In a recent article, California mortgage broker, Jeff Morris, formerly with GMAC and Ditech estimated that one in ten of homeowners who visit him online are able to get approved for a conventional or FHA refinance.Morris said, “People simply don’t qualify with the mortgage lenders tighter guidelines and lack of home equity.“ Borrowers seeking home refinancing, outside of California, Arizona and Nevada may have a better chance because fewer borrowers in the mid-west and south are under water with their mortgages being greater than their home’s value.Even with mortgage lenders extending 97% FHA and 105% mortgage refinancing, California homeowners have little opportunities to be approved because home values have declined so significantly since they bought their properties years ago.
The goal should be for homeowners to invest in a home that they can afford and if refinancing with a lower mortgage payment is an option, then borrowers would be foolish not to seize the savings opportunity. Morris added that “the demand for loan modifications has not waned and he sees an increase in loan workout requests for borrowers who are stuck in jumbo mortgage loans that have interest rates set to adjust.” The banks just aren’t handing out loan modification agreements to just anyone anymore.Homeowners seeking foreclosure prevention alternatives from their mortgage lender must be able to document that they have the income to support the modified home loan payment.
In Maui, Caleb Palmer, a broker, said “Consumers should stop whining about things they can’t control and focus the affordable home buying opportunities that have become available since the housing market crashed in 2006.” Palmer continued, “Mortgage rates were under 5% for thirty year fixed rate loans and inventories were beginning to open up in neighborhoods that haven’t been available for years.”Palmer believes that 2010 will see more buying opportunities in Hawaii and California before the market shifts back to appreciation mode.
In addition, if you’re older than 40, shortening your mortgage term now could help leave you mortgage-free in retirement, reducing the income you’ll need to generate from your battered 401(k).
But before you jump in, you should know that most single-family home loans today need to fall within Fannie Mae and Freddie Mac limits — up to $417,000 in most places, and up to $729,750 in certain high-cost cities such as San Francisco and New York. “Jumbo” mortgages, or those larger than those limits, are still very hard to find. Then you’ll need two crucial and tough-to-acquire bits of information: your credit score and your home’s current value. Those will determine whether you can refinance at all and how close you can get to the lowest rates available. Even then, you may find the process unusually long and unpleasant; some banks are taking up to 90 days to complete a refinancing.If you got your current mortgage in the past few years, when less documentation was needed, you may be surprised by the financial colonoscopy that awaits you. You need pay stubs, bank statements, brokerage statements and maybe tax returns to convince the lender that you can and will repay the loan. If you’re self-employed, you may be asked for a profit-and-loss statement for this year; if you rely on bonus income, expect the lender to assume this year’s bonus will be a lot less than last year’s.
What is home equity? Having some equity in your house is essential to qualifying for a new mortgage loan. If your current mortgage is less than 80% of the value of your home or less than 75% of your condominium, you should have refinancing options as long as you don’t have late mortgage payments and bad credit scores.Subprime refinancing and bad credit mortgage options have disappeared with the exception of VA and FHA loans.VA home loans are only offered to military veterans and FHA mortgage guidelines require full income documentation and most bad credit home loan applicants need a stated income program.
If your mortgage is between 80% and 105% of your home value, you’re current on your payments and your loan was bought by Fannie Mae or Freddie Mac, you may be able to refinance under a two-month-old government program called “Making Home Affordable.” Some kinks are still being ironed out, and Fannie and Freddie have different requirements, so go to the program’s Web site at MakingHomeAffordable.gov or contact your mortgage servicer to see if you qualify.
Sometimes under this program, Fannie and Freddie will waive appraisals and other underwriting steps. And if you’re refinancing a Veterans Administration or Federal Housing Administration loan, a new appraisal isn’t needed.
Mortgage brokers continue to report that FHA mortgage and VA home loans are the hottest products in the home financing sectors of the U.S.The VA provides low mortgage rates for streamline programs to veterans who currently have a loan guaranteed by the U.S. Department of Veterans Affairs.In addition to the VA streamline refinancing, Mortgage Related News reports that and VA loan officers are originating the Interest Rate Reduction Loan at a high volume than previous years because this VA loan has no “seasoning” requirement.
In the mortgage industry, this type of seasoning refers to borrowers who recently completed a mortgage refinance transaction. In addition, these VA loans entail very little documentation and usually do not require an appraisal. In order to qualify, borrowers must have a VA home loan that is not delinquent. In a recent VA mortgage article, Tom Kelly highlights the opportunity that military veterans and their families have financing and refinancing with VA home mortgage loans.He points out that one of the simplest ways for homeowners who have a VA mortgage is with the VA streamline refinance.
VA mortgage lenders will assess that veteran borrowers meet basic program requirements including:
·The new monthly mortgage loan payment must be for less than the original loan.
·The VA mortgage rate must be for less than the original loan (unless refinancing from an adjustable interest rate).
·The term cannot exceed thirty years or ten years more than the original mortgage term (up to a max of 360 months).
