 point.

Here is a quick summary of the changes:

• Increase upfront Mortgage Insurance Premium (MIP) to 2.25% – up 0.5%
• Decrease seller concessions from a maximum of 6% to a maximum of 3%
• Change FICO score/down payment combinations to as low as a 3.5% for a FICO Score above 580 and up to 10% for a FICO Score below 580.

So, with a FICO score below 580, the amount of out-of-pocket money to close an FHA loan would increase by about $25,000 on a $250,000 mortgage ($1,250 MIP, $7,500 increase in seller’s concession, $16,250 increase in down payment). This would be added to the current total cost, an increase of 10%. A FICO score above 580 could still add about $8,750 or 3.5%.

The FHA is taking these actions to reduce troubled mortgages in the future. They will also be making changes to reduce fraud.

These actions will allow them to add to their reserves against bad loans. As a home buyer, these changes will increase your overall costs to borrow tremendously.

Stay tuned, we'll keep you updated on these FHA Loan changes as they become effective.

New Home Construction Cooled by Winter Weather

Ice storms in the Midwest, blizzards in the nation’s capitol and northeast, and a wet El Nino weather pattern out west has brought some wild winter weather across the United States. This arctic chill explains why building construction has been falling this winter.

According to the Commerce Department, new home construction starts fell 4 percent in December to a seasonally adjusted annual rate of 557,000. That’s a drop of 23,000 starts from November. Poor weather conditions reflected construction start declines of 19 percent in the Northeast and Midwest. They were down 1 percent in the West, but actually rose 3 percent in the South.

Applications for new building construction permits rose 11 percent in December to an annual rate of 653,000. That’s the highest level of activity since October 2008.

The January numbers may continue to show a decline as well. Arctic temperatures have gripped the heartland, the eastern seaboard, and even sent temperatures down into the 20’s as far south as Central Florida. In addition, heavy rains have drenched the golden state. Southern California has seen flooding, mudslides, and even tornados as more than five inches of rain has pounded coastal and inland valleys.

Overall, new home construction is down 75 percent from the peak of four years ago. However, it’s up 14 percent from last January when the housing industry hit bottom.

Hopefully the extension of low mortgage rates, falling home prices and the stall in home sales will urge some buyers to act, and we'll see these numbers turn around as Spring approaches.

Home Price Reductions Drop Again

According to a report released by Trulia.com, 21 percent of the homes for sale as of January 1, 2010 have experienced at least one price cut. This makes the second consecutive month that price reduction levels have decreased and the lowest level since Trulia started tracking price reductions in April 2009.

The average discount for price-reduced homes continues to hold at 11 percent off of the original listing price. This was also the second straight month where inventory levels have dropped for single family homes and condos across the United States.

The South has the lowest overall level of price reductions, with 20 percent of current listings experiencing at least one price cut, while the Northeast saw the biggest decrease in price reductions compared to the previous month — 12 percent. (Regions according to the U.S. Census Bureau)

• South – 20% of listings with price reductions
• West – 22% of listings with price reductions
• Midwest – 22% of listings with price reductions
• Northeast – 22% of listings with price reductions

Luxury homes (those listed at $2 million and above) continue to be hit the hardest by price reductions with the average discount rising to 15 percent for the first time since Trulia started tracking in April 2009.

Additionally, luxury homes represent less than two percent of all current listings on Trulia, but are responsible for 24 percent of the $21.2 billion in home price reductions. The average discount for homes priced less than $2 million continues to hold at 10 percent.