Is The Mortgage Squeeze Peaking?
As the economic fallout from the fractured mortgage market is likely to continue, the squeeze on mortgage consumers may be ready to plateau. In July, the percentages of domestic lenders tightening credit standards remained relatively unchanged for three types of home loans, according to the Federal Reserve.
Comparing the just released July 2007 Senior Loan Officer Opinion Survey on Bank Lending Practices with April’s survey the Federal Reserve found little change on the levels of credit standard tightening for prime, nontraditional or subprime home loans.
“In the July survey, banks indicated that they had tightened their lending standards on each of the three mortgage loan categories over the past three months, and the net fractions of banks that reported doing so in each case were roughly the same as in the April survey,” the report said, based on responses from 53 domestic banks remarking on conditions during a three-month period before the survey.
The July survey found for prime loans, 85.7 percent of lenders left credit standards unchanged as 14.3 percent tightened them somewhat. In April the numbers were 84.9 percent and 15.1 percent respectively.
Prime loans were identified as residential mortgages made to borrowers with relatively strong, well-documented credit histories, high credit scores, and relatively low debt-to-income ratios. The loans included fully amortizing mortgages with a fixed rate, standard adjustable rate mortgages (ARMs), and common hybrid ARMs.
The nontraditional or Alt-A category saw greater change in some levels of tightening as 59.5 percent left credit standards unchanged in the July report, while 35.7 tightened standards somewhat and 4.8 percent tightened them considerably. In the previous survey the numbers were 54.5 percent; 34.1 percent and 11.4 percent.
In the survey, the nontraditional category of residential mortgages includes, ARMs with multiple payment options, interest-only mortgages, mortgages with limited income verification and mortgages secured by non-owner-occupied properties (often second homes).
For subprime loans 43.8 percent of lenders left credit standards unchanged, 31.3 tightened them somewhat and 25 percent tightened credit standards considerably. In the April survey the numbers were 43.8 percent, 25 percent and 31.3 percent.
The Fed defines subprime loans as those made to borrowers with one or more of the following characteristics: weakened credit histories that include payment delinquencies, charge offs, judgments, and/or bankruptcies; reduced repayment capacity as measured by credit scores or debt-to-income ratios; or incomplete credit histories.
The survey also queried banks about demand for residential mortgages and found demand changes mixed.
Written by Broderick Perkins
Short Sales Not Just About Cancelling Mortgage
We’re hearing a lot about short sales these days. The key words in the Multiple Listing Systems around the country are “third party approval required,” or “bank approval required,” which is a signal that the property you’re looking at is actually being sold by the mortgage holder rather than the deed holder. Before you get involved in one of these transactions, understand what they are not: a short sale is not simply a sale of a property for less than the original purchase price. It is not necessarily a “pre-foreclosure.” It is not always a good deal.
What a short sale is: A short sale is a pre-foreclosure only in the fact that the lender has decided to receive payment on the note for less than the face amount. The sellers have determined there’s no way they are going to get as much for the house as they owe and they can’t stay in the property for one reason or another. The terms of such sales will differ lender to lender. Some require that the owners demonstrate they can’t afford the house (that they’re broke, in essence) and that there’s no money to bring to the table to make up the difference.
It’s a sticky situation for the sellers/owners. They don’t want to hurt their credit or go into foreclosure, but they have to move because they’ve been transferred, lost a job, took a new job or are overextended, but they don’t have the cash to pay the marketing costs, closing costs and pay off the mortgage.
Short sales are real diamonds. I’ve seen some that look great — offering closing costs, aggresive pricing, and selling bonuses — just to get the house off the books.
Conversely, they can also be some of the toughest deals to get through to settlement if the lender has lost too much money already and just wants to wait out the buyers until one comes along who’s willing to buy the house in disrepair with no closing costs.
If you’re writing a contract on a short sale here are a few tips to keep in mind:
Be patient. Because of the current default situation on mortgages, the lenders are inundated with many of these type properties. You’re offer is one of many and the processor will get to it in turn. Don’t expect a response in a day — maybe not even two to three days. Sometimes a week is not out of the ordinary. Putting in language such as “response required within 24 hours,” may just be a waste of time, rather than a stimulus to get a faster response.
A good comparative market analysis is imperative. Be sure to hit the price right on the head and offer close to it. Most lenders have already lost enough money, they don’t want to lose more with a really low offer. If it’s overpriced, then offer right at the CMA amount. But if it’s right on, offer the full price.
