Lenders to offer loan aid
Some homeowners will qualify to switch ARMs to fixed rates
Nathan Hurst / The Detroit News
Desperate to stop the flood of foreclosures among their Michigan customers, mortgage brokers are loosening some of their lending rules to help homeowners trapped in adjustable-rate mortgages.
The lenders are making it easier for some homeowners to convert their ARMs, many of which are set to adjust upward over the next six months, to fixed-rate mortgages with payments that stay the same over the life of the loans. The bankers figure that if they can keep payments reasonable for their borrowers, they can reduce future foreclosures.
That's not only good for the homeowners who qualify, but also for the bankers. With a market so slow that homes can go unsold for months, even years, foreclosed houses have become a banker's burden. If they can sell the houses at all, it's often for much less than what the homeowners owe on their loans. So it's become a lot cheaper to make refinancing easier for those who are current on their ARM payments, but could find themselves in trouble once the interest rates go higher.
"Here in Michigan, with our economy, banks absolutely do not want houses," said Audrey Acquisti, an owner-broker with MSource Financial Group, based in Clarkston. "They will lose money. Working out a deal with a homeowner is better on their end, too."
The deals lenders are offering counter a larger trend toward stricter requirements to get home loans, in light of a deepening crisis in the mortgage industry. That tightening has accelerated in the past two weeks as many lenders have stopped making all but the safest mortgages.
But loosening the rules for credit-worthy customers with burdensome ARMs makes sense for lenders.
"It's simple," said Brian Seibert, president of Watson Group Financial in Waterford. "Banks are willing to work with good customers who might not have qualified for some fixed-rate loans just a few years ago. Anything but foreclosure."
Foreclosures skyrocket
Michigan's foreclosure rates began rising quickly last year, and this year they have skyrocketed -- fueled by not only the surge nationwide in high-interest subprime mortgages to borrowers with shaky credit, but also the sustained economic slump in Michigan that has left thousands of workers without jobs, especially in the auto industry.
The number of Metro Detroit foreclosures in the first half of this year jumped by more than 50 percent over the same period last year, and the Metro region has consistently ranked among the top in the nation for foreclosure rates this past year.
The help from lenders is coming in many forms and is available primarily to homeowners who have strong payment histories on their existing mortgages and good credit.
Some local brokers are using existing mortgage programs through agencies like the Federal Housing Administration and the U.S. Department of Agriculture to offer fixed-rate refinance options to adjustable rate mortgage holders. Others are crafting their own deals, including loans that let some at-risk owners refinance to prime loans just years after they could qualify only for a subprime mortgage. To get that type of deal, homeowners must have good payment histories on both their mortgages and other bills.
Owners get options
A key provision of many of the refinancing programs, especially those offered by the feds, is that they allow mortgage holders to refinance to a fixed rate for up to 100 percent of a home's value.
Owners who qualify typically have high credit scores and haven't missed payments on their existing loans. The programs are extensions of previous federal offerings meant to stave off foreclosures.
Other options include federal and private loans that will cover up to 97 percent of a home's value, also of particular interest for homeowners who have faced decreasing housing values in recent years.
Options are more limited for those who are current with their mortgage payments, but are upside down on their house -- they owe more on the loan than the house is worth -- because of falling home prices, a trend that has hit Metro Detroit particularly hard the past two years.
In those instances, only certain types of already-issued FHA loans can be easily readjusted to accommodate a drop in a house's value, Seibert said.
Brokers say a homeowner's best bet is to find out when the ARM's interest rate will reset and take action before that happens.
ARMs begin to reset
Homeowners across the country are facing higher mortgage payments in the months ahead, with more than $797 billion worth of ARMs scheduled to reset over the next two years, according to a report released earlier this year by Credit Suisse Group, a global investment services bank.
Just less than $200 billion of those mortgages will reset in the next four months, meaning families with reasonable mortgage payments could face a big jump in their mortgage bill just in time for the holidays. Some $32 billion worth of ARMs will reset in October alone.
The adjustments can bump a mortgage payment up significantly. Acquisti said she had a client visit her office recently who had an ARM on her $112,000 home.
By refinancing to a fixed-rate loan, the homeowner was able to avoid a 2-point increase in the loan's interest rate -- and paying $150 more toward her home loan each month.
The smart ARM holders are those who seek pre-emptive help, said Pava Leyrer, president of the Michigan Mortgage Brokers Association.
"Know your situation," she said.
"Be very proactive, especially if you have a readjustment coming due. Most people would be surprised by the help they can get."
