Archive for the ‘Mortgage Industry’ Category

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P.M.I Days are back

Thursday, June 10th, 2010

With the housing market sliding down, people losing their jobs as well as credit ratings, it was a bit difficult to get private mortgage insurance last year. This led people to flock at the Federal Housing Administration.

They had no other option. PMI was not an easy task, and lenders were not offering mortgages to borrowers with down payments below 20 percent, except for those who had insurance. At that crucial time, FHA was the only body willing to back borrowers with credit scores below 680 or down payments under 5 percent. However, some mortgage companies today have loosened their standards and are willing to insure borrowers with down payments as low as 5 percent.

P.M.I Days are back

Although the PMI availability improves, premiums haven’t slid down from their ‘year 2008’ level. They remain at a comparative higher level. Today, a loan of $500,000 requires a borrower to pay $258.33 every month, which is 0.62 percent. Before 2008, the rate would have been 0.52 percent that makes $216.66 per month.

Coming to the conclusion – No doubt FHAs are popular among borrowers these days, but PMIs have certain beneficial characteristics as well. Individuals going for PMI directly save $11,250 on a $500,000 loan, which they would have been paying for the one-time FHA fee of 2.25 percent.

Many mortgage companies have already eased their PMI policy, how long will it take other market players to revise their policies too? Is it enough to improve the housing market or to pull down the premium rates to the ‘year 2008’ level?

Reference Link: http://www.nytimes.com/2010/05/30/realestate/30mort.html?scp=4&sq=mortgage&st=cse

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Posted in FHA Loans, Mortgage Industry, Mortgage Loan Applications, housing market, interest rates | 56 Comments »

Will the Employment Report affect Mortgage Rates?

Monday, June 7th, 2010

The consumer spending pattern is based on a simple equation:

Increase in earnings = increase in disposable income = increase in spending.

However, the ‘increase in earnings’ part is largely driven by the job market. As the job market gains health, it triggers new opportunities, investments and businesses. Individuals will return home with higher paychecks. They would be willing to spend more on goods and services, or their mortgage.

The Bureau of Labor Statistics recently released the Official Employment Situation Report. It summarized all the ups and downs of the job market, its influences on the economy and overall well-being of individuals.

  • Will the Employment Report affect Mortgage Rates?Nonfarm Payrolls– Employment grew by 431,000 jobs, not even somewhere near a forecasted figure of 531,000. However, the worst part is: out of these 431,000 jobs, 411,000 were the temporary census taker positions. So actually, there were only 20,000 jobs created in May.
  • Unemployment Rate–The unemployment rate stood at 9.7%, slightly lower than the forecasted 9.8%.
  • Average Hourly Earnings – 0.3% Higher as compared to the predicted 0.1%-0.0%. Those with jobs are earning more out of their time. This gives them more disposable income or in other words; the ability to stay away from mortgage delinquencies.
  • Average Work Week – 34.2 hours as compared to the estimated 34.1 hours. People working more hours per week with increased average hourly earnings would have higher take-home salaries to spend on goods and services.

The points somehow are giving out a positive impact, but there are still some specks of ambiguity and uncertainty that are making investors to keep their hands off risky assets and turn towards US treasury debt. As the treasury yields fall, prices of mortgage backed securities rise, leading to a lower mortgage rate.  What is your opinion – Will the wellbeing of the job market help strengthen investor’s confidence in stocks? Is this increase in disposable income enough for individuals to avoid missing mortgage payments, and to stop mortgage delinquencies from ‘break records’?

Reference Link: http://www.mortgagenewsdaily.com/consumer_rates/155978.aspx

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Posted in Mortgage Industry, housing market | 4 Comments »

Bright days for Refinance – Seekers

Monday, May 31st, 2010

Bright days for Refinance - SeekersThe European debt crisis and the turbulent stock markets are turning out to be a ‘helping-hand’ for the American families looking for a refinance. Mortgage rates are edging to a record low. The average 30-year fixed-rate loan sank to 4.78 percent this week, the lowest this year and barely above the record of 4.71 percent set in December, last year.

Individuals looking for a refinance are queuing up in large numbers at mortgage lenders, all seeking a low rate for their refinance. Applications to refinance poured this week, reaching the highest in seven months. However, many of the refinance-seekers are holding back for even lower rates, but the only way to know the bottom is when it’s missed.

Some Analysts predict that this window of opportunity may close soon. Investors, due to uncertain environment and declining stock markets, had pounced on government securities. But, once they grow more confident about the stock market it wouldn’t take long to move out of bonds and back into stocks, which will automatically make the mortgage expensive.

