Understanding Prepayment Penalities

penaltyFor most of us, the idea of paying off our mortgage well in advance is elating. But before you make this big move, it’s important to understand prepayment penalties, and what they could mean for you.

Simply put, a prepayment penalty means you will have to pay the lender a percentage of the principal, or some other stated amount, if you decide to repay the loan early. While this may seem wild (being charged for making your payment early!?), it’s actually quite common.

Some mortgages have prepayment penalties written into them. However, the prepayment clause is usually in effect for only one to three years and may be waived for special circumstances. Lenders impose the penalty to recover any losses related to your early payment.

If you are in the market for a home loan, ask about prepayment penalties before signing on. If you are applying for a new loan, the penalty should be disclosed in the truth-in-lending statement. Read the fine print and weigh all your options.

If you already have a home loan, call your lender or dig through your paperwork to spot any prepayment penalty clauses you may have missed.

As a Member of the Top 5 in Real Estate Network®, I have a wealth of real estate and home ownership information that may be of help to you. Feel free to contact me any time to learn more about this important information, and be sure to forward this article on to any friends or family that may be interested as well.

Forecasting The Real Estate Market With Government Shutdown

Wow, where did September go?  It was a very interesting month – kids went back to school, football season started, the weather has changed, the housing market remained strong and the government shut down for the first time in 17 years.

Forecasting The Real Estate Market With Government Shutdown

It will be interesting to see how the stock market reacts to the government shutdown, what the impact will be on rates, the housing market and how long it lasts.  If it is a quick shut down, we will probably see little reaction in the stock market and as a result, rates and the housing market.  If it is a prolonged shutdown of a few weeks or more, the stock market will have a negative reaction, rates will rise as bond yields decrease and we could see a loss of momentum in the housing sector of the economy.  What will happen to government backed loans in process and how will it affect settlements?  None of these are helpful to our economy since the housing recovery leads the economic recovery as a whole.  At this time, it appears as if this could last longer than just a day or two so let’s get prepared for a rocky economic road the next few weeks.

Let’s talk about the real estate market in September.  We did see a pickup in sales over last year in Northern Virginia.  Inventory increased slightly which gave buyers more choices.  As inventory increased, distressed properties made up a lower percentage of this increase which is great for home owners.  New home sales continue their strong pace of sales.  Interest rates came back down as the government eased off their threat of reducing their purchasing of mortgage backed securities and we still see multiple contracts on properties in certain price points and locations.

All in all, September was a good month for Northern Virginia real estate.  We need this trend to continue, so let’s hope the shutdown gets resolved more quickly than it appears it will.

If you have any additional questions or concerns, please feel free to call me directly (703) 652-5777

Scott MacDonald

RE/MAX Gateway, LLC

What’s on the horizon?

Inventory levels on active listings are creeping up and they have been consistently increasing since the beginning of the year.  We have seen an escalation in the number of houses going on the market each week, week over week except one.  This is definitely something to watch especially as mortgage rates begin to rise.  We have seen a slight increase in interest rates – they have only increased 1/4% since last week this time but they are rising.  The good news is it isn’t as drastic as many predicted as the Fed eased out of buying mortgage backed securities but it is probably keen advice to give to your clients to lock in today and not play the waiting game here!  The saying is “rates take the escalator down but the elevator up”, don’t wait.

Another key factor to watch as inventory rises is the pricing of your properties…how is the activity at your listing?  Are you experiencing lots of buyers going through and have you had no contracts?  Have you had little to no traffic going through the house?  If so, the price may be high.  Check comps again, look at inventory levels in competing price points and the surrounding area.  How has the absorption rate been in and around your listing?  Do the research and price it properly today so you aren’t chasing the market tomorrow!  Many sellers hear the market has rebounded price wise in our area because of the recent article in the Washington Examiner and the brisk pace of sales recently but remember to caution them that the market is local and in many cases hyper local so be careful on pricing it a little high for negotiations.  Be the professional and let the numbers tell the story of the market.

So, what is on the horizon?

On Monday, upfront mortgage insurance on FHA loans goes from 1.75 to 2.25% – revise your buyer closing cost sheets as this will have an impact on their payments.  Seller contributions are reduced from 6% to 3% and down payments on FICO scores 580 and below are increased to 10%.

The short sale process – in some cases may get better after April 5th.  Home Affordable Foreclosure Alternatives program affects home sellers with Freddie Mac and Fannie Mae backed mortgages.  Not all properties qualify so check the websites of these GSE’s and see if the seller’s loan is with either one before proceeding or check www.makinghomeaffordable.com/contact_servicer.html to see who the loan servicer is on the property. 

