What is Second Mortgages?

A second mortgage is simply a new mortgage placed against a property where there is already a first mortgage loan in place. It would not replace the first mortgage but is added onto the property title as a second charge.

First mortgage lenders have priority over the second mortgage lender. If the property is sold or goes into default the first mortgage holder is paid.
If the second mortgage were to go in to default, the second mortgage lender would essentially have to pay off the first mortgage loan to gain access to their collateral.

Lenders, therefore, consider seconds to be riskier loans.

Are There Different Types of Second Mortgages?

There are generally two types of second loans

1. Home Equity Lines of Credit.

A home equity line of credit (HELOC) will be set-up with a maximum limit available for the homeowner to draw against. It usually has an open term and can be drawn upon like a credit card. You can normally access the funds by writing a cheque, making a cash withdrawal or completing an online account transfer. This type of account is used in cases where homeowners may need access to funds but they pay no interest on the funds till they withdraw them.
Most HELOCS are based on the banks prime rate and can be interest only payments. Interest payments are made monthly on the outstanding balance for that month. There is considerable competition among banks and lenders for these HELOC mortgages.

2. Home Equity Loan

A more traditional second mortgage loan is the home equity loan. Home equity loans are fixed-rate loans with set payments each month. The interest rate is usually higher than that of a first mortgage but may be less than that of a HELOC. The benefit of the home equity loan is that it amortizes to a zero balance over the term of the loan. This type of loan is more common for people who need access to large amounts of funds at one time for such things as home renovations, large consumer purchases and college tuitions.

Your choice between these types of mortgages will depend on your individual needs, your budget along with the terms conditions imposed by individual banks or lenders.

Mortgage Frauds Rampant in Florida

When the financial bubble burst, many people’s lives went spinning out of control. Unfamiliar with the fallout they would be facing, homeowners were scrambling for information. Unfortunately, the unscrupulous scammers were just starting to gear up their machines to reel in the catch.

The FBI defines mortgage fraud as “any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan”, and there is a plethora of companies doing just that.

There are several organizations across the country that offer rescue plans for people in financial distress. However, incidents such as changing signed documents after the clients leave the office, or other acts of fraud, are all too common.

Some unethical companies may claim to be working in government-sponsored homeowner programs or agencies. Actual or fictional names of government agencies or other official-sounding terms could also be used as the scam artists do their best to appear legitimate.

There is help available for those who have been unfortunate enough to fall prey to these tactics.

If consumers think they have encountered a mortgage fraud situation, or are even suspicious, one of the first stops they can make is the Florida Attorney General’s Office. A toll-free Consumer Hotline has been set up, and there is a variety of mortgage- and fraud-related information on their website.

Through its Division of Real Estate, the Florida Department of Business and Professional Regulation sets rules and guidelines for real estate professionals and exercises disciplinary authority. A Consumer Complaints Section is available to report any incidents people believe to be unethical or illegal conduct by real estate professionals.

HUD, the U.S. Department of Housing and Urban Development, also offers consumers the resources they need to make intelligent decisions when it comes to their mortgages.

Here are some points to watch out for when dealing with rescue recovery plans.

Avoid up-front fees:

One prominent scam in play is the requirement for up-front fees by mortgage rescue firms. Consumers facing foreclosure are coerced into paying fees for loan modification or payment rescheduling assistance. All too often, these companies are not legitimate and do nothing to prevent a foreclosure from proceeding. In the end, the homeowner loses the fee, receives no assistance, and forfeits their home.

Because so many have been victimized by this fraud scheme, governments at all levels have put the brakes on these exorbitant fees. The FTC (Federal Trade Commission) recently put out a consumer warning to avoid any company that asks for a large fee in advance, noting it is definitely a red flag to consider. These fees are prohibited in 20 states, with more to come.

While there are a large number of nonprofit agencies that do offer homeowner assistance programs under government sponsorship (usually through HUD), they charge little or no fee for their services.

Leaseback/rent-to-buy scams:

In order to get the consumer to sign on for this scheme, the scam artist offers a deal to have the owner turn over the deed to their property in exchange for a rent-to-own agreement. Supposedly, this will allow the owner to stay where they are and at some point in the future, reclaim their home. Unfortunately, once the deal is signed, the owner may find there are a number of hidden fees and penalties, making it easy for the scam artist to void the deal and evict the owner.

Debt-elimination schemes

In this scenario, the scam artist often claims to be able to eliminate the homeowner’s debt by way of secret laws or other financial trickery known only to his company. When the homeowner buys into this plan, it usually involves a fee for advice, and the owner is convinced to halt their mortgage payments to participate in the false program. This puts the homeowners in a dire position as they end up in a far greater debt situation that is difficult to resolve.

