FHASecure and your Adjustable Rate Mortgage, perfect together?
To merge or not to merge
PRIVATE MORTGAGE INSURANCE: If your down payment is less than 20% of the purchase price of the home, mortgage lenders require that you take out Private Mortgage Insurance (PMI). This insurance protects the lender in the event you default on your mortgage. PMI has fallen out of favor in recent years due to the 80/10/10 (80% first mortgage, 10% second mortgage, 10% down payment), 80/15/5 (80% first mortgage, 15% second mortgage, 5% down payment), and 80/20 (80% first mortgage, 20% second mortgage, 0% down payment).
On the heels of the mortgage credit crisis comes word that the two bigger players in the mortgage industry may merge. However, after further deliberation, they decided against a merger.
MGIC drops bid for rival Radian
The mortgage insurers agree to end the deal and focus on how to survive in the industry.
By Emily Fredrix The Associated PressMilwaukee - Mortgage insurer MGIC Investment Corp. abandoned its $5 billion bid to buy rival Radian Group Inc. on Wednesday, saying it was in each other’s best interest to concentrate on surviving in the faltering mortgage industry.
Radian had vowed to see the deal through when MGIC announced in August it wanted to back out. But chief executive S.A. Ibrahim said Wednesday that Radian didn’t want to fight and instead needed to weather what he called “an industrywide scramble to survive.”
Investors seemed hopeful for both companies after news of the agreement.
Though Radian’s shares tumbled as much as 9 percent after the market opened Wednesday, they closed up 16 cents at $18.27. MGIC shares fell 29 cents to end at $30.05.
MGIC, based in Milwaukee, had agreed in February to pay about $5 billion in stock for Radian, valuing its shares at $60.78. Shares of MGIC closed the day the deal was announced at $70.09.
As problems mounted in the mortgage market, both companies saw their shares tumble and the deal’s value sink.
MGIC said it did not believe it had to complete its purchase of Philadelphia-based Radian because their joint interest in subprime-mortgage investor C-Bass LLC could be worthless.
The decision to end the deal was mutual, both companies said.
Neither party paid the other to get out of the agreement, according to a news release. The original agreement said there would be no breakup fee if a decision was mutual.
Both companies’ shareholders had already approved the deal, which MGIC had said would close in early October.
But woes felt throughout the mortgage industry made the deal difficult to finish, said Michael Zimmerman, MGIC’s vice president of investor relations.
While this is akin to splitting up, it remains to be seen what this means to the borrower. There aren’t too many PMI companies left and when the two biggest PMI companies are more concerned about surviving, especially when in 2007 PMI is tax deductible, this can’t be a good sign.
JD POWER Awards: Mortgage Companies
Here are some rankings from JD POWER with respect to mortgage companies:
Home Mortgage Service Satisfaction Ratings: USAA FEDERAL SAVINGS BANK
Mortgage Servicers are companies that receive your mortgage payments. They may or may not have originated the loan.
Primary Mortgage Origination Ratings: SUNTRUST MORTGAGE
Mortgage Originators are companies that initially bought the loan from either a mortgage broker or correspondent lender. They may or may not service the loan.
Home Equity Line/Loan Origination Ratings: WACHOVIA
Home Equity Lines are typically the variable rate second mortgages tied to the prime rate. Loan origination companies may or may not service the loan.
Something is rotten in the state of Denmark
During my senior year in college, I took a high level English class devoted entirely to Shakespeare’s plays. We studied several including Hamlet. While everyone always remembers the classic line “To be or not to be,” I always liked “Something is rotten in the state of Denmark.”
I didn’t think the line was useful until now…
Recently I came across an article entitled A look at how home mortgages operate around the globe. According to the article the Danish has a similar system as ours. If their mortgage system is anything like ours then something is rotten in the state of Denmark.
Their (the Danish) mortgage system, like ours, relies heavily on the capital markets. Consequently, it is the only country to have home loans with most of the key features of those found in the United States. But there are limitations.
For one thing, lending criteria are extremely rigid, much more so than in the U.S. For another, Danish borrowers must come up with far larger down payments. In the United States, borrowers who make a 20% down payment tend to get the best terms available. But in Denmark, to achieve an 80% loan-to-value ratio, borrowers must take out a variable-rate second mortgage to cover the difference.
Danish mortgages are also “portable,” meaning that when owners sell their homes, they can carry their mortgages over to the new house.
Let’s hope that Danish mortgages aren’t brokered by dirty “rotten” scoundrels.
