Oct
3
Here’s a little history lesson for you, Czar is derived from the word Caesar. Here’s another history lesson for you, when Congress acts, they’re usually reactive not proactive:
Lawmakers called on Wednesday for a ‘mortgage czar’ to help cope with an expected wave of foreclosures from the U.S. housing slump but Alan Greenspan said the credit crunch was past the worst.
“We are beginning to see the frenzy calm down,” the former chairman of the Federal Reserve told a conference in Lisbon. “Unless we get secondary effects the worst is over.”
Fallout from a global credit squeeze, sparked by problems in the U.S. subprime mortgage market, have rattled markets in recent weeks, threatening economic growth and bank earnings.
Jan
4
Subprime Meltdown
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Most consumers really don’t know much about the mortgage world. I know I didn’t before I got into the mortgage world. The extent of my knowledge was applying for a loan, getting hosed (e.g. fleeced) on fees at closing and then having to pay a mortgage payment every month. What I didn’t know was that my mortgage was never truly held by the company that I made payments to, they simply serviced my loan. Mortgages are packaged as mortgage backed securities and sold on the secondary market i.e. Wall Street.
Subprime mortgages or loans with less strict underwriting standards have followed the same process of selling their loans on the secondary market but with dismal results. Due to the multitude of delinquent payments and ultimate foreclosure on subprime loans, these loans are being rejected by Wall Street en masse. Several subprime lenders have already shut the doors: Mortgage Lenders Network, Ownit Mortgage, Sebring Capital with many more on the horizon. In other words, we’re headed for a sub prime meltdown of epic proportions.
What does this all mean for the consumer?
- Borrowers with questionable credit will find it harder to qualify for a mortgage.
- The number of borrowers looking to buy homes will probably be reduced substantially.
- If borrowers who have questionable credit can’t refinance, they may be facing foreclosure.
- People who can’t buy will continue to rent so rents may increase.
- Hard money lending will become the only option for many. Learn how to swim with sharks.
- Look for credit counseling/improvement to be heavily marketed. Desperate borrowers beware.
Jan
1
Will Stated Income Work for You?
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A stated-income loan qualifies a borrower using the income the borrower states on the application form - as opposed to the income the borrower can document. With a stated income loan, the lender agrees not to attempt to verify the income the borrower has stated on the application.
Stated income mortgages are ideal for the self-employed and for home buyers in professions with salaries comprised mostly of cash tips, such as waiters and hotel porters. This type of loan applicants can often afford a mortgage, but don’t have the necessary pay stubs to document their true earnings. Self-employed business owners whose personal assets are commingled with the business assets often utilize “Stated-Income Stated-Assets” mortgage programs.
You are responsible for providing an accurate figure when the loan officer asks for your income amount. The loan officer should not coach you or fill in the amount for you. If the loan is audited and fraud is discovered you and or the loan officer can be held accountable under the law.
One of the reasons for a stated income loan is to minimize paperwork during the loan application process. A number of requirements that would normally be requested are W2 Statements, 1099 Forms, Bank Statements, and Pay Check Stubs. A stated income loan would not require the borrower(s) to find and organize this information to be approved for a loan. In many cases the interest rate difference is very minimal but normally slightly higher than a loan which requires proof of income.
On some stated income programs, the lender may require the borrowers to complete and sign Internal Revenue Service form 4506. This form gives the lender permission to access past and future tax returns of the borrowers. Having a signed and completed 4506 form in the file greatly enhances the marketability of the loan to the secondary market.
Some times this loan program has been referred to as “The Liars Loan”. It is important to understand, the existence of this loan, is for the purpose of helping borrowers, who otherwise cannot document their Actual Income. It is not designed to fictitiously inflate your income.
Stated income may be used in lieu of full documentation if you have higher credit scores. Lenders view you as less risky and therefore are willing to dismiss income documentation to speed up the loan process. The rate you receive is contingent on specific loan to value and/or down payment restrictions.
Lenders will often check with widely-available salary survey sources like salary.com to determine whether or not the income stated is consistent with the borrower’s profession and title.
Jan
1
Why are second mortgage rates higher?
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Mortgage rates are all based on risk. The lower of a risk the loan is the lower the rate will be. Second mortgages are riskier loans. In the unfortunate event of a foreclosure the second mortgage holder gets paid second, not first. If threes not enough money to payoff the second mortgage often they take a loss. Since they are higher risk loans to investors the carry higher rates of return (so investors will purchase them).
