Mortgage Tips

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While it’s common for young, prospective homeowners to live with mom and dad to save money for their down payment and future mortgage payments, there’s a potential downside.

Banks and mortgage lenders can sometimes decline applicants without adequate rental history. This is especially true if you have other issues, such as poor credit or shaky employment.

Though it makes perfect sense to live at home to save money on things such as rent, groceries, utilities and the like, it does little to prove you’ll be a sound borrower once you finally do move out.

Going from living with mom and dad to paying thousands per month is a big step. Lenders will want to know you can handle it.

And though you might get approved for a mortgage without rental history, it can be helpful regardless to prepare you for homeownership.

Rental History Is Important to Predict Future Payment Behavior

When you apply for a mortgage, the bank or lender will dig into your financial history, whether it’s in the form of credit cards, auto loans, or a previous lease. If you fail to provide these things, they’ll be hesitant to lend to you.

In short, if you want to qualify for a mortgage, it’s best to rent first so you have the ability to document that rent for at least a year. Doing so will also prepare you for the responsibility of homeownership.

Sure, you can ask mommy or daddy to co-sign for you, but if you don’t have that luxury, don’t assume you’ll get financing for that dream home you’ve got your eye on unless you can provide a VOR (Verification of Rent) or cancelled checks for the previous 12 months.

And no, providing a VOR from a family member won’t fly in most cases, even if you insist that you pay your parents rent each month. It really doesn’t make sense from the lender’s point of view. You’ll need cancelled checks or something that actually proves the rent was paid.

Living Rent-Free Prior to Applying for a Mortgage

If you don’t have a current housing payment and suddenly take on a mortgage payment of several thousand dollars a month, banks and mortgage lenders are going to bet you may struggle to make your mortgage payment each month.

In reality, they won’t really know without anything to go on, but they’ll err on the side of caution.

This theory is known as payment shock, and is generally defined as an increase in your monthly housing payment beyond 200%. In other words, if your payment more than doubles, you’re automatically labeled a risky borrower.

Let’s look at an example:

Borrower A
Current housing payment living at home: $0
Proposed mortgage payment: $2,500

Borrower B
Current housing payment: $1,500
Proposed mortgage payment: $2,750

As you can see, Borrower B will be favored for mortgage financing over Borrower A based on rental history alone.

If you insist upon living at home and/or rent-free prior to applying for a mortgage, it may not be a problem if you are otherwise qualified.

Most home loans, including those backed by Fannie Mae, Freddie Mac, the FHA, VA, and USDA, are pushed through automated underwriting systems these days.

As such, rental history documentation may only be required if the system flags it.

This is typically the case if you have limited credit history or bad rental history that somehow shows up in your file.

For example, if you only have one credit card to your name, the system may want to know more about your rental history.

Conversely, if you’ve got excellent credit and deep credit history, the system may not ask for rental history. However, the underwriter could still ask for clarification or a letter of explanation.

You May Still Need to Explain Yourself

Ultimately, they’ll still want to know what you were doing before you made an offer on a piece of property, they just won’t scrutinize it as much. And that can be a good thing!

If you apply for an FHA loan and have been living with mom and dad, they’ll simply ask that you provide documentation from the property owner that you have in fact been living rent-free and the amount of time you’ve been doing so.

Assuming you pay a relative or friend rent each month, it might be advisable to pay via check so you can provide cancelled checks in the event they are required. It’s pretty difficult to prove you paid in cash.

Additionally, it’s important to have other credit tradelines, such as credit cards, auto loans, student loans, etc. to show lenders you have some credit history if you lack rental history.

Aside from potentially getting denied, you may be subject to stricter underwriting guidelines if you’re unable to document rental history, such as a lower maximum DTI ratio.

The good news is with more and more first-time home buyers living at home prior to applying for their first mortgage, this issue is becoming less of a roadblock.

Read more: How to move out of your parents house.

Source: thetruthaboutmortgage.com

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If you’re having a tough time getting home loan financing using a mortgage broker or a local mortgage lender, consider contacting a portfolio lender directly to close your mortgage.

They can offer solutions that others cannot, and may have just what you’re looking for. For example, a portfolio lender may be willing to offer you a no-down payment mortgage while others are only able to give you a loan up to 97% loan-to-value (LTV).

