In an effort to keep people in their homes and encourage more home purchases, the Federal Reserve’s actions to reduce interest rates have been a success. Many homeowners have taken advantage of low interest rates and have purchased homes or refinanced their current mortgage. However, prospective homeowners who have not taken advantage of the savings should consider acting soon because many industry analysts say the low interest rates may soon end.

Mortgage interest rates have seen an astounding drop to as low as 4.5 percent after President Obama’s mortgage refinance stimulus plan was announced as well as the Federal Reserve announcement last November about their plan “to buy as much as $500 billion of securities backed by Fannie Mae (FNM.P), Freddie Mac (FRE.P) and Ginnie Mae.” Mortgage experts are now warning that the low interest rates for mortgages are not going to last. Celia Chen, senior director of housing economics at Moody’s Economy.com in West Chester, Pennsylvania says, “The downward trend we have seen in mortgage rates will not last beyond the first half of this year.” She continued to say, “By then, the Federal Reserve’s program will have run its course and other issues will move to the forefront that could push mortgage rates higher.” Chen also said, “By the first quarter of 2010, rates should be at 5.87 percent.”

The reasons the interest rates will start to increase include an increase in government debt and a positive outlook that the economy is beginning to rebound. This may be the perfect time to secure a mortgage or refinance an existing mortgage because as the economy begins to recover, interest rates will begin to rise. For instance, economic analysts have recently reported that “last year, the yield on the 10-year treasury was only about 2%. Recently, there has been an increase to over 3.5%.” The result will be that interest rates on loans and mortgages will start increasing again. As well, 30-year loan interest rates have seen a jump. Recently, the average interest rate rose to 5.27%. This is up from about 4.75%.

Greg McBride, senior financial analyst at Bankrate, Inc, in North Palm Beach, Florida, says, “Expectations of a 30-year fixed-rate mortgage at 4.50 percent are too ambitious. Inflation worries may begin to spook investors and that could send Treasury yields higher, which would cause a corresponding move in higher mortgage rates.”

Cameron Findlay, chief economist at online loan broker LendingTree.com in Charlotte, North Carolina, says “mortgage rates at 4.50 percent remained possible, but not probable.” As well, Moody’s Economy.com has forecasted interest rates at “4.5% by mid 2009 after dipping to a low of 4.37% in the second quarter. In the third and fourth quarter, rates are expected to rise to 4.57% and 5.18 %.”

If the increase in interest rates continues, people who are considering refinancing an existing mortgage, buying a new home, or selling their new home, may miss out on a great deal if they wait too long. This may be the best time to lock into a low interest rate mortgage.

Recent developments relating to mortgage laws are going to make Pennsylvania homebuyers happy. In the online version of the Philadelphia Inquirer, an important news article was published on July 8, 2008 regarding five bills that were signed by Governor Rendell. These bills are intended to provide added layers of protection for Pennsylvania homebuyers with their mortgages as well as to keep a tight rein on the state’s mortgage industry.

Foreclosure: an essential element in mortgage laws

The term “mortgage” encompasses a whole gamut of other concepts such as “default” and “foreclosure.” In light of the present economic situation and sub-prime mortgages causing people to lose their homes, it is good to be aware of what the law provides in case of a foreclosure in Pennsylvania.

First, let’s tackle foreclosure. Pennsylvania laws stipulate that uncontested foreclosures take 120 days or longer before they can take effect. To execute on a foreclosure, lenders go to court and have what is called a judicial foreclosure. The court that decides the foreclosure case is called a Court of Common Pleas. After deliberations, the property is then sold.

Note, however, that when a homeowner defaults on a loan, foreclosure is not automatic. Generally, it is when a homeowner misses a payment for two consecutive months that lenders take action. Lenders will issue a lis pendens – a written and registered document that issues a public notice that the property is being foreclosed upon.

Mortgage laws require that there be two pre-foreclosure notices. The first falls under Act 6 which is a notification of the intention to foreclose. This is sent to the homeowner within 60 days of defaulting. The second one is under Act 91 wherein the homeowner is advised that he or she may qualify for financial assistance under the HEMAP – homeowners emergency mortgage assistance program.

Five bills signed by Governor Rendell

On July 8, 2008, Governor Rendell signed five bills that were drafted to protect homebuyers and to eliminate any risks for improper activity and behavior on the part of mortgage lenders and brokers.

