Archive for July, 2007
A warning for homeowners
Originally published in the Chicago Tribune on July 15
By Gerry Smith
More than a hundred people gathered Saturday in the Austin neighborhood as housing experts sought to raise awareness about an epidemic that has left in its wake a growing number of boarded-up houses across Chicago.
During a town hall meeting at the Austin Senior Wellness Center, experts said the city is in the midst of a foreclosure crisis and urged homeowners to seek counsel before signing a mortgage. They also warned about “predatory lenders” offering interest rates that may increase dramatically over the life of a loan.
The forum came as the number of new foreclosure cases in Chicago increased 36 percent over the last year, from 7,558 to 10,294, the biggest single-year increase since 1993, according to the National Training and Information Center , a Chicago-based organization that compiles reports on the home-loan industry. More than half of foreclosures were on loans less than two years old.
Illinois is ranked the eighth highest state for foreclosures, according to RealtyTrac.com, which monitors foreclosures.
Meanwhile, economists are predicting that homeowners will start feeling squeezed as low interest rates that fostered the real estate boom begin to rise. The national average for 30-year fixed-rate mortgages has grown from 6.18 percent to 6.74 percent this year, Freddie Mac, one of the nation’s largest mortgage investors, said last month.
At the forum, Michelle Rodriguez-Taylor, a housing organizer at the information center, said the problem has spread in Chicago neighborhoods such as Austin, where boarded-up houses highlight a 65 percent jump in new foreclosure cases since 1993.
U.S. Rep. Danny Davis (D-Ill.), whose district includes Austin, attributed the rise of foreclosures to homeowners signing mortgages without fully understanding the conditions of their loans.
“They’ve invested everything they have into a place they can call their own,” Davis said. “And then they have that taken away and they don’t understand why.”
Rodriguez-Taylor said many lending companies are skirting an Illinois law designed to protect borrowers from high interest loans by offering mortgages with adjustable rates that start as low as 4 percent but rise as high as 12 percent within a year.
“We’re seeing people paying over 50 percent of their income on their loans,” she said.Michael van Zalinger, who works at the Neighborhood Housing Services of Chicago, said he often sees foreclosures occur when subprime loans with a fixed rate for the first two years start to increase every six months for the life of the loan.
He said many homeowners are falling behind on monthly payments that can start as high as 50 percent of their pre-tax income. When the interest rate increases after two years, he said, borrowers are paying as high as 90 percent of their take-home income.
Speakers at the meeting urged anyone who has fallen behind on their mortgage payments to call the National Foreclosure Prevention hot line at 888-995-4673.
Mortgage Refinancing California Opens New Doors
Mortgage Refinancing California has opened up the first Deep Fried Soya canteen in the Gregorian Monk Pre-School. The canteen will serve as a nutrition centre for not only the toddlers who attend the school, but also for the children who live in the surrounding areas. The opening of the canteen by the Mortgage Refinancing California benefactors’ generosity has drawn praise from many religious groups who may not agree with the methods of frying soya balls in oil, but nevertheless support the idea behind nourishing children. Mothers will also be educated as how best to feed their children to avoid problems such as mal-nourishment, colic and tantrums in crowded supermarkets.
Mortgage Refinancing California is said to be delivering more building supplies to the Gregorian Monk Pre-School so that the locals can help build an even bigger canteen. The head of the Gregorian Monk Pre-School, Brother Louis Louis, will accept the Mortgage Refinancing California supplies on behalf of the community. In an edict passed by the Brother, he states that “You can give a community deep fried soya, and you feed them for a day, but if you teach a community to deep fry their own soya, they will be fed forever and ever, provided they don’t burn themselves.” Such wisdom.
Mortgage Funds top $22 billion
Is there such a thing as too much money? Most of us would think not, but when large chunks of money are competing for a home, investors are often forced to take on more risk.
One area where this has happened in recent years is the mortgage fund market.
While mortgage funds don’t have the sex appeal of share and property funds, they have captured a fair slice of the investment pool.
Australians are estimated to have more than $22 billion invested in mortgage funds, with the largest retail funds having assets of close to $2 billion.
The appeal of mortgage funds is simple. They provide a steady, regular income and should deliver a better long-term return than cash investments.
