An underwater mortgage can be a nightmare for responsible homeowners. There’s nothing pretty about the prospect of owing your lender more than your house is worth. According to a recent CNN report, nearly 8 million households are currently contending with this problem – and many are walking away. But while leaving your mortgage behind may be a temptation, you might want to consider other options first. There are some programs available that may help you stay afloat.

FHA Programs
There are currently two FHA-run programs that may help homeowners save their underwater mortgage. FHASecure offers subprime borrowers holding non-FHA mortgages the option of refinancing into FHA-insured ones (with lower monthly payments) as long as the loans are in good standing and the borrowers have sufficient income to make payments. Hope for Homeowners (H4H) also keeps borrowers in their homes by allowing them to refinance into fixed-rate loans. To receive help, borrowers’ mortgages must have originated on or before January 1, 2008 and their monthly payments must exceed 31 percent of their income.

Streamlined Modification Program
If you are at least 90 days delinquent in your monthly payments, then Congress’ Streamlined Modification Program might be able to help. This program reduces your interest rates and/or stretches out your loan terms to make your payments more affordable. The catch, however, is that homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac will likely receive preferential treatment.

Remember, these programs do have specific eligibility requirements, so if you have an underwater mortgage but don’t qualify, don’t let that deter you. Try talking to your lender on your own. You may be able to refinance your loan at a lower interest rate, making your payments much more affordable.

If you are looking to pay off your loan as fast as possible with the security of a fixed rate, a 10 year fixed rate mortgage might be the best mortgage option for you. These loans have a shorter term than the 15 or 30 year mortgage, and tend to have the lowest interest rates of all the fixed rate mortgage products. Also, since the duration of the mortgage is shorter, you are likely to save thousands of dollars in interest over the life of the loan. Why don’t more people take out a ten year loan, you ask? Often, it’s because the shorter duration of the loan also means a higher monthly payment, which means more money out of pocket to repay the loan on a monthly basis.

For example, let’s say you borrow $100,000 at a rate of 5.5%, at a 15 year term. Assuming that your monthly principal and interest payment would be $817.08, the total interest paid over the life of your loan would be around $47,000.00.

Now let’s say you borrow that same amount of money on a 10 year fixed term. Your interest rate would be lower – somewhere around 5.36%. Your monthly payment would be $1,079.33, which is higher. But the total interest paid over the life of the loan would be around $29,500.00. That’s a substantial savings in interest over the term of the mortgage.

Alternative to Line Of Credit

One popular use of the 10 year home loan is as an alternative to taking out a line of credit against your house. This type of loan is called a cash-out refinance. If you have paid of most or all of your first mortgage, it may be worthwhile to consider the benefits of a second mortgage like this one. For instance, the ten year fixed mortgage will most likely have a lower rate of interest than a line of credit or an adjustable rate loan (ARM). If you are considering applying for a line of credit or a second mortgage, ask your mortgage broker to run some numbers and see if this option is right for you.

There are some things to consider if you are wondering whether or not to take advantage and refinance your home. Recently the Feds announced their plan to purchase $500 billion in securities from Fannie, Freddie and Ginnie Mae. That news helped current mortgage rates slide to their lowest point in over a year. The rates went from over 6% to a 5.58% rate for the average 30-year fixed-rate mortgage.

Consumers often have to pay thousands of dollars in closing costs upfront to save tens of thousands of dollars over the lifetime of their loan. Deciding whether or not this is a wise option takes hours of research, knowledge of your financial situation, an estimate on how long you plan on staying in your current home and a calculator by your side.

There are many factors that contribute to the closing fee associated with a refinance loan. Consumers will have to pay from an estimated $1,250 to nearly $12,000 to refinance a home loan.

Consider this; if a fairly new homebuyer just purchased a property several months ago and has a $225,000 mortgage at a 6.25% rate, it may seem paying the national average of close to $3500 to refinance is foolish, but it will save them a bundle. If they qualify for a new loan rate of 5.25%, despite paying the new closing costs, they can still expect to save close to $40,000 over the lifetime of their new loan.

This strategy is not advised for people who plan on moving out of their house within a few years, as it will be difficult to recoup the new closing costs in the guise of reduced mortgage payments. But if you plan on staying rooted for a long time, it is a good idea to start researching refinancing options now.