Generally, these bills provide that:

people who sell mortgage loans must now be licensed by the state. Not only a background check is required, but also proof that the mortgage loan seller has completed training and is certified by the Department of Banking of Pennsylvania. prepayment penalties be strictly regulated real estate appraisers be penalized for misconduct require mortgage companies to provide state notification when they intend to foreclose on a property the state will make public enforcement activities against mortgage companies

Pennsylvania’s Department of Banking’s HB 2179 oversees the licensing and training of individuals who sell mortgage loans. They must demonstrate competence in the mortgage loan industry and must undergo certification.

As for prepayment penalties, the new mortgage laws provide that homeowners don’t end up having to pay for expensive and rising mortgage rates because of some prepayment penalty provisions. This bill will apply to mortgage amounts of $217,873,000 or less.

Senate Bill 484 (SB 484) on the other hand makes provisions for homebuyers to gain access to additional information about potential mortgage companies or sales people, while Senate Bill 485 was drawn up in order for homebuyers to have more confidence that the appraised value of a property is sound and reflects current market values.

Misconduct on the part of an appraiser is subject to a penalty of $10K per violation.

It used to be that when a foreclosure notice is issued, it is sent only to the homeowner and then filed in the borrower’s home county. Senate Bill 486 has changed that. It now requires every foreclosure notice to be sent to the Penssylvania Housing Finance Agency so that the foreclosure can be monitored in real time. In this manner, the state can spot potential trouble areas enabling it to intervene in a timely manner.

People who have mortgages will also be delighted about the two new loan programs launched by the Governor: Refinance to an Affordable Loan program (REAL) and Homeowner Equity Recovery Opportunity (HERO) which was put in place to help homeowners facing foreclosure.

In fact, in a separate online article, Governor Rendell was saying that all homeowners in Pennsylvania who have any concerns about meeting their mortgage obligations should call the state for assistance immediately .

These bills – or reforms as viewed by many – arose from a 2005 report released by Pennsylvania’s Department of Banking. The report was entitled Losing the American Dream: A Report on Residential Mortgage Foreclosures and Abusive Lending Practices in Pennsylvania.

Most of us will only buy a few homes during the course of our life. Combine this fact, with the fact that home mortgages are often the largest single debt that most people carry, and you can see why choosing a mortgage lender can be nerve wracking. In what is often the biggest business transaction of your life, there are certain questions that you can ask that will better help you understand your loan and negotiate the best deal.

What type of loan do you advise?

There are many different types of loans, and the competent lender should help you understand each one, and explain the benefits and drawbacks of each. Adjustable rate mortgages are often touted for low interest rates, but they are not the best choice for everyone. The rate typically remains low for a year or two, but when it adjusts up, the amount of the monthly payment can increase enough that the home owner has trouble meeting their monthly obligations. Fixed rate loans have a fixed interest rate over the life of the loan. The fixed rate is often a little higher than the adjustable rate mortgage rate, but you have the advantage of knowing each month exactly how much your payment is. If rates drop substantially, you can always refinance your loan. Interest only loans are not as common. In interest only loans, the monthly payment is only the amount of interest on the mortgage. These types of loans are best suited for people who have high and steady incomes, and plan on living in a home long enough for it to substantially increase in value. At the end of the loan term, the home owner will either refinance the loan, or pay the balance of the loan in full. If the home has not appreciated during the loan term, it can be difficult to refinance.

What are interest rates and annual percentage rates?

A qualified mortgage lender should be more than willing to disclose what their interest rates are for different types of loans, as well as the annual percentage rate. They should also be willing to run the numbers for you so that you can see exactly how the different percentage rates affect the amount of your monthly payment.

How much will the loan cost?

The qualified mortgage lender should provide you with a good faith estimate. This is an estimate on the amount of money that it will cost to close your loan. This good faith estimate is not an exact amount, but should be very close, and include appraisal fees, title insurance and any other fees that the lender requires to close the loan. If the lender is unwilling to give you a good faith estimate, it is likely that there will be some surprises on closing days. Some disreputable lenders pad the closing costs with administrative fees that are unnecessary and add up quickly. Before you commit to one lender, you should see a copy of the good faith estimate that lists every fee you will be expected to pay to close on the loan.

Is there any prepayment penalty?