But traditional mortgage funds have been lagging the cash rate and the better returns are being generated by funds that pack more punch but also carry greater risks.
Morningstar performance figures for the past financial year show returns ranging from 5.19 per cent (Colonial First State’s Bricks and Mortar Fund) to 9.46 per cent (Mirvac’s AQUA High Income Fund).
The median return is 6.58 per cent. But comparing funds at the top and bottom of the ladder is more like comparing chop suey with mangos than apples with apples.
If a fund is showing returns of 9 per cent or more, says Morningstar’s Anthony Serhan, it is almost certainly lending against construction and development. Borrowers don’t pay higher interest rates because they want to; they do it because lenders charge them a higher rate to reflect the loan’s higher risk.
It’s a point that was lost on many investors who bought debentures and unsecured notes with groups like Fincorp, Australian Capital Reserve and Bridgecorp, and inevitably some mortgage fund investors will miss it too.
This isn’t to say that mortgage funds fall into the same basket as these collapsed property lenders. Investors in these schemes often put their money into unsecured or secondary securities that rank behind secured lenders.
Most mortgage funds insist on first mortgage security, and while they may be creditors of the collapsed groups, Standard and Poor’s fund analyst, Peter Ward, says they should get out relatively unscathed without causing losses to their investors.
The fact that mortgage funds are generally well diversified and don’t put big slabs of their money with one borrower, also helps.
But you still need to understand just how much risk your mortgage fund is taking on and what protections it has in place.
Standard and Poor’s has just completed a report on 52 mortgage funds and found big differences in what’s on offer.
The report says conventional mortgage funds have been suffering from “milking the same cow” as the banks. Competing for loans has led to lower margins and, in some cases, lower credit standards.
Morningstar’s Serhan says smaller mortgage players, especially, can’t compete on price when the banks decide to buy market share.
They may be able to compete by establishing better relationships with borrowers, but some have chosen to move up the chain - to look at loans less fiercely contested by the banks.
At the same time, traditional mortgage funds have been showing less than spectacular returns.
S&P’s report found they have increasingly underperformed bank bills, and Serhan says they have lost ground to newer listed debt investments (many of which are also a step or more up the risk scale).
Traditional funds still make up the bulk of the market, but the number of higher yield or higher risk products is growing to adapt to these market forces.
So is it a case of once bitten, twice shy? Take a lesson from Fincorp et al and avoid the higher yield mortgage funds like the plague?
Not necessarily. S&P gave four-star ratings to four high yield mortgage funds and said they should generate better short- to medium-term performance than the traditional funds. But you need to do your homework.
Ward says some of the more dubious practices in the industry (and these can occur in both higher yield and traditional funds) include lending against the “on completion” value of development projects (which includes the developers’ profit) rather than the cost of the project, plus related party loans, insufficient liquidity within the fund, and high gearing levels. He says funds should be well diversified (geographically, across sectors and across borrowers), have a stable management team, and effectively manage arrears and defaults.
You also need to understand what the fund invests in. Ward says some mortgage funds have become hybrids and invest in fixed interest securities as well as mortgages, and there has been a rise in the number of residual product loans where mortgage funds lend against unsold units when a development is completed, in anticipation of the units being sold. As with development loans, interest on these loans is usually capitalised and represents higher risk.
S&P found widespread use of mezzanine finance (where higher geared loans are split, with the senior lender taking a first mortgage and other lenders providing additional finance) and some funds specialised in areas such as low-or no-doc lending.
If understanding all that sounds like hard work, you’re right. Mortgage funds have become more complex and investors are further hampered by poor or inconsistent disclosure.
While he believes mortgage funds have a role in investors’ portfolios, Serhan says they should provide standardised disclosure so that investors can compare risks between funds and understand measures such as the level of a fund’s arrears. They may still not be comparing applies with apples, but at least it would look a bit less like chop suey.
Mortgage home loan demand growth above expectations
OVER 66,000 Australians bit the bullet and took out a home loan in May, despite the rising cost of buying a property.
Growing job security, as the unemployment rate falls, rising wages and recent stability in interest rates have made people more comfortable about taking on debt, economists say.
