Over 30% of US Consumers Do Not Qualify for Home Loans
Since the subprime home loan market crashed in 2006, lenders and banks have been tightening loan guidelines for refinance a purchase mortgages.
Credit scores need to be higher
Income needs to be greater
More equity is needed to refinance
More money is required for down-payments
Government loan products like the FHA and VA loan have emerged as the most flexible mortgage for borrowers who are struggling to qualify for a refinance loan. The FHA and VA streamline refinance have helped a lot of American homeowners refinance in a pinch. The FHA streamline does not allow borrowers to finance closing costs in the loan, so borrowers typically have to come out of pocket for lending costs like appraisal, title and escrow.
According to research from Deutsche Bank, the number of consumers in the United States with credit scores below 600 has increased to 26 percent from only 15 percent prior to the start of the recession. This increase in bad credit scores could be attributed to late mortgage payments, credit card debt settlement or a bankruptcy. Examining credit data further reveals that 9 percent of all U.S. consumers have a credit score in the 600-649 range. Today most conventional and jumbo mortgage loan products require credit scores of at least 680.
Based on current loan guidelines and the credit score requirements for a home loan approval, any applicant with a score below 600 is almost certain to be turned down by a banking institution. Borrowers in the 600-649 range are also considered “weak” candidates with a high turn down rate, especially if the credit score is below 620.
Based on the total number of Americans with a credit score of 649 or lower, up to 35 percent of all Americans are effectively locked out of the refinance or purchase mortgage market for the foreseeable future. With foreclosures and default rates constantly increasing, it is conceivable that credit standards could be tightened even further by lending institutions.
The Federal Reserve issued the final mortgage rules are effective April 1, 2011, to provide mortgage lenders and loan originators time to develop new originating models and implement necessary changes to their loan originating systems. The final rules, which apply to closed-end mortgage loans secured by a consumer’s dwelling, will:
Prohibit payments to the loan originator that are based on the loan’s interest rate or other terms. Compensation that is based on a fixed percentage of the loan amount is permitted.
Prohibit a broker or loan officer from receiving payments directly from a consumer while also receiving compensation from the creditor or another person.
Prohibit a broker or loan officer from “steering” a consumer to a mortgage lender offering less favorable terms in order to increase the broker’s or loan officer’s compensation.
Provide a safe harbor to facilitate compliance with the anti-steering rule.
Among other provisions, Section 1403 of the Reform Act creates new TILA Section 129B(c). The Board intends to implement Section 129B(c) in a future rulemaking after notice and opportunity for further public comment. Here are a few discrepancies…
The Reform Bill gets a bit more specific with the definition of “steering, but the final rules issued today already impose restrictions preventing the originator from steering borrower into loans that are not in their best interest.
The final rule issued today does not include a provision in the Reform Bill (TILA Section 129B(c)(2)) that says the borrower may not make any upfront payment to the lender for points or fees on the loan other than certain bona fide third-party charges. Make sure you read that closely, it says UPFRONT. Some mortgage lenders charge an appraisal fee disguised an “application fee” and will not refund it if the borrower goes with another lender before the home inspection is completed. This regulation eliminates the borrower paying an “application fee” right after they are issued the GFE.
It is unclear whether or not the Reform Bill’s revisions will affect a home equity credit line as well because they are not considered “Closed End Credit”.
As home loan rates continue to fall, the cost for closing a mortgage has risen nationally. The annual survey by Bankrate revealed that rising mortgage closing costs have been on the rise. On average, closing costs such as origination fees and third-party fees were $3,741 on a $200,000 mortgage, a 36.6% increase from last year’s average of $2,739, Bankrate.com reported.
The Bankrate survey considered San Francisco and Los Angeles in California as they ranked fourth and fifth respectively in a national mortgage cost analysis. While Mortgage News found that closing costs for San Diego home loans averaged $3,986. While Orange County home loans reported closing costs of $4,459.
Bankrate.com reported that New York mortgage loans had the highest closing costs at $5,623 and Arkansas had the lowest, at $3,007.
The finance news company also said the financial reform law penalizes companies if they underestimate closing costs, so this year’s survey reporting a 36.6% increase could be a high estimate. Bankrate also reported that fees charged directly by mortgage lenders increased 22.8%. Fees charged by third parties such as title insurance companies and appraisers rose 47%.