Coming to the conclusion – Even though the mortgage is cheap these days, people are not opting for borrows to buy new homes. The number of loans being drawn to buy homes remained at its lowest in more than 13 years. First reason: the special tax credit for homebuyers expired last month. Another reason: after a large number of borrowers fell into defaults and foreclosures, banks needed borrowers to pay a down payment of around 3.5 percent and also to maintain a good credit rating.

The mortgage rates were to rise when the government ended the security-buying program, instead they fell because of fears that Greece would default on its debt. But, it is clear that the mortgage rates would go up once the investors start investing in stock markets, but how long would it take? Will the housing market get back on the ‘good old’ track?

Reference:

http://www.washingtonpost.com/wp-dyn/content/article/2010/05/27/AR2010052702002.html?hpid=sec-business

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Posted in Mortgage Industry, Mortgage Loan Applications, Mortgage Refinance, housing market | 82 Comments »

Mortgage Loan Applications – ‘Accelerating’ Tips

Monday, May 24th, 2010

Heres  a short story:

Mortgage Loan Applications – ‘Accelerating’ TipsNancy works at the financial district in San Francisco. About a month ago, she was spending most of her time in the ‘Dream-House Hunt’. A perfect house, with lower interest rates and a good mortgage loan was what she was looking for.

However, the mission was ‘partially’ accomplished when she found a perfect house, well-furnished and closer to her workplace. Next, she submitted the mortgage loan application and then waited….waited…& waited. The next week, interest rates marked a spike. Another week – another peak. Now she is maxed out, another point would mean a significant increase in the monthly payment. In the end, she finds out the interest rate has gone up again.

Not only Nancy, there are lot more out there who have the same story. Why does this loan application take so long? How can we speed it up?

First of all, start to shop for a home loan instead of a home first. Getting approved for a mortgage loan before you find a home will accomplish two things: you’ll be locked on to an interest rate, which will save you from this ‘waiting-game’ mentioned above. This is also termed as ‘lock n shop’, only a small number of lenders, such as Choicefinance, Lendingtree and MFG Mortgage Rates, provide this option. Besides this, if the sellers sees that you are pre-approved, they’ll take you as a ‘serious’ buyer.

Next, make things easier for the mortgage company by providing them all the information that you know they’ll need – organized and easy-to-read. This will save them repeated calls, asking you for paperwork again and again.

Lastly, try to bug your mortgage lender to check for ‘order-status’. Mortgage lenders have thousands of applications to process, and it’s really important to make sure that yours doesn’t sit on the bottom of the stack.

Here my question is: what other ways can be used to speed up mortgage loan applications? If you have a case of your own, feel free to share it.

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Posted in Mortgage Industry, Mortgage Loan Applications, housing market | 34 Comments »

Fixed vs. Adjustable Mortgage Rate – Convenience or Risk

Monday, May 17th, 2010

Fixed vs. Adjustable Mortgage Rate – Convenience or RiskSecurity and affordability – Choice of fixed or an adjustable rate mortgage is substantially dependent on these two factors. Where fixed rate mortgage (FRM) offers certainty of constant monthly payments and easiness to calculate monthly cash flows, adjustable mortgage rates (ARM), on the other hand, are inexpensive but modified periodically, based on interest rates.

FRM is for individuals who are a bit reluctant to take risk. It is surely expensive but at least people are aware of exact future outgoings. A fixed interest rate that remains the same throughout the loan term is one of the major features of FRM, and the most attractive too. A list of confirmed future cash flows and stable predictability entices a lot of people to choose it. Instead of pondering over interest rate ups and downs, you get your mortgage and just forget about it. Is there anything easier?

Adjustable mortgage rates (ARM), on the other hand, seduce borrowers with its initial low rate and monthly payments. They are fixed for a specific time, after which both rate and payments are adjusted. ARM is usually inexpensive as compared to the fixed rate mortgage, because ARM is based on the short term bond market while FRM is pegged to long term bonds. The short term market normally features lower rates than the long term market.

In spite of this, FRMs fixed rate generally does not indicate that it is not as good as ARM. If interest rates in the bond market are higher, then surely the rate and payments would increase (ARM). And who would prefer a higher-than-anticipated payment? But still, statistics of people with an adjusted rate mortgage ending up in loss are really low. My question is: which payment structure would you select? What factors would you consider keeping in mind the current standing of the US economy?

