Home Loan Focus

Archive for the ‘financing’ Category

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The bailout package was signed by Congress, but so far there is no actual plan to apply the cash to any open problem.  The bailout is not a bailout.  It is the collection of an emergency fund and emergency authorities to be given to the Treasury Secretary (who has delegated the $700 billion to his deputy).

Credit Disappearing

In the wake of no action by the government, credit is disappearing.  Sub prime mortgages and later many regular mortgages and home equity lines were the first to go.  Banks that had issued these loans, issued securities backed by these loans and bought or traded in securities from other banks that had issued these loans, rapidly lost their trust in the value of mortgages as an asset. Those banks basically don’t trust the numbers, and now won’t lend to other banks with possibly equally untrustworthy numbers, valuations and balance sheets.

After freezing credit on each other, banks then began to freeze credit on businesses like At&t and Caterpillar.  Simultaneously, major retailers around the country saw their credit lines for purchasing goods to sell during Christmas drop by 40%.  Auto dealers found that they couldn’t sell cars because banks had also frozen credit to car buyers (and now 1 in 5 auto dealers are likely to go bankrupt before next spring.)

College students went off to school this year, paid their tuition with student loan checks issued from major banks that are not in financial trouble, only to be notified several weeks into the semester that those banks had stopped payment on the checks as they ended their own private student loan programs.

What’s Next?  Cutting Up ALL Credit Cards

As we look at the trends, we see that all credit is disappearing across the board unless it is government backed. One of the few areas left is credit cards.  This is a profitable area for banks, but it is also one of the riskiest areas for banks, and banks don’t have the stomach for anything with a hint of risk.  This indicates that banks are going to cancel all those credit cards out there that far too many people in the United States rely on very heavily.

Americans have to prepare for the day when their credit lines will be dropped down to their existing balance and possibly closed or frozen all together.  Many people have already seen their interest rates skyrocket from 4% to 7% to 10% to 25%, and those are people with great credit and no late payment!  If banks can’t get financed, if the biggest companies in the world can’t get financed, if people can’t get a secured loan on a home or a car, its just a matter of time before people can’t get financed on unsecured credit cards. 

Once credit cards are killed off, many areas of the US economy start to break apart from online transactions by all those shopping sites from eBay to Amazon to online auto insurance quotes to identity confirmations based on credit cards to booking travel through major airlines.  We can’t go back to a cash system, because we just don’t have a lot of cash.  So we are going to have to find a different way.

There are many factors to consider when applying for a loan. It is important for a borrower to examine their financial standing as well as ability to pay back the loan. Lenders are likely to qualify you for more than you will need, so it is up to you to determine how much you can truly afford. It is important to factor in insurance, taxes and possible association dues while calculating this figure.

Not only is it important to shop potential lenders, but it is also important to shop loan costs including interest rates, credit and origination fees as well as terms. It is vital that a borrower take their time during the application process and be able to produce documents to back up their application information. You don’t need Lasik to see that some of the greatest opportunities can bust over failure to produce a pay stub or divorce decree.

Source: Move.com

The real estate market is bursting with opportunity for first time homebuyers with good credit and a handful of cash, but without a pre-approved mortgage a buyer could be out in the cold. If you’re in the market to hire an agent and go house hunting, an agent might have second thoughts showing you property you have no way of proving you can afford. Furthermore, a homeowner might have qualms about signing an offer presented by a potential buyer who is lacking proof of financial means.

It is essential to interview with potential lenders who will verify your credit history and will give you an official preapproval letter stating how much you qualify for. The preapproval process is also a necessary process for homebuyers seeking third party finance, so buyers are encouraged to apply prior to visiting agents of making serious offers. Besides, anyone can throw numbers out there and/or make promises without being able to back them up. If you wouldn’t mess around when you are buying a multivitamin or Phentermine, why would you mess around when looking to buy a home? The only way to be taken seriously is to have a letter of preapproval from a lender.

Source: Ringsurf.com

We mentioned in a former article that one of the largest mortgage companies in the US collapsed this week.  That’s a sign that the mortgage crisis is turning into a banking crisis.  At the same time that happened Freddie Mac and Fannie Mae’s saw a massive devaluation and are threatened with failure as well.

If banks lose the ability to sell off your mortgage to Freddie Mac and Fannie Mae that will leave them with no other choice but to negotiate a better deal with you in several areas whether you are trying to refinance a mortgage or even buy a foreclosure property from them.

Today, for the most part, banks do not have to deal with you very much when you are in trouble nor even when they are in trouble.  They have a get out of jail card from Freddie and Fannie, but if that option goes away sometime soon, they might have to make a deal and work with their customers to stay afloat and that could be just the lifeline you need to save your house or even to get a great deal.

That big Whooosh sound you heard this week is probably the sound of Freddie Mac and Fannie Mae sucking serious wind. You may wonder how that will affect your ability to buy a house.

Here’s where the rubber hits the road in mortgages. On any given day a bank takes in deposits from people that are actually saving money. They then turn around and loan that money out to people in the forms of loans and mortgages.

