Mortgage Meltdown! What Does It Mean to Homebuyers?

Not long ago, mortgage companies started to offer a smorgasbord of programs to make home ownership easily available to almost everyone. Some of the common terms we have become accustomed to hearing include:

• Low-Doc
• No-Doc
• Full-Doc
• 100% LTV
• Interest Only
• ARM
• Conforming
• Non-Conforming

The housing market has been red-hot for many months, but we are realizing that all these short-term "solutions" have become long-term "problems". For instance, if a potential borrower had a decent credit score, they could obtain a "No-Doc" loan...which meant that they didn't have to submit documentation proving employment, income or debts.

Not only that, but there were the "interest-only" loans, where people could qualify at a very low "teaser" rate...only to find themselves faced with the higher rate within just a few months.

And, can you even imagine giving someone a loan at 125% of the value of their home? It's crazy! This is a recipe for bankruptcy if I ever saw one. Once they have used this money, it's gone. And when they get into trouble, they can't even sell the home without bringing a substantial amount of money to the closing table. Since most people don't have a huge amount of cash laying around, they are a candidate for bankruptcy or foreclosure. These loans should never have been allowed in the first place.

Many mortgage companies offered "adjustable teaser rates" - which meant that the borrower started out with a low interest rate (perhaps for the first year or so)...then jumped to the higher rate, which meant that several times during the life of the loan, their mortgage payment would increase dramatically.

It's so easy to buy a new home with low payments, and many borrowers just don't realize what the higher payments will do to their budget. I wonder who was there to counsel these homebuyers? Who was there to remind them of what was going to happen in a few months? I consider it my obligation to discuss this with my homebuying clients to make sure they understand the ramifications of this type of financing. As an Exclusive Buyer's Agent, part of my job is to counsel my clients in every aspect of their purchase.

Now, because of many of these loan programs, we are facing major foreclosures. Mortgage companies are folding and the entire industry is undergoing a major meltdown.

The bills are coming due! The delinquency rate on low-quality mortgages is at 13.8%, and the rate has doubled on medium-quality mortgages. Foreclosures are at an all-time high! Many areas of the country have real estate markets in the tank...and may take years to recover.

At least 82 high-risk lenders have re-organized or folded, resulting in huge loan losses. Many lenders are not closing on loans they have committed to. If you are in the process of purchasing a home, it would be to your benefit to check with other lenders in case your chosen lender cannot close on your loan. Many companies are simply cancelling loans and in many cases the homebuyer has to start over with a new lender. This can result in the homebuyer having to pay for another appraisal if the new lender won't accept their current appraisal.

The Bottom Line! Basically, if you are purchasing a new home and have solid employment, a good FICO score and at least 5% of the purchase price as a down payment...you should be fine. But, at this time, borrowers will have to prove that they can afford the home. The days of lenders giving borrowers the benefit of the doubt seems to be over. Everything must be documented.

Until this meltdown settles, many of the loan programs that we have been accustomed to will no longer be there. Actually, this will mean that a bit of "common sense" has returned to the mortgage industry. Someone that can't afford a particular home shouldn't buy it in the first place. Borrowers will have to qualify at the normal rate instead of the "teaser" rate. The mortgage industry is simply coming down to earth.

But, on the flip side, potential homebuyers and investors will be able to purchase foreclosed properties at a substantial discount.

Remember, if you plan to purchase a home in the near future...follow these guidelines for a successful transaction:

• Keep your credit score as high as possible. Check it often and take care of any discrepancies. This can mean a huge difference in your interest rate.
• Maintain your employment. Lenders will want to see at least 2 years of steady employment history.
• Save your down-payment money. Make steady deposits into your savings account because lenders will want to see the "paper trail". And they want "seasoned" funds, which means that the money must be in the account for several months prior to loan application.
• Don't purchase a vehicle just prior to your loan application. This greatly reduces your income to debt ratio and could prevent you from purchasing your new home.
• Plan carefully and try to obtain a fixed-rate mortgage. This will insure that your principal and interest will not increase at any time in the future.

For more information, please contact me. I look forward to hearing from you soon!

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125 Percent Mortgage Loan

So changing circumstances can adversely effect your ability to service the loan. It must also be realized that although you may wish to consolidate unsecured debt for example credit cards and loans you will be placing unsecured debt on to a secured loan.

A typical example might be where 95% of the mortgage consists of a secured loan on the property and the rest, the extra 30 % is an unsecured loan. The two amounts will normally be at the same rate which could be for example fixed or variable and both will run the same term. Some terms may stretch to 35 years long.

The advantage of a long term is to be able to have lower monthly repayments providing the mortgage is capital and repayment. However the downside would be the large amount of interest you will be paying to a lender over 35 years, the long term could possibly take the client passed their retirement date and servicing the loan should be considered. Ideally if you are able to make regular over payments along side your monthly mortgage payments or make large lump sum over payments you will reduce the term of the loan and make saving on the total interest you will be paying back to the lender.

Advantage

You may potentially purchase a home if you have no savings for a deposit and solicitors fees etc.

