The Mortgage Manifesto!

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...