For various reasons, many homeowners find they need to take out a home equity line of credit or refinance their current mortgage. This usually means more fees, more documents to sign and store and general hassle for the homeowner. If you’re looking for a new home loan, an all-in-one mortgage just might be the way to go. These loans incorporate a home equity line of credit and very flexible options during the life of the loan to help homeowners avoid the hassle of refinancing. What does an all-in-one mortgage include and what benefits do homeowners get from applying for one? Read on.
An all-in-one mortgage is a recent innovation by the lending industry. Pioneered by Washington Mutual, the nation’s largest mortgage lender, an all-in-one mortgage is an innovative approach to making life simpler for homeowners and lenders alike. After its inception and enthusiastic reception, many lenders are creating their own version of this beneficial mortgage.
An all-in-one mortgage is exactly what it sounds like. It allows buyers to incorporate a home equity line of credit into a first home loan, lets buyers adjust the interest rate of their mortgage during the life of the loan without the hassle of refinancing through a third party and choose between interest-only and fully amortized payment options.
Once buyers have paid 10% of the loan, they are able to tap into their home equity. Whether they choose to receive a check, cash advance or a credit card, the only thing they need to do is contact their loan company and the mortgage company will set up the account to make the funds available to the homeowner.
With this type of mortgage, homeowners no longer need to go through the complicated and time consuming hassle of refinancing. During the life of the loan, buyers are able to change from interest-only to fully amortized payments and back at no cost. Buyers can also switch between fixed interest rates and variable at no cost, depending on their payment needs at the time. With Washington Mutual, the first switch is free, after that they are at a flat fee of $250.00 and can be done twice per year. This avoids the annoying and sometimes painful process of changing lenders and keeps your account with people familiar with you.
All-in-one mortgages can be set up to accommodate almost any buyer’s particular needs and are widely available, either through Washington Mutual or one of their competitors. While not every buyer will benefit from an all-in-one mortgage, and not every buyer is eligible for these loans, the vast majority of home buyers should see this pioneering loan type as a boon, giving buyers more control and flexibility over their loan, while making it easier to avoid a lot of the hassle commonly associated with home loans.
Buyers who are not eligible for an all-in-one mortgage are those in the sub-prime market, buyers with credit problems and those with low incomes, though many lenders can offer help with these qualifiers. Bad credit and no credit can be issues that are hard to overcome as most lenders are unable to adjust requirements to meet these problems.
Online mortgages? Really? Sure. A recent benchmark study by Mortgagebot.com states that of the mortgage agencies with an online presence, fully half of their loans have come through the online channel. This speaks volumes about how Americans are searching for information on home loan lending and how much information they’re willing to get from Internet sources. It also says a lot about the future of the mortgage industry as a whole. With the incredible movement to Web-based commerce still going strong, it should come as no surprise that people are readily engaging in every form of e-commerce, including mortgage applications.
Even less surprising is the market segment doing the online mortgage hunting. Young, affluent and creditworthy, is the description on a popular mortgage news site. These folks are creating the future, now. The market will follow where the money goes, and the money is going to the Internet. While the e-commerce boom has long since died down, the real e-commerce surge is just beginning. The fad that everyone called the ‘boom’ of e-commerce was nothing more than that, a fad. The real interest and movement of business to the Web began slowly and has continued while the .Com folks have mostly faded away.
It’s only natural for the mortgage industry to make the move to the Web. After all, they’re following the money, like everyone else. The real blossoming of the Internet as an outlet for all types of industry and business has yet to come, but we’re seeing the first budding right now. The Web offers engaging visual interaction with enough information to sate anyone’s hunger for knowledge. Websites can be incredibly interactive, even beautiful, and mortgage industry websites are no different. With the right tools, websites can be built that truly promote the beauty and immediacy of the “American Dream”.
Web-based lending is making headway, a new mortgage program for a new generation of home buyers. As with most new business formats, web-based lending may take a little while to catch on with the majority of Americans and the need for brick and mortar lending institutions will never go away. Web-based lending, new mortgage program or not, is here to stay. An example of its growing popularity is the simple fact that Mortgagebot.com’s study was done in the first place. If there weren’t vast potential in the technology, it would have been dismissed completely and many mortgage lenders have realized the error of doing this to their chagrin.