The same might be true if you have bad credit, a high DTI ratio, or any other number of issues that could block you from obtaining traditional mortgage financing.

What Is a Portfolio Loan?

  • A home loan unique to the lender offering it
  • That comes with special terms or features
  • Other mortgage lenders do not offer
  • It is kept on the bank’s books as opposed to being sold to investors

In short, a “portfolio loan” is one that is kept in the bank or mortgage lender’s loan portfolio, meaning it isn’t sold off on the secondary market.

By servicing the loans themselves and keeping them in portfolio, these lenders are able to take on greater amounts of risk, or finance loans that are outside the credit box because they don’t need to be resold to investors with specific underwriting guidelines.

These companies have the ability to bend the rules when they see a deal worth doing, whereas mortgage lenders that must adhere to Fannie Mae, Freddie Mac, and the FHA have very little wiggle room.

You see, most loans that are sold off are backed by Fannie and Freddie, or the FHA in the case of FHA loans, so very rigid underwriting standards must be met without exception.

Portfolio lenders, on the other hand, can create their own underwriting guidelines because they aren’t at the mercy of an outside agency if they’re actually willing (and able) to keep the loans they make.

A lot of small and mid-size lenders don’t have the same authority because they must sell their loans off on the secondary mortgage market due to liquidity constraints. And investors are becoming increasingly selective as to which loans are actually purchased.

Who Owns My Home Loan?

  • Most home loans are sold shortly after origination
  • So the bank that funded your loan likely won’t service it
  • Look out for paperwork from a new loan servicer after your loan funds
  • Unless it’s a portfolio loan

Many mortgages today are originated by one entity, such as a mortgage broker or mortgage lender, and then quickly resold to investors who earn money from the repayment of the loan over time.

Gone are the days of the neighborhood bank offering you a mortgage and expecting you to repay it over 30 years, culminating in you walking down to the branch with your final payment in hand. Well, there might be some, but it’s now the exception rather than the rule.

In fact, this is part of the reason why the mortgage crisis took place in the early 2000s. Because originators no longer kept the home loans they made, they were happy to take on more risk.

After all, if they weren’t the ones holding the loans, it didn’t matter how they performed, so long as they were underwritten based on acceptable standards. They received their commission for closing the loan, not based on loan performance.

Today, you’d be lucky to have your originating bank hold your mortgage for more than a month. And this can be frustrating, especially when determining where to send your first mortgage payment. Or when attempting to do your taxes and receiving multiple form 1098s.

This is why you have to be especially careful when you purchase a home with a mortgage or refinance your existing mortgage. The last thing you’ll want to do is miss a monthly payment right off the bat.

So keep an eye out for a loan ownership change form in the mail shortly after your mortgage closes. If your loan is sold, it will spell out the new loan servicer’s contact information, as well as when your first payment to them is due.

Portfolio Loans May Solve Your Financing Problem

  • Large loan amount?
  • High DTI
  • Low credit score
  • Recent credit event such as short sale or foreclosure
  • Late mortgage payment
  • Own multiple investment properties
  • Need an asset-based income loan

Now back to portfolio loans. If you’re having a tough time getting approved for a mortgage, or finding a particular type of loan, consider a portfolio lender.

As noted, these types of mortgage lenders can offer things the competition can’t because they’re willing to keep the loans on their books, instead of relying on an investor to buy the loans shortly after origination.

They also offer mortgages that fall outside the guidelines of Fannie Mae, Freddie Mac, the FHA, the VA, and the USDA.

That’s why you might hear that a friend or family member was able to get their mortgage refinanced with U.S. Bank or a similar portfolio lender despite having a low credit score or a high LTV.

So if you’re in need of a $5 million jumbo loan, or an interest-only mortgage, or something else that might be considered unique, look to portfolio lending to solve your financing woes.

They may also be able to work with you if you’ve experienced a recent credit event, such as a late mortgage payment, a short sale, or a foreclosure. Really, anything that falls outside the box might be considered by one of these lenders.

Some of the largest portfolio lenders include Chase, U.S. Bank, and Wells Fargo, but there are many smaller players like Bank of Internet, BancorpSouth, Caliber Home Loans, and Wintrust Mortgage.

Portfolio Loan Rates

  • Portfolio mortgage rates may be higher
  • Than typical home loan rates
  • Because the loan programs aren’t necessarily available everywhere
  • Meaning you may pay for the added flexibility

Now let’s talk about portfolio loan mortgage rates, which as you might suspect, may not be as low as the competition.

