With all of the foreclosures and bad financial news one would think that there is nothing going on in the refinancing market segment right now. But, that is far from the truth. There are still some great reasons to refinance your mortgage. Doing so will deliver five advantages to you.

1. Low Rates
Rates are still at their lowest in a very long time. And, it appears that since the economy might be on an ‘upswing,’ the rates could increase very soon. Rates currently hover around 5% which makes finance charges a small part of a mortgage payment. There is another benefit of this: being able to afford a 15-year mortgage. This will allow you to pay off your loan sooner and build up equity quicker at the same time.

2. Replacing an ARM
Getting out of that adjustable rate mortgage is mandatory because of the increases in payments that they will bring or have brought in the last year or so. With budgets stretched thin, families can ill afford to have this happen right now. Those who were comfortable with their payments suddenly wake up to find that they have increased in such a manner as to prevent them from being able to make them.

3. Financing is More Plentiful Than You Might Think
There are still banks failing and being bailed out by the FDIC, but there are still many solvent and cash-heavy financial institutions like credit unions that would like a bigger piece of the action on mortgages. Not just any mortgages, though. They want good solid financing deals that are good for both the homeowner as well as themselves.

4. Affordable Payments
Using our refinancing calculator, you can see just how affordable your payments can be. When you compare the numbers from this calculator to your current figures, you will be able to see yourself with lower affordable payments which will provide breathing room in your budget.

5. Individual Attention and Advice
Since there are fewer buyers and homeowners financing houses right now, mortgage companies are not as busy and can afford to spend more time with customers and provide greater service that is needed to make sure that each customer gets the financing that they need. During the rush to finance sub-prime mortgages, it was difficult to get the attention that you needed to make sure that the details were being handled properly.

Not all news is bad right now: refinancing makes a lot of sense for many people.

The Federal Reserve governor made statements Friday that left the markets wondering if the Fed will drastically tighten interest rates when the time comes, instead of gradually increasing them.

Even though Fed Governor Kevin Warsh voted Wednesday along with the unanimous Federal Open Market Committee decision to keep the fed funds rate at “exceptionally low levels …for an extended period”, his comments in a speech yesterday to an international bankers convention in Chicago show he can conceive of the need for quick action in the future.

“The Federal Reserve acted preemptively in providing monetary stimulus, especially in early 2008 when the economy appeared on an uneven, uncertain trajectory. If the economy were to turn up smartly and durably, policy might need to be unwound with the resolve equal to that in the accommodation phase. That is, the speed and force of the action ahead may bear some corresponding symmetry to the path that preceded it.”

He added in a Wall Street Journal opinion piece Friday that, “prudent risk management indicates that policy likely will need to begin normalization before it is obvious that it is necessary, possibly with greater force than is customary.’

His Chicago speech echoed such thoughts that the Fed might need to start fighting inflation with rate hikes even before the economy fully recovers.

“If policymakers insist on waiting until the level of real activity [GDP] has plainly and substantially returned to normal-and the economy has returned to self-sustaining trend growth-they will almost certainly have waited too long.”

I doubt that Warsh was speaking on behalf of all the Fed board members in his remarks and writing, but if any of his colleagues share his opinions, we may see mortgage interest rates jumping up much sooner and more significantly than many economists have been predicting.

The Obama administration and the homebuyer’s tax credit went a long way to stabilizing the housing market, with the Standard and Poor’s Supercomposite Homebuilding Index increasing 30% in 2009. The Federal officials can buy up to $1.25 trillion in mortgage-backed securities with continued support for the housing markets. At this time, they have bought about $860 billion in the mortgage-backed securities program, and $129 billion (out of $200 billion program) in U.S agency bonds.

As the economy improves though, The Federal Reserve will begin to slow down its purchase of mortgage securities. The Federal Open Market Committee said after meeting in Washington:

“The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010.”

For the first time since August of 2008, policy makers announced that the economy is in fact improving, but that they are committed to keep the interest rates low for an extended period – perhaps into the spring season.

The market is still tough, but there are signs of definite improvement. According to the National Association of Realtors, existing home sales rose 7.2% in July from June, which is the highest level increase in about two years. The Federal Housing Finance Agency index indicates that home prices rose for the third month in a row, with a 0.3% increase in July from June.