A mortgage is considered a lien on your property. A first mortgage is in the first lien position and is the least amount of risk because they are the first to get paid should the borrower default and the home be sold through sheriff’s auction or through some other type of sale. A second mortgage is in the second lien position and is at a considerably higher risk than the first so a 2nd mortgage usually has more strict lending guidelines and credit requirements and will also charge a higher interest rate to make up the difference of this greater risk. If you also had a third lien on your property, they would have the greatest risk and even much worse terms than the first and 2nd liens.
If a homeowner files for BK the second mortgage is not guaranteed to be paid off. So the lender who makes a loan in the form of a second mortgage vs. a first mortgage assumes a higher risk. The lender offsets that risk by charging a higher rate.
Most second mortgages are also held in the lenders own loan portfolio rather than being sold to Fannie Mae, etc. Given that, there is considerable variation in rates, terms, qualification criteria, etc. from lender to lender.
When you take out a 100% one loan you will pay for private mortgage insurance (PMI). When a loan is sold on the secondary market to Fannie Mae or Freddie Mac they will only insure 80% of the value of the home. This insurance covers the other 20% of your loan in the event that you don’t’ pay and the property goes to foreclosure. Second mortgages, when used on an 80/20 combo loan program are self insured and for this reason carry a higher rate. Meaning you don’t have to carry PMI.
Rates on second mortgages will always be higher because the risk to the lender is higher. The rates will vary as with a first mortgage, depending on your credit worthiness, ability to pay and combined loan to value ratio. Combined loan to value ratio is the combination of the first and second mortgage compared to the sale value of your home. The lower the ratio is, the better rate you will get.
Jan
1
The difference between residential and commercial
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Residential and commercial loans are similar in many ways. However, there are some major differences in the uses for commercial loans, and the way that you qualify for them as opposed to residential loans.
The major difference between the residential mortgage and commercial mortgage is the required minimum down payment that the borrower needs to make. Since there is a higher risk for a commercial mortgage, the lender usually want to see some equity to be paid down by the borrower.
Commercial mortgages in general have higher interest rates and shorter terms than residential mortgages. This is due to the fact that there is a significantly smaller secondary market for commercial loans, whereas Fannie Mae and Freddie Mac would purchase any conforming residential mortgages from banks. Knowing that they can recoup their capital investments by selling their mortgage loans on the secondary market, banks are more willing to offer competitive interest rates on residential loans.
Commercial loans are riskier than residential loans. If someone who owns a residence and commercial property has financial difficulties, they will make sure their home mortgage is paid first and often become delinquent on their commercial property mortgage.
Jan
1
Reasons for loan denial
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If your mortgage has been denied, there are many reasons why. Here are some of the most common reasons.
You could be denied because of residency status. While some lenders will not lend to you if you are not a US citizen, there are other lenders who will. Also if you are unable to produce sufficient documentation for your income and have lower credit scores you might be denied without the possibility of a stated income program.
Your loan could be denied if you did not provide accurate information during the initial loan application. Underwriters verify nearly all information so you may as well provide accurate info up front!
Sometimes applications have been denied because the loan officer did not ask for the proper information or submitted too much information (ex Submitting a W-2 on a stated income deal). If your mortgage application has been denied please call and we may have a program for you.
A mortgage application can be denied if the property being bought is not acceptable on the secondary market. For instance, a condominium or cooperative project that is not Fannie Mae eligible, or a house that, based on the survey, has a part of a structure built on a neighbor’s land. While no banks would lend on a property with title or survey issues, some lenders thrive on making mortgage financing available to condos and coops that are non-conforming.
Your loan could be denied if you have not been in the same line of work over the past two years. Your loan could also be denied if you have huge gaps when switching jobs.
Your mortgage can be denied for many credit reasons. Your credit score may not fit the guidelines of the program that you are trying to qualify for. You may have too much derogatory credit listed on your credit report or you may have open collection accounts that you are unable to pay and the lender requires them to be paid to obtain the loan you are looking for. Lack of credit tradelines or lack of a credit history are other big credit reasons as to why people are denied a loan. Credit tradelines are open credit accounts reporting on your credit report. If you do not have enough open active tradelines a underwriter may not have enough information to make a decision on whether you are credit worthy of obtaining a loan from them.