Ultimately, many mortgages originated today are commodities because they tend to fit the same underwriting guidelines of an outside agency like Fannie, Freddie, and the FHA.

As such, the differentiating factor is often rate and closing costs, since they’re all basically selling the same thing. You may also see customer service, or in the case of Rocket Mortgage by Quicken Loans, a quirky ad campaign and some unique technology.

For portfolio lenders who offer a truly unique product, loan pricing could be entirely up to them, within what is reasonable. If the loan program is really special, and only offered by them, expect rates significantly higher than what a typical market rate might be.

If their portfolio home loan program is just slightly more flexible than what the agencies mentioned above allow, mortgage rates may be comparable or just a bit higher.

It really depends on your particular loan scenario, how risky it is, if others lenders offer similar financing, and so on.

At the end of the day, a portfolio loan is a solution that isn’t offered by every bank, so you should go into it expecting a higher rate. But if you can get the deal done, it might be a win regardless.

Source: thetruthaboutmortgage.com

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If you’ve ever watched “pro” wrestling, you’ve undoubtedly heard of Ric Flair, the undisputed king of flair, and an all time great in the eyes of thousands of adoring fans.

Well, the man has somehow body-slammed his way into the mortgage business, in what looks like a lead company, though it’s hard to tell as the bulk of his company website is consumed by glamorous photos of the ex-pro wrestler draped in lush, silky robes.

According to his website, “RicFlairFinance.com” (which you absolutely have to visit), the company offers mortgages, auto loans, and refinance loans for consumers in a variety of financial situations.

The website has an application process referred to as the “Figure Four Process”, whereby potential borrowers select the type of loan they need, complete an application, submit it, and finally, “get the loan.”

Some revolutionary stuff here.

The company website says, “Get the money you need to live like the “Nature Boy”…it’s as simple as 1-2-3-4.”

Rick Flair referred to himself as “Nature Boy”, “Nature Boy Ric Flair”, and “The Black Scorpion” in his wrestling days.

Message boards have already been abuzz, fretting about whether the news of a pro-wrestler joining the game could further rock the creditability of the embattled mortgage industry.

(photo: thebadderintheworld)

Source: thetruthaboutmortgage.com

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I did a recent interview regarding predatory lending. I thought I’d share it here to offer a better insight as to what predatory lending is, and how it can affect you and your family.

1. How would you define predatory lending in the mortgage industry?

Predatory lending is a very subjective term, which makes it hard to define, and even harder to control. To some, it may involve charging too much to complete a mortgage application, while others may define it as doctoring forms to qualify an applicant for a loan. It also involves more cut and dry practices such as deceiving borrowers by failing to include all associated costs upfront, forging documentation, or simply leaving out important documents such as the Hud-1 or the Good Faith Estimate. Either way, what’s clear is that predatory lending usually involves unethical practices.

2. Is it a big problem? Why or why not?

Personally, I think it’s a huge problem. Much of the current state of affairs in the mortgage industry can be blamed on predatory lending to some extent, whether it was manipulating figures to qualify a borrower, or simply sticking a borrower into an option-arm they would later default on after mortgage payments reset. Many households nationwide have been shattered by some form of predatory lending.

3. What are the consequences or the problems that a borrower can face if they get a mortgage with a predatory lender?

Clearly the biggest consequence is a borrower losing his or her home. If a borrower was misinformed during the loan process and later found out they were unable to afford payments, the result could be devastating. As a result of loose lending practices over the past few years, many homeowners across the nation are facing payment default and foreclosure, and the problem could get worse in the near future. Even if affected homeowners are able to stay afloat, many were overcharged thousands of dollars which can impact other areas of their life and makes things a lot more difficult financially.

4. What are factors that consumers should consider when choosing a mortgage lender?

Typically, choosing a large, well-known bank or lender will help homeowners avoid much of the predatory lending problem, although even the big guys exhibit their own form of predatory lending, perhaps to a lesser extent. I think the key is educating homeowners about the process before they embark upon the loan process. Any bank or lender can overcharge you or throw you for a loop. It’s up to the borrower to educate themselves to ensure they make informed decisions and avoid the typical traps inexperienced borrowers fall into.

5. Should they go with an institution that they already have borrowed money from such as a bank or credit union for instance?

