New Mortgage Concepts Emerging

New developments are constantly emerging in the home mortgage field, offering new benefits for borrowers. Now we have a mortgage plan that allows the borrower to skip payments when money is particularly tight.

It’s a plan developed by Fannie Mae, the nation’s largest buyer of existing home mortgages. It’s now being tested in several markets around the country. Fannie Mae calls the new plan “Payment Power” mortgages.

The new plan is very similar to the conventional 30-year, fixed-rate home mortgage loan, but it comes with a unique feature. The borrower has the contractual right to skip up to two monthly payments per year  or up to 10 payments during the life of the loan. The loan can be used for the purchase or refinancing of single-family homes, duplexes or condominiums.

When the borrower elects to skip a loan payment, the unpaid amount is added to the principal balance of the loan. It’s amortized over the remaining term of the mortgage. No money is saved when skipping a payment. For more information, contact a lender or mortgage broker.

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Homeowners who refinance their homes and take cash out of the deal by boosting their mortgage loan balance by more than 20 percent are much more likely to default on the mortgage payments.

That’s the conclusion of Fannie Mae executives after an extensive study of refinance loans. As a result, Fannie Mae will insist that loans they purchase after February 1 carry a surcharge of 0.75 percent if the balance of the new loan is more than 2 percent, or $2,000 (whichever is less), over the balance of the loan being refinanced.

If the homeowner is refinancing a home-equity loan and a primary mortgage at the same time, with the idea of creating one new primary mortgage loan, this will be considered a cash-out refinance and will be subject to the new ruling.

Keep in mind you can still take out $2,000 or less in cash from a refinance loan and not pay the extra fee. And the new ruling only applies to mortgage loans to be sold to Fannie Mae, as many are.

Fannie Mae is also worried about serial refinancing  homeowners who refinance several times in a single year, lured by constant lowering of interest rates. They believe these loans will also result in high default rates. Therefore, Fannie Mae will not permit refinancing of its mortgages that are less than a year old.

The new requirements may be a tough pill to swallow by many homeowners. There has been a steady increase in owners who consolidate other debt into one home equity loan or by paying off other indebtedness with cash-out funds from a refinance loan.

Also, with homes rising sharply in value in recent months many families are electing to remodel their existing home rather than purchasing a new one. And funds to cover the cost of remodeling are often generated from a refinance or home equity loan.

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Another recent survey indicates that 25 percent of first-time mortgage borrowers have refinanced their loans in the last two years. About four out of 10 of those refinance transactions resulted in repaying a home equity line of credit or a second mortgage.

This survey was conducted by Synergistics Research Corporation.

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Finally, the Senate recently passed the FHA Downpayment Simplification Act of 2002. It now awaits passage by the House.

The new law will help to increase the availability of affordable housing and expand rental housing and homeownership opportunities generally. It contains several provisions designed to enhance housing affordability, including indexing FHA multifamily loan limits to inflation. This should encourage more construction of rental units, thus easing an increasing problem of rental shortages in many markets.

Indexing the loan limits to inflation will provide stability to FHA multifamily mortgage insurance programs and give builders and lenders confidence that they will be able to use the programs in their communities every year, even as construction and land costs rise over time, said Gary Garczynski, president of the National Association of Home Builders.

The bill would also enhance housing affordability by permanently extending the FHA single-family simplification downpayment process, continuing to make it easier for low- and moderate-income families to obtain the necessary financing to purchase a home.

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Financing a home purchase, or refinancing an existing loan, with a Veterans Administration mortgage is becoming a more appealing option for veterans. The VA recently streamlined their mortgage financing system.

For qualified veterans who have, or can obtain, a Certificate of Eligibility, they can now obtain a VA-guaranteed refinance mortgage with no appraisal, credit check or income verification. And the system is more efficient than in past years, making it possible to expedite the process.

VA mortgages used for financing the purchase of a home are particularly appealing. These loans are often made without any downpayment, and frequently offer lower interest rates than is normally available with other kinds of mortgages.

Interest rates on VA loans are competitive with conventional mortgages. At this writing, the VA rates are 6.3 percent for a 30-year fixed-rate loan  5.5 percent for a 15-year fixed.

In fact, it was reported that if the lender is approved under VA’s Lender Appraisal Processing Program, the lender may review the appraisal completed by a VA-assigned appraiser and close the loan on the basis of that review. This can speed the loan closing process substantially.

A veteran who doesn’t have a certificate can obtain one easily by completing VA Form 26-1880 Request for a Certificate of Eligibility for VA Home Loan Benefits. Submit it to a local VA office along with copies of your most recent discharge papers.

There are no maximum VA loan limits, but lenders generally limit VA loans to $240,000. This is because most lenders sell VA loans in the secondary market, and that currently places a $240,000 limit on the loans. For information on VA mortgage loans, call toll-free, 1-877-832-9347.

An alternative to VA loans in some states are mortgage loans for veterans funded by state allocations. Several states have such programs, including California, Texas, Oregon and Wisconsin.


Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends, carried in about 230 U.S. newspapers. He also writes freelance features on real estate related subjects.

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