The 21st century’s answer to the mortgage industry is web-based lending and it offers lending powerhouses the opportunity for secured future growth. Even with our society’s increasing technology, most consumers still shop by brand name. Lenders with established names and reputations stand in good stead of reaping the rewards of web-based lending. New mortgage programs like online lending also increase company productivity with all or most of the customer’s information originating from Internet portals. Web-based lending also promises greater competitive opportunities for small companies to grow brand recognition across the nation and even the world.
It’s important that your realtor and your mortgage agent get along well. If your realtor and mortgage agent are on good terms it makes the whole process of home buying move much more smoothly. Imagine a situation where the realtor and mortgage agent don’t get along; in a best case scenario they don’t speak to each other more than necessary, leading to you, the buyer, possibly not receiving the maximum benefits from such an arrangement. In a worst case scenario the two individuals could actually cause the process to drag on while they bicker over particulars that should have been ironed out before the project truly got under way or even harm the situation by ignoring duties they are supposed to perform.
In an industry fraught with complexity and complication, a good working relationship between the realtor and mortgage agent can save you time, money and hassle. Individuals that work well together form teams that make the home buying process feel seamless to the buyer. This relationship provides benefits to the buyer and to the realtor and mortgage agent; if they work together well, the process moves faster for all parties involved, letting the realtor/mortgage agent team finish projects quickly, at great benefit to the buyer and move on to new home buyers.
Realtors are often good individuals for mortgage agents to cultivate relationships with. Many times, people will contact their realtor concerning all aspects of home ownership, like refinancing and home equity lines of credit. For this reason, many mortgage agents will go to great lengths to locate knowledgeable realtors and form lasting relationships with them. These relationships are excellent ways for the mortgage agent to find potential customers and the realtor will be able to provide background on all applicants that are channeled through them.
Mortgage agents can team up with realtors by offering relevant services that are essential to the realtor. These services are ones that allow the realtor to pass the value along to the buyer, boosting the realtor’s and the mortgage agent’s reputation. Realtors are always in need of new information about the loan industry and providing them with training on the loan industry will allow mortgage agent to showcase new loan packages, different formats and more. This goes a long way towards growing a trusting relationship with realtors and real estate agencies on a business entity level.
A close relationship between realtors and mortgage agents has benefits that go far beyond the two professionals actually interacting. It impacts the mortgage agency and the real estate office as well, generating more business for both sides and benefiting all involved.
For buyers actively looking for a home to buy, finding a realtor with close ties to a mortgage agent can have vast benefits. Relationships like this will provide you, the buyer, with detailed information about the entire home buying process through a single source. Relationships like this allow the realtor the comfort of knowing that the information he or she has is correct, the realtor is able to inform you better and provide many other options than otherwise. Finding a realtor with a good relationship to a particular mortgage agent will help you avoid time consuming hassle and save money.
Most people don’t think ‘telecommunications’ when they hear the word ‘mortgage’, but technology’s impact on society, and, especially the mortgage industry, has revolutionized the way things are done and has led to lower costs and more benefits for buyers and firms alike. In a research paper, dated 2004, Armando Falcon writes, “Changes in technology have made possible improvements throughout the lending process that allow prospective borrowers to apply for loans, and enable lenders and investors to service, price, sell, and trade mortgages, more quickly and efficiently.”< ?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
So, the explosion of telecommunications technology has had an immediate benefit for both the industry and for potential buyers. One of the first areas impacted by the new telecommunications technology was data transmission and storage. The cost of this drops every year, allowing mortgage companies to pass the savings on to buyers. Communications speed increases every year, allowing companies faster and faster access to information, faster communications with clients and higher quality document transfer.
