Entries Tagged 'Interest Only Mortgage' ↓

The poor jobs report may be the catalyst for the Federal Reserve to stop raising interest rates and give the mortgage industry a chance to catch its breath and slow down a bit. The marketplace has been in turmoil as the Federal Reserve has been raising interest rates putting pressure on new borrowers and those in Adjustable Rate Loans (ARMs).

Since the Fed controls short term rates, a pause by the Fed means that adjustable loans will benefit the most from their likely neutral stance on rates. However, fixed rates might or might not see a benefit even though it is widely believed the Fed will pause raising rates on Tuesday.

Fixed rates are based on investors that trade Mortgage Backed Securities, it is these investors’ perception of inflation that controls the direction of fixed rate mortgages. These same investors will be more interested in the Fed’s statement than the pause in rate increases. If the Fed, in its statement, indicates that inflation is anything but under control fixed rates may in fact increase even though short term rates are held steady. Although we believe this scenario remote, it is possible and has occurred several times in recent history.

The bottom line - In our opinion a neutral statement by the Fed in conjunction with a pause in rate hikes will likely stabilize or slightly improve the market, Although unlikely, any indications that a pause will be temporary or not sustainable will likely result in higher rates. via OriginatorTimes.com.

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