Here are the guidelines accompanying the program: 

  • This program complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home. HAFA alternatives are available to all HAMP-eligible borrowers who:   1) do not qualify for a Trial Period Plan;  2) do not successfully complete a Trial Period Plan;  3) miss at least two consecutive payment during a HAMP modification; or, 4) request a short sale or deed-in-lieu.
  • Property is principal residence.
  • Mortgage originated before Jan. 1, 2009.
  • Borrower is delinquent or default is foreseeable.
  • Borrower's total monthly housing payment exceeds 31 percent of gross income.
  • Unpaid principal does not exceed $729,750.
  • Homeowner demonstrates hardship. 
  • The program utilizes the borrower’s financial and hardship information already collected in connection with consideration of a loan modification.  The borrower must have applied for and been denied a loan modification prior to entry into this program.   Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
  • Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
  • Uses standard processes, documents, and timeframes/deadlines.  These deadlines include:  the borrower has 14 days from acceptance of services to return the Short Sale Agreement to their servicer in which they are granted 120 days to sell the house.  Once an offer is received, the agent must provide a RASS (Request for Approval of Short Sale) within 3 business days of receiving offer along with new buyer preapproval and all lien information to the servicer.  The servicer has 10 business days to accept the offer along with provisions to settle or deny the offer and they must provide an explanation of the denial.  Settlement must occur within 45 days.  The new buyers cannot “flip” or sell the property for 90 days and it must be an “arms length” transaction.
  • Provides the following financial incentives:
    • $3,000 for borrower relocation assistance;
    • $1,500 for servicers to cover administrative and processing costs;
    • Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.
    • Realtors cannot charge or receive commissions in excess of 6% and if the buyer or seller is a Realtor, they cannot receive a commission in connection with the transaction – including any side deals.
  • Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.

There is opportunity here people…know the program and know the process and you can sell more houses!  On Monday, April 5th at 7:00pm Margret Kelly will be hosting a program with BOA on Equator and how the program works.  Watch it on RE/MAX University.

Also, in an effort to assist with the HAFA and HAMP programs, many banks have agreed to participate in the 2MP program.  The 2MP was designed to work in tandem with the Home Affordable Modification Program and is aimed at helping homeowners who have a second home equity mortgage.   The Treasury estimates, up to 50 percent of at-risk mortgages also have second liens associated with them.

To qualify for the program, homeowners must successfully complete a trial modification on their first mortgage. Then, if the servicer of the borrower’s second line in a 2MP participant, the servicer must offer to modify the second lien or accept a lump sum payment from Treasury in exchange for fully doing away with the second lien.

Her are the guidelines in which the 2MP program is designed to work:

  • Only second liens with corresponding first liens that have been modified under HAMP are eligible for a modification or extinguishment under 2MP.
  • Second lines originated on or before January 1, 2009 are eligible for a modification or extinguishment under 2MP.
  • A second lien may be modified only once under 2MP
  • A mortgage loan that is subordinate to a second lien (i.e.: third, fourth position loans, etc) is ineligible under 2MP. However, modification or extinguishment of such a subordinate mortgage lien in place of the second lien will not satisfy the servicer’s obligation under 2MP to modify or extinguish the second lien.
  • If a second lien is modified under 2MP, it is not eligible for payment of extinguishment incentives under 2MP
  • A mortgage lien that would be in second lien position but for a tax lien, a mechanic’s lien or other non-mortgage related lien that has priority is eligible under 2MP
  • A second lien on which no interest is charged and no payments are due until the first lien is paid in full (e.g., FHA partial claims liens and/or equity appreciation loans) is not eligible under 2MP
  • Borrowers may be accepted into the program if a fully executed 2MP modification agreement or trial period plan is in the servicer’s possession on December 31, 2012.

All servicers of eligible second liens may participate in 2MP. A servicer need not service the related first lien or participate in HAMP in order to participate in 2MP.


Here are some helpful links:




Interest rates

Interest rates are expected to go up but luckily it is not at the pace or severity that many had speculated.  The funds rate are set to stay at the 0 to .25% level to help keep mortgage interest rates low.  Once again, we are relying on Wall Street to step up and help create the secondary market to buy mortgage backed securities and keep rates affordable to consumers.  Let’s hope this short trend continues!

In our conversation with Paul Muolo at the quarterly meeting last week, he mentioned that there had only been one big purchase of bulk loans, well….there has been another large purchase this week.  To learn about the details, which is unbelievable to me, check out the article at http://www.dsnews.com/articles/print-view/fdic-finds-taker-for-490-million-in-home-loans-2010-04-01

More good news

First American Core Logic has estimates that the Washington Region will be floating – out from being underwater by2015!  This is ahead of 10 other key markets.   There study was based upon an annual 3.3% reduction in loan balances coupled with 3% appreciation over the next decade.  They had estimated that 11.3 million or 24% of homes with mortgages were under water in Q4 of 2009.

As discussed before, today, more than ever, it is extremely important to stay educated on the market, what is coming down the road and know how to make the appropriate adjustments to thrive in any market.  You gotta learn more to earn more.  Get it?  Got it?  Good!