Zillow reported today that 30-year fixed-rate home loans inched up a bit higher in the latest week. Of course low mortgage rates typically boost mortgage origination and home loan activity. In addition, cash out refinancing typically puts more money into consumers pocket to help drive the economy. The Zillow Mortgage Marketplace published a article indicating that lower home loan rates also make homes more affordable as the housing market copes with the absence of government support. 30-year fixed rate loans are, the most widely used mortgages, were 4.30% on Tuesday afternoon, up from 4.28 % at the same time last week, according to . The MBA also reported that the 30-year fixed mortgage rate peaked at 4.34% on Friday. FHA rates also dropped.
Home mortgage rates on other types of mortgages were mixed. 15-year fixed mortgage rates were 3.86%, up from 3.85% the prior week. Rates for 5/1 adjustable-rate mortgages, or ARMs, set at a fixed rate for five years and adjustable each following year, were 3.27%, unchanged from the prior week.
Zillow’s rates are based on thousands of custom mortgage interest rates submitted daily to anonymous borrowers through the website. They are not marketing rates, or from a weekly survey. Mortgage rates, which are linked to yields on Treasuries and yields on mortgage-backed securities, appear poised to move lower. Yields move inversely to price. Treasuries rallied on Tuesday after the Federal Open Market Committee, the Federal Reserve’s policy-making arm, said it plans to reinvest principal payments from its mortgage holdings to buy long-dated U.S. debt.
There are several factors that contribute to lack luster home loan activity in the summer of 2010. Yes the tax credit for first time homebuyers expired on April 30th. Sure that was a good incentive to drive first time homebuyers, but this is not the primary reason that home loan application volumes have been faltering the last few months. If Forrest Gump was hear, he might say, “It’ the loan guidelines stupid.” Read the original Nationwide Lender article > First Time Homebuyers Beyond Low Mortgage Rates.
The FHA Mortgage Review Board sent a message to FHA lenders across the nation. “If you want to originate FHA loans, then do not commit mortgage fraud.” The government review board yanked its approval stamp from 905 national FHA mortgage lenders for 1 year. An additional 147 FHA lenders were said to have failed to timely meet requirements for annual FHA recertification, but are now in compliance.
The HUD Reform Act of 1989 established the Mortgage Review Board with the goal of to monitoring approved FHA lenders for violations of the agency’s program requirements. The question is — Will the lenders survive for a year without the ability to originate FHA home mortgage loans? Read the original mortgage news post online > FHA Mortgage Lenders Lose Certification.
Much to the surprise of many pundits, the recently signed Financial Reform Bill did not outline guidelines for regulators to begin crafting the future of Fannie Mae, Freddie Mac, and Ginnie Mae. Although this was viewed as an oversight by most, it was the right move because it will allow our political and financial leadership to focus on repairing the mortgage finance system. Remember that the government loan programs Fannie, Freddie, VA and FHA loans maintain nearly 96% of the mortgage market-share yet they are exempt from most of the financial reform repercussions.
In April, Treasury outlined their “Housing Finance Reform” objectives. The administration’s proposals will be designed to achieve four objectives.
Mortgage credit should be available and distributed on an efficient basis to a wide range of borrowers.
A well-functioning housing market should provide affordable housing options, both ownership and rental, for low and moderate-income households.
Consumers should have access to mortgage products that are easily understood.
The system should distribute the credit and interest rate risk in an efficient and transparent manner that minimizes risk to the broader economic system an does not generate excess volatility or instability
Demand for home loan financing has hovered near the 13-year low reached earlier this month, showing the lowest mortgage rates on record have yet to spur sales after the expiration of a government tax credit. It will take gains in employment and in consumer confidence to boost housing. “The housing market is weak,” Paul Anastos, president of Mortgage Master Inc., a Walpole, Massachusetts-based mortgage lender, said in an interview before the report. “There’s good opportunity out there in the housing market, but because consumer confidence is fairly low, people aren’t really shopping. They’re worried about other things, like jobs.”
A recent survey from the Mortgage Bankers Association indicated that the cost of mortgage loan origination was soaring. In their report MBA stated that independent mortgage bankers and their subsidiaries reported a significant decline in their profits in the 1st quarter of 2010. The average profit made on each loan was $606, a decrease of 32% from the $890 that was earned in the 4th quarter of 2009 and a 44% decline from the $1,088 that was reported in the 1st quarter of 2009. 75% of the firms in the study posted pre-tax net financial profits in the 1st quarter 2010, compared to 76% in the 4th quarter of 2009.