Previous relationships can be a positive for several reasons, including peace of mind, familiarity with the process and employees, and perhaps even better pricing. Many banks and lenders offer a discount to borrowers based on the level of relationship already established. And it’s always wise to consider your current bank along with all other potential financing options.

6. Is there any particular “profile” of a predatory lender? If so, what it is?

–Is it the lender that is “bad” or the loan products that they offer?

The scary thing about predatory lending is how loosely it can be defined. Sometimes it’s the lender, and sometimes it’s the products they sell. And it may be one of those or a combination of things that make it “predatory”. Loan programs themselves are fairly objective in their nature, but salespeople can highlight certain aspects while leaving out others. This type of omission is another form of predatory lending. Of course you may also encounter a completely evil bank or mortgage broker that exists simply to overcharge, defraud, and misinform you. But again, it can be case by case, with some homeowners being affected more than others. For example, minorities have been said to be more impacted by predatory lending.

7. Why is it important for a prospective borrower to choose the “right” lender?

Obtaining a mortgage is likely the largest financial transaction a consumer will make in their life, so making the right decision is crucial. Most people comparison shop when looking at televisions or cell phones, so the attention should be ten fold when shopping for a mortgage. Just as you’d buy your TV or phone from a reputable merchant, the same carries over to mortgage. You want someone you can trust, who you can contact if anything goes wrong, and someone you think will steer you in the right direction. Predatory lending can happen at any company, so it’s not only the company, but the individual you ultimately work with. Take your time to select and “interview” the person who will handle your loan.

8. What tips can you offer buyers who want to find a good mortgage, HELOC or other housing-loan product?

My recommendation is to self-educate. While you may be able to shop around and find an “honest lender” or the “best broker”, education will ultimately help consumers make the right decisions, obtain the best mortgage rates, and pay the lowest fees. You’d be surprised how much you can learn simply by reading blogs or opening up the newspaper each morning. Mortgage is a hot subject and there is certainly no shortage of information. The more you know, the more you can negotiate, and the more you’ll save!

9. Does the shopping approach for a mortgage change when someone is looking for their first mortgage as opposed to a mortgage that isn’t their first home purchase?

I’m sure consumers would take into consideration their past experiences when shopping for a second mortgage, and so on. Anything that went wrong the first time around should be examined and ultimately adjusted to ensure things go smoothly the next time. Again, it really comes down to the borrower and their willingness to take the time to learn about the process and understand how things work. If they do take a moment to educate themselves, their second experience should be much better, and that will be evident in pricing and fees.

10. Is finding a lender online any different than shopping in person?

There are unscrupulous lenders on and offline, just as there are with any business. The key is research, referrals, and education. Make sure you know who you’re working with, how they operate, who you can get in contact with, and so on. Some people may be turned off to the idea of working with someone remotely, while others may have no problem with it. I think it’s highly important to be able to get in contact with whomever it is you choose to work with when handling a complicated mortgage transaction. If you aren’t able to, you may panic.

11. What do’s and dont’s should consumers follow?

It’s tough to generalize here, but I can recommend a few tips. Make sure you’re working with a reputable company. As I mentioned earlier, get referrals, contact information, and meet face to face if possible. Get everything in writing and make sure you understand every detail before signing and moving on. Don’t let anyone rush you or intimidate you. Again, this comes back to being educated on the subject. If the loan process makes sense to you, you won’t be afraid to ask questions or make objections when necessary. If you’re not sure of something, don’t sign. Homeowners need to approach the process more confidently, and confidence is a byproduct of education.

12. Based on what the blog says, you worked in the mortgage industry. Can you offer any industry perspective that can help consumers?

–Such as are lenders commission fueled, does a lender try to get a borrower to borrow a higher loan amount, etc.

I learned a lot about the mortgage industry over the years, but one insight I could walk away with is that everyone is in the industry is there to make big money. And many people are looking for a quick buck. Remember, banks and lenders are in the business of getting loans funded, and whether you get a good deal or not is really of little consequence. Employees at companies large and small will push whatever program is in their best interest.

Some loan programs tend to carry higher commissions, so you better bet they’ll be the first ones you see. Decide what program works for you before meeting with a bank, broker, loan officer, or lender. Otherwise you’ll likely see programs that fit their personal agenda. The option-arms are a good example of this. They had the highest payouts in the industry, and as a result were sold aggressively nationwide. These are the same loans that have caused homeowners everywhere to miss payments and face foreclosure.

