Mortgage Lending Made Simple

I would encourage anyone who is having a problem making their mortgage payments or who anticipates they may in the future, for what ever reason, to contact their Lender today.   Don’t wait until you are several months behind.  The best way to save your credit and your home is to be pro-active.    In more than 60% of the foreclosures that have occurred in the last year, the Borrower did nothing until it was too late.   The Banks, The Homeowners,  all of us have to work together to slow down, then end this Foreclosure Crisis.   If you are worried about the value of your home, nothing we can do will help improve that Market Value like ending the Foreclosure and Short Sales.

Banks are willing to work with borrowers as you can see from this recent article in The Charlotte Observer:

Faced with rising foreclosures among their customers, Charlotte’s big banks have been ramping up efforts to work with borrowers struggling to make their mortgage payments.  

Bank of America and  Wachovia are adding staff to work with homeowners and have restructured thousands of loans.  Bank of America is part of a national initiative that is offering to pause the foreclosure process for some borrowers.  

The moves come as banks face increasing pressure to help homeowners squeezed by the nation’s housing crisis. This week, more than 90 California community groups asked  Bank of America to halt foreclosures on troubled borrowers assumed in its planned purchase of  Countrywide Financial.

The percentage of U.S. mortgage loans in the foreclosure process hit 1.69 percent in the third quarter of 2007, the highest level ever, according to the latest data from the Mortgage Bankers Association. That’s about 767,550 loans. The housing malaise that started with subprime mortgages now threatens to stall the broader economy.  

Banks have a business interest in assisting homeowners. In recent quarters,  Bank of America and  Wachovia have had to set aside more money to cover bad loans, crimping profits. They make money collecting interest on loans, not owning foreclosed properties. And they don’t want to lose customers, who also use their checking accounts and credit cards.  

Read the entire article here.

Inflation at the wholesale level soared in January, pushed higher by rising costs for food, energy and medicine. Prices rose at the fastest pace in 16 years, according to the Labor Department. Wholesale prices rose 1 percent last month, more than double the 0.4 percent increase that economists’ expectations. The 1 percent jump in wholesale prices followed a 0.3 percent decline in December and was the biggest one-month increase since a 2.6 percent increase in November. With the January jump, wholesale prices have risen over the past 12 months by 7.5 percent, the fastest increase since the fall of 1981, when the country was in a deep recession.

Foreclosure filings rose 8 percent in January from December and increased nearly 57 percent from January 2007, showing that foreclosure activity continues its upward trend. But the 8 percent monthly increase was not as high as the 19 percent monthly hike in January 2007, and several key states experienced decreasing foreclosure activity from the previous month, according to data from RealtyTrac.

CNN reports that the Foreclosure prevention plans that are before congress right now are under attack for a couple of reasons.  Lenders are claiming that as it increases risk and lowers profit for investors it could ultimately drive interest rates up across the board.  One analyst is predicting as much as a percent and a half increase.  The other criticism is that it will only help a relatively small percentage of those in trouble.   You can read more about it in CNN’s Article on Foreclosure Prevention Plan Under Attack.

While interest rate resets are looming on the horizon for many homeowners, it seems that subprime mortgages are going into default at an alarming rate BEFORE they reset.  CNN reports that 11.2 percent of subprime loans issued in 2007 are in default.  If you watched the flash presentation on A Subprime Primer you may have noticed that they mentioned Liars Loans and CNN’s article on Subprime Loans Defaulting takes a look at why these loans are defaulting. 

If you are considering buying a house, Liz Pulliam Weston at MSN Money has some great advice in her post on 8 Big Mortgage Mistakes And How To Avoid Them.  In particular, her advice on fixing your credit BEFORE you apply for a loan is spot on.  If you have not pulled your credit report, it’s a good idea to do so 3 to 6 months in advance of a major purchase.  This gives you time to resolve any issues and time for your FICO to reflect any changes.  Her advice on shopping for rates and terms is exactly the reason why you will want to work with an experienced loan officer whom you can trust to give you different options and an explanation of why each might be better for you. 