Source: Articlebase.com

Deed-in-lieu of foreclosure can be an option to avoid foreclosure

Foreclosure can be one of the most painful financial experiences for any customer. Not only do you lose your home in foreclosure, but it can have a long-lasting impact on your credit rating. It is always advisable that you do all you can to avoid foreclosure as much as possible because foreclosure is a serious situation with serious repercussions such as derogatory information on your credit report. The recession of recent years has resulted in great financial hardship for thousands of Americans and this has unfortunately given rise to an alarming increase in the incidents of foreclosures. While this has resulted in a lot of pain for the thousands of people who have been affected, many people have resorted to options such as deed-in-lieu of foreclosure in order to avoid foreclosure.

While through a deed-in-lieu of foreclosure you would be able to avoid a foreclosure, this is never an option for those who are looking for ways to save their home. This is because in this process, the home must be moved out of. In the deed-in-lieu of foreclosure process, the homeowner gives the deed of the house to the lender who in return agrees not to pursue legal court ordered foreclosure proceedings. The deed is turned over to the lender once the parties have completed a written agreement that details the terms and conditions. If you are wondering what this deed is, it is a publicly recorded document that states who owns the property in question. So when you offer a deed in lieu of foreclosure, it means that you as homeowner will voluntarily sign over the deed to the lender giving them the ownership of your house.

Even though you would be able to avoid a foreclosure through a deed-in-lieu of foreclosure, it would definitely have a negative affect on your credit, although a bit lesser than having a home foreclosure on your credit report. Although you gave the deed back willingly, it would still signify that you couldn’t make your payments and the lender had to come after you. Also, by the time the lender will accept the deed in lieu of foreclosure, you would have missed several payments, and the damage would have been done.

As mentioned earlier, both the options would have a negative impact on your credit and getting mortgage after foreclosure or deed-in-lieu of foreclosure can be quite difficult if not impossible. You would need to be well-versed with the steps in buying a home after foreclosure if you want to increase the chances of approval. The good thing is that it is possible to rise from a bad credit situation. It is advisable that you consider the following when applying for a mortgage after having gone through a foreclosure:

Remember that foreclosure can have a huge negative impact on your credit. In addition to the stigma that is associated with foreclosure, you may also have to deal with the fact that it is difficult to obtain any type of credit, especially a home loan immediately following a foreclosure. Yet, since many factors contribute to the inability to repay a mortgage loan, you may still be able to afford a new home loan even after experiencing a foreclosure. Your experience with foreclosure (or near foreclosure such as a situation where you were forced to go for deed-in-lieu of foreclosure in order to avoid a foreclosure) might have been due to loss of employment, but you may be able to handle a new mortgage after you have found a new job. While your affordability may be your part of the story, in order to convince the lenders about this, you must make sure that you have rebuilt your credit before you apply for a mortgage.

Make sure that your debts with your existing creditors have been taken care of. Since rebuilding your credit after experiencing foreclosure is so important in order to get approved for new loans, you must make sure that you pay your other bills and creditors on time. Any late/ skipped payments will cause further damage to your credit rating. Shop around for mortgage lenders who are willing to lend to high risk customers

When applying for a mortgage loan after a foreclosure, many traditional lenders will not approve a loan request. But there are lenders out there who specialize in lending to high risk borrowers who have a difficult time securing financing. It may therefore, be a good idea for you to shop for such lenders as an alternative.

There can be various creative ways to avoid foreclosure besides a deed in lieu. It may be well worth the time to investigate these options before you decide to give the deed back. It is important that before taking your decision, you consider all your options that can keep you in your home and salvage your credit.

About the Author
By Mortgage Guru, submitted 2010-11-23

http://goarticles.com

Letters of Financial Hardship: Letter to Stop Foreclosure

Letters of financial hardship provide an opportunity for the homeowners to stop the foreclosure. It is a part of the documentation package when they request for a mortgage loan modification. A convincing letter of financial hardship is one of the potential ways to stop foreclosure. It’s worth a try because at most the mortgage company can reject the letter. It is important to access the requirements and write a letter to stop foreclosure, before its proceedings start. The fact is that the mortgage companies generally do not want to foreclose homes, as they lose significant money in the process of selling the home at an auction.

In case the homeowner knows that he is going to face a hard time paying the mortgage, for next one or two months, he should immediately contact his mortgage lender. This avoids the extra payment of late fees and penalties. If the homeowner feels that it is almost impossible to make the mortgage payments at its current amount, in the long run, a letter to stop foreclosure becomes necessary to stall the big process of foreclosure of his home. The letter should clearly state the reason because of which the homeowner has fallen behind in his mortgage payments. Necessary documents along with the copy of his checking account, should also be attached in order to prove the hardship.