Pile on the contingencies. This works well if you’re writing a full price offer. Those would include inspections (home, pest, radon, etc.); appraisal; financing; etc. Ask for a lot and expect nothing.
Be on top of your walk through. Most short sales don’t like home inspections, thus be aware of the condition of the property. If possible, test all the systems (electrical, plumbing, heating/air). This is as simple as flushing toilets, using a socket tester (available at hardware stores); and turning on the furnace/heater/air. You may even want to turn on the washing machine and dishwasher — but ask the listing agent beforehand.
If you’re on the selling side of a short sale, keep in mind you’re not the one in control anymore. The buyer/agent is going to be dealing with the listing agent and the lender more than anyone else. You may want to be involved in the sale, but you’re mainly there to agree to the terms set forth by the lender. Sign the paper work. Move your stuff — out. They want their money and your home is the only thing standing in the way.
So you’re out of trouble, right? Not so fast. The bank could come after the rest of the balance separately from the sale, just like they can with a foreclosure. On top of that, any cancellation of debt above $600 is supposed to be reported as income to you through Form 1099-C (Cancellation of Debt) to the IRS. For instance, let’s say you sell your house for $30,000 less than you owe, that 30-grand could be additional income the IRS will want to tax.
Written by M. Anthony Carr
Shared Appreciation in a New Light
[tag] Shared appreciation mortgages[/tag], a [tag]loan[/tag] product that gained some popularity three decades ago before fading away, could be making a comeback of sorts as a tool that will allow local communities to provide [tag]affordable housing[/tag] that will remain affordable over time. Shared appreciation [tag]mortgages[/tag], or [tag]SAMs[/tag] as they became known, are loans in which someone puts up all or some of the cash for a [tag]home buyer’s downpayment[/tag] in return for a portion of whatever amount of appreciation takes place in the value of the property between the day it is purchased and the day it is sold.
In the 1970s and ’80s, SAMs were used as a way to[tag] make housing more affordable[/tag]. But in those days, it was often a friend or family member who put up the cash.
Now, the idea has resurfaced in a somewhat different form. Now, a local housing authority or another city agency, or perhaps even a nonprofit, puts up the dough and shares in the profits when the house is sold. But instead of pocketing the gain, so to speak, it uses the profits to help another worthy family buy a house or keeps the return in the house so it remains affordable. That way, according to the Center for Housing Policy, it’s “one generation helping another.”
Jeff Lubell, who is executive director of the Center, calls shared equity “a unique approach to affordable housing” because it permits communities to provide for people over time while at the same helping families build individual wealth “in a predictable and potentially life-altering way.”
In return for providing funding, moreover, the public’s share of the appreciation can be used in one of two ways — either by returning it to the government in the form of a cash payment that can be used by another family having difficulty raising enough money for the downpayment or by keeping it with the house, thereby reducing the cost of that home for the next purchaser.
“By sharing the gains in home price appreciation with the public investor, shared equity results in substantial benefits now and for years to come,” says the Center, which is the research arm of the National Housing Conference in Washington.
“Home buyers benefit from a substantially lower home price and the opportunity for significant home equity gains. Local communities benefit by retaining vital workers who otherwise couldn’t afford to live in the communities they serve. And, by ensuring that the public’s investment keeps pace with the housing market, shared equity strategies allow governments to help generations of families achieve homeownership with a single initial investment.”
Another term for shared equity is “subsidy retention,” meaning that every time a subsidized owner sells his house, the subsidy he received is returned to the jurisdiction. In some cases, the original buyer also agrees to give back a percentage of the appreciation in the house.
Consequently, cities and counties can serve more families with the same amount of funds. And if home prices rise, they get back more money so there may be no need to increase their funding. Or at least by not as much.
Say, for example, someone buys a $200,000 with the help of a $25,000 subsidy. When the buyers sells five years later, he gives back the subsidy so the jurisdiction can use the money to help someone else who is short on cash. And in some cases, the first buyer also gives back some of the gain. So if the $200,000 house sells for $300,000 in five years, a percentage of the gain goes back to the city, too.
Shared appreciation schemes can take on many forms. The city of Santa Cruz, Calif. collects 1 percentage point of home price appreciation for every percentage point of the purchase funded by funded by its second mortgage program. In Vermont, the Champlain Housing Trust uses an appraisal-based formula in which the seller get 25 percent of the appreciation and the trust gets the rest.
The Center, which works to broaden understanding of America’s affordable housing challenges and examines the impact of policies and programs developed to address these needs, has worked with Rick Jacobus of Burlington Associates to develop an online tutorial on shared appreciation and several programs that have worked for various localities.