Some homeowners will qualify to switch ARMs to fixed rates
Nathan Hurst / The Detroit News
Desperate to stop the flood of foreclosures among their Michigan customers, mortgage brokers are loosening some of their lending rules to help homeowners trapped in adjustable-rate mortgages.
The lenders are making it easier for some homeowners to convert their ARMs, many of which are set to adjust upward over the next six months, to fixed-rate mortgages with payments that stay the same over the life of the loans. The bankers figure that if they can keep payments reasonable for their borrowers, they can reduce future foreclosures.
That's not only good for the homeowners who qualify, but also for the bankers. With a market so slow that homes can go unsold for months, even years, foreclosed houses have become a banker's burden. If they can sell the houses at all, it's often for much less than what the homeowners owe on their loans. So it's become a lot cheaper to make refinancing easier for those who are current on their ARM payments, but could find themselves in trouble once the interest rates go higher.
"Here in Michigan, with our economy, banks absolutely do not want houses," said Audrey Acquisti, an owner-broker with MSource Financial Group, based in Clarkston. "They will lose money. Working out a deal with a homeowner is better on their end, too."
The deals lenders are offering counter a larger trend toward stricter requirements to get home loans, in light of a deepening crisis in the mortgage industry. That tightening has accelerated in the past two weeks as many lenders have stopped making all but the safest mortgages.
But loosening the rules for credit-worthy customers with burdensome ARMs makes sense for lenders.
"It's simple," said Brian Seibert, president of Watson Group Financial in Waterford. "Banks are willing to work with good customers who might not have qualified for some fixed-rate loans just a few years ago. Anything but foreclosure."
Foreclosures skyrocket
Michigan's foreclosure rates began rising quickly last year, and this year they have skyrocketed -- fueled by not only the surge nationwide in high-interest subprime mortgages to borrowers with shaky credit, but also the sustained economic slump in Michigan that has left thousands of workers without jobs, especially in the auto industry.
The number of Metro Detroit foreclosures in the first half of this year jumped by more than 50 percent over the same period last year, and the Metro region has consistently ranked among the top in the nation for foreclosure rates this past year.
The help from lenders is coming in many forms and is available primarily to homeowners who have strong payment histories on their existing mortgages and good credit.
Some local brokers are using existing mortgage programs through agencies like the Federal Housing Administration and the U.S. Department of Agriculture to offer fixed-rate refinance options to adjustable rate mortgage holders. Others are crafting their own deals, including loans that let some at-risk owners refinance to prime loans just years after they could qualify only for a subprime mortgage. To get that type of deal, homeowners must have good payment histories on both their mortgages and other bills.
Owners get options
A key provision of many of the refinancing programs, especially those offered by the feds, is that they allow mortgage holders to refinance to a fixed rate for up to 100 percent of a home's value.
Owners who qualify typically have high credit scores and haven't missed payments on their existing loans. The programs are extensions of previous federal offerings meant to stave off foreclosures.
Other options include federal and private loans that will cover up to 97 percent of a home's value, also of particular interest for homeowners who have faced decreasing housing values in recent years.
Options are more limited for those who are current with their mortgage payments, but are upside down on their house -- they owe more on the loan than the house is worth -- because of falling home prices, a trend that has hit Metro Detroit particularly hard the past two years.
In those instances, only certain types of already-issued FHA loans can be easily readjusted to accommodate a drop in a house's value, Seibert said.
Brokers say a homeowner's best bet is to find out when the ARM's interest rate will reset and take action before that happens.
ARMs begin to reset
Homeowners across the country are facing higher mortgage payments in the months ahead, with more than $797 billion worth of ARMs scheduled to reset over the next two years, according to a report released earlier this year by Credit Suisse Group, a global investment services bank.
Just less than $200 billion of those mortgages will reset in the next four months, meaning families with reasonable mortgage payments could face a big jump in their mortgage bill just in time for the holidays. Some $32 billion worth of ARMs will reset in October alone.
The adjustments can bump a mortgage payment up significantly. Acquisti said she had a client visit her office recently who had an ARM on her $112,000 home.
By refinancing to a fixed-rate loan, the homeowner was able to avoid a 2-point increase in the loan's interest rate -- and paying $150 more toward her home loan each month.
The smart ARM holders are those who seek pre-emptive help, said Pava Leyrer, president of the Michigan Mortgage Brokers Association.
"Know your situation," she said.
"Be very proactive, especially if you have a readjustment coming due. Most people would be surprised by the help they can get."
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