Tag Archives: mortgage

Reset Tsunami

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Cyclone home

Newsday quoted me in When Home Equity Lines of Credit Reset when your plan resets. It reads,

A decade isn’t really a long time – just ask the millions of homeowners whose 10-year-old home equity lines of credit are resetting.

There are two types of HELOC resets: Variable interest rates can reset, and an interest-only repayment plan can reset to amortize. That means payments will switch to include principal and interest, explains David Reiss, a law professor specializing in real estate at Brooklyn Law School.

Many are in for a shock. If you’ve been making interest-only payments for 10 years, “the switch to amortizing over the compressed 20-year period [remaining on a 30-year loan] can lead to an increase of 100 percent or more,” says Peter Grabel of Luxury Mortgage Corp. in Stamford, Connecticut.

If your HELOC is resetting, know what to expect.

“You will no longer be able to draw on the equity line,” says Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage.” You’ll have a specific time to pay off the loan.

Consider your goals: “What is your purpose for having a HELOC?” says Ray Rodriguez of TD Bank in Manhattan. That drives the options.

Plan for change: “Prepare for the end of the draw period. Find out what your new payment will be,” says Kevin Murphy of McGraw-Hill Federal Credit Union in Manhattan. Cut expenses to make up for the jump.

Explore options: Consider refinancing your debt into a longer-term fixed-rate loan, suggests Ben Sullivan of Palisades Hudson Financial Group in Scarsdale. Replace the HELOC with a new one, or combine your first mortgage with your HELOC into a new interest-only ARM. Talk to a mortgage counselor.

Best Real Estate Investing Advice Ever

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I was interviewed on the Best Real Estate Investing Advice Ever with Joe Fairless podcast. The interview, How to Negotiate the Interest Rate on Your Mortgage Down…A LOT, went live today. The teaser for the show reads,

Today’s Best Ever guest shares just how important it is to do you due diligence with everything. From negotiating the interest rate on your mortgage rate down to an unheard of number, to learning about different zoning codes and what they mean to you.

The interview runs about half an hour. I always like to be invited to speak on a long-form program because I can go into greater depth about things that I think are important. I also got a chance to discuss some topics that usually only come up in my Real Estate Practice class.

The Best Ever Real Estate Investing Advice Ever show is one of the highest rated investing podcasts on iTunes, up there with Suze Orman, Jim Cramer, Marketplace, Motley Fool, NPR and the Wall Street Journal. The show is sold with some hype, but it was a substantive discussion, geared to the newish real estate investor. All in all, this was a fun interview to do.

 

 

Monday’s Adjudication Roundup

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LawProfs in MERS Litigation

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The Legal Services Center of Harvard Law School (through Max Weinstein et al.); Melanie Leslie, Benjamin N. Cardozo School of Law; Joseph William Singer, Harvard Law School; Rebecca Tushnet, Georgetown University Law Center and I filed an amicus brief in County of Montgomery Recorder v. MERSCorp Inc, et al. (3rd Cir. No. 14-4315). The brief argues,

MERS represents a major departure from and grave disruption of recording practices in counties such as Montgomery County, Pennsylvania, that have traditionally ensured the orderly transfer of real property across the country. Prior to MERS, records of real property interests were public, transparent, and provided a secure foundation upon which the American economy could grow. MERS is a privately run recording system created to reduce costs for large investment banks, the “sell-side” of the mortgage industry, which is largely inaccessible to the public. MERS is recorded as the mortgage holder in traditional county records, as a “nominee” for the holder of the mortgage note. Meanwhile, the promissory note secured by the mortgage is pooled, securitized, and transferred multiple times, but MERS does not require that its members enter these transfers into its database. MERS is a system that is “grafted” onto the traditional recording system and could not exist without it, but it usurps the function of county recorders and eviscerates the system recorders are charged with maintaining.

The MERS system was modeled after the Depository Trust Company (DTC), an institution created to hold corporate and municipal securities, but, unlike the DTC, MERS has no statutory basis, nor is it regulated by the SEC. MERS’s lack of statutory grounding and oversight means that it has neither legal authority nor public accountability. By allowing its members to transfer mortgages from MERS to themselves without any evidence of ownership, MERS dispensed with the traditional requirement that purported assignees prove their relationship to the mortgagee of record with a complete chain of mortgage assignments, in order to foreclose. MERS thereby eliminated the rules that protected the rights of mortgage holders and homeowners. Surveys, government audits, reporting by public media, and court cases from across the country have revealed that MERS’s records are inaccurate, incomplete, and unreliable. Moreover, because MERS does not allow public access to its records, the full extent of its system’s destruction of chains of title and the clarity of entitlements to real property is not yet known.