13. What resources can people use to help them sort out how to find a lender?

When seeking out a bank, lender, or broker to work with, I would recommend a great deal of prior research. As I mentioned with comparison shopping, a mortgage is likely the largest purchase of your life, so make sure you take the time to make an educated and thoughtful decision. The people representing you control your destiny, and people with bad intentions will do whatever it takes to make the most money at your expense. Search online, consult with friends, family, and co-workers, and find out what did or didn’t work for them. Read the newspaper, magazines, and online publications to see who’s in good standing and who has seen better days.

14. Would you say the foreclosure rate is high or low right now? Does the quality of lenders people are choosing have something to do with that?

Current data would suggest that foreclosures are at a high right now, and that has a lot to do with loose lending practices, not necessarily the quality of lenders out there. The mortgage industry really got out of control, with lenders offering ridiculous programs such as “No Doc” loans to 100% financing that didn’t require income, assets, or employment verification, and 100% option arms that allowed borrowers to qualify for million-dollar homes when they could barely afford to pay rent. Now a good deal of these homeowners are in too deep, with many missing their mortgage payments and facing foreclosure. You can blame the lenders who offered them such risky programs, but you also have to look at the homeowners. Most people knew they were getting more home than they could afford, but looked the other way and hoped for the best.

15. Any common myths that borrowers fall into or misconceptions that they have about lenders or looking for one?

There are a ton of myths, lies, and inaccuracies out there because the mortgage industry is a huge mix of seasoned veterans, get rich quick junkies, and newbies. You could be misinformed as to how a mortgage program works, or be told that your credit score isn’t high enough to qualify for a loan. You may also be informed that your particular loan scenario is more complicated than it actually is, resulting in a much higher interest rate.

Unfortunately, if you don’t educate yourself about mortgage, knowing what’s accurate and what’s just hot air will be hard to distinguish. Sure there may be lenders and brokers out there looking to build a long-term relationship, but it’s better to be vigilant to ensure you come out on the winning end. Little things can make a huge impact in the mortgage industry and the choices we make during the loan process can make or break us as homeowners. Your credit score may be a few points shy of qualifying for a loan, or you may send in the wrong document and jeopardize your loan entirely.

Mistakes happen, but we can minimize risk if we take the time to learn about the process and leave plenty of time to prepare. Remember, buying or refinancing a property is a major financial decision, and one that requires a great deal of time, research, and attention.

Source: thetruthaboutmortgage.com

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The mortgage broker who created the notorious radio ads that refer to the no closing cost loan as “the biggest no-brainer in the history of earth” apparently spent too much time refinancing, and not enough time disclaiming.

According to the settlement announced today, Atlanta-based Lenox Financial violated the Arizona Consumer Fraud Act by failing to properly include a disclaimer in its radio advertisements touting the loans.

Though the promise to offer no closing cost loans was valid, the fact that the ads failed to mention that some applicants might not qualify led to the fine.

As a result, Attorney General Terry Goddard announced that Lenox Financial (not to be confused with Lenox/WesLend in CA) would have to pay a $95,000 fine, and would be required to add a disclaimer to future radio ads concerning the loan program.

Goddard did note that the majority of loan applicants were able to qualify for a no closing cost loan, and that the broker did indeed provide no closing cost loans, just not universally.

“Although they have a good record of providing no-cost loans, some people with less than perfect credit in fact pay fees,” he said.

Jon Shibley, the outspoken president and CEO of Lenox Financial responded to the settlement, calling it “the biggest no-brainer in the history of earth.”

Unfortunately, giving a fine to this broker can be likened to fining Mark Cuban for yelling at a referee during a Mavericks game, and will probably lead to more shameless publicity than anything else.

Shibley is a huge advocate of no closing cost loans, as evidenced by the following blurb found on his website:

“When you talk about no closing cost, the easiest thing to say is: Don’t go and blow six or seven thousand dollars in closing cost and pay some predator thousands and thousands of dollars when you can do the same thing for free.”

According to the Lenox Financial website, the company does $4 billion in mortgages a year, and has saved customers over $200,000,000 in closing costs.

Of course his customers likely pay higher interest rates on their loans as a result, but hey, that’s a no-brainer.