The change in telecommunications technology has also affected internal communications for mortgage companies. Information is sent digitally, now, allowing agents access to real time changes in prices, policies, interest rates and programs. This grants agents the ability to provide their customers with quality service, analyzing their customer’s needs and finding the program that fits them best within today’s dynamic lending structure.
Cost reduction through office automation has had a great impact on the mortgage industry. Where departments were once segregated, using proprietary software, now the same software can be used throughout the entire office and integrate automation through the firm to lower operating costs. Paperless offices are becoming a reality, rather than a potential, though some firms may be slow to adopt this strategy. With the increase in telecommunications technology and ever better computer performance, documents no longer need to take up physical space in a storage room.
Telecommunications technology has also empowered buyers. Through the rapid spread of information, buyers are able to look to the Internet to find loan information, allowing consumers to be informed about their options and helping them to judge judiciously between mortgage companies. Mortgage companies have changed their focus to be highly service oriented, helping to improve customer relations through email, websites and online advertising campaigns.
Virtual networks have allowed mortgage companies to have branches anywhere in the nation without the need for them to be hard wired into the company’s headquarters. This allows lower start up costs for branches, lower operating costs and fewer funds spent on paper and ink correspondence with existing branches. Again, these savings are all passed on to buyers; the lower the cost to originate a mortgage, the lower the end price of that mortgage.
The Internet is the fastest growing communications medium ever created and mortgage companies are taking full advantage of its benefits. Online search firms allow companies access to real time information about changes in the market, allowing them to change their rates the instant a market fluctuation occurs. This lets them remain extremely competitive and provide the best in service to their customers.
The lending industry can be a confusing place for potential buyers. There are adjustable rate mortgages (ARM’s), interest-only mortgages, traditional mortgages, all-in-one mortgages and more. There are loans with no points that have higher interest rates and loans that you can allocate funds towards points that carry lower interest rates. How does a potential buyer choose which mortgage is right for them, what makes the different mortgages, well, different? Why do certain lenders advise buyers on a specific type of mortgage?
To provide a little more clarity in a murky world, you need to ask yourself and your lender some questions. Knowing as much as you can about the different types of mortgages will help you be an informed buyer and make wise decisions when it comes time to choose a mortgage.
The first question you should answer is: how long you expect to be in this particular home? If you don’t plan on being there for very long, then a 30 year mortgage with a fixed interest rate may not be right for you. An interest-only loan may be a better option if you plan on only living there a short time and then selling.
Check out the lender’s reputation as thoroughly as possible. Some lenders are underhanded, stacking hidden fees and charges against the buyer while never revealing everything that’s going on. The Internet is a great way to find feedback on particular lenders; checking forums and message boards will reveal a lot of information about lender practices and performance. Trust is imperative in choosing a lender, so do your homework and make sure you’re comfortable with the lender.
Check out the interest rates the lender offers and how long they will guarantee them. Is the rate variable or fixed? Get any promises in writing.
Determine how much you can provide as a down payment. The larger the down payment, the lower the monthly payments will be. If you don’t have a lot of cash upfront you can always choose a higher interest rate or an adjustable interest rate; these will lower the amount required for down payment.
What risks are you willing to accept? If you have the resources or the willingness to take the risks, an adjustable rate mortgage can give you a lower rate, while a fixed rate will provide you the knowledge of exactly what your monthly expenses will be, but at a higher interest rate.
Another option for determining which mortgage is right for you is the use of an Independent Financial Advisor (IFA). These folks provide incredible services, taking your needs and desires into consideration and showing you which mortgages are currently the best on the market and what types of mortgages work with your current needs and monetary situation. IFA’s are usually independent entities and have no reason to advise you to choose one type of mortgage over another or one lender instead of their competition. Using an IFA can greatly reduce the amount of stress involved with deciding what mortgage is right for you.
You’ve heard the word before, interest-only mortgage. The term has been tossed around until everyone knows the words, but the meaning has become a little murky. An interest-only mortgage can be a great thing for borrowers, but why? Who should get them? What’s the difference between and interest-only mortgage and a traditional mortgage? Let’s dig into what an interest-only mortgage is, why someone would want one and who should actually get them.