Disadvantages :

Higher interest rate

Few lenders offer a such mortgages so choice is limited

Not available as a Self Certification loan (self cert)

Not available to clients who have an adverse credit rating (bad credit)

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No Cost Stimulus Plan to Revive the Real Estate store - Real Estate, Foreclosure, Jobs, Short Sale

We all know that without the revival of the real estate market the economy cannot enhance as much as we would like it to. Being a real estate and mortgage broker for the past 26 years i have come up with this clarification that benefits roughly everyone. This may be the biggest transaction of my life, without pay, but it will help the economy and the country.

In the next 5 minutes I'll show you how my stimulus box costs nothing to implement, raises real estate values, creates jobs roughly instantly, and makes money for the banks and the government in less than one year.

Underwater Properties: an underwater asset is a asset that its owner owes more on the asset than the asset is worth, but, he or she wishes to keep the property, still has a job but has suffered a reduction in income, can afford a modified loan and wishes to occupy the asset as his/her personal residence. Sample property:

Home value = 0,000

Combined loan number on the house (the sum of 1st, 2nd, or even 3rd mortgages) = *0,000

Underwater number = $ 50,000

Solution:

Refinance: Banks to Streamline Refinance the whole 0, 000 @3.75% yearly interest rate payable interest only for 10 years and then convert into a 30 year amortized loan.

Trust Fund: create a Mortgage assurance Trust Fund where assurance premiums are deposited. Government to insure the underwater number plus 20% of the total loan by imposing a one-time fee equal to 2.75% of the loan number as an insurance, like the mortgage assurance companies did. This fee to be paid by the bank to the government and be added to the loan not to burden the borrower to come up with it in advance.

Example: Loan number 0,000 asset Value 0,000 Underwater number $ 50,000 Mortgage Insurance= 2.75% of ,000 + 2.75% of ,000 (20% of 0,000) = ,475. This method insures the Mortgagee the Underwater number plus a 20% to compensate for the 20% down payment ordinarily required while a purchase transaction.

Personal Guarantee: Borrower signs a personal warrant for the loan for a 3 year term, after the 3 years have passed the asset remains the sole collateral for the loan.

In the event of the borrower's default, this assurance pays for the unlikeness and covers the bank's losses.

The number that the government pays to the bank, if the borrower defaults within 3 years of the refinanced loan, becomes a personal loan to the defaulting borrower, a personal loan that survives bankruptcy, just like learner loans.

Assumption: The new loan to be an assumable loan to distinguished buyers. The Bank may payment 1% of the loan number as a replacement fee, plus a set 0 Combined Processing and Funding fee and 0.5% of the loan number for escrow and Title fee. The bank may (at its own discretion) ask for, accept, or reject a physical inspection report showing an appropriate health of the asset to the lender.

Prepayment: The loan to have a no prepayment penalty clause.

Credit Report: As an supplementary incentive, finance companies or banks must remove derogatory reputation from reputation reporting agencies for borrowers who qualify and obtain such loans at new terms

Annual Interest rates to be fixed at 3.75% for conforming and 4.125% for jumbo loans.

Foreclosed properties: Foreclosed properties are properties that the owners ultimately had no way of refinancing, and not adequate wage to sustain their mortgage even if and when modified. They chose to let go of the property.

These properties are a major burden on the banks that had the financing for these homes and the real estate market in normal because they are causing a major over-supply of properties which, in turn are devaluating whole neighborhoods. Solution:

1. Government to purchase foreclosed asset from bank at loan value. This will clear the banks from its books to allow for new financing. Offer said asset for lease with the following conditions to promote and incentivize potential tenants:

Offer the asset on lease with an option to buy at a predetermined price which should equal the total of the cost of the government purchase of the asset from the bank plus 10%, for example: asset cost the government 0,000 to own, the price for the tenant to pay in the event tenant wishes to purchase this asset within the 3 year term offered to him will be 0,000 + ,000 (10% of 0,000) = 0,000.

2. reputation all lease payments made by tenant towards the down payment if tenant chooses to remain in the asset and finally purchase the asset within 3 years. Tenant forfeits this right if he chooses not to buy asset within the 3 years duration and all money paid remains past or paid rent.

The term of the lease to be 3 years or less to qualify for the credit. This will warrant that government money is not lost; actually, it is production money and taking a lot of catalogue out of the market while helping owner occupancy.

3. Damage To asset due to foreclosure. Any borrower, who leaves or abandons his or her property, or lets his or her asset go to foreclosure, must hand over the asset in a normal wear and tear condition. No supplementary damage should be made to the asset blaming the bank as the cause for the foreclosure and that revenge is in order, such as: pulling drywall from the walls, pulling out appliances, causing plumbing damage, inflicting roof damage, or doing whatever that is out of the ordinary. The government will be authorized to place a personal lien on the owner who caused these damages either the bank or the government end up fixing it to bring the asset to its normal condition. Damages expensed to borrower are to survive bankruptcy protection. Excess money in borrowers' pockets will incentivize him/her to spend more. This spending will cause businesses to hire more employees and get the ball rolling. The examine created will tighten supplies which, in turn will create a moderate inflation, increase asset valuation, and finally lead to higher rates and increase the Gdp (Gross Domestic Product).