Source: thetruthaboutmortgage.com

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In a somewhat surprising move, Bank of America is ceasing its wholesale lending business amid the ongoing turmoil in the mortgage industry.

“While we are extremely proud of our strong track record in the wholesale business, we believe our long-term opportunity lies in maximizing our more competitive retail channels,” Floyd Robinson, Bank of America’s president of consumer real estate and insurance services said in a statement.

It is believed that Bank of America will shut the unit over the next couple months, likely at year-end, with a loan submission cutoff around the end of November.

Reports have said that Bank of America will continue to accept loan submissions until November 25th, 2007 and that all submitted loans must fund by December 31st, 2007.

Bank officials have noted that around 700 jobs will be affected by the decision, though they may have the opportunity to apply for open positions within the company.

Job cuts are expected at loan centers throughout the U.S., including locations in Brea and Rancho Cordova, CA, Dallas, TX, and Richmond, VA.

The news is another blow for mortgage brokers and loan officers who are finding many of their options disappear as banks and mortgage lenders continue to drop wholesale lending to focus on a retail push.

Recent moves to stamp out wholesale lending have left very few big players in the space, with Chase and SunTrust believed to the be the most popular options left.

There’s also Citi Residential Lending, a non-conforming wholesale lending unit offering Alt-A and subprime products which launched in September.

It appears Bank of America will focus on its network of over 10,000 personal bankers in nearly 6,000 banking centers throughout the U.S., along with its 2,200 loan officers serving 33 states.

The popularity of the Bank of America No Fee Mortgage seems to be very strong, and falls in line with their retail-centric strategy.

The no cost loan which was introduced in May has led to more than $50 billion in application volume in the past six months, according to the bank.

“We see a lot of opportunities in growing our retail business,” bank spokesman Terry Francisco said. “By exiting wholesale mortgage we are putting our full focus in one area, not splitting it.”

Look for more wholesale fallout as retail banks continue to squeeze out the competition.

Yesterday, Bank of America announced 3,000 job cuts in its investment banking division after record losses rattled investor confidence.

Shares of Bank of America (BAC) fell just over 1% to close at $47 a share, slightly above their 52-week low of $46.45.

Source: thetruthaboutmortgage.com

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Dancing aliens rejoice. The ads are back. Apparently dreams do come true sometimes.

A few weeks ago, a blogger from the New York Times had commented that the silly dancing aliens, grooving silhouettes, and freaked out office worker advertisements had mysteriously disappeared from websites across the Internet.

The omnipresent, mostly obnoxious ads were part of a mortgage campaign by LowerMyBills, an Experian company that specializes in lead generation, including the lucrative home loans space.

Their disappearance was attributed to the ongoing credit crunch, and their relative popularity (or perhaps notoriety) was clear when the company began cutting back on online advertising geared toward mortgages.

A LowerMyBills company spokeswoman denied any such cutbacks, but said it was possible for the company to shift ad spend from time to time to other segments of their business, such as comparison shopping.

Many fretted that the mortgage lead business was on the way out after the infamous ads finally disappeared.

Nonetheless, the dancing alien ads are back, and they should be enough to help disgruntled mortgage enthusiasts crack a smile in this down housing market.

A Feel-Good Story

  • For some downtrodden folks
  • The return of the dancing aliens
  • Is the one bright spot
  • In an otherwise bleak reality

Finally, a feel-good story in the mortgage industry. We’ve waited a long time for this.

If you’re not familiar, you’ve probably seen the ads at some point, one where a green alien is doing some kind of Macarena-esque dance, or possibly the “office freak out” where dancing women are suddenly caught off guard.

Though the ads have returned, they seem to have been altered slightly, and I’m not talking about a new set of dance moves.

The ads used to say, “Mortgage Rates Fall Again!”, but were later changed to read, “House payments fall again!” after mortgage rates continued to rise.

But the latest set of ads I’ve seen simply state, “See today’s mortgage rates.”

The ad pictured above is an old screen-grab from a previous ad campaign…

LowerMyBills was acquired by credit bureau Experian in 2005, and bills itself as the #1 online mortgage advertiser. I wouldn’t doubt it given how ubiquitous they are.

In early 2017, Detroit-based Rock Holdings, Inc., which is the parent company of Quicken Loans and its newer venture Rocket Mortgage, announced that it had signed an agreement to acquire Los Angeles-based LowerMyBills.