Survey respondents reported a drop in the average production volume to $157.8 million from $216.5 million in the previous quarter. MBA reported that the home loan volume decline was the main driver behind the decline in profitability. As home loan volume fell, operating expenses increased to $5,147 per home loan compared to $4,402 in the 4th quarter, an increase of 17%. The “net cost to originate” rose to $2,945 per loan in the 1st quarter of 2010, from $2,345 per loan in the 4th quarter of 2009. This figure includes all production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.
Despite this challenge as originations declined in the first quarter, the independents and bank subsidiaries still produced an average of thirty two basis points of production profit, primarily resulting from higher secondary marketing gains.” MBA’s 1st Quarter 2010 Mortgage Bankers Production Survey covers 295 companies, 70 % of which are independent mortgage companies.
Bloomberg reported that profits by independent mortgage bankers shrank to an average of $606 per home loan in the first quarter, down from $1,088 a year earlier, the Washington-based mortgage bankers group reported yesterday.
An index of home loan applications in the U.S. rose to the highest level in nine months last week as record-low borrowing costs boosted refinancing, the Mortgage Bankers Association said today. Originations probably will decline to $1.48 trillion this year from $2.1 trillion in 2009, according to a July 14 forecast by the group.
Will 2010 be remembered for the year of the best mortgage ever? Nationwide published an article today that considers the realty of this new era of record low rates. Many people are baffled that the record low mortgage rates have not sparked a refinance or housing boom. In the past when the Federal Reserve took measures like discounting key interest rates it usually spurred a housing boom that led to a sharp rise in homeownership. In 2010 there is a decrease in homeownership mostly because even though money is cheap it is still not financially feasible for struggling consumers who are experiencing a loss of income and the threat for job loss is the most real it has been since the Great Depression in the 1930’s.
Popular loan programs like cash out second mortgage loans and interest only mortgages have almost completely disappeared. Bad credit mortgage options are few and far between with FHA and VA home loans occasionally taking a risk on a borrower with a poor credit score. Home equity loans were once offered at 125%, but now you can consider yourself truly blessed if you qualify for a 90% equity loan. Even the FHA streamline refinance loan requires borrowers to pay for the closing costs “out of pocket.” Most borrowers are using a FHA loan for cash out refinancing because they do not require a 700 credit score like most home equity lenders demand today.
Undoubtedly the pool of borrowers that qualify for mortgage refinancing or home buying has shrunk, but maybe there is a silver lining. In the near future interest rates will likely rise. If you are one of the chosen few who meet today’s home lending requirements you just might qualify for the mortgage loan of a lifetime. If you do qualify – - – Seize the opportunity and lock into the lowest fixed rate ever! Read the original Nationwide article > Mortgage Loan of a Lifetime
Smart Home Financing posted a helpful article that compares the pre-approval to the pre-qualification. Many first time homebuyers find themselves confused when discussing their needs mortgage needs with a lender or broker. The mortgage pre-approval is a written letter that includes a loan decision from the underwriting department after a borrower completes the residential loan application. A pre-approval letter is a great negotiating tool for home buyers because it lends them credibility and helps the seller make a decision on their perspective offer.
Many first time home buyers prefer FHA mortgage loan options because these loans only require a 3.5% down-payment. For homebuyers with a military background we recommend VA mortgage programs because they require no down-payment. VA home financing is available up to 100% even for first time homebuyers. Read the original article online at the Smart Home Financing Blog > Pre-Qualification Versus Pre Approval Letter
Mortgage Giant, Wells Fargo & Co. announced the lender would no longer make subprime mortgage loans and they were closing their consumer finance division that originated bad credit home mortgages. The closing of this Wells Fargo division will result in 3,800 layoffs and the eliminated future subprime mortgage lending. The mortgage giant said the consumer finance division originated less than 2% of its home loan volume in the first quarter of 2010.
According to Wells Fargo chief executive Dave Kvamme “Credit losses in the Wells portfolio that rose in the current economic environment could not continue.” The bank indicated in their quarterly filing, that overall loss rates were at 4.62%. However Wells’ portfolio’s performance was very similar to prime loan portfolios across the board for the mortgage industry. Wells Fargo has been one of the largest home mortgage lenders in the United States for decades and some times the company is forced to make tough decisions that impact the entire industry. A spokesman for Wells Fargo & Co. said they would record charges of about $185 million in total related to the closings. The unit reportedly originated less than 2% of Wells Fargo & Co.’s $76 billion in residential production during the first quarter. A company spokesman for Wells said the company was poised to originate more FHA home loans going forward.
