The Mortgage Manifesto! YOU can still get a mortgage!

Fed Actions...

Here's how the Fed's actions affect you:

1. Fixed mortgage rates: Rate cuts will have little if any impact on 30-year fixed mortgage rates, which are determined by factors that operate largely outside of the Federal Open Market Committee's reach. Any change in the rate has little to do with long-term mortgage rates. The Fed said it could expand a recently announced program to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac that has already driven mortgage rates down to a very low 5%. The FED reiterated that it was looking at the possibility of buying long-term Treasury bonds. These announcements could work to bring rates even lower.

2. Prime rate loans: The real impact of rate cuts will be felt by consumers with loans that are tied to the prime rate, a benchmark rate that typically moves in lock step with the federal funds rate. The only place where you would see a concrete impact at the consumer level would be things that are directly tied to prime and some other short-term instruments. Many home-equity lines of credit and certain credit cards with variable interest rates are tied to prime rate. As such, borrowers with these loans could see their interest rates decline.

3. Home-equity savings: Home-equity loans that have been averaging around 5.5 percent may or may not drop more now. That's because many of the interest rates on these loans are already at their minimums, and are contractually prohibited to go any lower. So check the terms of your home-equity loan to see if you are eligible to cash in on the decline.

4. Target vs. effective: When credit markets are functioning normally, Fed rate cuts reduce banks' cost of funding, which allows them to widen profit margins and if so inclined, pass along savings to consumers in the form of lower interest rates. Today's credit conditions have changed all that though. Although the Fed's target rate stood at 1 percent before the latest cut, such funds were actually being traded in the market at much less than that--just 0.18 percent already. Although the Fed can usually control the effective rate by buying and selling government securities, the credit crisis has eroded its ability to do so. Any “juice” that you would get from a funds rate cut in a normally functioning market, chances are, you're not really going to get that here. It's not going to lower the banking industry's cost of funds, because the banking industry's cost of funds is already below the target rate anyway. That means that interest rates tied to the federal funds rate won't decline as much as they otherwise would have. (like option ARMs).

5. Now what?  Expect rates to go all the way to zero in a matter of weeks. The Fed has already cut the federal funds rate to below 1 percent and is likely to take it all the way to zero by the end of January. Once the overnight rate is at zero, the Fed may have to engage in 'quantitative easing' [direct purchases of long-term Treasuries]. Even if it doesn't bring rates all the way to zero, the Fed signaled that it's not about to push rates higher anytime soon.

6. Expect more unexpectedness. With only less than a quarter of a percentage point left to cut, look for the Fed to get even more creative in its efforts to revive the financial markets. New programs to support different corners of the credit market could certainly be introduced in 2009. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

7. Can that help Mortgage Rates? That is yet to be seen. In the “old days” it definitely would. But, now mortgage securities are traded differently due to the poor performance of the last couple years. The rates should decline a bit further (Maybe) but nowhere near as low as they might have in the past considering the current economic conditions.

Just don’t “play” the market too much. You ill most likely never hit the true bottom. If we could all nail that one, we would all be working from the

Bahamas

and be wealthy beyond our dreams. Be careful and don’t be greedy!

 

Fed Action and You...

Here's how the Fed's actions affect you:

1. Fixed mortgage rates: Rate cuts will have little if any impact on 30-year fixed mortgage rates, which are determined by factors that operate largely outside of the Federal Open Market Committee's reach. Any change in the rate has little to do with long-term mortgage rates. The Fed said it could expand a recently announced program to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac that has already driven mortgage rates down to a very low 5%. The FED reiterated that it was looking at the possibility of buying long-term Treasury bonds. These announcements could work to bring rates even lower.

2. Prime rate loans: The real impact of rate cuts will be felt by consumers with loans that are tied to the prime rate, a benchmark rate that typically moves in lock step with the federal funds rate. The only place where you would see a concrete impact at the consumer level would be things that are directly tied to prime and some other short-term instruments. Many home-equity lines of credit and certain credit cards with variable interest rates are tied to prime rate. As such, borrowers with these loans could see their interest rates decline.

3. Home-equity savings: Home-equity loans that have been averaging around 5.5 percent may or may not drop more now. That's because many of the interest rates on these loans are already at their minimums, and are contractually prohibited to go any lower. So check the terms of your home-equity loan to see if you are eligible to cash in on the decline.