Your loan can be denied because income is not sufficient to support the monthly payments according to the lender guidelines.
Loans are sometimes denied because of things that happen after the application is taken. Some of the more common are:
- termination of employment, such as quitting a job to find one closer to the new home, or getting fired for missing too much work while planning the big move to the new home
- increased debt, such as buying things on credit to go in or with the new home, like furniture or a new car, or spending that anticipated refinance money a little early
- late payments, because the borrowers assumes they can make the payment after their refinance closes or the refinance will pay it off.
Lenders are required to send you a form stating the reason for your loan denial.
Other sites: Mortgage Broker | VA | Stated Income Loan | Closing Costs | Fixed-rate mortgage | Why should I refinance | MIP | Protect Yourself from the Real Estate Bubble | Selling your home with a real estate agent | FSBO| Pay Option Arm Calculator
Jan
1
Portfolio Loan
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A mortgage loan that is held as an investment by a bank , rather than being sold on the secondary market. It is usually due to the fact that the loan does not comply with the underwriting guidelines set by the secondary market investors.
Most portfolio lenders follow Fannie Mae and Freddie Mac guidelines but can also give exceptions to your loan if they choose to do so.
Very few lenders are portfolio lenders. Very few people qualify for portfolio loans. Talk to a mortgage specialist to see if you qualify.
It gets confusing because portfolio lenders are also involved in typical mortgage banking. Portfolio lenders, are commonly known as Savings ampersand Loan institutions. They are called portfolio lenders, because they originate loans for their own portfolio, but don’t sell them to the secondary market.
If you have a loan which is difficult to fund because your scenario is outside of the standard underwriting guidelines, we can often look at portfolio lenders with you and negotiate for exceptions to the underwriting rules on your behalf.
Because the default risks associated with making Portfolio Loans, portfolio lenders always charge a higher interest rate to justify the higher risks. In addition to the intrinsic risks, portfolio loans, by definition, are mortgages that lenders will hold in their portfolio for the entire loan term, and cannot resell the loan to recoup their investment capitals, portfolio loan borrowers should expect to be charged higher fees.
The are also some lenders that are not considered rational portfolio lenders, but do have some programs that are portfolio programs only. These lenders are lending money from their own portfolios and hold onto the mortgage. A couple examples would be Washington Mutual and Bank United.
World Savings is an example of a portfolio lender. They do not sell their loans to other investors or lenders.
The underwriting guidelines for a portfolio product can be far more flexible than for a loan which is being sold to a secondary investor. This flexibility can often mean that the underwriter of the portfolio program can use a much more common sense approach when evaluating things such as past credit problems, prior bankruptcies, lack of cash reserves, etc. In some portfolio programs there is no minimum credit score requirement although the borrowers use of other credit and past credit history is a determining factor in any loan program.
There are lenders available that will keep a portion of their loans as portfolio loans and sell the rest to recoup money and continue to lend. The percentage of the loans they keep depends on the investor involved and how much funding they have.
Thee really is no benefit to the consumer to stay with a portfolio lender other then never having to change where you send your payment. In today’s modern world you can pay your bill online even if the mortgage is sold to a loan servicer. So do not be afraid of you mortgage being sold and do not let a local bank use this as a scare tactic to keep you away from mortgage brokers.
Jan
1
Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Nonconforming loans usually incur a rate and origination fee premium.
With the emergence of new lenders and programs to the mortgage market on a weekly basis there is a loan program for just about anyone whether conforming or non-conforming. Just check with you online Mortgage Professional to see what you qualify for.
Conforming loan limits will adjust to $400,000 in most states in December.
A Non-conforming loan simply means a loan that is outside of the standard guidelines set by Fannie Mae and Freddie Mac (the two government-sponsored enterprises that insure loans on the secondary mortgage market). Non-conforming loans have no set guidelines and vary widely from lender to lender. But most often non-conforming loans are mortgages that have larger loan balances, require less documentation, and have flexible credit score requirements. These loans carry an additional risk to the lender and as such the rates are higher.
Non-conforming loans have less stringent rules on fees that can apply to your loan, so review the details carefully.
The demand for nonconforming loans is gaining strength at just about the right time. Its growing presence is throwing lifelines to a record number of perplexed homeowners facing higher sales prices or stiff documentation requirements.
Non conforming loans has strict loan-to-value guidelines.