Let’s hope they bring the aliens back to planet Earth some time soon!

Source: thetruthaboutmortgage.com

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The interest rate freeze proposal has just been unveiled by the Bush Administration, a plan which could help as many as 1.2 million borrowers stay in their homes.

“There is no perfect solution,” President Bush said Thursday as he announced the agreement reached among a slew of mortgage industry players. “The homeowners deserve our help. The steps I’ve outlined today are a sensible response to a serious challenge.”

Bush was quick to explain that the plan wasn’t a bailout, claiming the proposed interest rate freeze would only benefit responsible homeowners.

“We should not bail out lenders, real estate speculators or those made the reckless decision to buy a home they knew they could never afford,” Bush said after meeting with industry leaders at the White House. “But there are some responsible homeowners who could avoid foreclosure with some assistance.”

He also noted that thousands of borrowers have been sent letters about their options, and that aid would only come to those who asked for it, urging at-risk homeowners to call the new telephone hotline at 1-888-995-HOPE.

The president had originally given out the wrong phone number for the hotline, which was later corrected by White House staff.

Bush also played a bit of the blame game, saying the Democratic-controlled Congress “has not sent me a single bill to help homeowners.”

Hillary Clinton called Bush’s plan “too little, too late”, referring to the fact that it would exclude the 400,000 homeowners whose mortgage rates have or will reset in the final three months of 2007.

Fed Chief Ben Bernanke released a statement saying, “The streamlined process for refinancing and modifying sub-prime adjustable rate mortgages announced today is a welcome step in helping Americans protect their homes and communities from the consequences of unnecessary foreclosures.”

Meanwhile, the S&P said the mortgage freeze plan may lead to more downgrades on mortgage bonds because loan modifications will lead to reduced payments to investors.

Shares of the top U.S. mortgage lender, Countrywide Financial (CFC), rose $1.68, or 16.12%, to $12.10 on the news.

That said, here are the details regarding the “interest rate freeze proposal” unveiled today:

In order to qualify for an interest-rate freeze, you must have received your mortgage sometime between January 1, 2005 and July 31, 2007, and you need to be facing an interest rate reset sometime between January 1, 2008 and July 31, 2010.

If you fall within this range, you may be eligible to have your interest rate frozen for five years, though you won’t qualify if you are able to make payments at the higher adjustable rate, or if you can’t make payments at the original teaser rate.

The plan is focused on first-lien, 2/28 and 3/27 ARMs for borrowers who are no more than 30 days behind on their mortgage payment.

It only applies to owner-occupied properties, so investment property owners need not apply.

According to a source briefed on the plan, borrowers who have 3 percent or more home equity would also not be eligible for the freeze, and borrowers with credit scores below 660 will be first in line.

The plan identifies three classes of at-risk borrowers:

– Strong borrowers facing an interest-rate reset will be helped into FHA fixed-rate mortgages, and won’t be eligible for an interest rate freeze.

– Borrowers with credit scores below 660 that have not increased by 10 percent since the origination of the mortgage in question will be fast-tracked for a loan modification, though borrowers with higher scores may also qualify.

– And finally struggling borrowers who aren’t able to afford even a modified loan will end up facing foreclosure.

It looks like the proposal will only help a small group of homeowners, though others will receive assistance from individual mortgage lenders and through other government agencies like the FHA.

Source: thetruthaboutmortgage.com

Apache is functioning normally

So you’ve probably heard all about the mortgage rate resets that will occur over the next decade, but now you can see them in colorful graph form!

The graph above, based on Credit Suisse data and recently published by the International Monetary Fund includes everything from negative amortization loans to Alt-A loans to agency-backed loans and prime paper home loans.

It details several types of adjustable-rate mortgages that are due to reset over the next ten years, whether it’s shedding their interest-only option or their ultra-low start rate.

To give you an idea of how bad it could be, adjustable-rate mortgages worth a record $50 billion are scheduled to reset to higher payments this month alone, while roughly 1.3 million subprime ARMs are due to reset between now and the end of 2008.

My Mortgage Can Reset?

  • Billions worth of mortgages will reset each month
  • Making monthly mortgage payments even more expensive
  • For those who could barely afford them to begin with
  • Expect lots of foreclosures and short sales

What’s more frightening is that a recent poll indicated that most borrowers didn’t even realize their mortgages could/would reset, or what exactly it all meant.