An interest-only mortgage is a loan which in which the interest is paid off first, before the principle is paid. If an interest-only mortgage is chosen, the borrower and lender agree on a specified time period, usually five to ten years, during which only the interest is paid. The principal amount of the loan is not reduced by these payments. They borrower has the right to pay more than the interest if they wish too, but it is not required under these terms. This results in lower initial payments for the borrower, sometimes by a substantial amount.
A traditional mortgage is called a “fully amortized mortgage” and payments consist of both interest payments and money directed towards the principle loan amount. These payments are higher than in interest-only mortgages, but the principle amount is reduced much more quickly. Assuming the interest rate stays the same during the life of the loan, a traditional mortgage maintains the amount of the original payment for the life of the loan, while an interest-only mortgage increases in payment size after the initial interest paying period.
Who should get an interest-only mortgage? Anyone with a legitimate need for lower initial payments; they must be prepared to deal with the consequences of choosing this type of mortgage, however. While it is true that an interest-only loan will save you money, that is only the case in the first part of the loan. Since the payments increase after the interest is paid off, the benefits are only applicable for the first part of the life of the loan.
An interest only loan is great for buyers who expect to have a windfall before the loan goes to principle. Borrowers with fluctuating incomes find interest-only loans attractive as well; when income is high, they can pay over the amount and reduce the principle but during low income periods they only have to pay the lower, interest-only payment. Buyers interested in skipping the ‘starter house’ and jumping straight to the house they will eventually need find this type of loan attractive since it can ease the strain of buying a more expensive home.
Many homeowners invest the extra money they save every month, putting the money into investments that will pay off before the loan payment increases. In this way they save money through the life of the loan.
An interest-only loan is not for everyone. Borrowers should examine any interest-only loan for actual benefits; don’t take out an interest-only mortgage if the only difference between that and a traditional mortgage is the interest-only aspect. Look for benefits like reduced future payments after a large mortgage payment and watch for deceptions like “lower interest rates” that are usually not true.
Trust is the most important aspect of working with your loan officer. If you don’t trust your loan officer, don’t deal with them; find one that you do trust. Buying a home is one of the biggest investments, if not the biggest, you’ll make in your life. You don’t want to trust your future financial obligations to someone who’s simply rubber stamping you and your application. There are several questions you need to ask yourself when working with your loan officer; let’s look at it like a fast food restaurant:
Does your loan officer take the time to explain the benefits and concerns about each mortgage option? If they simply show you a menu of your options and then take your order, you can be sure they are not working with your best interests in mind. Loan officers are paid on commission, so if you think they’re steering you in a direction that’s not what you want or need, then you may not have an honest loan officer. If they have a particular option that they feel you should explore, they should be able to explain the reasons that this option is to your benefit and why another option wouldn’t be better.
How knowledgeable is your loan officer? Do they have an in-depth knowledge of the industry or do they seem like the guy asking if you’d like fries with your value meal? A comprehensive understanding of the packages offered, the impact of different financial aspects and a desire to help buyers get the best loan for their needs are all key characteristics to look for in your loan officer. The loan industry should not be treated in a “may I take your order” fashion, it’s far too important and has far too much impact on the lives of those involved to be taken as anything but a serious matter.
Your loan officer should treat you like family. I don’t mean like awkward or hateful brothers or sisters acting with spite; I’m mean they should treat you like a member of their family, with respect, humor and an eye for your future well being. Your loan officer will set up a mortgage that you will have to live with as long as you own your home, so choose one that you can work with easily, one who has a reputation for fantastic service with an open and honest demeanor.
While it is very important that your loan officer work with you, rather than against you and it’s important that you are recognized as an important aspect rather than another person standing in line to place your order, it is also very important that you work with the loan officer. They cannot provide excellent service if you do not help them. There are a lot of things a loan officer will require from you and it’s extremely important that they have them-you won’t get a good loan without them! W-2 forms for that past 2 years, pay stubs for the past 3 months, long term debt information, tax returns for at least the previous 2 years, proof of all other income and the address of the property you are interested in purchasing.