If you are in trouble and think you might lose your home, Save Invest and Retire has some excellent resources to help avoid foreclosure in his post on Walk Away From Your Home Part II Resources.  While many are making a choice to walk away, the consequences that foreclosure will have may be more far reaching than you believe.

This came across my desk recently and I thought it was worth sharing. This is a humorous but accurate look at how the Subprime situation happened.

 Photo Courtesy of skippy13

If you are considering refinancing your mortgage, now may be the time rather than waiting for Fed to lower rates. If you wait, you may be in for a rude surprise. When most people hear that Fed is considering another cut to interest rates, they think that means that mortgage rates will be going down. That may not be the case as explained in this article from CNN Money.

“NEW YORK (CNNMoney.com) — Bond prices fell Thursday after Federal Reserve Chairman Ben Bernanke said the U.S. economy will continue to struggle and suggested that the central bank is willing to cut interest rates further.”

While a Fed rate cut does usually result in a reduction in Consumer Interest Rates, it generally has the opposite effect on Mortgage Rates. Bond Traders see lower interest rates as a stimulus causing Inflation which is BAD for bonds and draws more money out of the Bond Market and into the Stock market. This effectively makes the yields on Bonds increase which drives Mortgage rates higher. With Fed Rate cuts on the horizon, it might be time to go ahead with your refinance plans.

Lenders aren’t humming Jingle Bells when they talk about Jingle Mail. In an article today, CNN reports that so many people have turned their keys in and walked away from their mortgage that they have a new term for it: Jingle Mail. With the decrease in home values and increasing interest rates, many are making the decision to cut their losses and turn those keys back into their lender.CNN reports that

“The trend of walking away is most pronounced among real estate investors, according to Jay Brinkman, an economist with the Mortgage Bankers Association (MBA).

But families are doing it too. “If they have to stretch to make mortgage payments for a home that will not recover its value, then yes, they may walk away,” he said.

Often they chose hybrid adjustable rate mortgages (ARMs) that came with low initial payments. After a few years, interest rates on these loans reset higher. But buyers thought they could count on the increased value of their homes to refinance into affordable, fixed-rate loans.”

CNN also states that there are some who are choosing to pay consumer debts, such as credit cards and auto loans while letting their mortgages fall behind and some who can afford to pay are choosing foreclosure due to the declining value.

You can read the complete article here.

Other Recent Mortgage News:

Time to Refinance?

Effect of Raising the Fannie Mae/Freddie Mac Loan Limits

Legislative Update on FHA Loan Limits

It’s everyone nightmare. You find a great Realtor, you find the perfect home. The seller accepts the offer and you begin looking forward to moving into your new home — only to find out that you can’t qualify for the loan.

Fortunately, such situations are becoming less frequent, thanks to the growing popularity of loan pre-approval programs.

Anyone who wants to buy a new home in today’s market needs a mortgage unless you are one of those very lucky one who can write a check for that new home. For the rest of us mere mortals, who need a mortgage, make the whole process much easier on yourself and the professionals you will be using to help you achieve your dreams. Get a Pre-Approval, not just Pre-Qualified, and know that when you find that perfect home you will be able to negotiate the price from a position of strength. With a Pre-Approval Realtors and Sellers will give your offer a much more positive reaction.

Today, mortgage companies are strongly encouraging real estate agents to recommend that buyers be pre-approved before they start shopping for a home. In doing so, lenders and agents work together to protect everyone’s interests and drastically reduce the likelihood of a transaction failing for lack of buyer financing.

Before examining the benefits of loan pre-approval in greater detail, it’s important to understand the difference between pre-qualifying and pre-approval.

Pre-qualifying generally refers to a lender’s written opinion of the ability of a borrower to qualify for a home loan based upon a borrower’s statement of debt and income. The statement of debt and income may or may not be supported by documentation. In issuing the written opinion, the lender may or may not have reviewed the borrower’s credit report. As such, the prequalification is only an estimate and not a commitment to lend.

