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Numbers of underwater mortgages plummets

The number of underwater mortgages is plummeting as the housing market continues to recover. This will have huge ramifications for the finances of millions of people and families.

Maggie Medved was stuck with her Phoenix house for two years after the market crash wiped out the equity in the property. Last year, as prices in the area rose by the most in the U.S., she and her partner were finally able to sell the 3-bedroom 1950’s style home and move to a larger place.

“We were counting the days for when we could move,” said Medved, 40, who trains employees for weight loss company Jenny Craig Inc. “We definitely knew it was a waiting game because it would’ve been financial suicide if we had sold earlier.”

Medved was among the 12 million borrowers in the U.S. who at the peak of the real-estate downturn owed more on their mortgages than their houses were worth, blocking them from moving or saving money by taking advantage of the lowest borrowing costs on record to refinance. As prices recovered, the number of underwater borrowers fell by almost 4 million last year to 7 million, according to JPMorgan Chase & Co. (JPM), and could drop to 4 million within 2 years.

The housing market is rebounding faster than anyone thought possible, according to Blackstone Group LP (BX)’s global head of real estate Jonathan Gray, as the Federal Reserve buys mortgage bonds to keep rates near record lows and investors sop up a diminishing supply of properties for sale. Housing construction could boost U.S. gross domestic product by 0.4 percentage point and home price appreciation may add another 0.2 percentage point, Bank of America Corp. (BAC)’s senior economist Michelle Meyer forecasts.

The housing recovery is one of the main reasons why we can now start getting optimistic on the US economy. So many people were stuck in impossible situations, and now that burden is being lifted. The Fed has been a huge driver of this improvement, along with the billions in private investment looking for deals on under-priced homes.

New mortgage rules released


Image courtesy of FreeDigitalPhotos.net

We’re starting to see new regulations from the Consumer Financial Protection Bureau trying to regulate the mortgage market and prevent some of the outrageous abuses we saw leading up to the 2008 financial meltdown.

The government is establishing new rules for mortgages that will make it harder for some borrowers to qualify but that are designed to prevent the kind of risky lending that nearly caused the housing market to collapse during the financial crisis.

The Consumer Financial Protection Bureau on Thursday will roll out the first of several far-reaching changes to the nation’s mortgage market, limiting upfront fees and curtailing practices such as interest-only payments that can leave homeowners stuck with unsustainable loans. The agency also will set standards for how much income a consumer must have to obtain a mortgage.

This marks the first time the government has spelled out what constitutes a “qualified mortgage,” an effort to prevent the widespread toxic loans that hurt millions of Americans during the housing crisis.

Banks that offer qualified mortgages will be protected from lawsuits if they adhere to the criteria. The consumer agency hopes that will drive the entire industry to live by the tighter standards that have taken hold since the crisis, ensuring safer loans but potentially limiting the number of people who can qualify to buy a home.

This will make it harder for some people to qualify for mortgages, but that’s reality. There will be a phase-in period. I’m also curious to see how people in markets like New York react where prices are so high. But in the grand scheme of things these reforms were needed.

Should you consider a biweekly mortgage?

This video does a pretty good job of explaining exactly how a biweekly mortgage works and the benefits. The benefits really go to making extra payments each year which can cut years off of your mortgage. It also aligns well with your biweekly paychecks, so it’s extremely convenient.

Just be careful in case you bank ties fees to this payment structure.

Refinancing made simple

Getting your finances in order can be stressful, but it doesn’t have to be. There are simple steps you can take to prevent or cure a financial letdown. One of the options you can take to get back on track, and stay there, is by refinancing your auto loan. Here’s how the process works.

Much like when you refinance a home mortgage, refinancing your auto loan pays off your existing vehicle loan. But it’s much faster and simpler to refinance the loan on your car or truck. During the process, your new lender pays off your old loan and the title to your vehicle is transferred to your new lender.

Refinancing your auto loan can lower your interest rate, decrease your monthly payment by changing your terms, or both. Most often, people refinance when interest rates are low to reduce the amount of interest they’re responsible to pay. You can also lower your monthly payments by extending the duration of your auto loan to break your payments up over a longer time frame.

You could potentially enjoy significant savings by refinancing your vehicle loan. Exactly how much you’ll save depends on the remaining balance of your current loan, the difference between your old and the new interest rates, and the terms of your new loan.

No matter what motivates you to do it, refinancing your vehicle loan is an option that’s well worth your time and effort. A little extra research now could blossom into huge savings over the remaining months or years of your auto loan.

Helping your kids with their mortgage

OK. Maybe the house pictured above is a bit much for your kid’s first house.

But, that doesn’t mean you can’t help out your kids by becoming their mortgage lender.

Between slumping prices and low mortgage rates, it’s a good time to look for real estate bargains. But thanks to tightened lending standards, legions of young would-be homebuyers aren’t exactly in a position to take advantage of the opportunity. That’s where their parents come in: One in three first-time buyers received either a gift or a loan from their families to help buy a home in 2011, according to the National Association of Realtors.

Such a move can provide significant financial benefits to child and parent alike. But you need to proceed carefully to maximize the tax and estate-planning advantages and avoid unpleasant family conflicts.

Read the entire article for the details.

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