The following is a compilation of some important mortgage news developments from recent years.
Bad Credit, Decent Mortgage
Submitted on October 27, 2006
A divorce or bankruptcy can wreak havoc with not just your emotional life, but your financial life, as well. Your credit rating can take a hammering, and the dream of owning a home might seem far-fetched for a while. But there are options even in the darkest of times, and getting that home loan can put you back on track to a full recovery.
Bad credit home loans
The first step to take is to lower your expectations a bit-the best interest rates will go to customers with impeccable credit histories. However, if you're willing to concede a couple of percentage points, you can get a bad credit loan and get on with your financial life. There are many lenders that specialize in bad credit mortgage loans, and they're willing to take on the higher risk of spotty credit in return for higher interest rates and increased closing costs.
In some cases, you can get a better rate with a no-documentation or reduced documentation loan application than you would with a bad credit loan. No-doc loans also preserve your privacy, because you don't have to disclose your income, credit history, or bank balances. But for most people, a no-doc loan will be more expensive than a bad credit mortgage.
Lifesaver of mortgage loans
While hardly ideal, these loans can be a lifesaver, and an important first step on your road to recovery. If you need extra money now, some lenders will let you borrow more than you're paying. In any case, steady repayments will repair your credit score with just a little patience. Another choice would be to wait a while, improve your credit in other ways, and then look for a mortgage when you're armed with a better credit score; but this isn't always workable.
A bad credit loan isn't always a bad thing. It's often the start of a whole lot of "good"-a good home, a good credit score, and a good life.
How Long is Too Long? The 50-year Mortgage
Submitted on December 18, 2006
There was a time when it was scandalous for a woman's skirt to reveal anything above the ankle. However, years passed, perspectives changed, and the miniskirt eventually arrived. There's an equally radical development in mortgage loans-a once unheard of repayment term of 50-years has recently hit the market.
Time may heal all wounds; but for mortgage loans, it may just be opening up a few new ones. A small group of lenders is now offering a 50-year mortgage.
This development isn't all that surprising, considering how it's an American pastime to push credit limits to the max and live life in debt. But beyond its five-decade length, the 50-year mortgage poses other significant problems, especially when you get down to its nitty-gritty details.
ARMed and dangerous
The biggest drawback of these 50-year mortgages is that the mortgage rates are adjustable. This could necessitate a refinance to another adjustable-rate mortgage (ARM) product if the mortgage rate adjusts too high, which defeats the point of selecting a long-term loan in the first place. The ideal consumer of this loan would plan on making a new home purchase and moving from his place in the next five years, thus making a pre-emptive move before the rate increases.
More interest, less equity
The adjustable mortgage rate isn't the only strike against this loan. A longer mortgage term means that you'll pay a higher amount of interest over that term. With more of your dollars directed toward interest payments, it will also take a much longer time to build up equity in your home.
Even though many larger lenders are cool to the idea of a 50-year mortgage, the loan is not unprecedented. A 40-year mortgage was introduced a few years ago, and is currently held by 5 percent of homeowners. This 50-year mortgage is a different animal, however. While the monthly payment might be low, it's not a good long term solution. It may be acceptable to live your life in the red, but the 50-year mortgage could be the one financial wound that even time can't heal.
Non-HAMP Loan Mods Hit 100,000 in January
Submitted on March 17, 2010
Nearly 100,000 homeowners obtained private mortgage loan modifications in January, the HOPE NOW alliance has announced.
Combined with 50,000 permanent loan modifications approved through the government-backed Home Affordable Modification Program (HAMP), a record 150,000 homeowners obtained long-term mortgage assistance in January.
Of the nearly 100,000 proprietary loan modifications approved, nearly three-quarters involved interest rate or principal reductions, or both, according to HOPE NOW. The group reports that approximately 2.6 homeowners have obtained proprietary loan modifications since 2008.
"While Treasury and other government sponsored programs have garnered much attention, much of the (mortgage) servicers'hard work has gone unnoticed, "said Faith Schwartz, Executive Director of HOPE NOW. "Our new dataset is proof that the industry continues to aggressively find solutions for borrowers facing default".