According Paul Muolo from Origination News online, CitiMortgage ceased closing wholesale jumbo mortgage loans a few months ago. This devastated many mortgage brokers who counted on Citi for competitive jumbo mortgage loan products. National Mortgage News reported that CitiMortgage has started to slowly bring back their jumbo mortgage products in their retail branches. Muolo cited a former Citi jumbo mortgage loan broker that said Citi’s retail jumbo pricing “is not competitive.” In addition, to he reported that certain mortgage service companies are not approving loan modification plans unless the borrower is at least 30-days delinquent.
Several reports published last week signaled that refinancing is supporting the mortgage business with over 75% of all loans being submitted into process are considered a refinance transaction. According to a recent Mortgage Lead Vault post, the refinance lead activity spiked last week. MBA also released similar statistics in their Weekly Mortgage Application Survey indicating there was 12.6% in home refinancing applications from the previous week. Chief economist for the Lead Planet, Kevin Grant said, “the mortgage lead quality should dramatically increase as the banks and lenders loosen up their refinance guidelines.” See the original news article> Mortgage Refinance Lead Volume Rises.
Homeowners residing in the Gulf Coast finally got some good news. Bank of America, Freddie Mac and Wells Fargo announced they were extending mortgage relief to distressed borrowers in the region. Freddie Mac forbearance policies allow its servicers to suspend a borrower’s loan payments for up to three months or reduce payments for up to six months. BofA and Wells Fargo company policies also call for an initial 90-day forbearance of payments in a disaster situation. Read the original article > Gulf Coast Borrowers Offered Mortgage Relief From BofA, Freddie Mac, Wells Fargo
Mortgage Refinancing Buzz posted another article offering home refinance advice to consumers shopping for a refinance loan online. The article looks back a few years to the mortgage crisis and chronologically leads up to 2010 and the lowest refinance rates that our country has seen in 50-years. They reminded us how we got here with thousands of lending companies and banks going out of business and the federal government deciding to take on a larger role in home loans. Yes mortgage lenders continue to tightened refinance guidelines because foreclosures and loan defaults continue to mount across the country. Mortgage Refinancing Buzz noted that a few of the with government loan programs continue to take risks. Mortgage refinancing tips are available online so go to the MRB blog to get the insight. Read the original article > Mortgage Refinancing Advice for 2010
After several mortgage bailouts a no end to loan defaults insight, it is not unreasonable to ask the question —- Why do we need both Fannie Mae and Freddie Mac? In a recent article in the Huffington Post, a strong recommendation from the editor arose for Fannie Mae and Freddie Mac to clean up their act and merge the two government mortgage giants. The Huffington blog called for a new strategic plan for Fannie and Freddie to find a common goal and merge. The federal government has gotten tangled too deep in this mortgage mess and many believe if they continue it will significantly prolong the recession. The FHA mortgage loan programs have been able to recover so why can’t Fannie and Freddie follow suit?
The Post points out that merging Fannie Mae and Freddie Mac to form “Fannie Mac” is a logical step to shift responsibility to new stockholders. The plan will also return the taxpayers’ subsidies to the Treasury. Both GSEs have similar missions. Most of their loan programs are comparable and the merger is logical. The new Fannie Mac will trim its staff and get rid of highly paid senior and middle management who perform the same functions. The GSEs have one-to-four family, home-lending divisions that buy home loans from banking institutions. They have separate divisions to purchase multifamily loans for rental properties with five units or more. Some of the programs within each division are similar enough to be combined and further reduce the company’s size. These government mortgage companies need to dispose of the dispose of their toxic assets like the loan defaults, and bad credit home loans.
For most of the year, loan companies have been searching for refinance leads with better conversion ratios. U.S mortgage demand increased again last week, led by a rebound in refinancing applications as mortgage rates hit the lowest levels of 2010. Bryan Dornan, the founder of the mortgage lead company, the Lead Planet said, “Mortgage marketing has been difficult in 2010 for lenders and brokers that focus solely onhome refinancing, because lending guidelines have tightened to a very uncomfortable level.” Finding a homeowner who qualifies for a refinance is ten times more difficult than it was just 3 years ago.