Instead of shocking the market by shutting down all government assistance programs at once, the Fed will ease out their purchases and are hoping that other buyers will start increasing their activity to avoid a potential increase in mortgage rates. When the Fed’s stop purchasing mortgage-backed securities, it’s possible that mortgage rates will see a 0.5 to 1% increase.

It seems there can be no complete recovery of the housing market until the job market stabilizes. New data from Equifax, reported by Reuters news today, showed that the rate of mortgage delinquencies is climbing, and climbing fast.

According to the source, 7.58 percent of all U.S. mortgages were delinquent by 30 days or more in August, an increase from July’s 7.32 percent. This is the fourth straight month of rising delinquencies, and the current rate is up dramatically from a year earlier when it was 4.89 percent. Two years ago, in August 2007, the rate was only 3.44 percent.

Here’s a graph from the Mortgages Unzipped blog that shows the delinquency trend over the past few years. It is definitely on the quick rise.

Apparently there is a very high correlation between these recent figures and the rate of consumer bankruptcy filings. Bankruptcy filings rose by 32 percent in the past year according to Reuters.

Rising unemployment numbers are certainly to blame for both of these issues. And we haven’t seen the end of job losses so far. While unemployment rates have not been increasing as fast in the latest months, more jobs are still being cut than are being created. And as people continue to lose jobs, they will continue to be unable to meet their financial obligations.

What does this mean for the rest of the mortgage market? Home prices are likely to stay down across many regional markets until the delinquency rates (and consequently the foreclosure rates) calm down. But the good news is that mortgage interest rates remain near historic lows, so buying and refinancing are still very attractive for those who can qualify.

According to top state officials another wave of foreclosures is about to break across the country, this time in the form of resetting option ARM loans.

“Payment option ARMs are about to explode,” said Iowa Attorney General Tom Miller after the meeting. “That’s the next round of potential foreclosures in our country,” he said.

State Attorney Generals in a meeting Thursday with President Obama’s administration warned that a new round of foreclosures could destabilize the timidly recovering housing market.

Arizona Attorney General Terry Goddard offered raw figures on the plight of his state, saying that there are 128,000 option ARMS poised to reset through 2010, with many of them already starting to reset this month. “It’s the other shoe,” he told Reuters. “I can’t say it’s waiting to drop. It’s dropping now.” He also said that they “threaten a much greater hit to the consumer than the subprimes,” the original shock wave of foreclosures.

What are option ARMs? They are mortgage loans that provide borrowers with extremely low initial teaser rates and give borrowers the option to pay even less than the monthly interest on their loans for a certain period of time. This actually causes the loan balance to increase, creating negative equity or “underwater” loans. Once the interest rates reset, the new payments can be as much as 10 times higher than the initial payment, leaving many people unprepared for the huge jump and often resulting in default and foreclosure.

Here’s a graph from the consumerist.com, courtesy of Credit Suisse, that shows when and how big the option ARM hit will be. It looks like tens of billions of dollars worth of these loans will be resetting over the next two years. And odds are, many of these borrowers will not be able to afford the new, higher payments. Surfs up everybody!

Mortgage companies are rolling out modification programs to help strapped borrowers who are behind on house payments. However, it appears that not all of the “help” is going to have its intended effects.

A recent article on forbes.com states, “the mortgage industry claims it has provided relief over the last two years to 4 million homeowners who were having trouble paying their mortgages. But all help is not created equal.”

Here are four things that you should watch out for when it comes to loan modification programs:

1. Credit Score ‘hits’ – Some programs that are called “forbearance” plans will allow you to make lower payments for a period of time (usually six months). These lower payments are 50% of a normal payment and still include the escrow amount (if you have a loan with this option). But, you will most likely take a hit on your credit score as the mortgage company will report your payments as “late.”

2. Adding loans onto loans – Some mortgage companies are offering loans to help home owners to be able to get caught up on their payments. But, what really happens is that this money is in turn added on to the end of the loan and must be re-paid along with the principle and interest that is accruing on their original mortgage. This practice eats up equity and represents a financial set-back for the homeowner.