The group has recently expanded its tracking of proprietary loan modifications and other non-HAMP homeowners assistance efforts. In addition to full loan modifications, the group has also been active in pursuing loan workouts and payment plans to enable financially stressed homeowners to get caught up on their mortgages.
The HOPE NOW alliance is a collaborative effort among mortgage lenders, consumer counseling groups, investors and others seeking to help homeowners in financial distress find solutions to remain in their homes. The group was formed with encouragement from the U.S. Department of Treasury and HUD, and includes Fannie Mae and Freddie Mac as partners.
Feds Open Investigation Into Robo-Signing Controversy
Submitted on October 20, 2010
A federal task force is reported to be looking into whether mortgage companies may have committed fraud or violated other federal laws by falsifying documentation used in home foreclosures.
The Obama administration's Financial Fraud Enforcement Task Force is said be investigating whether lenders may have violated mail or wire fraud statutes by submitting improper foreclosure documentation, the Washington Post is reporting. The task force is also looking into whether lenders misled federal agencies such as the FHA and VA in the process.
The investigation focuses on the practice of "robo-signing," in which mortgage company representatives charged with preparing foreclosure paperwork are said to have routinely signed off on sworn affidavits without reading them, or submitted documents that had been improperly notarized.
The investigation comes on the heels of an announcement last week that all 50 state attorneys general were cooperating on a joint investigation into whether lenders' foreclosure documentation practices violated any state laws.
Foreclosures are typically a matter for state law, but the federal government's role in financing and insuring mortgages through entities such as the FHA, VA, Fannie Mae and Freddie Mac could bring federal law into play as well.
The news comes shortly after two major lenders announced that they have renewed foreclosure proceedings after suspending them to investigate documentation concerns. Bank of America said Monday that it was moving ahead with 100,000 foreclosure actions after finding no major problems with its foreclosure procedures, and GMAC Mortgage said it has restarted foreclosure proceedings as well, but did not specify if it was an across-the-board or limited action.
Mortgage lenders have defended their foreclosure practices, generally insisting that their procedures have been materially sound. James Dimon, CEO of JP Morgan Chase, which also suspended foreclosures last week pending an investigation, said that no homeowners have been improperly evicted by his bank.
However, being materially accurate may not be enough if federal and state investigators determine that shortcuts taken with foreclosure documentation still represent a breach of the law. In that event, any lenders who end up being implicated may still face legal sanctions and penalties, even if the foreclosures themselves eventually proceed as planned.
New Loan Disclosure Forms Unveiled
Submitted on May 18, 2011
In one of its first concrete actions meant to benefit consumers, the new Consumer Financial Protection Bureau (CFPB) has released two versions of a simplified mortgage disclosure form to be provided to borrowers.
The new form is intended to replace two documents currently provided to borrowers, the Truth in Lending Disclosure and the Good Faith estimate. Those forms, which are required by law, provide a borrower with specific information about the mortgage they are seeking, including the interest rate, monthly payment, loan fees and, in the case of an adjustable-rate mortgage, the maximum monthly payment the loan can reset to over time.
The present forms are two and three pages long, respectively, and present much of the same information. Both versions of the proposed form present most of the same information in a single document with more simplified language.
"The current forms can be complicated and difficult for consumers to use," said Elizabeth Warren, acting head of the CFPB. "They are also redundant and can be costly for lenders to fill out. With a clear, simple form, consumers will be in a better position to answer two basic questions: Can I afford this mortgage and can I get a better deal somewhere else?"
The bureau is posting the two proposed versions of the form on its web site, under the project heading Know Before You Owe, to obtain feedback from consumers and the mortgage industry before committing to a final design.
The CFPB plans to conduct evaluations of the draft forms over the summer. The final form and accompanying rules for use are due to be released by July 2012 for public comment.
The new agency was directed to create a new mortgage disclosure form by last year's Dodd-Frank Wall Street Reform and Consumer Protection Act, which also created the CFPB itself.
Lucky Few Get Big HAMP Writedowns
Submitted on December 13, 2011
A handful of lucky homeowners have been able to reduce their mortgage debt by nearly one-third under a little-noticed provision of the government's Home Affordable Modification Program (HAMP).
Called the Principal Reduction Alternative (PRA), it offers incentives to investors to write down the principal on certain types of mortgages as part of a HAMP loan modification. To date, some 53,000 borrowers have qualified to earn principal reductions averaging $65,000 each, or 31.3 percent of their pre-HAMP loan balance.