After 50 years of offering loans only to vets who served active duty, the VA changed its rules in 1992. Men and women who have completed six years in the Army, Navy, Air Force, Marine Corps or Coast Guard Reserves, or the Army National Guard or Air National Guard, are eligible for VA home loans, including programs with zero down required. >Read the complete VA home loan article online.
C.D. Davies discusses the difference between subprime home loans and Alt A mortgage financing.
The video talks about home mortgage industry and how mortgage lenders made bad subprime loans to risky borrowers that could not afford the mortgage payment as soon as it adjusted. Alt-A home loans were not much better because many of these loans were stated income with no income documentation required. Who could forget the ridiculous 1% teaser rate on loans that had negative amortization features that actually caused mortgage balance to rise.Many of the foreclosures came from the no-money down home loans made from Alt-A and subprime lenders.
Irwin Financial Corp. here took a $54 million loss in the third quarter, or $1.85 per share, compared to a $107 million loss in the third quarter of 2007, and cut losses in half by implementing charges that included reduced exposure to its nationwide home equity portfolio. These charges were made possible through the securitization of $268 million of these home equity loans. Commenting on the “substantial progress” on its strategic restructuring during the third quarter, despite the economic crisis, Irwin Financial chairman and CEO Will Miller, said, “We securitized 85% of our remaining home-equity whole loans, thereby capping our credit loss exposure on those loans. With the home-equity portfolio in runoff mode, our credit exposure to the national home-equity industry is shrinking.”
The home-equity segment reported a $24 million loss, down from a $44 million loss during the second quarter. It reflects the negative effect of $27 million in loss provisions and $15 million in restructuring charges related to the exit from this market.Thirty-day and greater delinquencies on the total portfolio increased from 6.6% at June 30 to 7.43% at Sept. 30. The allowance for loan losses totaled $155 million at Sept. 30, or 12.1% of the portfolio. This book of business continues to see “historically high levels of losses from customers who had strong credit characteristics at origination,” Irwin said, as the average FICO score of borrowers who defaulted was at 688.
Irwin has embarked in an ongoing process of liquidating second mortgage loans along with other charges associated with the company restructuring, such as provisions for credit losses in its commercial banking segment.For example, Irwin reported $15.1 million in losses to the commercial banking segment, due to increases in loss provisions primarily for real estate related loans. “We believe that through our strategic restructuring we will return to profitability by simplifying our business,” Mr. Miller said.
Net interest income of $48 million was lower in the third quarter, “reflecting the sale of the equipment leasing portfolio, the securitization of $268 million in home equity loans and a reduced level of loans.” One of the ways to strengthen the capital base is the expansion of the company loan portfolio in the area around its headquarters in Columbus. A renewed focus in serving small businesses and customers in Irwin branch communities follows the same path that made Irwin successful for the past 137 years, he said.“As an example of this renewed focus on our traditional branch-based business, in the third quarter we expanded our loan portfolio in our headquarters community of Columbus, Ind.,” the executive said. “We were pleased that Irwin Union Bank was the leading producer of consumer residential mortgage loans to our neighbors in the community during the third quarter producing 44% more residential loan volume than the next largest competitor locally.”
In addition, Irwin reported a consolidated total capital to risk weighted assets of 10.8% with total capital to risk weighted assets of 11.3% at Irwin Union Bank and 12.4% at Irwin Union Bank federal savings bank.“Plans to further strengthen our capital base are moving ahead,” he said.Irwin currently has obtained standby commitments for an additional $6 million in connection with its previously announced $50 million shareholder rights offering, “raising the total level of commitments to $37 million, or 74% of the planned offering.” Article Written By Amilda Dymi
The Associated Press Mortgage financier has Freddie Mac has reported an $821 million second-quarter loss. The AP’s David Melendy reports on that and the rest of Wednesday’s business headlines. The mortgage financier has Freddie Mac has reported an $821 million second-quarter loss. The decrease of one dollar and sixty-three cents per share was more than three-times larger than Wall Street expected. The dismal results come just weeks after the government threw a financial lifeline to Freddie and its sister company Fannie Mae to ward off fears the pair could collapse and take down the U.S. mortgage market.
Connecticut is suing Countrywide Financial, alleging it misled borrowers into taking on risky home loans they could not afford. The state alleges the mortgage giant violated its consumer protection laws and charged unjustified fees to homeowners who defaulted. Many mortgage lenders believe that Countrywide wrote more bad credit mortgages because they were the top originator in the country.People seem to forget that Countrywide also wrote more good loans than any other mortgage company for many years.
How the Mortgage Market has Changed Lenders and Brokers
The current mortgage market mess is a direct result of the subprime mortgage meltdown and foreclosure phenomenon. It all began with the bursting of the U.S. housing bubble, which launched the high default rates on subprime adjustable rate mortgages (ARMs) and spread to the exotic hybrid ARM (negative amortization and interest-only loans). Now, even the prime mortgage market is experiencing high default rates.
