The Mortgage Manifesto!

So the story continues…

Lenders have been offering mortgages with an astonishing array of attractions: Adjustable rates, flexible terms, quickie appraisals and no money down, rates as low as 1% - hmmm ;-o

Teasers like these were part of the mortgage boom of the last few years. Lenders - who mostly weren't banks at all, but unregulated brokers funded by Wall Street - raced to write as many mortgages as they possible could. Get it while it is hot, they say.

Those loans were then sold to investment banks, where they were bundled, sliced up and resold to investors around the world.

Mortgage-backed debt securities are now a major global investment vehicle, just like corporate stocks, municipal bonds and commodity futures.

But is this a good thing? Does the worldwide mortgage business end up benefiting ordinary folks and neighborhoods? Or is it just a huge money machine, preying on the ignorant to feed itself? That has been the recent question.

The latest stories do create an impression of mortgage lenders as overly aggressive. But is it all politics or is there another side? I say both!

For instance, Congress last week heard from a

Philadelphia

woman who said she was in danger of losing her home thanks to a refinancing that left her with vastly higher payments than she expected.

But while there may well be many like her, it's probably a mistake to think of all, or even most, sub-prime borrowers as hapless victims.

Tips For First Time Home Buyers

First time home buyers face many challenges in understanding the process of purchasing a home, obtaining a mortgage, and knowing which type of loan will best suit their needs. Advice from well meaning loved ones can be helpful, but buying a home is a major financial commitment and you would be wise to educate yourself on the home buying process before taking the first step.

When you make the decision to purchase a home, talk with a real estate agent who can give you expert advice and valuable information. The purpose of this initial meeting is not to sign a representation agreement with the real estate agent, but instead to make yourself aware of local real estate customs in your particular area. If the agent has no time to discuss the home buying process with you, then keep looking until you find one who will. A good real estate agent will offer you information on the local real estate market and give you an idea of the types of mortgage products that are available to you. A mortgage broker or lender can also give you valuable information when you decide to buy a home.

Subprime turmoil ensaring companies that lend to people with good credit

April 2007

Associated Press

MSNBC

NEW YORK - Turmoil in the mortgage market is ensnaring more companies who lend to people with decent credit.

The spread of home lending woes beyond loans to those with weak credit threatens to reduce the availability of loans for some consumers and even threaten the existence of some lenders.

Rising delinquencies and defaults among subprime borrowers — those with blemished credit histories — have resulted in more than two dozen lenders going out of business, moving into bankruptcy protection or putting themselves up for sale.

Now the so-called Alternative-A mortgage sector, which loans to borrowers with better credit than subprime borrowers but not quite prime, is starting to hurt.

One Alt-A lender, American Home Mortgage Investment Corp. of Melville, N.Y., announced late last week that it was having trouble selling its mortgages into the secondary market and would have to cut its earnings forecast for the quarter and the year. At least five analysts downgraded the stock on Monday, and its shares fell more than 15 percent on the New York Stock Exchange. The shares dropped $2.37, or 11 percent, on Tuesday to close at $19.55.

12 ways to pay for your home improvements -final

8. Do's and don'ts of credit-card financing

Financing a renovation with plastic can have advantages, and serious risks. On the positive side, many credit cards offer airline miles, cash back or other incentives for charging up large sums. If you are looking at tens of thousands of dollars, a 1-percent cash-back offer could mean hundreds of dollars rebated to you just for swiping your card.

If you want to use credit cards to take advantage of a teaser rate or a points program, one less risky way would be to apply for a HELOC before charging up a large balance. That way you don't have the high credit balance pulling down your credit score when you are applying. This method is risky, though, because if you are so much as an hour late on your payment, the bank could charge you interest retroactively for the entire term, wiping out whatever benefits you were able to eke out.

The serious drawback comes when you fail to repay the entire balance at the end of the grace period. While getting a $100 rebate check is nice, annual interest rates of 18 percent or higher quickly erode and eliminate any headway your cash-back offer might give. That should not be the long-term financing vehicle that you use. Credit card money is very expensive. You are typically much better off getting a home equity line if you are looking for a way to carry a balance.

9. Squeeze money from home improvement stores

You can often find very attractive promotions through home improvement centers, 5 percent to 10 percent off a major purchase from The Home Depot or Lowe's, or zero interest for a year on windows from Sears.