It is Not a hidden that When the Real Estate market Improves the economy Improves.

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Second Mortgages become interesting Cash Out Loan Alternatives

With all of the interest rate talk these days at the water cooler, it seems that everyone knows where the interest rates are going except for the Federal Reserve. Of course citizen are speculating, and if they do predict where the interest rates are headed, they legitimately could not tell you when they are rising or dropping.

As most of you have realized by now, the first mortgage rates may not go back down to the 2004 levels when the 30 year fixed was in the low 5's. Over the last 3 years, most homeowners have refinanced to an interest rate they are very comfortable with.

As the housing store shifts, the inquire for money is still great, but citizen will be taking out second mortgages to get cash and concentrate revolving debt. Second mortgages, also called home equity loans have come to be favorite alternative loans that do not need homeowners to refinance their current home loan. As you can imagine, many homeowners would rather leave their low interest 1st mortgage untouched and naturally take out a second mortgage on the asset for incidental cash like make home improvements or financing a second home.

With the store changing, it is leading for consumers to understand how home equity loans work. 2nd mortgages are liens that are taken out against your home for purchase, or cash out refinancing. Second mortgages do use your home's equity, so you want to be thrifty and pragmatic when leveraging your home.

Home Equity loans 125% - These liens are high Ltv 2nd mortgages that all you to borrow against your home's future value. It is hard to believe, but no mortgage guarnatee is required! The interest rate is fixed and the most coarse use of funds for these loans is debt consolidation.

Home Equity Line of reputation 100% - Home equity lines are more revolving reputation that carries a variable interest rate based on the Fed's Prime index reported in the Wall road Journal. You only pay interest when you use funds from the line, and only the interest is due each month during the draw period. The most coarse use of funds with a Heloc is for financing home improvements.

Which ever second mortgage appeals to you, remember to look at the closing costs, interest rate, and either or not there is a pre-payment penalty. When you are talking with some brokers or lenders the best way to collate the loans is to view the "Good Faith Estimates" which will be in case,granted with the loan disclosures. If you don't qualify for a 2nd lien, reconsider a Fha mortgage loan that offers cash out and refinancing up to 95%.

Second Mortgages become interesting Cash Out Loan Alternatives

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Obama's Harp agenda - Why Banks Aren't Lending according to the Government's Suggestions

The government decided that it was time to bonus responsible homeowners, those who make their payments on time and have never defaulted. They created the Home Affordable Refinance program; not only one version, but a new and improved version called Harp 2.0. In it, homeowners are supposed to be able to refinance regardless of their equity position, regardless of Debt to wage ratio and regardless of past credit. All You Needed was to be on time 11 out of the previous 12 months with your Mortgage payments.

Sounds like a great plan right? Sure! However, the big banks don't want to play ball with Mr. Obama and his Harp plan. You're hard pressed to find a lender who is lending without any of their own restrictions to the plan. In fact, for one reckon or another, it is like shoving a square peg into a round hole. For example, there is supposed to be no restriction to how under water your home is. However, what most lenders are saying is "sure, as long as you get a asset Inspection Waiver, we'll lend on unlimited Ltv". Otherwise, most lenders are lending up to 125% Loan to Value (how much you owe divided by how much your home is worth). The question is that most borrowers under water more than 125% and there are many factors at play that determine whether or not you will qualify for a asset Inspection Waiver. So most borrowers that are over 125% Loan to Value are looking themselves out of luck!

Additionally. On March 26th, Fannie Mae made it even easier to get a Harp loan. Even if you have a Bankruptcy or a Foreclosure in your past, you will no longer have to wait for 7 years to qualify. Past Bk's or Foreclosures wouldn't impact your qualification to get an interest rate in the low 4% range! That's great for the hundreds of thousands of Americans that had to Short Sell a home to safe their financial picture. The problem; even though Fannie Mae says it's so, Most Big Banks won't sign on. As of the date of this article, no lenders will give an approval if a borrower has a Bk within the last 48 months.

The next thing that has been recently updated is the debt ratio requirement, It is supposed to be that your debt to wage ratio (amount of money you put out every month to service your debt divided by your gross income) will no longer be a factor when trying to qualify for a Harp loan. Unfortunately, true to form, No Banks are stepping up to the plate on that one either. Most lenders are sticking to the 45% back end debt ratio requirement for qualification.

Although this description paints a bleak photo of the reality of the Harp program, what you need to note is that this author consistently says "most lenders" when describing who is doing what. The reality is that although the "big banks" don't want to take a chance, there are smaller, portfolio lenders who are looking at this opening to buy market share. There are some lenders who are shoving those square pegs into round holes. You just have to find one that knows everyone's qualifications. There are so many separate programs and restrictions, it is very difficult to frame out what lenders will lend to your specific scenario.

If you've been turned down by your current mortgage servicer or the local bank, Don't give up!

Obama's Harp agenda - Why Banks Aren't Lending according to the Government's Suggestions

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