Written by Lew Sichelman
Applying for Your First Home Mortgage? What You Need to Know
The following home mortgage tips will help you figure out how to best go about the home mortgage loan process for your situation.
Home Mortgage tip #1 Interest Rates
Before applying for your first home mortgage loan you will want to shop around and see what average home mortgage loan rates are. Shopping for home mortgage rates online is a timesaver and frequently have lower rates as well. Your home mortgage rate will affect how much money you have to pay back over the term of the loan, so the lower the better.
Home Mortgage Tip #2 Fixed or Variable Interest Rate
When it comes to your home mortgage loan there are more options than just a loan you pay back over a set amount of years. You can choose different home mortgage interest rates that work best for your current and future situations. So, before you apply for a home mortgage loan do some research on variable and fixed interest rates to find what will work best for you.
Home Mortgage Tip #3 Down Payment
When applying for a home mortgage loan for the first time you might not be aware of the general down payment you will be required to make. Many times a home mortgage loan requires between 10 and 20% of the price of the home, but if you have good credit sometimes you can make a lower down payment and still get a good deal on your home mortgage. This depends on the home mortgage lender, so shop around.
Keeping Your Credit Clean
Many homebuyers frequently wonder, “If I am shopping for a home loan will my credit be affected each time a credit report inquiry is made?” It’s a logical and intelligent question to ask; the answer is: not significantly, if the credit checks are done in a short period of time.
When a credit check is made by a potential lender it is called a hard inquiry. When a hard inquiry occurs it does have an impact on your credit score. However, when you’re shopping for a mortgage or a car loan, credit bureaus typically cluster the hard inquiries together because the credit reporting bureaus understand that the consumer is shopping for the best loan.
“So for example, if you’re shopping for a new mortgage and three potential lenders pull your credit score within three weeks, that is looked at as one inquiry for that purpose,” says Steven Katz a spokesperson for TransUnion’s TrueCredit.com.
Keeping your credit clean is critical. Katz offers the following advice to help ensure healthy credit.
One card you should not carry: Leave your Social Security card at home. “There is basically no reason that you need to carry that with you,” says Katz.
Most people have their Social Security card number memorized. If you’re not one of those people, then only carry your card with you when you know you need the information on it. Your Social Security card number contains personal information that if it gets into the wrong hands, can cause major credit dilemmas.
Lock it up: Apartment complexes and condominiums typically have locking mailboxes, but these types of secure mailboxes aren’t as common in residential, single-family neighborhoods.
“If at all possible, people should have a locking mailbox,” says Katz.
Katz says mailboxes with locking devices are becoming more popular at hardware stores because identity theft is spreading. Taking precaution to protect your personal information can save you months of agony.
Shred your documents: Katz says if you don’t shred your personal documents and criminals access the information, the result can be devastating to your credit. Criminals will often attempt to open new accounts using your name and information. If they’re successful, they will use the new account and divert the account information to the criminals’ address or post office box.
“So, you’ll never even know that the account was established. They’ll be receiving the bills and then just throwing them out. It’s ruining your credit.” explains Katz.
Keep an eye on your credit card: Katz says while it is difficult, people should not let their credit card out of their sight or else they run the risk of becoming a victim of skimming.
Skimming has become prevalent at some restaurants and gas stations where a clerk might have a small device that scans the consumer’s credit card.
“It’s a very small scanner that captures all the information that is on the magnetic strip, and then the card’s information can be cloned,” explains Katz.
Of course, keeping your credit card visible at all times is nearly impossible. Katz says, “If you’re going to go to a restaurant in an area that you’re a little uncertain of — that’s in a fringe area or you’re in a foreign country and you’re not too certain about where you’re dining — attempt to use cash.”
Also, when using credit cards be sure that the receipt you leave with the merchant does not have your credit card number exposed. Most merchants have credit card systems that only print out the last four digits of a consumer’s credit card; however, some still show the entire account number on the print out. If your full credit card account number appears on the receipt, scratch it out with a pen. Additionally, in rare cases where carbon copies are used, ask for the carbon.
Check your credit history
Consumers can check their credit history for free once a year at http://annualcreditreport.com. Katz says that the free reports will not contain an actual credit score, but you can get the scores for a fee.
Another good credit-checking resource is found at http://truecredit.com. The website offers access to tools to manage a consumer’s credit health by receiving credit reports, credit scores, credit monitoring, and informational materials.
Written by Phoebe Chongchua
