Archive for August, 2007
Rules get tighter for mortgage lending
Obtaining a home loan is going to get even more difficult.
Lending guidelines are tightening almost daily for borrowers as the subprime-loan crisis spreads. Those higher-risk loans have just about disappeared as their default rates soar.
Now, financing is getting tougher for all homebuyers.
On Thursday, megalender Countrywide Financial Corp. had to take out an emergency loan to keep operating, and Tucson-based First Magnus Financial Corp. stopped taking loan applications. Magnus is one of the nation’s top private lender.
Earlier this year, New Century Financial Corp. and American Home Mortgage Investment Corp. filed for bankruptcy. So far, at least 70 mortgage firms have closed or put themselves up for sale since last year.
Because of the meltdown in the mortgage market, lenders have begun requiring higher credit scores and bigger down payments from all borrowers. They also are charging higher interest rates to people who want to buy a home for $417,000 or more because fewer lenders want to fund them.
The tighter mortgage market will work to slow metro Phoenix’s housing market. Real-estate analysts say the new lending restrictions could knock 10 to 15 percent of home buyers out the market because they can’t get funding. That could significantly affect the local market, where a record number of homes are for sale and where sales are already down about 25 percent from 2006’s pace.
“The mortgage market has changed drastically in just the past few weeks,” said Tom Miner of the Scottsdale-based mortgage firm Miner Kennedy Chmura Associates. “We are getting calls from buyers who can’t close anymore because lenders want more documentation or money down.”
Cheryl Serbic wanted to buy a condominium in central Scottsdale. Earlier this summer, the restaurant manager qualified for an adjustable-rate mortgage that required little down.
But a week before she was to close, her lender said she needed a bigger down payment. Serbic called other lenders and got the same bad news.
“I didn’t think I needed a down payment. My friend bought last year without one,” she said. “But if the housing market is going to keep going down. I’ll save and maybe I’ll find a better deal then.”
Not all the 100 percent financing and no-documentation loans have gone away. But now, lenders are requiring borrowers’ FICO scores to be 20 to 40 points higher than last year. A 10 percent down payment, once considered standard, is now required on many more loans.
“There was a lot of dumb lending done in the past few years,” said Jay Luber of First Horizon Home Loans. “Loan guidelines now are tougher but much closer to normal.”
How we got here
In 2003, lenders started offering a slew of new easier-to-get mortgages that enabled the nation’s housing boom.
Borrowers with bad credit and lower incomes could buy homes by getting subprime loans with higher interest rates.
Other borrowers could get in with nothing down and without paying private mortgage insurance by using 80/20 or piggyback loans.
The 20 percent was typically a home-equity loan that covered the down payment. Lenders also cut back on the income documentation they required on loans. These “no doc” loans opened the door for people to qualify.
The housing market was booming. People thought they could refinance into better loans as home prices climbed. Lenders were making money.
Then last year, home prices and sales started to slip. The subprime market started to implode as foreclosures on those loans jumped.
Now, the foreclosure epidemic has spread to the Alt-A mortgage market, the segment between subprime and prime loans that includes many 80/20s and no-documentation loans.
Changing guidelines
Lending guidelines are changing quickly.
Not only borrowers but sellers looking to move up should make sure they qualify first.
The “jumbo” loan market for mortgages of $417,000 has tightened up because mortgage institutions Fannie Mae and Freddie Mac don’t guarantee loans above that amount. The investors who would have backed the bigger loans have pulled back, which is part of the mortgage market’s liquidity problem.
Tighter lending practices are also affecting homeowners looking to refinance.
In a slowing housing market, some homeowners who got subprime or adjustable-rate and interest-only loans a few years ago are finding they can’t refinance because they don’t have a high enough credit score or their house is worth less than they owe.
“Now, their rates are adjusting up, and they can’t refinance because don’t qualify under the new guidelines,” said Andy Griffin of Scottsdale-based Core Mortgage Group.
“It’s a really tough time for a lot of homeowners now, but if people can hold on and make their payments, it will be much better for them than a foreclosure.”
In its newest report, the Mortgage Bankers Association said mortgage markets are “facing a liquidity crisis of a force and magnitude not seen in decades.”
It went on to say the ripple effect will be felt throughout the housing market.
Those effects are already being felt here in the Valley.