Loan incentives, such as easy initial terms, in conjunction with an acceleration in rising housing prices encouraged borrowers to assume difficult mortgages on the belief they would be able to quickly refinance at more favorable terms. But, when housing prices started dropping in 2006, refinancing these loans became difficult. The default and foreclosure rate started rising dramatically upon expiration of the initial teaser rates and upon ARM interest rates adjusting higher as home prices failed to appreciate. Foreclosures accelerated in the United States in late 2006 and triggered a global financial crisis through 2007 and 2008. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity, up 79% from 2006.
Subprime mortgage lenders were the first to be affected by the borrowers unable or unwilling to make their payments. Major banks and other financial institutions around the world have reported losses of approximately U.S. $435 billion as of July 17, 2008. But, as the securitized loans sold in the form of mortgage-backed securities (MBS) and collateralized debt obligations (CDO) declined in value, Corporate, individual and institutional investors holding MBS or CDO started getting hit with heavy losses, and stock markets in many countries declined.
Countrywide almost going under before being bailed out by BOFA (Bank of America) and IndyMac going under seemed to spark off a trend of mortgage companies going bankrupt that seems to be continuing. As a result of the significantly increased credit risk and decreased confidence in the financial market, lending activity decreased, credit standards tightened down and the spread on higher interest rates widened–the current “credit crunch”.
Now, in order to get a conventional mortgage loan, whether you’re looking to buy or refinance, you now have to have excellent credit. Down payment and equity requirements are now tighter, as well. And, while the interest rates have now dropped below 6%, the lending standards haven’t loosened up at all. To purchase a home with a conforming Fannie Mae or Freddie Mac loan, you need a credit score of at least 660 if you’re putting 20% down and a score of at least 700 if you’re starting with less than 20% equity. Refinancing has similar standards–you need an excellent credit score and low loan to value (LTV), typically around 75% to 80%.
As a result of the conventional loan tightened lending standards, and the new increased lending limits under the Economic Stimulus package passed earlier this year, FHA loans have been making a serious comeback. The lower interest rates that resulted from Freddie Mac and Fannie Mae being taken over by the government has also benefitted FHA because FHA rates have also decreased. But, the advantage that a home buyer has with FHA loans is that the credit standards are nowhere near as stringent for FHA loans as they are for conventional loans. You’re eligible if you have a score of around 580 and a good 12-month payment history on your bills. Plus, if you don’t have credit, FHA accepts non-traditional forms of credit like a positive rent paying history and positive payment histories with your utilities and cell phone.
For those looking to refinance, FHA allows you to refinance up to 95%, which is a lot better than the 75-80% LTV on conventional loans. Credit standards are reasonable for refinance loans, as well. As long as you have a positive 12-month payment history (particularly on your mortgage) and you are current on your mortgage, you’re eligible.
Freddie Mac, a government-chartered company, will also increase the time it gives servicers to negotiate with delinquent borrowers in Washington, D.C., and 20 states to 300 days from a range of 120 to 299 days, a spokeswoman said. The states are those with relatively fast foreclosure processes, Freddie Mac said.
Freddie Mac continues to struggle to contain billions of dollars in losses sustained since mid-2007 as the housing slump and home lending erodes more than expected. Speculation that losses will severely pinch capital positions at the company and rival Fannie Mae , the top U.S. mortgage funding company, led to sharp drops in their share prices since May and legislation this week to provide emergency financial backstops from the U.S. Treasury.Delinquencies on home loans guaranteed by Freddie Mac more than doubled in the year through May to 0.86%. According to Freddie Mac, the recent national delinquency rate calculated by the Mortgage Bankers Association is 6.35%.
HUD has helped fill the gap of loan purchasing from Freddie Mac and Fannie Mae with their government insured FHA home loans. Thje FHA home loan programs have expanded to help borrowers with adjustable rate mortgages refinance into a fixed rate mortgage. In addition, FHA announced a plan to roll out new down-payment assistance loans to help first time homebuyers get into the real estate marketplace.
Compensation to loan servicing companies that negotiate new payment plans and home loan contracts will double to $500 and $800, respectively, Freddie Mac said. For a mortgage servicer that completes a so-called short-sale, in which Freddie Mac accepts a sale price on a home below the balance of the mortgage, payments also double, to $2,200. Accepting short sales can result in less losses for mortgage lenders by ending the delinquency period and preventing ownership of the property through foreclosure.
Among new incentives, Freddie Mac said it will reimburse servicers for the cost of door-to-door programs in which lending services seek out troubled borrowers in person to discuss renegotiating their loans if that results in the borrower contacting the servicer. Loan servicing companies have also been stung because they must advance payments to home loan investors even if the mortgage is in arrears, and as they hire more skilled workers to negotiate with borrowers and underwrite the mortgage loans again.Loan servicing companies, often units of major mortgage lenders, this week said they increased the number of mortgages they have modified to more affordable terms last quarter.