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Posted in Mortgage Industry, housing market, interest rates | 65 Comments »

Refinancing ‘Effectively’

Monday, May 10th, 2010

Home refinancing is when you already have a mortgage on your home and apply for a second loan to pay off the first one. There are a lot of deals out there but one must be wise to select a deal that works best. While taking such decisions, it is important to first determine whether the amount you save on interest balances the amount of fees payable during refinancing.

First step: Find out your credit score. Get a copy of your credit report at least once a year; it will help you analyze your errors or inconsistencies. Credit information is one of the main influencers of interest rates when you’re hunting for a loan, it sets the loan conditions and mortgage terms that you are qualified to have.

After getting your credit ratings, go to the next step: start looking for a lender that is reputed and gives you the best deal  - in terms of interest rates, associated fees and principal lending amount. Get opinions from friends, relatives or Google around for a good lender. It is advisable to consult an individual who holds an experience with certain lenders, it is best to approach a mortgage broker. They’ll assist you in getting the best deal taking in consideration all your needs and requirements. Most importantly, before going into a refinance loan, sit back and look to see if the total costs and the savings of the transaction will add value to your life and your living standard.

Coming to the conclusion – Refinancing bundles up large benefits such as tax deductions, low monthly payments and increase in home equity and handy cash. But on the other hand, getting a refinance has its cons too; there is a fee to obtain the loan and you may have a longer term of payment with the loan, and your mortgage will be higher.

Keeping in mind all the pros and cons of getting refinancing, in what circumstances would you to go for a refinance? What would you be doing in order to find a suitable deal: would you search for a lender by yourself or will you let the broker handle it on your behalf? Which option is more convenient and effective?  Feel free to share your view and ideas.

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Posted in Mortgage Industry, Mortgage Refinance, housing market | 98 Comments »

Mortgage Brokers vs. Banks

Monday, May 3rd, 2010

There are two questions that always haunt home buyers: What should I go for; a mortgage broker or a bank? Let us take a look at the differences between both, their functionalities and limitations.

An individual if asked this question would always have a one-liner ready: “whoever gives me a good deal is the best”. But at the back-end there are several matters involved, other than just getting a ‘good deal’. In some cases individuals hunting for a ‘good deal’ usually end up being overcharged.

The main difference between both is that a mortgage banker, also termed as a mortgage loan officer, lends the bank’s own money to the borrowers. The loan officer takes the application and works out a home loan that suits the requirements and obligations of the borrower. The application is then forwarded to the loan officer’s employer – the bank – which after considering credit standings and repayment capabilities underwrites the loan at their rate and terms.

However, a mortgage broker doesn’t own the responsibility of the capital involved. They just act as an intermediary between lenders and borrowers, and charge a fee against it. People looking for loans usually set brokers second on their priority, except for those who are already turned down by banks due to bad credit ratings or tricky mortgage scenarios.

Here is a comparison of mortgage brokers and banks with respect to their functionality and effectiveness:

Pros of working with a bank Cons of working with a bank
More trustworthy & accountable Mortgage process is lengthy and sometimes bureaucratic
Offer better rates (some cases) Banks do not disclose the yield-spread premium
Add mortgage to existing accounts and make direct payments from there Conservative loan programs

Pros and Cons of working with a Mortgage Broker

Pros of working with a broker Cons of working with a broker
They do the legwork for you, comparing the wholesale rates of a large number of banks and lenders There is a possibility of making mistakes
Wholesale interest rates can be lower than retail (bank branch) interest rates False Promises
Handle tricky mortgage scenarios May overcharge via yield-spread premium
Easier to get in contact with, less bureaucratic May not have enough access to some of the bank programs

On basis of this comparison, which is more preferable for home loan financing in an environment where all other factors such as credit ratings and amount of loan are constant. Feel free to share your views on this. If you have a case of your own, you are most welcome to discuss it.

References:
http://www.thetruthaboutmortgage.com/mortgage-brokers-vs-banks/
http://www.bankrate.com/brm/news/mortgages/20030925a  1.asp
http://homebuying.about.com/cs/mortgagearticles/a/home_lenders.htm
http://loan.yahoo.com/m/finance4.html
http://www.creditinfocenter.com/mortgage/brokeRbank.shtml
http://loan.yahoo.com/m/securing5.html

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Posted in Mortgage Industry, housing market | 43 Comments »

FHA Loans – ‘to the Rescue’ or ‘to be Rescued’

Monday, April 26th, 2010

FHA-insured Loans, originated during the great depression by the Federal Housing Administration and are meant to secure lenders against defaulting borrowers. Whereas, they are also an answer to borrowers who have a less than perfect (below 720) credit score or are unable to handle a 10% – 20% down payment. All these traits of FHA loans quickly made them popular especially in the 2008-2009 financial climate.