Unfortunately, for many borrowers stuck in option-arms and other high-risk adjustable loans, once their interest rates do reset, and monthly mortgage payments rise substantially, many will have little or no equity to bail themselves out.

This will make it very difficult to sell the property or refinance the underlying mortgage.

Option ARM Is Public Enemy No. 1

  • Clearly the option arm is the biggest problem here
  • It was a highly-flawed loan program that paid out big commissions
  • Alt-A loans are also a major concern
  • Especially since they’re harder to define and somewhat sugarcoated

As you can see from the chart above, the option arm is clearly the biggest problem, which makes sense since it was also the most popular high-risk home loan program available during the run-up. Funnily enough, commissions were also the highest on that loan program, go figure.

Interestingly, many loans deemed prime (A-paper) during loan origination and subsequent dumping on the secondary market will in fact be identified as subprime loans once interest rates reset, as many borrowers who got into the loans did so because the teaser rate was the only affordable payment.

And Alt-A is a very broad and vague category that was slapped on just about every home loan originated over the past five years to make it seem a little more harmless. In most cases, it meant stated income underwriting, a low or zero down payment, and perhaps even a low credit score to boot.

Taken together, the layered risk is arguably bad enough to make many of these loans subprime.

What it all means is that the mortgage crisis is in its infancy, and the consequences of years of loose lending and appreciating home prices will likely be matched with an equal amount of misery.

Buckle up for a long ride back to the bottom folks. It’s not going to be pretty, but it probably won’t be as bad as it looks either.

Expect a government refinancing program to bail out lots of homeowners, short sales to minimize foreclosures, and perhaps some homeowners stepping up regardless of higher payments.

Related: How mortgage rates are determined.

Source: thetruthaboutmortgage.com

Apache is functioning normally

It’s been reported that WMC Mortgage, the wholesale residential subprime and Alt-A mortgage unit of GE Money, laid off the majority of its staff yesterday, per the OC Register.

It is believed that a skeleton crew is sticking around to clear out the remaining pipeline, and that all loan processors, underwriters, and loan officers are now gone.

My understanding is that the lender is still accepting new submissions, though volume is probably extremely light with the reduced staff.

“They’re working the pipeline that is here,” said a customer service operator. “They are taking originations, but we’re down to minimal staff levels as of yesterday afternoon.”

According to the WMC website, the mortgage lender still offers jumbo loans up to $1 million, financing up to 95% loan-to-value, and Fico scores as low as 530.

Most thought WMC had already ceased operations months ago, as GE previously announced that is was exiting the business after the mortgage crisis came to the forefront.

WMC was subsequently put up for sale earlier this summer after a rise in defaults forced the conglomerate to reconsider its position in the subprime mortgage business.

Despite previous reports listing the lender as a discontinued operation, GE spokesman Russell Wilkerson said there is still a “decent number of employees” at the company and that it still had loans on its books.

“We’re in the process of selling it,” says Wilkerson. The question remains whether anyone wants to buy it, and what’s it’s really worth at this point.

Several weeks ago, GE said it expected to take a $300 million to $400 million charge in the third quarter as it exited its WMC Mortgage business.

Back in March, WMC Mortgage cut roughly 20 percent of its staff, or 460 employees, and said it would no longer write mortgages with no down payments.

Since then, the company has cut about 70 percent of its workforce and sold $3.7 billion of its loans, leaving $1.1 billion in mortgages on the books as it seeks a suitor.

GE acquired WMC in 2004 from private equity firm Apollo Management, and analysts estimated that it made up only a small portion of their total income (now losses) over the last few years.

To give you an idea, WMC provided roughly $100 million of its parent company’s $20.8 billion total profit in 2006.

See the latest mortgage layoffs, closures, mergers, and rumors.

Update: Here’s a quote from a recent article regarding the matter: “Everybody over there [at WMC] thought it was being sold, but on Monday they were told it was being dismantled instead. A lot of guys were let go Monday, and are now looking for jobs.”

GE denied the dismantling, saying it was a restructuring effort. “We are still trying to sell WMC,” said Richard Jones, spokesman for GE Money. “There were a number of layoffs on Monday at WMC as part of a restructuring.”

Source: thetruthaboutmortgage.com