These documents include:

Housing documents
Mortgage documents
Financial hardship budget

Income Tax PapersThe homeowner should make a humble request to mortgage company for the possible modifications, in order to make the payments affordable. A well written hardship letter to stop foreclosure plays an important role in the process of stopping foreclosure. If one can convince the mortgage lender with substantial proof, the letter can provide a way out of the difficult situation. If the homeowner wishes, he can also asks for some time from the mortgage company, in order to find out a suitable buyer for the short sale of his house. Following are some of the points which should be kept in mind while writing a letter to stop foreclosure.

A Clear Subject Line: In order to reach the right hands, the subject line of the letter should be clear and concise. This also gives the brief idea of what actually the letter is meant for.

Personalize it to a Limit: The letter should give an idea about the hardships the homeowner is facing, however, it should not be his life story. It should make the mortgage company aware of his circumstances, with a valid and genuine reason for the non-payment of the mortgage.
Clarity of the Content: One should try to state the points that are stated in the clearest form, and make a proper summary at the end of the letter. He should not miss out any point which can play an important role in stopping the foreclosure. It is good to be humble and thankful in tone while writing the letter, as the person reading the letter is not responsible for the current circumstances.

A letter of financial hardship is also useful for restructuring or consolidation of one’s debts. Losing a family home can pose a financial as well as an emotional setback for anyone. This attachment should be evident from a financial hardship letter to the lender, on order to regain the family treasure.

About the author:
By Swapnil Srivastava

Mortgages for People in Foreclosure

The Federal government has launched a number of programs to stop foreclosures that have become rampant after the collapse of the housing market. Some of these programs are meant to help homeowners modify mortgage payments while others help home owners refinance their home. In addition to modifying mortgage payments and aiding mortgage refinancing, the Obama administration is also trying to provide relief to homeowners, who are unable to make the necessary mortgage payments, by encouraging mortgage lenders to allow short sales. To know more about the eligibility criteria, to qualify for mortgage modification or refinancing, one may refer to the article titled, “Government Help to Stop Foreclosures“.

Mortgages for People in Foreclosure

Mortgage refinancing refers to the process of replacing a mortgage loan with another mortgage of the same size having relatively favorable repayment terms. Of course, mortgage refinancing is possible only if one has positive built up equity in the house. The following programs can help homeowners refinance their mortgage and thus prevent foreclosures.

Home Affordable Refinance Program

People, whose loans are owned or guaranteed by Freddie Mac or Fannie Mae, have the option of refinancing their mortgage from an adjustable-rate mortgage (ARM) to a low fixed rate loan. In fact, they may be able to replace their current mortgage with a mortgage that demands interest only payments or balloon payments. The new mortgage loan, that is provided under HARP (Home Affordable Refinance Program), cannot exceed 125 percent of the current market value of the property. The Home Affordable Refinance Program is a part of the Making Home Affordable Program and will be operational till June 10th, 2010.

HOPE for Homeowners Program

The HOPE for Homeowners Program was launched on October 1st, 2008. This program is meant for homeowners whose loans are insured by the FHA (Federal Housing Administration). This program can help homeowners refinance their mortgage even if the built up home equity is less than 20 percent. The program, which expires on September 30th, 2011, was modified on May 20th, 2009, with the intention of providing additional compensation for primary and subordinate mortgage holders.

Bad Credit Mortgage Refinance

People, whose loans are not owned or guaranteed by Freddie Mac or Fannie Mae or individuals who do not have FHA insured loans, may consider approaching a mortgage broker, who may be willing to provide a new mortgage loan to replace the current mortgage, provided they have sufficient built up equity in the house. However, the borrower may be forced to pay a high rate of interest on the loan and this may very well defeat the purpose of mortgage refinancing. Moreover, mortgage brokers may also expect the borrower to purchase points wherein the cost to purchase one point is equal to 1% of the total principal amount of the mortgage loan. Although purchasing points will lower interest rates, the Internal Revenue Service (IRS) considers points as prepaid interest which has to be deducted over the term of the loan rather than at the time of closing. Again, the borrower would be required to pay closing costs that are rather steep to refinance the mortgage. A cash strapped borrower, who is not eligible for refinance under HARP or HOPE, may be unable to afford mortgage refinancing due to the aforementioned reasons.

It’s evident that mortgage refinancing may help prevent foreclosures. Just as mortgages for people in foreclosure are hard to come by, seeking a mortgage after foreclosure is also a tough task. The best way to obtain a mortgage after foreclosure is to improve credit scores that may fall by up to 350 points as a consequence of foreclosure.

About the author:
By Aparna Iyer