Those loans or mortgages represent an asset on the books of the banks. The banks don’t like to sit on these assets, especially recently when they’ve made so many bad loans, so they look for a sucker to buy their bad assets. As it turns out there were two major suckers out there, Freddie Mac and Fannie Mae.

These institutions by the assets and have recently lost a lot of money as they started to realize that many of the loans and mortgages were garbage. That loss of money has hit their investors very hard in this week on Wall Street or stock prices plunge down to next to nothing.

They claim to have a lot of money in reserve, we’re talking cash on hand or cash that they can draw on through loans from banks or other investors. If they run out of money they can’t keep continuing to buy mortgages from banks are trying to sell them in those banks will either have to keep their mortgages on their own books or stop making mortgages altogether.

That would very likely represents situation it would cause interest rates to rise as banks take on greater risk and the available market or money tightens up as two of the biggest firms that securitize mortgages go away.   So the big question is, who will actually come to the rescue of these two firms to keep the pyramid scheme of US banking up and running? 

Right now, you can hardly even track investors bailing out of these institutions with gps fleet tracking systems, let alone find someone daring enough to throw good money after so much bad money.

If you are ‘fortunate’ enough to own a home that has a value less than $417,000, then you have better than even odds that your home actually is still increasing in value. 

That is because home prices in 56 percent of metropolitan areas, which include 292 cities did increase in the first quarter this year.  What’s the caveat?

The increase in home prices is only happening for homes that are not subject to jumbo loans of $417k or more.  So if your home when sold does not require jumbo financing, then you might still see your home continue to appreciate.

We hear a great deal about home prices coming down, but this is largely because the total numbers are significantly skewed by homes that cost between $500k and $1.5 million.  These are also the homes that have been hit hardest for foreclosure.

To top things up, there are still some markets that are appreciating significantly.  So if you are looking to sell this year, all is not lost.  It may not be a sellers market, but at least you won’t feel like your price has been completely squashed like a fly under a stack of books.

Some markets are appreciating strongly, such as Austin (up 7.7 percent in the past 12 months), Grand Junction, Colo. (up 9.1 percent), Charlotte (up 6.2 percent), and Provo, Utah (up 6.8 percent).

Washington Post

If the global market on interest brings reality to the US from the UK, US homeowners might expect an increase in the rate of interest that they are paying on mortgages.  Many people think that the managers of the US economy have been more proactive in working to save the mortgage industry in the US, but at the end of the day arbitrage is the typical factor that levels the playing field around the world.  That means that the higher rates seen in the UK will eventually help to increase the rates paid in the US as well as investors in the US demand a better return on investment like the one they receive in the UK.

Figures compiled by personal finance website MoneyFacts and carried in the Daily Telegraph show that the average rate for a two-year loan has hit 6.64 per cent, up from 4.34 per cent two years ago.

The Press Association: Cost of fixed-rate mortgages soars

The reality is that in a global economy candles can not be burnt from the same end forever and in this the UK and US economies have been and are still tied at the hip in many forms.

Two day pain interest is a very common and accepted practice.  There are generally two basic types of loans that are offered.  Secured loans where some form of property is still offered as a promise to pay down the debt and the advent that the borrower fails to pay. 

Unsecured loans are also a popular form of loan as no type of property is held in security against the debt.  This means that if a borrower defaults on a loan to a lender, the lender has no recourse to take any of the borrower’s money or property.

Secured loans are typically used for the purchase of real estate while unsecured loans are typically used for relatively small amounts of money on items such as credit card debt, home improvement or furniture loans, some college loans, and even some online auto insurance policies can be funded with a small loan.

Freddie Mac is working to buy up mortgages totaling about the same amount as were foreclosed in California last year, $15 billion.

Freddie Mac is lending a jumbo hand to a group of major U.S. banks, offering to buy as much as $15 billion in mortgages that used to be too big for its program.

On Thursday, Freddie Mac (nyse: FRE – news - people ) said it would purchase home loans of up to $729,000 from lenders including Wells Fargo, JPMorgan Chase, Citigroup, and Washington Mutual.
Freddie Mac Super-Sizes Its Program

This has been expected for a couple months now since the government cleared the way for Freddie Mac to take on these jumbo sized loans a process that mirrors a plan also allowing VA loan amounts to go higher as well.

In the past, a borrower that wanted to borrow more than $417,000 would have to get a primary mortgage for the first part of the mortgage up to that old max and then another for the amount over that paying a substantially higher interest rate.  Potentially, now Freddie Mac can make it easier for people to take out a loan or more importantly refinance with a federally backed loan as Freddie Mac now starts to purchase loans off the books of banks, enabling them theoretically to re-extend new credit to new borrowers.  That said, don’t run the printers out of ink yet, the big ‘if’ in this equation is the concept of re-extending the credit once the banks are bailed out by Freddie Mac.  It could be possible that Freddie Mac and the US government are just taking on bad loans from banks that could write good loans in the first place.