“Things are bad and are going to get worse,” said Brett Barry, a north Valley real-estate agent.
via The Arizona Republic
Navigating New Mortgage Maze
Erica Sandberg of the Consumer Credit Counseling Service in San Francisco provides some tips about what to do if your current mortgage is resetting, if you are refinancing or simply trying to get a loan.
Bob Roscoe, Mortgage Marketing Associates, Minneapolis, Minnesota
Mortgage Rate Floatdown
An Introduction To California Home Mortgage Loans
By Peter Emerson
A home mortgage is a long-term loan, usually taken for a house or a property, for a large amount. The interest rate and the borrower’s financial capability are the two major factors that should be considered before choosing home mortgages. California home mortgage lenders provide several loan schemes and options. Most of these feature different estimates and interest rates.
California home mortgages are similar to mortgages anywhere else in the country. Depending on the real estate market value, home mortgage rates vary frequently in California. When a scheme offers very low interest rate, then it would be a great benefit to the customers, as the repayment option would be quite feasible. California home mortgage lenders usually offer two types of home mortgage interest rates, namely, fixed rate mortgage and adjustable rate mortgage.
Eligibility for applying for California loans varies from lender to lender. The only mandatory criterion is that the applicant must be a permanent resident of the state. One can use the service of licensed mortgage brokers to get the applications from loan mortgage companies. Applications are also available online.
A California home mortgage loan agreement contains certain terms and conditions which rule the loan during its tenure. Mortgage lenders give loans for a definite period during which the mortgagee is expected to repay the amount. If the mortgagee fails, the lender can begin legal actions to regain the money. California laws also allow the lender to auction the property to recover the residual debt.
Acquiring a home mortgage loan in California is a simple and easy process. You just need to take into account your economic situation and what you can afford before signing the contract. Online mortgage calculators make these processes simple. Many banks, private lenders, and property sellers offer mortgages on homes. To select a good home mortgage option in California, discuss with a broker and collect a list of current mortgage interest rates. Moreover, check whether the rates already quoted are the lowest for that day or week.
California Mortgage Loans provides detailed information on California Mortgage Loans, California Home Mortgage Loans, California Jumbo Mortgage Loans, California Mortgage Refinance Loans and more. California Mortgage Loans is affiliated with California Home Equity Loans.
Federal bank propose new mortgage forms
Federal bank regulators on Tuesday published a new set of forms designed to give borrowers a better understanding of mortgages that can adjust to dramatically higher monthly payments.
With mortgage defaults rising among U.S. borrowers, consumer advocates say many lenders encouraged consumers to focus on the initial low-rate “teaser” period without fully informing them that their loan payments could jump up in the future.
The disclosure forms published by the Federal Reserve and the other four federal agencies that regulate banks, thrifts and credit unions are intended to give consumers clear information about the risks of adjustable-rate home loans.
One sample form gives borrowers an explanation of features common to adjustable rate mortgages, while another form compares payments under a traditional fixed-rate mortgage compared with an adjustable rate one.
Kirsten Keefe, founding director of Americans for Fairness in Lending, an umbrella group of consumer organizations, said the disclosures are an improvement over current ones but are no substitute for a new federal law that would ban specific unfair lending practices.
Many consumers, she said, are faced with a stack of confusing disclosures when they obtain a loan and rely on advice from real estate agents and mortgage brokers.
“The best disclosure will never replace regulations,” Keefe said, “What’s really needed are laws and regulations that get rid of abusive terms in adjustable rate mortgages.”
In addition to the Fed, the agencies that developed the new forms are the Federal Deposit Insurance Corp., the National Credit Union Administration and the Treasury Department’s Office of the Comptroller of the Currency and Office of Thrift Supervision. Comments on the proposal are due Oct. 15.
These banking regulators in July also completed guidelines that call on lenders to strictly evaluate borrowers’ ability to repay home loans.
Mortgage lenders such as Countrywide Financial Corp. and Washington Mutual Inc. package many of their home loans into securities and sells them to investors, but the market for those investments has dried up because of rising defaults and a slumping housing market.
Lenders are not required to use the new forms and are free to alter or design them as they see fit. However, banking institutions generally follow the regulators guidelines, which only apply to federally supervised institutions, not state-regulated ones.