Electronic and paper recording systems alike can contain errors and inconsistencies. Electronic systems have the potential to increase the accessibility and accuracy of public records, but MERS has not done this. Rather, by making recording of mortgage assignments voluntary, and cloaking its system in secrecy, it has introduced unprecedented and perhaps irreparable levels of opacity, inaccuracy, and incompleteness, wreaking havoc on the local title recording systems that have existed in America since colonial times. (2-3)

Wednesday’s Academic Roundup

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Reiss on Anatomy of a Mortgage

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MainStreet quoted me in The Anatomy of a Mortgage – Determining Which Fees You Need to Pay. It reads in part,

All mortgages are not created equal, so reading the fine print before you agree to a long-term commitment is crucial.

Mortgage lenders now have become “very risk averse” since the financial crisis and are doing everything “pretty much by the book,” said Greg McBride, the chief financial analyst for Bankrate.com, a New York-based personal finance content company. “The rules on the ability of a homeowner to be able to repay are stricter than ten years ago,” he said. “Niche products have gone back to niche borrowers.”

While lenders are offering fewer risky products such as interest only mortgages to run-of-the-mill consumers, there are still hidden fees and other deceptive practices to be wary of, said Jason van den Brand, CEO of Lenda, the San Francisco-based online mortgage company.

In 2013, the Consumer Finance Protection Bureau issued guidelines to protect consumers from the types of mortgages that contributed to the financial crash. In the past, lenders were approving mortgages that allowed consumers to borrow large sums of money without any documentation such as pay stubs and offered extremely low interest rates to lure people into buying homes.

 “It also doesn’t mean that the potential to get bad mortgage advice has been eliminated,” van den Brand said. “There aren’t bad mortgage products, just bad advice and decisions.”

Here are the top seven things consumers should consider carefully.

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Avoid choosing an adjustable rate mortgage or ARM when it makes more sense to select a fixed rate mortgage. Those low initial rates offered by ARMs are enticing, but they only make sense for homeowners who know that in less than ten years, they plan to upgrade to a large home, move to another neighborhood or relocate for work. Many ARMs are called a 5/1 or 7/1, which means that they are fixed at the introductory interest rate for five or seven years and then readjust every year after that, which increases your monthly mortgage payment said David Reiss, a law professor at Brooklyn Law School.

While many homeowners gravitate toward a 30-year mortgage, younger owners “should seriously consider getting an ARM if they think that they might move sooner rather than later,” he said. If you are single and buying a one-bedroom condo, it is likely you could sell that condo and buy a house in the future. “That person might not want to pay for the long-term safety of a 30-year fixed rate mortgage and instead save money with a 7/1 ARM,” Reiss said.

Reiss on Low Interest Rates & Down Payments

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MainStreet quoted me in How to Get the Lowest Mortgage Rates Without a Large Down Payment. It reads in part,

Low mortgage rates can play a large factor whether homeowners are able to save tens of thousands of dollars in interest.

Even a 1% difference in the mortgage rate can save a homeowner $40,000 over 30 years for a mortgage valued at $200,000. Having a top-notch credit score plays a critical factor in determining what interest rate lenders will offer consumers, but other issues such as the amount of your down payment also impact it.

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Opt For an FHA or ARM

Both an adjustable rate mortgage (ARM) and a Federal Housing Administration (FHA) mortgage are good options if homeowners are concerned about receiving a lower interest rate and have not been able to accumulate the 20% standard down payment.

The biggest benefit of an ARM is that they have lower interest rates than the more common 30-year fixed rate mortgage. Many ARMs are called a 5/1 or 7/1, which means that they are fixed at the introductory interest rate for five or seven years and then readjust every year after that, said David Reiss, a law professor at Brooklyn Law School in N.Y. The new rate is based on an index, perhaps LIBOR, as well as a margin on top of that index.

While many homeowners gravitate toward a 30-year mortgage, younger owners “should seriously consider getting an ARM if they think that they might move sooner rather than later,” he said.

FHA loans can be a good option for consumers purchasing their first home because they require much smaller down payment of 3.5%.

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Given that young households tend not to have the savings for a substantial down payment, they can be an attractive option, Reiss said.