Tag Archives: Mortgage/Lending

Fannie Mae Sees Mortgage Risks

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sasha flying in yosemiteIf you are interested in more blogs with a real estate focus, BusinessWeek has put together a new blog called Hot Property. The concept is great, and so far, the articles have been quite informative.

Today, they had an interesting article describing a Fannie Mae’s analysis of how many individuals could be hit hard when “adjustable-rate mortgages do what they were born to do–i.e., adjust.”

When taken to the extreme in the form of interest-only loans, adjustable-rate mortgages seem downright dangerous for the novice investor. As I’ve said in the past, I’d be very careful and do my research before getting an interest-only loan…

Preapproval financing letter may not be worth much

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homelessThe Seattle Times ran an interesting article on how on-line preapproval letters. It should serve as a warning to sellers to make sure that you are getting a pre-approval letter that is actually worth the paper it is printed on.

The agents said 39 percent of preapprovals issued by Internet-based lenders are faulty or invalid. Nearly 30 percent of mortgage broker-issued preapprovals are in the same category, along with one out of every five preapprovals from national lenders.”
A faulty preapproval letter may say something to the effect that “We have preapproved Mr. and Mrs. Flanagan for a 30-year fixed-rate mortgage at 5.5 percent in an amount not to exceed $500,000.” That allows the Flanagans to look at — and bid on — homes without anybody seeing proof of their actual qualifications.

But what happens when the lender simply relies on Mr. and Mrs. Flanagan’s statements about their income, assets and credit, and issues a preapproval without verifying the information?

“That’s where you can get into deep trouble,” says John Marcell Jr., a real-estate broker who is the incoming president of the California Association of Mortgage Brokers. He runs Compass Realty and Better Mortgage Brokers, both based in Upland, Calif.

Marcell’s loan brokerage does not issue preapprovals for buyers whose credit files, assets and income have not been verified, and his realty firm won’t accept preapproval letters if the information has not been confirmed by the lender or broker issuing the letter.

“In those cases [functioning as Realtor] we go to the [mortgage] broker and say, ‘Look, we’ve got to see the credit reports. We’ve got to see the W-2s. We’ve got to see the bank statements.’ ”

Compass Realty also warns the seller on homes it lists whenever preapprovals look dubious.

mortgage update…

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Turtle on RockMortgage rates are still quite competitive:

Mortgage rates fell across the board over the past week, mortgage finance firm Freddie Mac said Thursday, suggesting the housing market still has room to grow.

The rate on 30-year, fixed-rate loans averaged 5.57 percent for the week ending Thursday, with an average 0.6 point payable upfront, down from the prior week’s average of 5.63 percent, according to the mortgage finance firm’s survey.

I guarantee you’re going to get this mortgage, I think.

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donna's homeWhy does the mortgage business seem so insane and unreliable?

Well, there are a couple of reasons. One reason is there are a tremendous number of loan officers who have no experience but who are pretending they do. As loan officers, our job is to make your loan work. When we look at a loan application, we examine all possible reasons we can find that could be a problem. These are things like properties under construction, borrowers who are out of work, too much debt, not enough income, complex income situations, low credit scores, title problems, and much more. Loan officers with lots of experience have seen so many different situations with such complex problems they know how to evaluate a new loan and spot potential problems. Where we run into trouble is with the underwriters. These folks work for the lenders and they review all of the information sent to them from the loan officer. They have guidelines and matrices which tell them what’s acceptable and what’s not. Underwriters will ask, or what we call “condition

Cutthroat Competition of Online Brokers Benefits Consumers

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Cutthroat CompetitionA recent study showed that on-line brokers had an extremely high costumer satisfaction levels:

With an average reliability of 99.5 percent, the brokerage industry’s Web site service levels far exceed other industries, Keynote found. In addition, pages that take more than one and a half seconds to download–a time considered first-rate by other online industries–fell well below the standards currently being set by online brokerages.

Have you used an on-line broker? (I have!) I’d be interested in hearing about your experience. Was their service as good as this survey suggests?

Thanks to Garrett French for the background info…

Home equity

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living room 01The Seattle Times had an interesting article regarding home equity building rapidly in our fast moving real estate market and investors using home equity to make more speculative investments:

According to Economy.com, Americans pulled out roughly $705 billion of equity from their homes last year, up from $266 billion in 1999.

The bulk of that money came from capital gains made by people selling houses, and these profits often are used to purchase another residence.

Many people also use some of the extracted cash to pay off credit-card debt, which is widely viewed as a sensible way to use equity. Another large chunk of the equity withdrawn goes into home improvements. Spending on such projects totaled $138.3 billion last year, up 38 percent from five years before, according to Harvard University’s Joint Center for Housing Studies.

Mortgage Matters

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peppersI’ve been really impressed with a daily column (blog?) by Holden Lewis put out by Bankrate that discusses issues related to mortgages.

I find the section he gives on the numbers to be particularly useful in putting a little perspective on how (and why) mortgage rates are changing.

If you in the market for a home loan (refinance? new home?), a few minutes reading his site could quickly bring you up to date on current market conditions.

The miracle mortgage? or not?

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Bison GrazingInterest-only mortgages are all the rage right now… Money magazine claims that as many as 70% of new home loans are interest only (in hot markets).
Here’s how money magazine descibed the workings of an interest-only loan:

What people commonly call an interest-only mortgage isn’t one particular type of loan. Rather, interest-only is an option that can be attached to any mortgage.

And in every case, after a certain time (usually five, seven or 10 years) the mortgage becomes fully amortizing, and you must pay both interest and principal. Because you’re repaying the principal in 20 or 25 years, not 30, those principal payments are higher than they would have been.

Other than that, the terms are as varied as those on any other mortgage — anything from a one-month adjustable rate to a 30-year fixed. IOs generally have a slightly higher rate (about a quarter of a percentage point) than the same loan without the interest-only feature (one reason lenders like them). But for most borrowers, that’s a small price to pay for the deep savings that interest-only payments represent.

Jack Guttentag (a professor at Wharton) had a much more skeptical (and I think more interesting) article on interest-only loans that dived a little deeper into the history of these types of loans. He describes how interest-only loans were all the rage in the 1920s…

However, the drop in real estate values during the Depression pushed a large proportion of interest-only loans into foreclosure. Lenders switched entirely to fully amortizing loans, and that has been the standard mortgage loan since.

Mr. Guttentag concludes that interest-only loans are “gimmickry, misdirection, and misperception” and that “if you don’t need an interest-only mortgage to qualify for the house you want to buy, it is not the best choice. ”

Of course, this is only one perspective on interest-only loans, but I find it highly interesting. If you are thinking of using an interest-only loan, I’d be interested to know why…

Title and Escrow. What do they do?

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Rick's HouseThe title and escrow companies are two important players in a real estate transaction. Are you wondering what they do?

A title company provides you with an insurance that guarantee that you are receiving real property in exchange for your money when you buy real estate . Title insurance guarantees that the the ownership of the property you are buying is just as stated in recorded documents.

Whenever you buy any real estate , you expect to acquire use of the property as well as the property “title