Entries from April 2006 ↓

With the estimated 2 trillion dollars of Adjustable Rate Mortgages coming due, a new mortgage is being slowly introduced to the market, the 50 year mortgage. By amortizing the loan out so far, they lower the rate and allow people to migrate from their ARMs that are having increased interest payments to the 50 year mortgage that provides lower payments than an equivalent 30 year mortgage.

Getting a 50-year loan is a perfectly rational way to avoid an interest-only or payment-option adjustable-rate mortgage, he said. With an interest-only mortgage, the minimum monthly payment doesn’t put any money toward principal. A payment-option ARM goes a step beyond that: In some circumstances, the minimum monthly payment doesn’t even cover the interest accrued that month. You make a minimum payment at the beginning of the month, and four weeks later, you owe more than you owed before the payment. This condition is called negative amortization, or “going negative.”
Forgive borrowers for thinking that it makes better sense to amortize a loan over 50 years than to get an option ARM or interest-only mortgage.
“Payment-option ARMs and interest-onlies have been so popular, we wanted to come out with a longer-term, fully amortizing loan for people who don’t want to go negative,” Diaz said.
Regulators and consumers worry that foreclosures will surge in coming years, especially among homeowners who got interest-only and payment-option ARMs. The 50-year loan is a lifeline for them, Diaz said. via the Seattle Post

Robert Palano, formerly of Clarence, NY, targeted low income homes to the city of Bufallo and with the help of  appraiser Michael Heigel, over inflated the property values to commit mortgage fraud. The New York State Attorneys Office filed charges in the matter and Robert Palano plead guilty to multiple felony counts of mortgage fraud. This is the second time Palano has plead guilty to fraudulent real estate practices.

Robert Palano, 51, faces two-and-one-half to seven years in prison on the felony counts. The former Clarence resident, now living in Florida, has under a civil action, also agreed to pay $1.5 million in restitution and penalties.

Additionally, Michael Heigel, who worked as an appraiser on more than 100 properties purchased on Buffalo’s East Side, will pay $55,000 for over-inflating the value of those homes, many of which ended up vacant and boarded up in a depressed area of the city.

Investigators looked into Palano’s real estate dealings from 1998 to 2002. The AG’s office concluded Palano fraudulently obtained more than $4 million dollars in mortgage loans on 104 rental properties he owned. After pocketing the loan proceeds, Palano relocated to Florida, leaving at least ten lenders with defaulted loans secured by properties worth far less than the debt, and tenants being evicted through foreclosures, authorities said. via Business First of Buffalo:.

Trump Mortgage, the newest real estate venture from the  Donald, is looking to Florida to be the first state the company aggressively opens offices. The company is looking to have 6 offices open this year, and partner with other lenders.

If Donald Trumps past history is to be followed, the introduction will be loud and in your face, but also reasonably effective.

Last year, this industry did $3 trillion, so it’s huge and there’s no clear-cut leadership,” he says. “There’s enormous opportunity to help improve and lead on a national level.”
Craig Lane has been tapped to run oversee the Florida offices, the first of which will be in South Florida.
“We should have those rolling out in six months,” Ridings says.
Trump Mortgage will offer financing products from residential to commercial, luxury to construction.
Ridings indicates he has already heard from many small mortgage operations hoping to be considered a partner to the new company.

via the  Orlando Business Journal:.

The number of mortgage brokers in the North Carolina Triad area has shrunk by 10 percent, and I would not be surprised if these numbers are  representative of the industry as a whole. There was a an unprecedented number of refinancing and new mortgages being written as interest rates fell to record lows from 2002 to 2004. Since then rate have risen and consequently mortgage applications have slowed down.

Since mortgage industry employment peaked in 2003, the number of mortgage brokers and lenders in the Piedmont Triad has dropped by 10 percent. There were 1,113 people employed in the industry in September 2005, down from a peak of 1,231 two years ago, according to the Employment Security Commission.

Experts say most of job losses likely came from small mortgage companies that did not have the resources to compete as the industry began to slow down following a sharp decrease in the number of refinancings.

“People have just gotten out of the business or downsized,” said Kate Crawford, branch manager of Corporate Investors Mortgage Group in Burlington and the secretary of the National Association of Mortgage Brokers. “We were in a huge growth mode for a while, and now we’re just getting back to normal.”

As the mortgage business boomed in recent years, more people entered the industry, some opening their own firms. The number of mortgage companies in North Carolina climbed from 674 in 2002 to 1,570 at the end of 2005. Triad specific data was not available. via MSNBC.com.

If you are buying a mortgage, one of the ways a mortgage broker will earn a bonus on writing your mortgage is to use a yield spread premium. Say you will qualify for a mortgage at 6.5 percent. The mortgage broker will quote you 6.75 percent on the loan.

If you agree to the 6.75 percent mortgage loan, the broker will get approximately half of difference in a bonus, or in this instance 1/8th of a point of the loan. So if you are looking at a $400,000 dollar loan, the broker is looking to make a bonus of $2,000 for the deal.

And that is why when negotiating for a mortgage talk to a few brokers and let them know you are shopping the deal. This will take away the incentive to raise the interest rate they are quoting you for your mortgage and you can save thousands over the life of the loan.