Now, go sell something!



The Market from ALL Angles

Another successful RE/MAX Gateway Real Estate Exchange


I was at a lunch with business leaders across the Washington Metropolitan Area and we discussed various challenges we were having within our businesses and what our opinions were on what was to happen going forward into 2010 – here is what we discussed:


First and foremost, everyone is blessed to be in DC – others around the country are bleak with no hope. 


  • People at Rosenthal Automotive are concerned about economy
    • November was a really bad month for car sales – feels like November in first two days of December


  • Mike Jacoby at Broad Street says the commercial real estate market is flat and will stay there for the next few years.  One bright spot is that the Route 28 corridor’s vacancy rate had dipped.


  • Johnson and Strachan, the insurance company is taking a hit because of the following areas:
    • Renewals / expiration vales are down – payrolls are down, valuations on companies are down, house values are down so their revenues as a result are down. 


  • UBT – a copier sales and service team say in their opinion the economy is flat/stable – not terrific just like their business but they expect slight growth anticipated in 2010


  • Roofers are on a roller coaster this year but will probably be down at year end – the market is a race to the bottom in pricing but they remain cautiously optimistic.  John Francis on NVRoofing believes it will be a long recovery over the next 5 years. 


  • Jeff Nay of Sandler Training say there is still a lot of business is out there – need better skills and better systems to eat others lunches today.  Get educated and trained and you will survive in today’s market – especially in D.C.


  • Derek Coburn of Washington Financial Group who specialize in wealth management – money is in Bonds – not Stocks right now they are not afraid the market will crash and that the market will come down.


  • RE/MAX Gateway spoke about the following topics:
    • Inventory is down
    • Buyers are there but $$ are down or flat
    • Tax Credit for Home Buyers was extended
    • MBS end in March
    • HVCC is keeping $$$ down
    • Foreclosures are hitting market 2nd Quarter of next year
    • FHA raising down payment requirements this year from 3% – 3.5% and perhaps to 5% down next year
    • Credit is tightening up
    • If we continue to lose jobs it’s important to keep in mind that every 6 job lose results on 1 foreclosure.


Next year will be an interesting year in residential real estate with the Government getting out of purchasing Mortgage Backed Securities, the Home Buyer Tax Credit ending, and a supposed flood of foreclosures coming on the market the second quarter next year and the impact that will have on housing prices.  Stay tuned!


We then introduced Keith Barrett of Champion Title & Settlements, Inc. to discuss the new regulations going into effect April 5, 2010.


General Short Sale Guidelines under HAFA




Eligibility for Home Affordable Modification Program (HAMP):

1. Property is borrower’s principal residence

2. First lien mortgage originated on or before Jan 1, 2009

3. Mortgage is delinquent or reasonably foreseeable

4. Unpaid principal balance less than 729, 750

5. Mortgage payment exceeds 31% of gross income


Not guaranteed but must be in place


In the event modification process above does not work out, every potentially eligible borrower must be considered for Home Affordable Foreclosure Alternative (HAFA)


The percentages of loan modifications that default are greater than successes where people remain in their homes – there is a huge opportunity here folks!!


General Information:


Effective date April 5, 2010


Servicers must execute participation agreement for non-GSE Mortgages prior to end of the year.  If already participating, must follow HAFA guidelines.


Servicer has 30 days to contact borrower regarding short sale or deed in lieu


Borrower then has 14 days to respond


Prohibits servicer from reducing commission as stated in listing agreement


Doesn’t protect settlement companies and their fees – it’s unfortunate.


Suspension of foreclosure while under consideration for short sale


Short Sale Agreement under HAFA:


Termination date of not less than 120 calendar days after agreement signed


Agreement is available on line


Release of liability for borrower for cancellation of default


Allowable transaction costs


Roles and responsibilities of servicer and borrower, upkeep of property, pay a portion of their monthly payment until closing.


Borrow must submit offer/request for short sale approval within 3 days of receipt. Servicer has 10 business days to approve/deny short sale from when contract and request for short sale approval submitted. At this time, we are not aware of any penalties given if there is no response by bank by the deadline.




$1500.00 for relocation expenses paid to borrower


$1000.00 paid to servicer


Investor paid $1000.00 for allowing up to $3000.00 to be paid to subordinate lien holder, which lien holder must forgive the debt and release liability


Again, there is opportunity here – don’t miss out!


We had discussed if the government had given everyone $100,000.00 vs. bailing out everyone would be in a better position today versus the situation we are in today with all of the debt the government is in.


Inventory levels continue to shrink:

5,074 Active resales in Northern Virginia

1.9 month supply of homes

1.9 month supply of rentals


Our market is strong for sellers with equity!  Get them on the market today.  Get it?  Got it?  Good!


Now, go sell something!