If they do not use the baking regulators’ forms, lenders would have to ensure that their own disclosures and marketing materials provide “clear and balanced” information, federal regulators said in a notice published Tuesday in the Federal Register.
Earlier this year, the Federal Trade Commission concluded that many borrowers failed to understand loan terms after reading the current disclosure forms and recommended those forms should be replaced.
via Muzi
Fixed Rate Mortgages Back In Vogue
In contradiction to recent finding by mform The Council of Mortgage Lenders has just announced an upturn in the number of UK mortgage customers taking out fixed rate mortgages in June.
According to findings by CML 90 percent of first time buyers opted for the fixed rate option, up from 83 percent in June of the previous year.
The figure rose from 76 percent to 63 percent for people moving home.
This raises two questions how reliable are these figures, and is a fixed rate deal the right option?
The answer to the first question is; not very. We shouldn’t be surprised at this, different companies have access to different data and have their own ways of measuring change. As such these figures should be taken with a pinch of salt and used only as an indication of the market.
So, is a fixed rate deal the right choice? It makes sense that people want some security in knowing what their repayment will be every month but that doesn’t necessarily mean a fixed rate mortgage offers the best value.
Many people involved in the mortgage industry expect interest rates to peak at 6 percent, there is even discussion going on that rates might already have peak at 5.75 percent as inflation has unexpected dropped to 1.9 percent, below the Government’s 2 percent target.
Taking out a fixed rate deal now could see people tying themselves into high rates while a flexible option such as a discount or tracker rate mortgage could give you the option to benefit from future falls in interest rates.
While we’ve already mentioned that mortgage data should be taken with a pinch of salt the fall in inflation is a more reliable measure of how likely the Bank of England is to raise rates further.
We can never tell what’s round the corner but in my opinion rushing to the alleged safety of fixed rates could leave many people with many regrets in the coming 12 months.
Which is the better option – Cash-out Refinance or Second Mortgage?
Scenario: I am looking to do some repair work on my home as well as pay off 2 credit cards. I have an existing mortgage on the property, the balance on which is $30,000. I am thinking whether to refinance the mortgage or take out a fixed rate second mortgage loan. My home value is about $100,000 and I want to cash out $20,000. Is it safe to take out a second mortgage or should I refinance and take out extra cash? I need the extra cash for the repairs and also to pay down the credit card debts. And, if you need more details:
I am likely to stay for 10 more years in this property and perhaps even more.
Income tax bracket = 25%
Interest rate on current loan = 8%, interest rate on refinance = 5%, rate offer on second mortgage = 6%
Loan term remaining = 5 years, the loan term for refinance & second mortgage = 10 years.
Possible closing costs on refinance = $1200 and second mortgage = $1000
Monthly payment on my current loan is $608.29
Solution:If you go for a cash-out refinance, you will be paying off your existing loan thereby using the remaining cash to carry out the repair work and pay down the credit card debt. This implies that you’ll have to manage only a single loan and that’s quite easier than managing two loans at a time.
Now, considering the current market rates, it will be a good option to go for the cash-out refinance. This is because the market rates on first mortgages are comparatively lower than that on second mortgages. However, you may have to pay higher closing costs if you refinance with a first mortgage loan compared to what you’ll pay if you go for a second mortgage.
Now, if you go for a cash-out refinance, then using the Cash-out Refinance vs Second Mortgage Calculator, your monthly payment will come out to be $543.06. But the second mortgage would require you to pay $233.14 on a monthly basis. Also, the total monthly cost on the refinance for next 10 years will be $65166.65 whereas it will be $64474.68 for the second mortgage.
The cash-out refinance may cost you more on a monthly basis, but it will help you get higher tax benefits on mortgage interest. That is, your tax savings for the refinance will be $3491.66 while for the first and second loans combined, it will be $3368.67. Moreover, the total cost offset on the refinance for next 10 years will be $33491.66, that is higher than the cost offset ($33368.67) on the combined loan (first and second loans). However, the net cost offset on the former for the next 10 years will come out to be $31674.99. But for the combined loan, it would be somewhere around $52106.01. Now, the total savings, if you refinance, will be $ 20431.02 for the next 10 years. On the other hand, you will not be able to save any cash amount on the combined debt including the first and second mortgages. Thus, in your case, I believe going for the cash-out refinance will be a better option.
By: Samantha
Article Source : http://www.articlestoreprint.com