Thursday, Aug. 7
Posted 11 a.m. EDT
STILL HERE: It's been a week since I have posted. I've been busy.

I had a journalism professor who hated the word "very." He told us to go through our first drafts and replace "very" with "damn." As in, "damn busy." Then, he said, take out all the profanity.

So, in tribute to Mr. Moses: I've been busy.

CLOSER: Bankrate has just released its annual closing costs study. For the fourth year in a row, New York tops the list as the most expensive. For the second year in a row, the top three are, in order, New York, Texas and Florida.

New York has taxes built into its lenders' fees, something you don't find in most other states. New York taxes lenders, who then pass along the tax as origination fees. In other places, state and local taxes are line items that are separate from origination fees.

New York also has an expensive way of closing loans. Lawyers do closings, and you'll usually find at least three lawyers sitting around the closing table when a New Yorker is buying a home and paying for it with a mortgage. Outside of the northeast, closings typically are done by lesser-paid title agents or escrow officers.

Another big expense comes from title insurance. Texas, Florida and New Mexico all are among the most expensive states for closing purchase mortgages. All three happen to have "promulgated" rates, in which the state's insurance department sets the minimum rates after taking testimony from title insurance companies.

I wouldn't be the first person to speculate that the title insurance companies' testimony might be dishonest and misleading, and that there are cozy relationships between title insurance companies and the state agencies that promulgate rates. The voters of Texas, Florida and New Mexico seem to like it that way; otherwise, they would demand that their elected representatives do something to lower title insurance rates.

Nationwide, the title insurance companies pay out between $3 and $4 for every $100 that homeowners pay in premiums.

Thursday, July 31
Posted 4 p.m. EDT
RATES DROP: In this week's Bankrate.com survey, the 30-year fixed fell 7 basis points, to 6.7 percent. They have fallen even more today, by roughly an eighth of a percentage point.

CONDO HEADACHES: Our Marcie Geffner takes a look at what happens to condo associations when owners start losing their units to foreclosure.

Q&A: I have received a lot of questions about the new housing law. Let's get to them. Questions edited for brevity and clarity.

Second question first. It's preferable to persuade Bank of America to forgive some of the debt and let you refinance into an FHA-insured mortgage. Fannie Mae and Freddie Mac are tightening their restrictions against giving mortgages to people who have gone through foreclosure. You won't be able to get a loan through Fannie for five years after a foreclosure; with Freddie, it's seven years.

There's a chance that Fannie and Freddie could extend such a prohibition to people who have gone through short sales, too. I don't think that will happen, because they want to encourage short sales in lieu of foreclosure. But the possibility exists.

Now for the first question. But first, some background. The housing law encourages lenders to forgive delinquent homeowners' mortgage debts, down to 90 percent of the home's currently appraised value. Then the homeowners can refinance into FHA-insured mortgages.

You can't accelerate this process, because the FHA is stuck in the mud. The FHA is part of the Department of Housing and Urban Development, and a HUD spokesperson says the refi program is unlikely to be ready by Oct. 1. It might be the end of the year before lending standards are worked up, and it might take several months after that to get the program up and running.

In other words, the refinancing program might not be running full-blast until a year from now. It's hard to believe that HUD would treat this issue as just another bureaucratic task to be handled with deliberation, but it's looking like that.

For the most part, lenders are going to proceed with foreclosures instead of forgiving debt. But yes, you did miss something -- the difference between purchase price and currently appraised value.

Let's say I bought a house for $250,000 and got a primary mortgage for $200,000. Now the house's value has declined. An appraiser would estimate the market value at $180,000. I want to take part in this FHA refi program.

The lender can say yes, and forgive all the debt above 90 percent of the appraised value, or $162,000. The lender also would kick in the upfront FHA premium, which will be 3 percent for this type of loan (about double the normal FHA premium), or $4,860. The cost to the lender is $38,000 in forgiven debt, plus the FHA premium, totalling $42,860. The lender is writing off more than 21 percent of the original $200,000 loan amount, not just 13 percent.

The lender's other choice is to proceed with foreclosure and pay the associated legal and maintenance costs, forgo interest, and pay a real estate broker a commission of about 6 percent for selling an unoccupied house. Let's say the property eventually sells for $170,000. That's a $30,000 loss. If the Realtor gets 6 percent, that's another $10,200. Add in legal fees, and it's starting to look like loan forgiveness is cheaper.

I still don't think lenders are going to do many of these deals. The employees who approve these deals won't want to be second-guessed. It's safer, careerwise, to allow a foreclosure to go through.

I have some of the sharpest readers in the world, and they won't let me get away with oversimplifying. Yes, a typical FHA short refi is going to have a second mortgage -- a home equity line of credit, most likely. And, no, the first and second lienholders will not share in the writeoff. The second lienholder (the HELOC lender) will lose every penny.

Who determines this? The law. In a foreclosure or short sale, or in a short refi as in the FHA plan, the first lienholder gets paid first. If any money is left over, the second lienholder gets paid. In the FHA refi scenario, the first lienholder gets partial payment and the HELOC lender gets nothing. The FHA can negotiate a side deal with the HELOC lender, offering to pay it some of the proceeds from the property's sale, perhaps many years in the future. As you can surmise, the second lienholders will nix many of these deals because they have little incentive to go along.

Will the new lender coerce the appraiser to appraise under market value? No, not at all. In fact, the risk lies in the opposite direction. The current, or "old" lender, will want the appraiser to overvalue the property so the lender won't have to write off as much debt. The new lender will go along with this, because the bigger the loan, the more profitable it is. Don't forget that these loans will be insured by the FHA. If they go bad, the lenders get their money back, anyway.

And all of this is optional on the part of lenders. They don't have to participate in the FHA refi program.

That's all the time I have for today. There are plenty more questions to answer, so tune in tomorrow.