Pre-approval goes a step further than pre-qualifying. It is an actual written commitment to lend, subject to the condition that when the borrower is ready to buy, he or she still meets all the qualifying conditions that were met at the time of the conditional approval. This conditional approval occurs when the borrower submits a written loan application stating sources of income, employment, debt levels and credit history. The application for conditional approval is usually reviewed in the context of a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and other costs. If all of the financial information can be verified, and the borrower meets the underwriting guidelines, the lender issues a commitment to lend for the pre-approved amount. This pre-approval is also conditioned upon the property, once chosen by the borrower, satisfying the lender’s underwriting guidelines.

Buyers who obtain pre-approved before working with a Realtor are showing their professional good sense for one simple reason. When the sales contract is signed, everyone involved will have a much higher comfort level that the loan will close. Also, Pre-Approvals result in much quicker closing.

Here are some key ways that pre-approved buyers are advantageous to everyone:

• You won’t waste time looking at houses that are priced too high or too low. Because you know how much home you can afford, you can target which homes and neighborhoods to look in.
• You may have better negotiating power with sellers. When given a choice between potential home buyers, sellers commonly feel more comforted accepting an offer from a buyer who has already secured financing.
• You know early on whether you will have problems closing. The general rule of thumb for lenders is “the more we know about the buyer earlier in the process, the better.” Pre-approval allows problems in a loan application to be addressed early. Since loan approval requires verification of items stated on the loan application, a pre-approved borrower can shop for a home while the lender simultaneously verifies financial information, saving anywhere from three days to several weeks in total processing time, once the purchase agreement has been signed.

In addition, pre-approved buyers become better educated about the lending process. The home financing process can be intimidating to anyone, but it is especially so for the first-time buyer. With pre-approval, the lender can begin educating the borrower early on about what will occur and what kind of information will be expected of them.

We all want a happy buyer who feels comfortable with the home buying process, not one who is full of doubts and anxieties. By obtaining a pre-approval early on in the process the buyer reduces their anxiety — or, better yet, potentially eliminate it before it occurs.

The House of Representatives has passed a bill raising the Fannie Mae Freddie Mac loan limit from $417,000 to $625,000. The bill is on its way to the Senate and President Bush has indicated that he will sign the bill should the Senate pass it.

This is a potentially promising development for home buyers and home owners in high cost areas like the Washington Area MSA. At the current time, conforming loans (i.e. those currently under $417,000) carry interest rates about 1% below jumbo loans (i.e. those currently over $417,000).
If this bill passes, it will be a big benefit to buyers who wish to borrow up to $625,000 or current homeowners who have existing mortgages up to $625,000 who wish to refinance.

Let’s take a look at what this may mean from a dollars and cents point of view.

Let’s take a $625,000 loan.
At 6.375%, the monthly payment for a 30 year fixed rate loan is $3,899.19.
At 5.375%, the monthly payment for the same loan would be $3,499.82 or $399.37 less per month.
In terms of qualifying for a loan, this $399.37 reduction in payment will reduce the income needed to qualify for this $625,000 loan by approximately $1,200 per month.

This will help with a great number of the larger homes in our market and help reverse the downward movement in prices.

While it is too early to predict if HUD/FHA will follow suite, the increased Conforming Limits certainly opens the door for HUD/FHA to follow suit and increase their Limits which would have a far greater impact on more borrowers and areas that are not currently in the High Cost Designated areas of the country.

This site is still under construction. Please come back for more news and information on mortgage Lending from Ned Hilldrup. Ned will be going over the pros and cons of VA Home loans, FHA Home Loans, and discussing current issues in Mortgage Lending.

Please feel free to contact Ned with any questions or to request more information. He can be reached via the Contact Ned link or by clicking here.

According to Sandra Block from USA Today, the lower interest rates are creating a surge of refinance applications before rates rise.

“Some borrowers may be tempted to hold out in hopes that rates will fall even more. But that’s risky, says Bob Walters, chief economist for Quicken Loans. Long-term mortgage rates are near historic lows, he notes, which means they’re more likely to rise than fall. The Federal Reserve reduced short-term rates by half a point last week and signaled that it might cut rates even more in the next few months. But while Fed cuts typically lead to lower rates for credit cards and car loans, the Fed doesn’t influence long-term mortgage rates. These rates track 10-year Treasury notes, which tend to respond to changes in the economy. “

If you have been considering refinacing your home mortgage loan, now may be the time.