4. Target vs. effective: When credit markets are functioning normally, Fed rate cuts reduce banks' cost of funding, which allows them to widen profit margins and if so inclined, pass along savings to consumers in the form of lower interest rates. Today's credit conditions have changed all that though. Although the Fed's target rate stood at 1 percent before the latest cut, such funds were actually being traded in the market at much less than that--just 0.18 percent already. Although the Fed can usually control the effective rate by buying and selling government securities, the credit crisis has eroded its ability to do so. Any “juice” that you would get from a funds rate cut in a normally functioning market, chances are, you're not really going to get that here. It's not going to lower the banking industry's cost of funds, because the banking industry's cost of funds is already below the target rate anyway. That means that interest rates tied to the federal funds rate won't decline as much as they otherwise would have. (like option ARMs).

5. Now what?  Expect rates to go all the way to zero in a matter of weeks. The Fed has already cut the federal funds rate to below 1 percent and is likely to take it all the way to zero by the end of January. Once the overnight rate is at zero, the Fed may have to engage in 'quantitative easing' [direct purchases of long-term Treasuries]. Even if it doesn't bring rates all the way to zero, the Fed signaled that it's not about to push rates higher anytime soon.

6. Expect more unexpectedness. With only less than a quarter of a percentage point left to cut, look for the Fed to get even more creative in its efforts to revive the financial markets. New programs to support different corners of the credit market could certainly be introduced in 2009. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

7. Can that help Mortgage Rates? That is yet to be seen. In the “old days” it definitely would. But, now mortgage securities are traded differently due to the poor performance of the last couple years. The rates should decline a bit further (Maybe) but nowhere near as low as they might have in the past considering the current economic conditions.

Just don’t “play” the market too much. You ill most likely never hit the true bottom. If we could all nail that one, we would all be working from the Bahamas and be wealthy beyond our dreams. Be careful and don’t be greedy!

 

Fraud - Fraud - and Even More Fraud!

FRAUD – FRAUD – AND MORE FRAUD:

Up to seventy percent of mortgage payment defaults may be linked to borrower misrepresentations on mortgage loan applications, according to the FBI’s latest Mortgage Fraud Report.  At a time when the industry is focused on finding the source of its record number of foreclosures, this information empowers lenders with the insight that can help them proactively prevent costly mortgage defaults and foreclosures.  Lenders that implement fraud prevention programs can protect themselves against mortgage fraud, the fastest-growing white-collar crime in the country, while also reducing the number of costly and time-consuming defaults and foreclosures.

The study found that mortgage defaults were largely concentrated in adjustable rate mortgage (ARM) loans, but were present among other loan types, too.  The report also revealed that seven of the top 10 states with the highest concentration of mortgage fraud were also in the top 10 states for foreclosures, namely California, Florida, Arizona, Georgia, Indiana, Michigan, Ohio and Texas.

We talk about the increasing numbers of defaults and foreclosures, we need to really look at the root of the problem. The latest information clearly indicates that borrower fraud plays a significant role in the record number of defaults and foreclosures we’ve been seeing over the past couple of years. 

The good news is, now that lenders know one of the leading causes of defaults and foreclosures, they can move forward into a solution.  Lenders can significantly reduce their number of defaulted and foreclosed loans by implementing a good fraud prevention program.

That said, they must likewise, look no further than behind their own doors of operation for fraud. It is estimated that as many as half of the fraudulent income numbers were written into applications by the loan officers (lenders) or were involved in “coaching” the borrowers to do so simply to get the loan approved and closed.

Mortgage fraud costs lenders an estimated $4 billion per year and identity theft is the fastest-growing segment in the fraud arena. That cost is passed on to borrowers in the form of higher rates, loan costs, and tightening of the underwriting guidelines that now prevent some borrowers from qualifying for a loan they might have otherwise received just a year ago.

Over 60 percent of all mortgage fraud involves income or identity misrepresentation by the borrower, and according to the FBI, often involves the willful participation of an industry “insider” or other professionals such as the loan officer and or broker. There’s no denying the detrimental impact of mortgage fraud upon the industry, but with the right fraud prevention programs and training of the lender’s representatives, we will see less fraud in the future… especially after what we have seen now over the last two years.

Sadly, it has greatly effected every level of the real estate and lending industries.

Mortgages: What Are The Self-Employed To Do Now?

With the increased delinquency and foreclosure rates, there is a resulting tightening of underwriting standards across the entire mortgage industry. Prior to the mortgage meltdown we are seeing today, the pendulum had swung way to far to the lenient side of credit score and income documentation requirements; so much so that nearly anyone that could simply “fog up a mirror” could qualify for a mortgage loan with little or no down payment.