Those promotions are meant to drive up sales. As long as you follow the rules to the letter, they make sense. But, just like with credit-card offers, a missed or late payment, even by a day, could set off retroactive interest rate that wipes out the benefit and more. Also like credit cards, it is often a good idea to have a refinancing method lined up before you commit to the charge. That way you aren’t stuck with an expiring promotion and no way to pay it off.

10. Watch out for loans from a contractor, family member or other private party. Some contractors will "help you out" by offering to front money for repairs, but be careful, as that contractor loan, as with any private-party loan, is an incredibly risky proposition. That's because commercial lenders use standard documents and would be less likely than a private lender to slip in onerous clauses.

If you are borrowing from family, make sure you know what you are getting into. While many families get along just fine, introduce money into the equation and you could be putting your relationships at risk. Think hard about these options.

The First Step Toward Living Debt Free

All of us incur debts from time to time. It is normal to purchase items on account and pay for them at a later date. The point where we run into trouble is when we overextend ourselves and owe our creditors more than we can repay. This article will explain to you how to set up a budget so you can meet your credit repayment obligations and move on to a debt free life.

Do You Have A Positive Or Negative Cash Flow?

The definition of a break-even point is when the amount of money you are paid every month covers your expenses exactly. The two numbers would be equal in this case. When you end up with more money than you have in expenses, you have a positive cash flow for that month. Otherwise, you have a negative cash flow, and you may be borrowing money to make up the difference.

12 ways to pay for your home improvements continued.

1. Take out a home equity loan

Also known as a second mortgage, home equity loans are made against the value of your home. The bank uses the equity in your home as collateral and puts a lien on your home. Interest rates, normally fixed, are often higher than on a first mortgage. Fees and closing costs are relatively high, too, although they are lower than with a refinanced mortgage. Fees and closing costs, too, are relatively high compared with other options.

One drawback is an 80 percent loan-to-value ratio. If your house is worth $250,000 and you owe $190,000 on your first mortgage, you could borrow just $10,000 before hitting that cap. If you want to make $40,000 in upgrades, you would have to go with either a higher-interest loan or look for another option. Yet the interest you pay on the first $100,000 of your home equity loan may be tax deductible. (To be tax deductible, the IRS says you need to use the money exclusively to pay for home improvements, and you must itemize.)

Home equity loans work best for amounts you consider medium to large and that require more than 10 years to pay back. They also typically don't carry a prepayment penalty, so if you get a bonus or other windfall, you usually can pay it back early.

2. Consider a home equity line of credit

A home equity line of credit (HELOC) is a cross between a home equity loan and a credit card. In fact, many banks give you a credit card which you then use to access the money in your equity line. Like a home equity loan, the interest on the first $100,000 you borrow may be tax deductible.

The bank sets a "draw" period during which you can take money from the line, usually between five and 10 years, and another span during which you must repay, typically 10 to 15 years. HELOCs allow you to repay your loan and then borrow again as you need it during the draw period. The bank only charges closing costs once, upon opening the line. During your draw period you pay back only accrued interest. After the draw period ends, you must repay both principle and interest. The primary drawback of a HELOC is that the borrower is at the mercy of interest rate movements. When rates go up, so do the monthly payments. The option to pay interest only, though, may tempt some borrowers to take on more risk.

A HELOC makes sense for short- to mid-term loans and especially when you need to withdraw money over a span of many months. They also make sense if you believe interest rates will fall over the next year or two.

3. Refinance your existing mortgage

Home values in some real estate markets have doubled during the past few years, inspiring homeowners to take on big renovations. Because mortgages are paid over 15, 30 and in some cases 40 years, monthly payments are spread over a much longer period and are thus lower than a shorter-term HELOC or a home equity loan. And since your home is used as collateral, interest rates are typically some of the lowest you can find.

Lower interest rates and lower monthly payments might make a larger project possible, but they also mean you will be paying interest longer and thus the financing will cost you more in the long run. The biggest danger with a refinance is when real estate values fall. If you borrowed against the full value of your home and prices fall in your area, you may end up with a more expensive loan than your home is worth.