That's a small fraction of the 1.7 million trial loan modifications that have so far been granted under HAMP since the program was launched in April 2009, and of the 833,000 that have been given permanent status.
Fannie Mae and Freddie Mac mortgages excluded
The small impact is due in part to the fact that Fannie Mae and Freddie Mac, which guarantee the majority of U.S. residential mortgages, are not participating in the PRA program. That leaves a fairly small pool of home loans that qualify.
In addition, PRA is relatively new, having been initiated in October 2010.
The program rules for PRA require that mortgage servicers evaluate homeowners for a principal reduction when they apply for a HAMP loan modification, provided they have a non-GSE (Fannie Mae or Freddie Mac) mortgage with a loan-to-value ratio of greater than 115 percent. However, they are not required to actually offer a principal reduction as part of a HAMP modification and may only do so when the investor holding the mortgage approves.
Principal reductions earned over three years
Borrowers who qualify for a PRA must earn the principal reduction by staying current on their mortgage payments for three years. Each year the loan remains in good standing, the borrower receives one-third of the total reduction.
It is not clear whether Fannie Mae or Freddie Mac, which are in receivership under the Federal Housing Finance Agency (FHFA) will be amending their policies to allow participation in PRA at any point. The HAMP program is due to expire at the end of next year.
Home Mortgages for the Long-term
Submitted on October 07, 2012
Housing costs have ballooned during the past few years. Even if they come back to earth, buyers are still facing challenges when trying to secure manageable mortgages. To meet the demand, mortgage lenders have begun offering longer amortization schedules, including 40- and 45- year mortgages. These may be attractive if you're shopping for a dream home with an expensive price tag.
Longer-term loans have many advantages, including smaller monthly payments. In addition, there's more time for equity appreciation, career advancement, and other potential factors that can contribute to your ability to better manage mortgage payments. Whether a 40- or 45-year mortgage is appropriate for you depends upon factors that need to be individually evaluated before you make a decision.
Home mortgages for high-priced properties
The advantages become more evident when compared to interest-only loans, which are the rage with many buyers in the market for high-priced homes. With interest-only loans, there are no principal payments during the first few years, which results in a big balloon payment. But with a 40- or 45-year loan, the principal shrinks over time and reduces the burden of debt on the homeowner.
One way to get the most leverage out of these long-term loans is to take advantage of the lower monthly payments for the first few years, and then refinance to a more conventional 15- or 30-year loan after you gain more financial stability. In that way, you'll get the low monthly payments in the beginning that are associated with an interest-only loan, but pay down principal along the way. Or, if you plan to sell your home in a short period of time, a longer loan with lower payments still makes it easier for you to make payments while living in the house.
If you plan to stay in your home for the rest of your life, you may fare better with a 30-year loan. Compare, for example, a $300,000 loan at 7 percent interest paid back over 30 years, with the same loan paid back over 45 years. The monthly payment would be approximately $160 less each month for the 45-year mortgage, adding up to out-of-pocket savings of around $2,000 per year. But, the interest paid over the full term would be about a quarter of a million dollars more for the 45-year loan-almost as much as the entire amount of the original loan. Even with the annual savings subtracted from the equation, the longer loan would cost about $150,000 more over the entire life of the loan, making the 30-year option a wiser choice.
Outlook for Mortgage Credit Mixed
Submitted on October 17, 2012
Risk managers for U.S. banks are almost evenly divided over prospects for residential mortgage credit over the next half year, according to the credit scoring company FICO.
Asked about the availability of mortgage credit for buying homes over the next six months, just over half - 51 percent - said it would be adequate to meet demand. The remaining 49 percent said they expect it to fall short, with no option for "undecided" in the survey.
That's a slightly more pessimistic view than the last FICO survey three months ago, when 55 percent said they expected mortgage credit to meet demand through the rest of the year.
Bank risk managers in the survey were more optimistic about the availability of credit for refinancing a mortgage, with three out of five saying they expected credit to be adequate to meet demand over the next six months.
Tight credit has been a major burden on the housing market, particularly for residential sales. The National Association of Realtors has estimated that more traditional lending standards would boost home sales by 500,000 - 700,000 a year. The current rate is about 4.6 million annually.