The rollover numbers for adjustable rate mortgages are staggering . For 2006 it will be 330 million and 2007 it will triple to 1 trillion dollars. The forclosure rate in 2007 will be truly amazing to watch if things do not change in the near future.

For homeowners using adjustable rate mortgages (ARMs), rising interest rates mean ballooning payments. At best, the upwardly moving rate in an ARM puts they date of full ownership further over the horizon. At worst, homeowners on tight budgets have trouble affording the payments.
The Mortgage Bankers Association estimates that some $330 billion worth of ARMs will adjust in 2006 and $1 trillion worth will reset by the end of 2007. With a $200,000 loan adjusting upward from 4 percent to 6 percent, the monthly bill would increase to about $1,200, from $955. Money Magazine

The rising interest rates are forcing more and more homeowners to default on their mortgages and go into foreclosure according to the the Chicago Tribune today. Those in the midwest are being hit the hardest by the trend. If you are holding an adjustable rate mortgage you are looking at a huge increase in the cost of housing as your grace period expires and the mortgage starts adjusting.

Foreclosures across the U.S. have been hovering near historically low levels, as home prices have risen nearly 50 percent in five years. This appreciation enabled troubled borrowers to sell their homes relatively easily to resolve mortgage difficulties.

Now, a survey of the latest data confirms, that’s starting to change, with an uptick across the U.S. in foreclosure rates and late mortgage payments. But even the new higher rates of foreclosure and delinquencies are low in historical terms.

Nationally, the number of mortgage loans that entered some stage of foreclosure rose to 117,259 in February, up 68 percent from the same month a year ago, according to RealtyTrac, an online foreclosure data service in Irvine, Calif.

Delinquencies are up as well. Data provider LoanPerformance, a subsidiary of First American Real Estate Solutions, has reported that 3 percent of the most vulnerable loans, those made to borrowers with less than a stellar credit history, were 90 days delinquent in February. That’s up from 2.84 percent in February 2005.

Meanwhile, 90-day delinquencies for loans made to borrowers with better credit rose to 0.76 percent in February from 0.67 percent in the same month of 2005. via Chicago Tribune

According to John M. Reich, director of the Office of Thrift Supervision, speaking at the New York Bankers Association meeting recently, the mortgage industry is taking too many risks with their lending portfolios could be an unacceptable risk for the companies and the economy.

Non traditional loans are very prevalent in parts of the country as prices have hit levels that are unaffordable with conventional mortgages. Interest Only Mortgages and Adjustable Rate Mortgages are the norms in these areas. These loans work well in rising markets but can be extremely dangerous in periods of high interest rates or falling home prices.

Reich says the Feds don’t want to end the use of mortgage products that are clearly in demand, especially when some lenders have a track record of managing the loans’ inherent risks.
Instead the Feds seek to corral use of the loans and prevent them from falling into the hands of less sophisticated borrowers and others with weaker credit profiles.
To that end Reich said regulatory examiners are now “digging deeper” into loan portfolios to learn the level of risk lenders are facing. Examiners will scrutinize loan documentation, pricing, loan-to-value ratios, and overall underwriting standards.
“We continue to monitor overall operational costs, again, with close attention paid to costs attributable to prior build-ups in mortgage lending operations. In addition to our ongoing monitoring of interest rate risk, we are looking at credit risks, particularly with respect to nontraditional mortgage lending products,” Reich said.  via  the Realty Times

Higher mortgage rates are causing a slow down in the mortgage industry as experts have expected. The hot economy raising interest rates combined with parts of the country coming out of a housing bubble are all part of the slow down that has been expected in real estate sales. That combined with mortgage rates that are the highest in 3 years have caused the slowdown.

The Mortgage Bankers Association’s index of applications to buy a home or refinance an existing mortgage declined 5.5 percent to 579.4 from 612.8 a week earlier. The gauge of applications to purchase homes dropped 4.7 percent to 417.7.
Higher mortgage rates and a decline in speculative purchases may cause home sales to fall this year for the first time since 2000, said Anthony Chan, chief economist at JPMorgan Chase & Co.’s private client services group in Columbus, Ohio.
“The housing market is clearly slowing down,” Chan said before the report. “Now that the mortgage rates are going up, you may see people getting really, really scared.”

Bloomberg.com: U.S..

The practice of providing bailout money to save people about to have their mortgage forclosed upon is fairly prevalent in Illinois. Very often the people being bailed out from a mortgage they can not repay end up with such a bad deal with the bailout agent, they are unable to become whole in the process and still lose the house. The state legislature has come up with some alternatives to provide some legal protection against those being bailed out and unable to protect themselves.

A bill that would allow struggling homeowners to back out of suspect mortgage “bailout” deals passed the Senate Monday and went to the governor. The bill puts restrictions on a burgeoning industry that promises to save the homes of cash-strapped owners, but has been linked to numerous scams.

Under the legislation, bailout firms would have to detail their services in writing, and homeowners would have greater flexibility in canceling the agreements. In the controversial bailout deals, a homeowner deeds his house to an investor for a year, hoping to use that time to get out of debt and repurchase the home with a fresh mortgage. Instead, critics say, the home is often lost in the process. via the Chicago Tribune