Now the pendulum has swung way to far to the opposite end and this tightening has caused many programs to literally vanish overnight. Unfortunately, many of these creative programs were abused by the greed of the industry and by dishonest borrowers (yes, unlike the press or the politicians, I said the borrowers are just at fault as the industry….) speculating on the market. The abuse of these “creative” products is a lot of the cause of what we are seeing today.

This is as much the result of the over-reaction from all the press and political hype coming out of the current state of the mortgage industry as it is the result of the true statistical facts from those programs. It makes great sensational news and is quite “politically-correct” (and beneficial) to blast and blame the big-bad mortgage companies and banks and not blame the borrowers that were just as guilty of taking advantage of the low-document loan programs.

One group of borrowers that are suffering from the tightening of underwriting standards is the self-employed. Prior to the current restrictive guidelines, a self-employed borrower with good credit and good cash-flow, but tax returns that didn’t sufficiently document (prove) take-home income to qualify for a conventional loan, could get a loan with what was called a stated-income documentation or no-document loans. Simply, they didn’t have to document or “prove” their income, but could state it on an application and the lender would use what you said as your income to qualify you. In exchange for this lesser-documentation requirement, you had to agree to pay a higher rate, assume some risk of adjustable rates, and your credit scores greatly affected the resulting rate.

Now those programs have all but disappeared for those with little or no down-payment. There are still low document, stated income and no-doc loans, but the tightening of underwriting guidelines force the self-employed borrower to have either a greater down or higher credit scores (or both) to qualify. Of course, they could choose to qualify for the conventional full-documentation loan using the income analysis of their tax returns, but typically, this would cause them to qualify for the lower-priced house.

When it is determined that some sub-prime borrowers are unable or unwilling to manage their credit and therefore are best to simply rent homes rather than purchase… until such time that they make it priority enough to be homeowners and manage their needs and wants enough to limit their use of credit except to buy a home.

So where will it go from here? Read on...

Mortgage resets: a rude awakening

Hello Manifesto readers! I thought this was a great article and wanted to share it with you. Enjoy!

               

Ignorance may be bliss,  but it could mean a lot of pain for all the players in the subprime crisis when a record number of adjustable rate mortgages reset

October 2007                                                       

By Les Christie, CNNMoney.com staff writer

CNN Money

NEW YORK (CNNMoney.com) -- About $50 billion in adjustable rate mortgages reset this month, driving interest rates up for many borderline borrowers. And despite efforts to raise awareness, it doesn't look like anyone is really prepared for what's to come.

"I don't know if there's anything much [borrowers] can  do," said Keith Gumbinger of HSH Associates, a publisher of mortgage related information. "Hopefully, they've been prudent about preparing for it, building a nest egg or refinancing the loan."

But most borrowers are likely to just scramble to pay the higher expenses - some of which will jump by 50 percent and come as a big surprise. According to a survey conducted last month for the                     AFL-CIO by Peter D. Hart Research Associates, three quarters of borrowers have little clue about how much their payments will increase when their loans adjust. Nearly half don't  know how their loans actually reset. Continued...

Just How Involved Should The Feds Get?

Thanks to Originator Times for this article... My comments splashed throughout:

WASHINGTON, D.C. – This week the House Judiciary Committee's Subcommittee on Commercial and Administrative Law passed HR 3609, by a party-line vote of 5-4. The legislation would allow bankruptcy judges to modify the terms of a mortgage contract during bankruptcy proceedings. While the sponsors of the bill claim that it would help up to 600,000 people from losing their homes, opponents of the legislation claim that the legislation as written would drive interest rates up for everyone seeking a home loan.

(my comment: Yes, some lenders did take advantage of some borrowers. Yes, Wall Street did allow lower credit standards and in so create even more mortgage lending to be done and even more people get a home where they couldn't have before. Yes, the consumer/borrower should have known what they were signing and whether they could have handled the possible payment increases in the future with their new loan. Yes the fault should be shared by ALL involved... even the borrowers. But, when the government gets involved to this extent, ALL borrowers will end up paying higher interest costs... even the innocent ones that had nothing to do with the current market conditions.)

According to their press release, Rep. Brad Miller (D-NC) and Rep. Linda Sánchez (D-CA) who introduced the bill said the legislation “will treat home mortgages the same as mortgages on investment properties and family farms. The bill repeals a provision that prohibits a bankruptcy court from modifying a home mortgage, but allows a bankruptcy court to modify any other secured debt, including mortgages on other properties.”