3. ARM to ARM modifications – One serious tactic is for a mortgage company to offer a loan modification program that is just another Adjustable Rate Mortgage. The payments are attractive and look like they will help the mortgagee be able to keep their home, but later they discover that the payments begin to rise again to unaffordable levels. The way to avoid this is to agree only to modifications that are based on a fixed rate of interest. A loan modification program needs to provide long term relief, not just short term. Check our ARM Loan Payment Calculator to see what your payments might be.

4. Temporary Interest Rate reductions – Some companies are reducing interest rates for just a short time period to help homeowners be able to make their payments. Real and lasting help has to include permanent modifications to a mortgage.

Be alert for any hidden fees or costs that are incurred as a result of a modification. Also, always ask to see any modification in writing before you enter into an agreement. Full disclosure must be a part of these programs.

Because loan modification programs are created outside of normal laws and practices, there is a tendency on the part of some mortgage companies to use them to their advantage. Real help provides support for borrowers regardless of the benefits to the mortgage company.

During the first two weeks of September 2009, mortgage interest rates have trended downward and are considerably lower than August’s averages. According to mortgage company Freddie Mac, the average rate on a 30-year fixed rate loan last week, excluding points, was 5.07 percent, down from the average for all of August which was 5.19 percent.

Is the lower trend likely to stick around for the rest of the month? It’s always hard to say, especially because there are two big factors this month that might try to pull rates in opposite directions. First, the Federal Reserve recently announced that the amount of consumer credit across the nation dropped by $21.6 billion in July, and credit availability dropped even more than reported in June. The Fed said that after six straight months of decreasing consumer credit figures, this is the largest decline since the Fed started its survey in 1943. What this means for interest rates is that when consumer credit shrinks fewer people are borrowing money, and there are fewer mortgage backed securities (MBS) for investors to buy. As the price for those increases because of a shriveled supply, it could push mortgage rates down as lenders try to attract more borrowers back to the mortgage table.

The second factor, however, is that the Fed has also announced its plans to stop purchasing U.S. Treasury bonds. It has been buying these up throughout the year to pump more liquidity into the markets, but as the economy has started to show signs of life again, the Fed has decided to back off in hopes that the market is beginning to correct itself. Some predict that this move will cause bond yields to rise and bring mortgage rates with them.

So far, rates have moved lower this month, so maybe the consumer credit issue is the more influential factor right now. Rates are near historic lows right now - so in the long run, they really only have one direction to go and that is up. For those who can qualify for funding, now is a great time for a mortgage loan.

At least one government agency is trying to save a sizable segment of homeowners from foreclosure – the unemployed. While plenty of people are simply walking away from their mortgages because their loans are underwater, there are also plenty of Americans unable to make their payments as a result of job loss during this tough economy.

The FDIC, according to a CNN report, has asked several big banks to start reducing monthly payments for six months for those homeowners who have recently lost jobs.

Apparently, this practice called forbearance plans, has been used by banks in the past, but fewer are willing to extend a compassionate reach these days as it is not as likely that borrowers will be able to get back into the job market within a matter of months.

“With more Americans suffering through unemployment or cuts in their paychecks, we believe it is crucial to offer a helping hand to avoid unnecessary and costly foreclosures,” said FDIC chairman, Sheila Bair, on Friday.

Currently, unemployed homeowners facing foreclosure do not qualify for loan modifications under the Obama housing bailout because they cannot provide sufficient income for future payments.

The FDIC believes that aiding these normally responsible borrowers will keep the fragile and recovering housing market from more downturns.  At this point, the forbearance plan recommendation will only be required of the 53 lending institutions across the country that have bought failed banks and have contracts with the FDIC. The effect will certainly be limited, but the FDIC hopes that more major lenders nationwide will see the benefit and voluntarily participate.

I have to admit, this seems like the segment of borrowers that truly need (or perhaps deserve) some extra help. I would think that in many cases these are not the homeowners that took on mortgage loans they never could afford, but simply fell prey to the vicious economy and need a little breathing room to get back on their feet.  Since this isn’t a true bailout, but simply payment deferment, it seems like a pretty good idea.