Countries covered in the article include the aforementioned Denmark, Great Britain, Italy, Japan, Germany, and our neighbor’s to the north, Canada. The general consensus among these countries is to require substantial down payments.
FAQ: How do I get the best rate?
From time to time I’ll be addressing client questions that are frequently asked and some questions that are quite obscure. Some questions are mortgage related, some are real estate related, and some are Denver related. My answers won’t be the canned answers you see on most mortgage sites.
Q: “How do I get the best rate?”
A: Let’s assume the following:
- you’re asking about a mortgage on a single family house that’s considered your primary residence
- you’re asking about a first mortgage without a second mortgage
- you have either 20% equity (refinance) or you’re putting a 20% down payment (purchase)
- you have credit scores over 720
- you don’t have any late payments of any kind
- you have assets i.e. money in a checking account, savings account, 401k, mutual funds and/or stocks at established financial institution(s)
- you have statements from the aforementioned financial institution(s)
- you’ve been in the same line of work for quite some time for the same company
- you have a limited amount of debt
- your debt to income ratio is far below the 40% threshold
If you fit this profile you’ll get the best rates because mortgage institutions view this profile as little to no risk. These loans are typically run through an automated underwriting program i.e. computer software that runs an algorerithm (software geek joke) and gives you a loan approval in seconds. Even if you don’t fit this profile 100%, the automated underwriting program may still grant you an approval in seconds. Your history of paying debt (credit score), capacity to pay the loan (income/assets), and the collateral backing the debt (property) all plays a role in getting the best rate.
When banks won’t compete, where do you go?
Everyone has heard the line, ‘When banks compete, you win!” Well, not really when it comes to a second mortgage or home equity loan. These loans rely on credit score and equity. If you have bad credit, you better have equity. If you have no equity, you better have good credit to get a 115% or 125% loan. If you have bad credit and no equity, sayonara.
So where do you go when banks won’t compete. Enter person to person lending at www.prosper.com. Featured in Inc, Newsweek, Business Week, Entrepreneur, et. al. prosper has grown exponentially.
The premise is simple: People who need money request it, and other people bid for the privilege of lending it to them. Prosper makes sure everything is safe, fair and easy. You can borrow anywhere from $50 to $25,000. Seems like an interesting lending alternative when no else is willing.
Mortgage Refinance
A mortgage refinance is done by applying and qualifying for a new mortgage loan and then using the proceeds from the new home loan to pay off the old home mortgage loan. You can refinance for many reasons: to take cash out of the equity in your home, to lower your interest rate, to lower your mortgage payment, to simply switch mortgage companies because you are not pleased with your current mortgage company, to consolidate debt, to pay off high rate credit cards, to lower the term of your mortgage, to increase the term of your mortgage, to combine a first and a second mortgage, to switch from a fixed rate to an adjustable rate, or to switch from an adjustable rate to a fixed rate, and for many, many other reasons
When refinancing in order to payoff credit card debt, keep in mind that credit cards are unsecured debts. When you refinance, you are transferring unsecured debt into debt secured by your home. Make sure you are financially savvy enough not to continue the patterns that resulted in the credit card debt or your could be putting your home at risk.
One of the most popular reasons for doing a mortgage refinance would be to obtain funds for improvements on the home. Since the money spend on such improvements often directly increases the value of the home, it is a very sensible way to obtain such funds. Some of the most popular improvements include new kitchens and bathrooms, new windows, landscaping and swimming pools.
Zero down home loan
Editors Note: Due to the mortgage and credit crunchy, zero down home loans are no longer available. If you’re in need Denver Home Mortgage, we can discuss your mortgage situation.]
Zero down mortgage financing is available to many people. It is very possible for a large number of consumers to qualify for a home purchase without putting any money down. This has become a very competitive market for lenders competing for this business and the number of homeowners who obtain loans with no money down is growing each year.
It is important to realize that while it may be the only way a borrower can purchase a home, a zero down mortgage does carry a higher interest rate. Ultimately the borrower’s goal should be to refinance when there is enough equity to achieve an 80% Loan to Value (LTV).
One option for high credit score borrowers who have minimal disposable cash is to use a 103% loan. This loan allows you to borrow up to 3% in addition to the purchase price to help with closing costs. Ask your preferred mortgage professional if you qualify for a 103 LTV program.
Some conforming zero down programs do require you to contribute at least $500 to the purchase. Your earnest money counts as money towards purchase. You may also be required to pay your hazard insurance out of closing so that will be another out of pocket cost. Ask your mortgage broker for details on the programs they offer.