Conforming loans are available now with Stated Income, Stated Assets or “SIVA”
A Non Conforming Loan is a loan with an unpaid principal balance or an unexpired term that exceeds lending limitations established by the principal purchasers and guarantors of the secondary mortgage market; the Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Association.
Jumbo loans are one type of non-conforming loans, due to the loan amounts exceeding the maximum limits adopted by FNMA and FHLMC. Besides exceeding the loan amount limits, loans can be non-conforming for other reasons, such as the borrower’s credit profile, income/employment situations, cash reserves, property type, etc.
Non-conforming loans typically have a higher rate and different requirements for your down payment.
Jan
1
Low Fixed Rate Mortgage
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As short term interest rates rises, fixed rate mortgages are become more popular. Fixed rate mortgages are more stable, the payment does not change throughout the life of the loan.
Low fixed rate mortgages in the past have been the highest interest rate of any loan product. However as adjustable rate mortgages (ARM) have been increasing the relative increase in fixed rate mortgages has been small. The past popularity of ARMs was that for a small risk you were taking advantage of a huge difference in interest rate. It is just not the case any more. Fixed rate mortgages are becoming more popular because ARMs still have the same possible risks but little or no difference in rate. While ARMs generally still have lower rates that may not always be true, and has not always been true. It is possible and has happened in the past that fixed rates were lower than some ARMs.
A low fixed rate mortgage is great for borrowers who plan on staying the home for a longer length of time.
Low Fixed Rate Mortgage Loans are loans that are eligible to be delivered to FNMA/FHLMC, which in turn are sold to investors as low risk, income producing investments. Since low fixed rate mortgages can be sold on the secondary market immediately and banks can recoup their capital investments shortly after making the loans, and do not have to take 30 years to collect on their investments, all lender banks, regardless of their market capitalizations, offer this type of mortgages, thereby making the Prime Loan (Low Fixed Rate mortgages) market highly competitive. The underwriting guidelines of Low Fixed Rate mortgages are more stringent than other types of loans. In order for a loan applicant to qualify for the lowest fixed rate mortgage available, he should have a very good credit profile, preferably with credit scores of over 720 and without any adverse credit history. He should also be able to prove that his gross income is at least 2.5 times the total debt, including the proposed mortgage payments. He must also prove that he has enough money to put at least 20% of the house value as down payment, cover all closing costs, and left-over reserves equaling 3 to 6 months housing expenses after settlement. For homebuyers and homeowners who do not meet one or more of these criteria, many banks offer alternative loan programs.
If your current loan program is ARM (Adjustable rate mortgage) it might be a good idea to take advantage of the current low fixed rate mortgage and stop worrying about ever increasing rates.
A low fixed rate mortgage is nearly an oxymoron. Borrowers should realize than a 30 year fixed mortgage offers protection against rate increases, however this protection comes with a price. A 30 year fixed will have the highest interest rate of any loan product on the market.
Low fixed rate mortgages are best suited for the long term borrower. Although it seems most borrowers want a low interest rate for a long term, it is more likely to get a lower rate with an ARM (adjustable rate mortgage) product as the lender will tend to raise the rates for longer term loans.
Low fixed rate mortgages with the lowest rates are usually only offered to borrowers with excellent credit and who have a 20% or more down payment.
Jan
1
Jumbo Loans
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Jumbo loans exceed the maximum conventional loan amount established by Fannie Mae and Freddie Mac. They are available as fixed rate mortgages, adjustable rate mortgages, or negative amortization mortgages.
These type of loans facilitate the high-end purchase of expensive homes, vacation homes, investment property and upscale luxury homes. They are very attractive for primary occupants or investors who want to leverage their assets.
For 2006 jumbo loans are home loans that exceed $400,000 for single family homes (amounts are higher in Hawaii and Alaska).
For duplex, the conforming loan limit for 2006 is $533,850, $645,300 for three-family residence, and $801,950 for four-family homes.
Jumbo loans that are sold to investors on the secondary market are not created by the quasi-government agencies Fannie Mae and Freddie Mac. Because of this, the investors perceive these loans as a little more risky and demand a slightly high rate of return. This is why the interest rates on Jumbo loans are normally .25% to 1% higher than their conforming counterparts.
2006 Jumbo loans will start at $418,000
The Jumbo loan limits can change at any time. To know what the limit is at currently, call your mortgage broker.