In the article, Lead Planet indicated that refinance lead volumes surged almost 20% last week. Apparently their lending partners utilized the increased lead volumes and new loans submitted into process increased tenfold. A spokesman for the Lead Planet said Purchase lead volumes rose 5.75% even though nationally home loan applications had come to a screeching halt.
Overall, mortgage demand increased 3.9% on a seasonally adjusted basis. Unadjusted, demand increased 3.4% from the week before. 30-year fixed-rate mortgages dropped from 5.02% to 4.96%, while rates of 15-year fixed-rate mortgages fell to 4.32% from 4.34%. Interest rates on one-year adjustable-rate mortgages decreased from 7.03% to 6.86%. Read the original article online > Lead Planet Reports Big Jump in Mortgage Refinance Lead Volumes
Several reverse home mortgage lenders eliminated the origination and servicing fees on their senior home loan products, in an effort to re-brand the mortgage industry. Changes in the Federal Housing Administration Home Equity Conversion Mortgage program, combined with lower home values, resulted in cuts in the amount of proceeds borrowers were eligible for, experts said. Financial Freedom, now part of OneWest Bank, has created the Financial Freedom Senior Saver product, a fixed-rate home equity conversion mortgage which charges no origination and servicing fees.
The new program, the company said, will give seniors a savings of between $3,500 and $10,000 in loan costs. Borrowers still are responsible for the FHA mortgage insurance premium and third-party costs.
The National Mortgage News reported that because of the increased risks associated with FHA mortgage loans, the U.S. Department of Housing and Urban Development finalized regulations that will dramatically change the delivery of FHA loans to the public. The key changes announced by HUD eliminate loan correspondent approval, increase net worth requirements for FHA-approved lenders up to ten times what is currently required, and amend principal-agent relationship requirements.
The new regulations bring huge changes to the FHA mortgage program, which will be upon us by May 20th. It is critical that all FHA-approved lenders, as well as those mortgage lenders and brokers interested in participating in FHA programs, understand how these regulatory changes will affect their FHA lending activities.
This one-hour webinar will help you learn more about these new regulations FHA guidelines and how they will impact your business. There will be time at the end of the webinar for questions. Registration closes at 5 p.m. EDT on May 11th. To get signed up, visit http://www.klgates.com/events/Detail.aspx?event=2291
Cash refinancing plummeted once again as borrowers found it difficult to get approved. 30-year mortgage interest rates remain at a record low, but people who can get approved for home equity or cash out refinance loans are few and far between. Freddie Mac’s report indicated that the total mortgage portfolio declined significantly in March, dropping 9.1% on an annualized basis from February figures. This was the 3rd straight month that the portfolio decreased in size. The portfolio at the end of March was valued at $2.225 trillion. The annualized growth rate for the entire year is -4.4%. In February, Freddie Mac announced it would begin purchasing substantially all 120 days or more delinquent mortgages from its related fixed-rate and adjustable rate PCs, which totaled approximately $73 billion.
However, according to the Monthly Volume Summary issued by Freddie Mac, the mortgage related investment portfolio skyrocketed, increasing by an annualized rate of 35.5%. In February the portfolio was contracting at an annualized rate of 18.5. The surge in the size of the retained portfolio was partially a result of government sponsored enterprise’s purchase of single family mortgage loans that were 120 days or more delinquent from its PCs.
Home loan delinquencies in all of Freddie Mac’s categories dropped for the first time in the past year. 4.13% of single family mortgages were delinquent at the end of March compared to 4.20% in February and 2.41% in February 2009. The delinquency rate for the non-credit enhanced portion of the portfolio decreased from 3.20% in February to 3.18% in March and the credit enhanced portion dropped from 9.12% to 8.87%. Multi-family vacancies were also down slightly from 0.25% to 0.24%.
Freddie Mac also announced that, during the 1st quarter of 2010, one-half of borrowers who refinanced their conventional loans benefited from an interest rate reduction of at least 16 %. The Enterprise’s first quarter Refinance Report stated that the average borrower moved into a loan with a rate 0.9 percentage points lower than their old loan.