The most common way mortgage brokers structure “Zero Down” financing is to break the loan amount into a first and a second mortgage, with the first mortgage consisting of 80% of the loan amount needed and the second mortgage being 20%.
Zero down mortgages are a great tool to use, even if you have saved up for a down payment. By choosing the zero down mortgage, your down payment money can now be used for closing costs associated with the loan, moving expenses, new furniture, or any other expenses that you may have when you move into your new home.
If you cannot afford a down payment for your home, there are many down payment assistance programs and grants that may be able to help you purchase your new home. Often these programs are limited to first time home buyers or those with low income. However, there are often no limitations. Call me at and I may be able to find a program that will work for you.
Obtaining a true zero down mortgage is when you will not have to come to closing with any funds of your own. In order to achieve this you will need to either have a no closing cost mortgage which can get expensive, or you can have the sellers pay closing costs. Traditional conforming lenders will generally let the sellers pay up to 3% of your closing costs, while most Alt A and subprime lenders will allow up to 6% in closing costs paid by the seller.
Often times zero down payment programs are available to first time homebuyers. If you need a stated income program you may be able to obtain a stated zero down program with an Alt A or subprime lender.
In 2005, 43% of first time home buyers used zero down programs. You may qualify for one of these programs. Call me now!
Why are second mortgage rates higher?
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.
What is a HELOC?
A HELOC is a home equity line of credit.
This type of loan is basically a line of credit secured by a second mortgage on a property. You can borrow a much as you need as long as you do not exceed the maximum loan amount. You pay interest on the outstanding loan balance and not the entire line of credit.
A Home Equity Line of Credit is an open ended mortgage, meaning a homeowner can withdraw and repay as often as he likes, up to the available credit limit. A HELOC works much like a credit card account in that respect. It differs from a credit card account in that a credit card account is an unsecured loan, whereas a HELOC is secured by the homeowner’s property.
Usually, whenever you have a mortgage that is above 80% Loan TO Value, then the difference above 80% is usually a HELOC loan. For example, if you need 95% Loan To Value then your 1st mortgage will be at 80% Loan To Value and at a lower rate and the remaining 15% will be considered a 2nd mortgage and be a HELOC.
A HELOC (home equity line of credit) is an excellent financing tool, for some borrowers. A HELOC is essentially a line of credit secured by a mortgage or deed of trust on your home. You only pay interest on the amounts you borrow on the HELOC. If you don’t use any of the line of credit, then you don’t make any monthly payments. You can draw from the HELOC by writing checks issued to you by the lender. Usually a HELOC is considered a second lien on your property.
It’s important to be careful with HELOC’s. As any other type of credit they have a good use but one can end up spending too much with this line of credit. If you are paying off other debts such as credit cards ampersand autos it might make sense to get a standard fixed rate 2nd mortgage where you get the lump sum at closing to pay off all debts and then you pay on that mortgage along with your first until it’s paid off. You won’t have the ability to pull money whenever you think you need it. On the flip side of that, if you have income that comes in large quantities and is sporadic or not stable. This type of loan might be used as a cushion for the times in-between the checks.
A HELOC is a far superior debt device than using a credit card or financing a car/boat/ RV purchase. One of the many advantages to using a HELOC is that the interest expense is tax deductible. Essentially you are saving 25-35% on every interest dollar as it is deducted from your income when you do your year end tax preparations.
Many HELOCS today offer a credit card which can be used at your favorite stores and restaurants.
Usually the rate on the Heloc is the prime rate plus a margin.
A HELOC is traditionally based on the prime rate and a margin is added to reflect the true rate to be paid by the borrower. HELOC’s may offer a initial lower rate (Teaser rate) for a specific time period. When the defined time period has expired the rate will adjust to prime + margin.
HELOC(s) or Home Equity Line(s) of Credit are very popularly used as the “20″ in an “80-20″ or 80/20 piggyback mortgage strategy.
A Home Equity Line of Credit can also be used to purchase the property or as a first lien on the property. The HELOC can be used to payoff or consolidate debt, personal use, or just to have.
A home equity line is a revolving credit line tied to the equity in your home. Most home equity lines use the prime rate as a base for setting interest rates. For example, you hear lenders describe rates as prime + zero or prime + 1. This means the borrower will pay monthly interest according to the Prime Rate (lets use an example prime rate of 5.00%) plus a margin. In this case, prime + zero would equal an interest rate of 5.00%, or in the case of prime + one it would be 6.00%. Additionally, most home equity lines have interest only payments.