In the year 2008, FHA loans have accounted for about 46 percent of all mortgage applications – almost half of all mortgages. In addition, Federal Housing Administration guaranteed 186,000 mortgages in June, 2009, a record number in its 75-year history.

In these days, individuals highly prefer them over conventional loans, since it only requires a 3%-3.5% down payment, while conventional loans entail a 10%-20%. However, interest rates on FHA loans are a little bit higher than conventional loans.

Some analysts pointed out that borrowers with FHA-secured loans now have an average credit score of 690, compared to 630 two years ago. In spite of this, a large number of borrowers are turning up late in their payments or even defaulting. Delinquent FHA loans, those 90 days or more late, jumped 62.1% in the past year to 558,944, or 9.4% of FHA loans, as of the end of January, according to agency statistics.  The FHA, however, insists its finances are sound. Its loan portfolio actually performed better than most mortgage products, according to David Stevens, the agency’s commissioner.

FHA loans are still a better option for lower income individuals to purchase a home that they would not otherwise be able to afford. However, if the number of delinquencies increases with such a pace, it is possible that taxpayers will eventually have to bail out the agency. My question here is: How can the Federal Housing Administration work out a suitable strategy to reduce defaults and late payments, and maintain healthy equity/collateral ratios against lent money at the same time?

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Posted in FHA Loans, Mortgage Industry, housing market | 8 Comments »

Principal Reduction Programs – Banks say ‘NO’

Monday, April 19th, 2010

The Housing Market slump in the United States is turning out to be more critical. It has left around seven million households on the verge of foreclosures. A large number of Individuals walled by loans, credit card payments & debts etc. are turning a deaf ear towards mortgage, especially when the housing prices are unfavorable. Individuals are focusing more to improve their credit ratings by paying off credit card payments.

The US government, since its inception, has tried all means to harness it.  Buying mortgage securities, lowering interest rates, setting new standards and making policies, however, the outcomes are not so satisfying.

The idea of reducing loan principals last month was another step to save the besieged homeowners. However, Banks do not look so happy with this decision. According to them, the tool would not work as it is designed to. Principal reduction on one hand could reward households for consuming more than they could afford. While, on the other hand, the cost of reducing principal will be built into future loans, resulting in less access to credit and higher costs for consumers. It might punish future homeowners by raising the cost of borrowing. These latest foreclosure prevention measures might encounter some resistance among banks, ultimately rendering them less effective than hoped.

The justifications given by banks cannot be overlooked; somehow it is unfair to benefit the current borrowers by putting a burden on the future homeowners. What do you say – how can the government tackle this problem of principal reduction in such a way that it is beneficial to banks and to mortgage borrowers at the same time? In addition, how principal reductions in equity based home loans benefit homeowners, as these loans are widely used for domestic purposes rather than paying for housing?

Reference Link: http://www.nytimes.com/2010/04/14/business/14mortgage.html?scp=4&sq=mortgage&st=cse

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Posted in Mortgage Industry, housing market | 50 Comments »

Bankruptcies High Tide

Monday, April 12th, 2010

Small businesses make up a large share of the whole economy, not only in the US but in all parts of the world. However, these businesses are the most affected by the recent global recession. People who were getting good returns from their businesses are now turning towards courts with bankruptcy petitions. There were 158,141 U.S. bankruptcy petitions filed last month — a 35% increase over February’s figure, according to data compiled by Automated Access to Court Records (AACER). This was a 19% increase over the number in October 2009, the last record-high month.

A large number of individuals are turning towards the complete bankruptcy filing (chapter 7 filings), allowing courts to foreclose all their possessions along with their homes. However, chapter 13 filings are also available, which requires individuals to repay a substantial part of their debts and prevents banks from foreclosing their houses. This behavior clearly indicates that home-owners are just walking away from their mortgages, rather than attempting to cope up with their payments, especially in times where large number of individuals are unemployed and don’t foresee themselves having good earnings in the near future.

The statistics show that personal borrowings in the US have increased 10 times more than they were in 1960, allowing individuals to borrow relatively more than their returning capabilities. That is why people are ending up bankrupt.  My question here is: If people are not able to pay back, why lend them money in the first place? Why can’t financial institutions counsel their borrowers on borrowing patterns and best practices, keeping In view the conditions of the economy?

Reference Link: http://www.time.com/time/business/article/0,8599,1977728,00.html

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Posted in Mortgage Industry | 36 Comments »

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