The majority of mortgage refinance activity during the period either kept their outstanding loan balance the same or reduced it as a result of the refinancing. 18% of borrowers were involved in cash out refinance transactions that put cash in to the transaction to reduce the balance. “Cash-out” borrowers, those who increased the home loan balance by at least 5%, represented 28% of new home loans. This is the second lowest percentage of cash-out mortgages in a quarter since Freddie Mac began tracking the data in 1985. The fourth quarter of 2009 had the lowest cash out figure at 24%. Through most of 2006 and 2007 over 80% of homeowners who refinanced increased the principal balance of their mortgages. The home equity cashed out in the first quarter of 2010 totaled $9 billion, the smallest quarterly inflation-adjusted amount since the third quarter of 2000. During the 2006-2007 period referenced above the cash-out numbers each quarter were in the $70-85 billion range. Freddie Mac attributed the decline in cash-out numbers to reduced home prices and tighter underwriting standards for loan-to-value ratios. The median appreciation of the collateral property was a negative 4% over the median prior loan life of 4.0 years.
Date is collected from a sample of properties on which Freddie Mac has funded two successive loans, and the latest loan is for refinance rather than for purchase. The analysis does not track the use of funds made available from these mortgage refinance loans. “Rates on thirty-year fixed-rate mortgages during the first quarter remained low, averaging 5.0% in Freddie Mac’s Primary Mortgage Market Survey®,” noted Frank Nothaft, Freddie Mac vice president and chief economist. “The median interest-rate savings for borrowers who refinanced their conventional loan in the first quarter was 0.9 percentage points. Refinances were about three-fourths of originations during the first quarter. In total, the lower rate translates into about $2 billion in interest savings for these borrowers over the first 12 months of the new loan.”
According to the Mortgage Bankers Association, the mortgage loan application volume filed in the U.S. last week decreased by 8.5%, compared with the previous week. Mortgage interest rates increased during the week ended Friday compared with the week before, according to the MBA weekly survey. The survey covers about half of all U.S. retail residential home loan applications.
The share of applications filed for a mortgage refinance dropped again last week. Mortgage marketing executive, Bryan Dornan believes, “the decrease in refinance applications can be directly attributed to homeowners becoming more educated on what is need to qualify for a refinance loan in today’s credit crunch.” Dornan continued, “Borrowers have either been denied recently or they understand that have late payments on their mortgage payment will prevent them from qualifying with traditional lenders. Borrowers continue to seek help refinancing existing mortgages dropped to 68.1% of total loan applications from 69.3% the previous week. The four-week moving average for all home mortgages was up 1.6%.
Adjustable-rate home loans made up 4.7% of total applications, up from 4.4% the previous week. Rates on 30-year fixed-rate mortgages averaged 5.03%, up from 4.94% the previous week, while 15-year fixed-rate mortgages averaged 4.35%, up from 4.33%. The one-year ARMs interest rate grew to 6.8% from 6.67%.
It is very important that you consider the lending costs and benefits when comparing mortgage refinance loans. Charles and Nancy Henson refinanced their home mortgage last year, and Charles Henson says it was not a difficult decision. “The mortgage rates had dropped, and we wanted to do something a little more secure,’’ he said. “Our previous rate was 5.625%. We ended up locking our home loan at 4.875%.’’ The current mortgage rates have spurred many to consider mortgage refinancing – basically replacing one loan with another. Depending on the new loan’s terms, it can save you tens of thousands of dollars.
Each refinance mortgage is its own case, due to many factors: your loan, your credit, your home’s equity, the interest rate, the cost of the refinancing, and so on. Some things to consider:
■ Interest rate. “If you can save half a point or more on your interest rate, that can be a good indicator to refinance,’’ said Kay Sandusky of Citizens National Bank of Southwestern Ohio. Sandusky added: “If it is going to cost you $2,000 to do the refinance and you are saving $200 per month, do the math and consider how long you will be in the home and if that is a savings to you.’’ “How long you’re going to be in the home is a big factor,’’ Penner said. “If someone is going to live in the house three to five years, [refinancing] may not be a great idea.’’
■ Total cost benefit. Kim Penner of Union Savings Bank said you have to consider total costs when considering refinancing. “Your lowest interest rate alone is not always your best deal,’’ Penner said. “You have to see if it makes sense to get a lower rate if your costs are high.’’
■ Short term vs. long term. “Think about what term of loan you want,’’ Penner said. “Is cash flow an issue? Are you looking at retiring?’’ He added that the sooner you pay off a loan, the more you save on interest payments. “The difference in interest could be $40,000, $50,000, $60,000,’’ Penner said. Henson is retired and his wife is self-employed, but he said they chose a 30-year rate because it was a more conservative approach, given the economic climate. They “decided we could make a 30-year into a 15 by paying more on the principal each year,’’ Henson said. “With a 30-year rate, you have the flexibility if you want to pay extra.’’