New efforts from the Feds to help aid the ailing housing market have helped lower the rate on all mortgage rates to their lowest points in a year. Just a few weeks ago, first-time homebuyers with excellent credit were paying over a 6% interest rate for a 30-year fixed rate loan. According to Freddie Mac, the rate is a low 5.53% and still sliding. Consumers can save tens of thousands of dollars by refinancing, getting more home for their money and should entice first-time buyers.

The trend started last week when the Feds announced their plans to purchase billions of securities from Fannie, Freddie and Ginnie Mae. The slide continued today after several sources reported that the Treasury Department is investigating a plan to drive down mortgage rates as low as 4.5%.

Right now the majority of consumers taking advantage of this change are credit-worthy consumers searching for refinancing deals. Just last week, overall mortgage applications doubled. However, the refinancing traffic tripled and accounted for close to 70% of the mortgage applications, according to the Mortgage Bankers Association’s weekly survey.

However, the long-term goal is to get banks back to the business of lending and consumers back to spending. With the huge quantities of available properties, more affordable housing prices and a new standard Good Faith Estimate (GFE) practice sheet initiated by the US Department of Housing and Urban Development, the tides have certainly turned for those interested in taking the big leap.

The positive effects directly related to the government efforts will still take a period of time to manifest. Both home buying and refinancing periods are time consuming and will experience a bit of a slow down due to the upcoming banking holidays.

To further assist the US economy defrost from it’s current frozen credit state, Treasury Secretary Henry Paulson announced Tuesday an $800 billion budget to be targeted specifically on consumer debt. After many revisions to the original $700 billion bailout plan, the new allotment will focus specifically on consumer issues such as home mortgages to credit card debt.

According to the Federal Reserve, this portion of the largest government bailout in history is being divvied up as follows:

• $100 billion direct obligations purchases from Fannie Mae, Freddie Mac and Federal Home Loan Banks.
• $500 billion purchases of mortgage-backed securities and bundled mortgages (that are usually sold to investors)
• $200 billion in advances to the controller of consumer loan backed securities

This new portion of the economic assistance will work in conjunction with the $20 billion of credit protection allotted from the $700 billion bailout package that was enacted last month. By attacking the debt with economic reserves, this should increase and reestablish the flow of national credit, the availability of home loans to borrowers and should help restore the balance of the real estate market and the overall credit market in general.

Although many people have been saying the economy has been in a “recession” for some time, it has not been by the classic definition. A recession is only official after two concurrent quarters of economic retrenchment. The U.S. economy has yet to show that official marking and all the bailout strategies are being put in place not only to help ward off the downward spiral, but to help get the economy on track after it truly occurs.

In direct response to the mortgage crisis, US Department of Housing and Urban Development (HUD) has issued new mortgage reforms.This is the first change in policy in over 30 years and should help protect consumers from accepting unfair mortgage terms and potentially save borrowers $700 in loan fees and costs.

The change requires lenders and mortgage brokers to provide potential borrowers with a standard Good Faith Estimate (GFE). Consumers will no longer have to go through stacks of paper to discover all the key terms and closing costs of a loan. According to HUD the GFE will list:

• The term of the loan
• Whether the interest rate is fixed or is changeable
• If there are pre-payment penalties
• If there are balloon payments
• Total closing costs

Additionally, there will be a 10% maximum increase cap on the amount charges can exceed estimates.  Many consumers find the process of researching a home loan overwhelming, thus allowing for a margin of error in the mortgage selection process. HUD Secretary Steve Preston feels that by simplifying the process the average American family will be empowered to make educated decisions when loan shopping. Preston stated, “With a standardized GFE, consumers can shop more effectively for the lowest cost loan.”

As of March of this year, HUD started working on the Real Estate Settlement Procedures Act (RESPA) to help streamline the mortgage process for consumers. The GFE is the final alteration to the regulatory regulations of RESPA. Ultimately, all the revisions will improve the disclosure of the loan terms and closing costs so consumers will have clarity when it comes time to pay for or refinance their home.

For the full story and complete details, check out the Department of Housing and Urban Developments news release at “www.hud.gov/news/release.cfm?content=pr08-175.cfm“.

The fight to stave off more foreclosures just got a much-needed idea! This past Friday, FDIC Chairwoman Sheila Bair revealed her strategy to assist 2.2 million borrowers’ secure new loans and ultimately help 1.5 million people keep their homes.