So the story continues…

Lenders have been offering mortgages with an astonishing array of attractions: Adjustable rates, flexible terms, quickie appraisals and no money down, rates as low as 1% - hmmm ;-o

Teasers like these were part of the mortgage boom of the last few years. Lenders - who mostly weren't banks at all, but unregulated brokers funded by Wall Street - raced to write as many mortgages as they possible could. Get it while it is hot, they say.

Those loans were then sold to investment banks, where they were bundled, sliced up and resold to investors around the world.

Mortgage-backed debt securities are now a major global investment vehicle, just like corporate stocks, municipal bonds and commodity futures.

12 ways to pay for your home improvements

So many projects… and there are also many ways to finance a home makeover and remodel.

There are a couple important questions to ask with regards to funding, when determining if you should tackle a remodel project: How much will it cost, and how long do I want to pay for it? Answering those questions will make it easier to choose between a home equity line, cash-out refinancing and using credit cards. If what you are going to finance can be paid off in a year or two, then credit cards, or other simple financing solutions make sense. Can you pay this short term financing off quickly with a tax refund or other source? If it will take you 5, 10, 15 years to pay it off, then a home equity or full refinance will make more sense. Once you determine this, then you can decide what option is best."

Financing can be short to long term. Within your desired time-frame, there are several choices, each with their own advantages and drawbacks. Choosing between financing methods is generally easy, as long as you have equity in your home. Credit strength and time also play a part.

There are no hard and fast rules of thumb. It takes an honest assessment of one's financial situation, not some fancy formula. Borrowing a relatively small amount, for instance, can mean different things to different people. You might be better off with short-term or intermediate financing. Short-term financing can include opening a home equity line of credit (HELOC), using cash from savings, a credit card or a home improvement center promotional offer, a construction loan from a bank and/or even a loan from your 401(k) or life insurance policy.

Here is a checklist to consider:

The best thing to do is look for a loan that will cost you the least in interest and allow you to pay it off in as fast a time-frame as comfortably possible, giving preference to tax ‘write-off’ loan options (most loans tied to the property).

Some of the different options as well as pros and cons of each choice are as follows:

1. Home equity loan

2. Home equity line of credit

3. Refinance existing mortgage

4. Construction loan

5. Savings

6. Hybrid savings-equity loan

7. Personal loan or line of credit

8. Credit-card financing

9. Store financing

10. Contractor or private party loans

11. Cash-value life insurance

12. 401(k)

More to come in the next few days about each catagory

Subprime Blame game final

Real estate agents

The charge: Salespeople fed the frenzy.

"I'm frustrated that real estate agents have gotten off scot-free," says Shana Smith, president of the National Fair Housing Alliance.

According to Smith, agents encourage consumers to buy much more house than they can afford and the agents show them how to do it through the use of exotic mortgage products like hybrid ARMs, interest-only and negative-amortization loans.

"My neighbors just bought their first house," says Smith. "They carefully figured out how much they could comfortably spend - $325,000. The first thing their agent told them was, 'I think we can go up to $400,000. We can get you into more house.'"

"When the real estate agent can show how she can get you into a $400,000 house, your eyes get big."

Real estate agents are salespeople and, just like any salespeople, it is in their best interest to move up their customers into a bigger, more expensive product.

Bottom line: Real estate salespeople are not always scrupulous about fulfilling their fiduciary responsibilities to their clients. They sometimes persuade consumers to overspend and take on mortgage payments that may ultimately be unaffordable. But borrowers, too, have to take responsibility for staying on budget.

Subprime blame game…Continued

Regulators

The charge: Government agencies such as The Federal Reserve did not use the authority granted them under the Home Ownership and Equity Protection Act to prohibit substandard lending practices.

Federal regulators came in for a large share of subprime blame during a series of Congressional hearings in March. Christopher Dodd, Democrat from

Connecticut

and, perhaps not coincidentally, presidential candidate, accused regulators of being "asleep at the switch" when they allowed lenders to push hybrid loans with low initial rates that would spike in future years.

Harry Dinham, president of the National Association of Mortgage Brokers, says, "The majority of these loans were being done by companies like New Century and Countrywide were not under the control of bank regulators."

Furthermore, there's nothing inherently wrong with the loan products themselves, according to Dinham. "They were designed to give the credit-challenged a chance," he says. "To see if they could make it."

Regulators were following a policy that they hoped would help increase home ownership, a goal regularly lauded by politicians.

Bottom line: Regulators could probably have acted sooner to stem the worst abuses.