■ Credit score. Borrowers who have at least a 740 get the best terms. If your credit score is lower, you can still get a loan, but at a higher interest rate.
■ Know your home’s equity. “You have to have 20% home equity ask for a conventional home loan without private mortgage insurance,’’ Sandusky said, though there are other options. FHA home loans have mortgage insurance, but if your credit is outside of the conventional box or if you have no equity, talk to a FHA mortgage company, because these government loans may be your best option for refinancing.
■ Talk to a professional. “I ask a lot of questions about the borrower and offer options,’’ Penner said. Be careful shopping for a mortgage online. Don’t let banks obtain your credit report each time. “Multiple inquiries on your credit report in a short period of time can harmful to your credit,’’ Sandusky said. “Know your credit and tell the bank.’’
Bankers responding to the January 2010 Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices indicated that home loan standards are still contracting. The report also states that consumer demand for mortgage loans continues to decline. The survey, released on Monday, addresses changes in loan supply and demand over the last three months. It also included three sets of special questions about delinquency rates of loans made to large and middle market firms, changes in bank policies about commercial real estate (CRE) loans over the past year, and a third set of questions about the banks’ outlook over the coming year for the credit quality of a number of categories of loans. 55 domestic banks and 23 U.S. branches and agencies of foreign banks responded to the questionnaire. Banks continued to tighten standards on residential lending, especially on nontraditional residential real estate loans. 17% of banks that make residential loans reported they had tightened standards on prime real estate loans and 30% reported such tightening of mortgage refinance products.
In addition, a moderate net fraction of banks reported weaker demand from prime borrowers for residential real estate loans. Demand from customers seeking nontraditional mortgages also weakened further over the survey period. Only a small net fraction of banks reported having tightened standards on revolving home equity lines of credit over the past three months, but a large net fraction of banks continued to report lower demand for such mortgage loans.
Demand for both businesses and households across all major categories of loans weakened on net over the past three months. 64% of respondents reported that business inquiries about new or increased credit had stayed about the same over the last three months while 13% reported an increase and 25% a decrease. A large proportion of respondents reported that their banks were relatively unchanged in their approach to consumer lending. Over 80% said that their banks policies were unchanged when it came to approving applications for installment, consumer, and credit card loans. However, a substantial net fraction of banks said they had reduced credit limits on credit cards and had become less likely to issue cards to customers who do not meet credit scoring thresholds.
Respondents to the October 2009 survey had indicated that they would tighten many of their credit card policies as a reaction to passage of the Credit CARD Act. Home loan terms were seen as being a little more in flux but the net %ages of respondents who tightened those requirements was lower than in the previous quarter. When considering lending to large firms – those with annual sales of $50 million or more 76 % reported there had been no change in the maximum home equity credit lines, 16% reported a tightening in the maximums and 7% said those terms had eased. Maximum maturity dates were unchanged in 83% of reports. Only 64% of respondents reported no change in the cost of credit lines while over 23% reported that these standards had tightened somewhat or considerably. Close to 26% reported that the spread charged to commercial borrowers had widened over the last three months compared to 58% that reported it unchanged. About 10% reported they had tightened collateral requirements, the remainder reported no change. Figures for lending to smaller companies varied only slightly from those reported for large firms. Read the original article at Mortgage News Daily
The Federal Housing Administration is following through on promises to come down hard on FHA mortgage lenders. The federal mortgage insurer on Monday said it had pulled the licenses of three lenders and was suspending a fourth FHA lender.
The FHA said it would eject Strategic Mortgage Corp., of Oklahoma City, Okla.; ProMortgage Inc., of Claremore, Okla.; and Americare Investment Group Inc., of Arlington, Texas. It suspended Home Mortgage Inc., of Burr Ridge, Ill., for six months. The FHA said it ejected Strategic and ProMortage for failing to uphold FHA loan standards, including charging excessive fees and having poor quality controls. Americare violated terms of a previous settlement, and Home Mortgage failed to disclose the indictment of a part-owner, it said.
Representatives for Strategic and ProMortgage didn’t respond to inquiries seeking comment. Americare and Home Mortgage couldn’t be reached. The FHA, which doesn’t make loans but insures lenders against losses, has seen its capital cushion erode sharply amid rising mortgage defaults. Officials have promised to be vigilant in cracking down on lenders it believes are putting the agency’s reserves at risk.