By repealing the current provision for owner occupied loans, proponents to the bill claim the legislation will push interest rates on owner occupied properties significantly higher. Currently, typically investment loans carry a higher interest rate to offset the losses sustained by lenders caused by the treatment of these type of loans during a bankruptcy proceeding. Typical investment loans can be up to 1 percent higher than an owner occupied loan.

Continued...
            

Whos Fault Is It?

Thank you to www.americanmortgageeducatorsinc.com for this article. Tawney Warren is the author and one of the four consumer advocates that anchor this wonderful organization and help borrowers and homeowners nationwide. Thank you for your contribution:

Whose fault is this mortgage mess?  First of all, I don’t think it is a mess, I think it has become a catastrophe.  When one family loses the American Dream, their home, that is almost the most devastating event someone can live through besides the death or illness of a loved one.  Going through foreclosure beats your soul.  You lose all confidence in yourself and it can begin a chain reaction of destruction from loss of job, loss of friends, but loss of confidence is the worst.  If you still had your confidence, you’d feel that you know well enough what went wrong and you could pick yourself up and dust yourself off and do it again, only better this time.

Analysts have written their articles and pointed the finger at this person or that but, let’s look who has blame in this catastrophe.

How about the legislators for not requiring that loan officers in this country be educated and licensed.  After all, they are selling a family the largest debt they will probably have in their lifetime.  Why is it considered acceptable that they only present a consumer with one option?  (More)

Government is getting involved in the Mortgage Meltdown even more!

Thank you from FDIC and the Financial Services Committee:

Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation on Recent Events in the Credit and Mortgage Markets and Possible Implications for U.S. Consumers and the Global Economy before the Financial Services Committee, U.S. House of Representatives; 2128 Rayburn House Office Building

Chairman Frank, Ranking Member Bachus, and members of the Committee, I appreciate the opportunity to testify on behalf of the Federal Deposit Insurance Corporation (FDIC) on the credit and mortgage markets. Events in the financial markets over this summer present all of us here today -- regulators, policymakers, and industry -- with serious challenges. The FDIC is committed to working with Congress and others to ensure that the banking system remains sound and that the broader financial system is in position to meet the credit needs of the economy, especially those of creditworthy households currently in distress. In my testimony today, I will discuss the developments that led to the current market disruptions, report on the condition of the banking industry, and describe ways to address some of the lessons we have learned from the events of recent months.

The Roots of the Current Problem (to be continued below...)

Credit Facts You Need to Know

· Accurate information on your report cannot be changed or removed. · How Information gets on your credit report: Organizations and credit granting companies and/or retailers with whom you have submitted an application for credit or an existing credit account may furnish your identifying information, employment and/or payment history on open or closed accounts to Credit Reporting Agencies (CRA’s). Some organizations subscribe to one, two or all three major Credit Reporting Agencies. Cour5t researchers obtain public records information from the courts and furnish data to the three national Credit Reporting Agencies. · How long information remains on your file: As a general rule, credit information remains on file for 7 years from the date of last activity. This includes open and closed accounts. There are exceptions, such as derogatory accounts remain on file for 7 years from the original date of the last delinquency. As Agreed/Closed accounts may remain as long as 10 years from the last reporting date on a TransUnion file. Bankruptcy Chapter 13 remains on your file for 7 years. Chapters 7, 11 and 12 remain for 10 years from the date filed. In some states (New York specifically) satisfied judgments remain on file for only 5 years from the date of the original filing along with paid collections for 5 years from the date of last activity with the original creditor.

So who or what determines the interest rates for mortgages?

We all like to blame the lender for the rates, especially when the rates rise. Did you know that the lender has very little to do with the rate? Your lender may have control over the rate they charge you by about ¼%... especially with this competitive marketplace battling for your loan.

In reality, the lender has very little to do with the rates on the grand scale of things. There is no “Great OZ” behind a curtain trying to figure out how to swindle you out of your hard-earned money. Even the big boys like Citi and Wells or WAMU answer to the higher power for mortgage rates… that being the secondary market.

Reverse Mortgages & Your Financial Planning Concerns

Reverse mortgages are becoming increasingly popular over the last several years. The number of federally insured reverse mortgages increased by over 70,000 in just the last five years. What the consumer needs to realize is that there are a variety of programs and the FHA / HUD insured; although the most popular, is just one of them. There are a number of other proprietary reverse mortgage products.