Although not as common as it once was, some lenders charge a fee if you pay off your mortgage early. While you may think that this does not apply to you, if the lender has a prepayment penalty it can be enacted even if you refinance your loan. It is important to confirm with your prospective lender that there are no penalties for prepayment of the mortgage.

How long will it take and what if interest rates change?

Closing can take a week or a month, or even longer. It is important to ask your mortgage lender how long they anticipate it will take from the start of the process to closing. You should also ask what happens if interest rates change during the closing process. Ideally, you will lock in your rate at the qualification phase, and if mortgage rates increase, you keep this rate, but if they drop, your lender will “float” your rate down with them.

How much of a down payment is required?

Down payments can vary greatly, depending on your credit history, the appraised value of the home and even market conditions. Never assume that you know, ask the lender what percentage of the loan amount you should have on hand for a down payment. This is often negotiable, but you need to know early in the process if you will have enough money to cover the cost.

How to qualify?

Ask the mortgage lender early in the process what the qualifications are to qualify for a loan. In addition to a solid job history, you will probably be required to have several years’ worth of income tax statements, as well as bank statements and information on any stocks, savings bonds or other investments. Even if you do not plan on cashing these to buy your home, they do count as assets and make it easier to qualify for a loan.

Choosing a Mortgage Company

You will potentially be dealing with your mortgage company for the next thirty years, therefore; it is important to choose your mortgage company wisely. The best way to choose a mortgage company is to ask those around you for their experiences. Talk to friends or relatives who have recently purchased a home and ask if they were happy with the service from their mortgage company. By doing this you can begin to build a list of companies that you want to approach.

Real estate agents can also be a good source for mortgage company recommendations. Because they see people working through the financing process daily, they develop a feel for which companies are easy to deal with, and which are not as easy. Although word of mouth is an excellent way to develop a list of potential mortgage companies, it should not be your only method used. Everyone has a different financial situation, and what works for one person may not be the best choice for someone else.

Using the list of mortgage brokers that you have compiled, you can make appointments to go in and personally speak with each one. This will give you a feel for the personality and demeanor of each company. Also, if you have trouble getting your calls returned, or setting up appointments as a prospective customer, it is unlikely that your situation would improve if you had your mortgage through the company.

What to Expect from the Mortgage Company

A mortgage company is a service industry. It is important to remember this. Many people find the mortgage approval and home buying process so intimidating that they forget that they should shop for a mortgage company that they are happy with. A mortgage company should be happy to quote you specific interest rates, and let you know when you should lock in these rates. They should also tell you what the specific costs are in acquiring a loan. This means a good faith estimate on closing costs, discount and origination fees that must be paid and any other costs that may be involved when purchasing a home.

The mortgage company should be upfront about all of the technical details of the loan. They should let you know if there is any penalty for pre-payment, the amount of money required for a down payment, and what documents you will need to provide for loan approval. The mortgage company should also let you know what guidelines you must meet to qualify for a loan with them. This will include credit history, your income, employment history, your assets and liabilities and any other specifications they require.

Many states offer specialized home buying programs. The well established home mortgage company should be familiar with the various programs in your state, and provide you with information about these. If you believe that you may qualify for one of these programs, the mortgage company should help you complete any necessary paperwork and determine if you qualify.

The mortgage company should be willing to tell you how long it will take to process the loan, and if they guarantee it will be processed by a certain date. They should also provide you with any information that may slow down the loan processing process, and their method for dealing with problems.

After the Loan Closes

Once you close on your mortgage, you may never see or think of your mortgage company again. You make your monthly payment, and sometime, years down the road, you receive the title to your home. While this happens occasionally, it is not as common as you may think. You may move, and decide to sell your home. Interest rates may drop, making the decision to refinance attractive, or, you may have trouble making your monthly payment due to job loss or medical problems.

Before selling your home, you must know how much you owe on it. Your mortgage broker should be able to determine the balance of the loan and provide you with this information easily. If you decide to refinance, consider staying with the same mortgage company. Often, the mortgage company will negotiate lower closing fees or no closing costs if you refinance through the same company that currently holds your mortgage.

Finally, if catastrophe strikes and you are unable to make your mortgage payment, it is imperative that you get your mortgage company involved early in the process. They can provide you with resources for help in making or delaying payments, and let you know if foreclosure is imminent. As tempting as it is to bury your head in the sand at this time, remaining proactive can help you hand on to your home, or allow you to sell your home before foreclosure proceeding begin.