Outlook good for credit cards, auto loans
The outlook was more positive for credit cards and auto loans, where about three-quarters of risk managers foresaw an adequate supply of credit over the next six months for each. They were less optimistic about small business and students loans, where about 45 percent of risk managers expected credit availability to fall short for each.
In terms of credit delinquencies, the majority expected them to stay the same or decrease over the next sixth months for both residential mortgages and home equity lines. Roughly a quarter in each category expected delinquencies to worsen.
Asked about personal financial decisions
One of the more interesting parts of the survey was where risk managers were asked what they would do, personally, if they had enough cash on hand to immediately pay off their mortgage. Of these financial professionals, 35 percent said they would pay off their home loan, the most popular response.
Another 22.5 percent said they would invest it in the stock market, 19.5 percent would pay off other debts and 12.5 percent said they would invest in bonds and fixed-income assets. The least popular option was putting it in CDs or a savings account, chosen by 10.5 percent.
Mortgage Credit Gradually Easing
Submitted on August 05, 2013
Mortgage loans have become easier to obtain in recent months, even as mortgage rates have been on the rise.
That's according to new figures from the Mortgage Bankers Association (MBA), which reported today that mortgage credit eased in July for a fifth consecutive month. The MBA's Mortgage Credit Availability Index (MCAI) increased 2.2 percent from its June level to a reading of 112.3.
The main cause of the rise was an increase in the availability of cash-out refinancing options, though there was also some lessening of restrictions on borrowers with higher loan-to-value ratios or lower credit ratings.
The increase in mortgage rates in recent months may be one reason why credit standards are loosening, as lenders have to work harder to find business than they did when rates were at record lows a few months back.
"People see interest rates rise, they slow down some of that eagerness to get into the market," said David Stevens, CEO of the MBA, in an interview on CNBC.
As a result, lenders may be willing to consider more marginal applications than they were when borrowers were beating down their doors to refinance.
Refinance demand way down
MBA figures show that mortgage applications are running are just over half their level of one year ago, while refinance applications, which had been accounting for about four out of five mortgage applications in recent years, are down by nearly 60 percent from one year ago.
Mortgage applications to buy a home have increased somewhat over the past year, but not nearly enough to make up for the decline in refinances.
Although mortgage credit has eased somewhat in recent years, it still remains far tighter than it was just prior to the economic crash. The MCAI is based on a benchmark of 100 reflecting mortgage credit conditions in March 2012; the same system would have produced a reading of approximately 800 in 2007 if it had been in use at that time.
Watt May Cancel Mortgage Fee Hike
Submitted on December 23, 2013
People who are thinking of buying a home in the coming year got an early Christmas present over the weekend, when U.S. Rep. Mel Watt said he intends to postpone and perhaps cancel a scheduled set of mortgage fee increases once he takes over as head of the Federal Housing Finance Agency (FHFA) in early January.
Watt told the Wall Street Journal that one of his first actions upon being sworn in on Jan. 6 will be to order the delay of the increases, which are set to take effect April 1, until he has had time to evaluate the increases and the reasoning behind them.
The fees, which are on a sliding scale based on a borrower's credit rating and down payment, would increase the up-front cost of a mortgage by as much as $3,750 on a $250,000 home loan for a borrower with a credit score in the mid-700s.
A changing of the guard
The new fee schedule was released earlier this month as one of the agency's final major actions under departing Acting Director Ed DeMarco.
Officials at Fannie Mae and Freddie Mac, whose mortgages are subject to the FHFA's fee structure, have said the current fees are sufficient to cover any expected losses from bad loans. However, DeMarco has said the fees should be raised in order to bring more private investors into the mortgage market by increasing the returns available to them.
The schedule increase would be to a type of fees known as Loan Level Pricing Adjustments (LLPAs), which are supposed to offset the increased risk presented by certain loans. Generally, higher LLPAs are charged on loans to borrowers with lower credit scores or who make smaller down payments.
The proposed fee schedule would only affect mortgages backed by Fannie Mae or Freddie Mac, which are in government conservatorship under the authority of the FHFA. Other home loans, such as those through the VA or FHA, would not be affected.