The proposal suggests that delinquent homeowners would get a much-needed shift in the amount of their mortgage payments. Those who are two months or more past due would have their payments shifted to a more manageable 31% of their gross monthly income under the terms of their new loans.
Additionally, the plan offers not only a financial incentive of paying loan providers $1000 for reworking mortgages, but also a strategy of the government sharing the financial burden that has previously scared off lenders from rolling up their sleeves and pitching in to help. Bair suggests that the government would take a 50% responsibility of the losses if a borrower taking advantage of the assistance defaults.

A similar plan has already been in effect — Bair has been using this strategy with IndyMac, the failed mortgage lender the FDIC took over in mid July. Although there are currently other proposals on the table, Bair has hoped that this one would be the winner.
The main differences between Bair’s plan and the current government options are that there would be no reduction of principal amount owed, and compensation would be allotted for the lenders who jump on board. Although the hopes were that lenders would join forces with the government and help out suffering homeowners, that $1000 cash bump could certainly assist them in a change of “heart” and subsequently, mortgage terms.

A new twist in the bailout strategy has been decided since Treasury Secretary Henry Paulson announced that the government is no longer going to focus on purchasing troubled mortgage assets. Originally, troubled mortgages were slated to receive a substantial portion of the financial rescue strategy. The newly freed-up resources are now going to focus specifically on the consumer credit industry.

The $700 billion emergency rescue plan was first developed as a way of keeping the markets liquid by providing emergency funds to prevent the credit market from further shutting down. The money was going to be aimed at financial institutions through buying up toxic assets with the hope that this additional capital would provide them with the sense of security needed to start the business of lending again. Unfortunately, that hasn’t quite caught on with the speed that is needed. Around 50 financial institutions have been granted approval (or have been pre-approved) to receive $172 billion in capital resources.

To help speed things up, the US Treasury’s $700 billion rescue plan is tilting the tables toward consumer’s debt. Paulson positioned the need to officially broaden the initial scope of the project to help aid those non-banking institutions that deal directly with consumer credit issues. Credit card companies, student loan providers and auto loans can soon be the beneficiaries of the second stage of this unprecedented Government assistance plan, as investors are no longer partial to these types of loans.

Paulson stated that, “although the financial system has stabilized, both banks and non-banks may well need more capital given their troubled asset holdings, projections for continued high rates of foreclosures and stagnant U.S. and world economic conditions.”

His thoughts are that systems dealing with consumer loans need assistance as “Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt.”

The hope of this entire strategy is by stabilizing the big lenders, the financial system will no longer be clogged. Ultimately, the country and all its residents will benefit from a trickle-down effect and the reactivation of credit liquidity.

“Mortgage meltdown” not affecting the availability of mortgages today.

You hear the term “mortgage meltdown” almost every day and assume it will be tough to get a mortgage. In reality, mortgage loans are abundant with most mortgage products relatively unaffected by the recent troubles in the subprime segment. According to Tim Burke, CEO of Nationwide Lending Corporation, “mortgage money is plentiful, just the products and underwriting that allowed people to buy homes they couldn’t afford have disappeared.”

Burke goes on to say “interest rates for a 30 year fixed-rate mortgage remain close to 6% for borrowers with reasonably good credit; it doesn’t need to be perfect. Internet lending has allowed Nationwide to offer wholesale rates and fees and not compromise service”. Other than subprime, 100% loan-to-value and stated-income, there is mortgage money available to anyone with the capacity to repay the loan and ability to document their income.

More affordable home prices, combined with historically-low interest rates and a large surplus of houses, presents a great opportunity to buy. The current housing market is particularly advantageous for first-time home buyers who can benefit from a temporary $7,500 tax credit that Congress put in place and that will expire after June 30, 2009.

Qualifying for a jumbo conforming loan will get more difficult in the New Year.

Congress authorized, as part of the Economic Stimulus Act of 2008, a temporary increase to the conforming loan limits in high cost regions – defined by median home sale price. High priced areas such as Los Angeles, a mortgage as high as $729,750 is considered conforming. Conforming loans have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac.

Beginning in 2009, loan limits changes. Effective January 1st 2009, conforming mortgages will be capped at $625,500 in high cost areas, and $417,000 everywhere else. If you are in a high cost area, timing may be important to you. You may want to consider taking advantage of a cheaper conforming loan this year if you need to borrow between $625,500 and $729,750, or risk paying the jumbo loan premium.