The Federal Reserve’s rate cut to 2% shouldn’t inspire more than a yawn in financial circles, although many citizens believe that a cut by “the Fed” immediately translates to a drop in mortgage rates. Unfortunately not true, folks. The Federal Reserve is simply using its power in the financial marketplace to release more money into the system and influence banks to drop the interest rate they charge to lend each other funds overnight. While this short-term fix does have the effect of lowering the prime rate (which may influence rates on credit cards, some adjustable rate mortgages, and other lines of credit), the effect on most long-term mortgage rates is often the opposite.
Bankers and brokers have been throwing the same arguments around for years. Brokers claim to be better because they have access to programs offered by many different lenders and can therefore find the best program for you. Bankers claim they have more control of the loan approval and funding process and can offer lower rates. Both arguments are true to some extent. However, it really depends on the size and reputation of the institution involved.
Brokers According to Bankers: For example, bankers like to characterize brokers as fly-by-night opportunists who don’t care about their conduct — by the time the borrower realizes that he’s been taken advantage of, the broker has left the business and begun a new career selling cars or Amway.
Bankers According to Brokers: Brokers prefer to portray banks as moss-covered behemoths that only offer two programs and charge outrageous fees.
Mortgage rates and housing prices run on different cycles, but they are somewhat related. However, coordination between the two cycles got somewhat out of synch over the past week:
From a potential home buyer’s perspective, it has been possible to sit back over the past year and watch prices steadily get cheaper. However, the tick up in mortgage rates could signal a call to action — it might be best not to wait too long before getting a mortgage.
Tax rebate checks and reduced rates to prevent further recession, how do you, as an individual, prepare for an economic recession? Here’s some advice on preparing yourself and your family for economic recession, even if it is a minor recession.
Most importantly, come up with a budget and stick to it. By doing this, you can find places to cut discretionary spending. When you get your tax rebate check, use it to pay down credit card debt or store it away and start saving young.
Past studies of stimulus packages have been shown to boost the economy within two weeks as 80% of the stimulus money re-enters the economy. So don’t fret on the current recession, just remember in order for the market to gain, it has to take a setback and watch this video for more tips.
The Wall Street journal reports that little is being done for homeowners facing foreclosure despite all the sound-biting from public officials and lenders. A recent study by the State Foreclosure Prevention Working Group found that 7 of 10 borrowers in trouble aren’t getting any help with their payment problems and aren’t involved in any kind of workout with their lenders. This shouldn’t surprise anyone. According to another WSJ article last year the vast majority of subprime homeowners in foreclosure were there because of circumstances completely beyond the control of the lenders. Rather than defaulting because their rate adjusted up and the payments were unaffordable, most troubled borrowers (58.3%) reported being delinquent because of a decrease in household income such as a job loss. Other reasons included medical bills or illness (13.2%), divorce (8.2%), inability to sell a home (6.1%), and death (3.6%). Only 1.4% of loans went into default because of payment adjustments. So it makes sense that rolling back rate adjustments won’t help most people. And workouts are not granted unless there is a very good chance of preventing a foreclosure and not just putting off the inevitable — something that won’t happen if the borrower remains ill or unemployed. It seems like fixing the economy will do more for homeowners than bandaging their loan programs.
The Australia Federal Government commissioned investigation into mortgage fees. In their mortgage fee review results, it was discovered that the largest lending institutions charge the biggest fees.
To most consumers it’s not exactly clear what the entry and exit fees are, but currently the average mortgage is refinanced every three years and paying attention to these fees can save a lot of money. So will this review create competition for better consumer options? Well already some banks are offering mortgage products free of exit fees.
Will we get more of these results as these fees are disclosed to consumers?
Bankruptcy judges are uncovering some rather, well, icky practices in the mortgage servicing industry. Excessive fees, lack of notice before starting foreclosure proceedings, and incorrect application of payments are just some of the goings-on at some mortgage giants, according to the International Tribune. In one case a bank charged an elderly woman $465.36 in late fees and charges for missing a single $554.11 mortgage payment! In another, the lender asked a bankruptcy court to allow it to foreclose on a couple in bankruptcy because there was no equity in the home. When that is the case lenders are allowed to foreclose in order to minimize their costs. However, in this case the borrowers had $120,000 in equity and they were given no notice of the foreclosure by the bank! The judge in the case found there was an abuse of process and ordered the lender to pay the homeowners’ legal fees. The bottom line is this: if bankruptcy judges are finding lenders to be unethical when dealing with borrowers in bankruptcy, might the loan servicers also be conning the rest of us? Borrowers should make it a priority to look their statements over, check for unexpected fees, and make sure that their impounded taxes and insurance are calculated correctly.
The latest buzz in the mortgage industry is about FHA loans. Traditionally, one of the advantages of FHA offerings was that there was no minimum credit score needed to get a loan. But now it’s rumored that there are new minimum credit scoring requirements. Is this true? Yes…..and no. Yes, because FHA guidelines do require a minimum FICO score of 580 for approval. And no, because there are exceptions to this rule. If your current loan is an FHA or VA and you are refinancing with no cash out (also referred to as streamlining) the credit score requirement doesn’t come into play. If you have no credit score and have to use non-traditional credit (such as statements from your landlord and utility companies) then you can still get approved for your loan. And finally, if you work with a lender that uses an FHA Automated Underwriting System (AUS) then you can get a mortgage with a score <580 if the automated system approves you. The AUS considers a host of factors in addition to your credit score and if these are strong enough to overcome a low score you may still get your mortgage.
The combination of low mortgage rates and falling home prices is great for today’s home buyers, but the inflation signals are a reminder that these conditions may not last.