In total, 66,040 owner-occupied housing loans were agreed to by banks and finance institutions in May, a seasonally adjusted increase of 0.1 per cent over loans committed in April, Australian Bureau of Statistics (ABS) data released today found.
This is the sixth straight month of growth in housing loans.
Economists had expected to see no growth in May.
The total value of dwelling commitments in May was $22.139 million, a 2.7 per cent increase on the previous month.
Housing affordability has been a hot topic in the political arena in the past week with the Opposition saying it will hold a summit in Canberra on July 26 to find ways to ease the pain for first homebuyers trying to get into the market, as well as tackle soaring rents.
The Government wants to conduct a national audit to find suitable land for housing and ease the cost burden on homebuyers.
The ABS data shows that first-time homebuyers made up 16.6 per cent of loans committed in May, down from 17.2 per cent the previous month, and well shy of the 26.1 per cent set in July 2001.
The average Australian home loan size was $268,900 in May.
Loan commitments in the country’s largest housing market in NSW fell 2.6 per cent in May after four straight months of growth, while loans grew in Victoria by 1.7 per cent.
Demand for home loans growing
Growing job security, as the unemployment rate falls, rising wages and recent stability in interest rates have made people more comfortable about taking on debt, economists say.
In total, 66,040 owner-occupied housing loans were agreed to by banks and finance institutions in May, a seasonally adjusted increase of 0.1 per cent over loans committed in April, Australian Bureau of Statistics (ABS) data released today found.
This is the sixth straight month of growth in housing loans.
Economists had expected to see no growth in May.
The total value of dwelling commitments in May was $22.139 million, a 2.7 per cent increase on the previous month.
Housing affordability has been a hot topic in the political arena in the past week with the Opposition saying it will hold a summit in Canberra on July 26 to find ways to ease the pain for first homebuyers trying to get into the market, as well as tackle soaring rents.
The Government wants to conduct a national audit to find suitable land for housing and ease the cost burden on homebuyers.
The ABS data shows that first-time homebuyers made up 16.6 per cent of loans committed in May, down from 17.2 per cent the previous month, and well shy of the 26.1 per cent set in July 2001.
Loan commitments in the country’s largest housing market in NSW fell 2.6 per cent in May after four straight months of growth, while loans grew in Victoria by 1.7 per cent.
In Queensland, loans rose by 1.4 per cent, a fourth straight month of growth, and in South Australia they rose by 0.7 per cent.
In Western Australia they dropped 7.3 per cent, almost whipping out the 7.9 per cent gain in the previous month, while the strongest state in the month was Tasmania, up 6.3 per cent.
In the Northern Territory loans rose 2.3 per cent and the in ACT they increased by 4.6 per cent.
In Queensland, loans rose by 1.4 per cent, a fourth straight month of growth, and in South Australia they rose by 0.7 per cent.
In Western Australia they dropped 7.3 per cent, almost whipping out the 7.9 per cent gain in the previous month, while the strongest state in the month was Tasmania, up 6.3 per cent.
In the Northern Territory loans rose 2.3 per cent and the in ACT they increased by 4.6 per cent.
Source: AAP
Want the mortgage process to go quick & painless?
If you come across that great real estate deal and need to close quickly it’s a good idea to be prepared ahead of time. If you’re looking for a fast approval you should have certain documents on hand to make things go smoothly. Also, make sure you deal with a mortgage broker that takes care of all requirements quickly - i.e. appraisal, copy of offer, lawyer handling transaction etc..
Some key documents that all lenders require:
- Recent Notice of Assessment from the CCRA after your income tax has been filed. This is the blue letter you receive after you’ve filed.
- A recent pay stub and a letter from employer
- Financial Net worth overview showing assets and liabilities.
- If self employed, proof of ownership in a company.
- Proof of Down payment. All lenders require that you show a 90 history and provide proof of source of funds for any large deposits.
Keep these items in a central spot so that you can locate them quickly. Having these documents easily accessible will make the mortgage experience a lot less stressful for you. You don’t want to miss a great opportunity over some missing paperwork.
Why Remortgage?
They include:
You’re simply looking for a better rate! With so much competition and new mortgage deals appearing monthly why not try and find a better rate of interest and save yourself some money? It allows you to consolidate any outstanding debt that you may have.
You might want to release capital for home improvements.