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ABC7 On Your Side: Mortgage tips

June 9, 2008 12:00:00 AM PDT
As home prices continue to fall, more homeowners are facing foreclosure. Getting a loan or a refinance isn't always easy these days. ABC7 On Your Side put together a panel of mortgage brokers to help viewers deal with the mortgage crisis. Click here for tips from the CAMB Web site

There are a lot of things you can do to deal with your mortgage. Take note of the advice below:

Tips for avoiding foreclosure

  • Don't ignore the problem
    The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.
  • Contact lender as soon as you have a problem
    Lenders do not want your house. They have options to help borrowers through difficult financial times.
  • Watch out for foreclosure recovery scams
    If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD approved housing counselor.

Closing costs

  • If rates drop ask for a lower interest rate
    Mortgage rates can change daily -- even by the hour. So if you see rates have dropped, try to get the lower rate, even if you're locked in.
  • Negotiate a better deal
    No rate or fee is set in stone.
  • Good faith estimate
    Lenders are required to give you a good-faith estimate of your closing costs within three days after you apply for a loan. Some will give you such an estimate even before you apply if you ask for one. Even if it is no guarantee, this written estimate will give you an idea of what kind of fees you can expect to pay, as well as an opportunity to negotiate for a better deal.

Loan modification

  • Work with lender
    If you're behind on payments you'll want to request a loan modification -- a permanent change in the terms of a mortgagor's loan allows the loan to be reinstated and results in a payment the mortgagor can afford.
  • Talk to right people
    Many people don't get connected to the right person -- talk to a customer service operator and try to talk with the loss mitigation, resolution or workout department.
  • Stay away from loan servicing companies
    Stay away from loan servicing companies that promise to help you with the modification or collect an upfront fee without guaranteeing approval.

Why you shouldn't walk away

  • Forced to pay lender
    You could be forced to pay the lender. If loan was refinance, and lender takes property back because you went into foreclosure, can have a deficiency judgment and you may be forced to pay the lender hundreds of thousands of dollars.
  • Owe income taxes
    If money is forgiven in foreclosure, you may owe income taxes.
  • Lose tax benefits
    By walking away, you would lose the tax benefits of owning a home

Before you sign a loan

  • Never sign without understanding terms
    Never sign a contract without knowing and understanding all terms of the loan.
  • Don't sign a blank form
    Never sign a blank form in a loan package and be sure to get copies of all documents bearing your signature.
  • Question fees
    Question any loan fees you do not understand.
  • Don't be swayed by ads
    Do not be swayed by slick TV and radio ads. Some may be from legitimate lenders, but many are from companies which act as nothing more than middlemen who charge lenders for sending them "leads."

Getting the best loan rate

  • Shop around
    Shop around for a loan originator that you are comfortable with. The California Association of Mortgage Brokers offers free and confidential referral services so consumers can choose a member broker in their area.
  • Be wary of in-house lender rates
    If you're buying a new home, be wary of builder's in-house lender just because it is convenient to do so. Compare what the builder is offering to the rates and fees other lenders charge. His may or may not be the best deal, and sometimes the builder will sweeten the pot to gain control over the entire transaction.
  • Right to cancel transaction
    You have three days to cancel a refinance transaction for any reason if you are unhappy with the loan. This is called the three-day "Right-of-Rescission."
  • Make sure you can afford payments
    Make sure that you can afford the proposed monthly payments. Do not agree to payments that you cannot comfortably make.

Things to avoid

  • Avoid loans with prepayment penalties
    Avoid loans with prepayment penalties especially if you plan on refinancing soon.
  • Zero interest loans
    Zero interest loans were very popular when real estate values were rising, but once home prices started falling, many homes went into foreclosure because the home's value dropped, while interest rates on adjustable loans went up.
  • Predatory loans
    Watch out for predatory loans: watch out for brokers, or lenders who try to sell properties for much more than they are worth using false appraisal, or knowingly lend more money than a borrower can afford to repay.

Types of home loans

  • Fixed rate
  • Adjustable rates
  • Balloon Mortgages

Other tips

Do not be fooled by offers that sound too good to be true. If it sounds too good to be true, it usually isn't true at all.

Never allow yourself to be pressured into a loan. Reputable mortgage originators strive to make consumers aware of and comfortable with their loan options.

Make sure the loan officer is licensed to originate mortgage loans. Also question potential brokers regarding their participation in continuing education courses and certifications, making sure your originator is up-to-date on all loan policies and applicable laws.

Ask if the broker belongs to the California Association of Mortgage Brokers. CAMB members adhere to the Association's Code of Ethics and Standards of Professional Practice, which prescribe the highest level of ethical and professional guidelines.

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