A recent Washington Post article brings up how deeply involved the Federal government has become in the current housing market. In order to keep the mortgage markets from freezing up during the dire days of the housing crash, the government stepped in and took over Fannie Mae and Freddie Mac, two of the nation’s largest mortgage financiers.

“While this made it possible for many borrowers to keep getting loans and helped protect the housing market from further damage, the government’s newly dominant role - nearly 90 percent of all new home loans are funded or guaranteed by taxpayers - has far-reaching consequences for prospective home buyers and taxpayers,” the article says.

And together with guarantees made by the Federal Housing Administration, “The [government] outlay has already reached about $1 trillion over the past year and is rising. During that time, the government has pumped more money into the mortgage market than has been spent on Medicare or Social Security or the defense budget, more even than Washington has paid to bail out banks and other struggling companies.”

And with Treasury and Federal Reserve programs, “all told, the government now stands behind 86 percent of all new home loans, up from about 30 percent just four years ago, according to Inside Mortgage Finance.”

Among the biggest concerns about the government takeover of all these loan guarantees is that many of the loans are looking ripe for default and foreclosure. Fannie and Freddie have lost more than $150 billion since the beginning of 2008 and FHA loan delinquencies are also rising. So, instead of truly curtailing housing market problems, have we simply shifted the responsibility from individual homeowners, lenders, and companies to the American public (taxpayers) at large? So we all go down together instead of just one industry? Or will the Fed just print up some more money to continue bailing out the housing market if things really go south?

To say that the current state of the US housing market is a little shaky would be an understatement. The waves of recent mortgage statistics are at best conflicting and in many cases misleading as to the true nature of the property economy. Some experts are clinging to the fact that a recent boom in first time buyers being accepted for mortgages (in light of the $8000 tax credit) is a sign that the industry has turned a corner. Others, meanwhile, see the glimmer of hope as more of a mirage in a still arid housing landscape. Indeed, recent reports show that the Philadelphia Housing Market Index has fallen to its major support level of 225; Toll Brothers (a major US luxury home builder) has seen a 33% drop in order during the second quarter and mortgage lender Ameriquest is downsizing and laying off 3500 workers.

Wealthy Housing Opportunities

In the wake of this uncertain housing climate there has risen a sharp contrast between the poorest and the wealthiest people in the country. The current situation has provided a stark reminder of the money gap between the haves and the have-nots in America. Moreover, where one demographic sees opportunity the other sees long-term financial uncertainty. The old saying “one man’s trash is another man’s treasure” is particularly pertinent at the moment as the rich are seeing the drop in house prices as a chance to increase their portfolios. One of America’s most exclusive housing markets, the Hamptons, felt the bite of the recession more than most with the uptake on many multimillion dollar Long Island properties being extremely low. In recent months though, high-end real estate developers have seen a sharp rise in sales as the price of housing has fallen. Alan Schurman, a real estate developer, points out that those that can afford the million dollar price tags “made a decision that the market hit a point and was forming a bottom. Now they want to get in on the values that are out there.”

Luxury property prices have been slashed by around 20% in the area and this has attracted a glut of buyers back to the area keen to snap up a bargain ready for when the market begins to rejuvenate itself. This flood of multimillion dollar spending provides a striking juxtaposition to the financial difficulties facing many “average income” homes. Across the country the rate of foreclosures has risen and more and more homes are seeking the help of programs like the one in operation in Louisville, designed to be the final lifeline for those facing foreclosure. The number of people struggling to make their mortgage repayments has risen to over 13% and more than 4% of all borrowers are in foreclosure. The rising jobless figures are the major contributing factor to the situation, and while government incentives such as the $8000 tax refund are aiming to help the average buy, the problem is continuing to escalate.

The Great Divide

In times of financial crisis the wealth divide is always more prevalent, and while Middle America struggles to retain possession of its homes; the wealthy can’t wait to expand theirs. Nobody is clear just how much longer the current economic climate will last and for the average American the future isn’t looking like a bed of roses. Recent reports over whether the situation is improving or not is much like the discrepancy between those at the top and bottom of the housing chain; on the one hand someone is a winner but on the other, someone always ends up a loser.