Without this information or with faulty or incomplete information, your loan officer will not be able to do their job properly. Most loan officers are more than happy to provide excellent service to you, but you must be prepared to work with them. Before you call to make an appointment with any loan officer, make sure you have the information listed above in hand.
You’ve seen the advertising online “When banks compete…” and all that. Lending Tree’s advertising looks great. It’s got flash, pizzazz and really makes consumers feel that Lending Tree will provide them with the lowest possible rates. After all, it makes sense, right? Competition is what lowers prices, right? Isn’t that the basis of a good economy? Suppliers and manufacturers compete to gain customer’s business by offering comparable quality at a price less than their competitors. So, what’s the real deal with Lending Tree? Are they legitimate or is there something fishy in their practices?
A brief perusal of the Web will yield far more results than you might expect. I typed the words into my search engine’s text box, hit enter and received over 600,000 results for the words Lending Tree+scam. Now, obviously, they don’t ALL relate to scams by Lending Tree, but a surprising amount of them do. I know I was surprised. Lending Tree seems to have some questionable processes concerning customer’s sensitive information and they definitely seem to partner with some unsavory lending institutions.
Almost every complaint found on the Internet states that the companies sponsored by Lending Tree take between $400 and $600 up front and whether the loan goes through or not, the money is never seen again. That sounds a little suspicious, especially when the agreement on the back of the forms used by these companies states that no money is needed to get the ball rolling. Definitely raises questions on my part.
Thousands of posts abound on the Web about Lending Tree selling customer’s private information (phone numbers, address, etc) to third parties. One memorable poster stated he had been contacted at all hours of the day and night, months after declining to work further with any of the companies Lending Tree sponsored.
Many complaints center on a large sum of money being required to ‘lock in’ the rates of the quote. The lock in period is usually for 45 days, but the process drags on and on, usually to at least a day or two past the lock in period. The customer’s money is then gone, more points are added to the contract and the customers walk away angry and with lighter wallets.
Another memorable post states that Lending Tree asked for the applicant’s information sent in the body of an email with no encryption. This information was stuff like his social security number, address, phone number, W-2 information, like earnings statements and other high theft stuff. When he asked about security, he was informed that it was the way they did things. He found another lender.
Lending Tree practices very sketchy and decidedly unsafe business practices. While not all the posts bashing them are to be believed, there are far too many horror stories out there for it to be a mistake. I would never use the company and highly urge anyone else looking for a home loan, a home equity line of credit or anything else, for that matter, to avoid Lending Tree at all costs.
Alot of people forget the importance of Communications and Home Automation for buyers and investors. I noticed and still notice an ongoing problem within Real Estate. As a Mortgage Broker and Engineer I’m here to bridge the gap. Builders, Flippers, and Remodelers can know the benefits of wiring the property for any option that a buyer may want which can take a nicely remodeled home to luxury home status. Appraisars need to start seeing and adding the value of low voltage wiring and home automation. The demand will become higher and higher as time goes by but my advance is do it now and don’t wait. Any industry within Real Estate can show their innovation and professionalism by bridging the gaps.
Boulder Financial Mortgage provides a unique service in that we can actually build those special wants of whole house automation with 3 tier security or maybe just a media room of ones dreams into a clients mortgage loan. Making yourself unique and partnering with companies that provide services outside of the box is whats going to drive clients to you. I show all my clients my personal home with all the bells and whistles. Why not just have the home of your dreams but have the future home of dreams now! Your clients will thank you and continue to come back to you time and time again.
It is important to have a skilled low voltage or home automation company to work with. There are so many different ways of getting the same results its best to make sure and get informed for your client. I have seen so many clients and real estate professionals alike bypass a property for the lack of negotiation and ensure home automation be one of those items rolled into the real estate transaction and mortgage. Most loans on any purchase typically allow 2.5% to 6% cash back for repairs or upgrades. This is why it is so important for clients, real estate professionals, and mortgage officers to work togather to keep each industry informed on new programs, rules and changes.
Tell us about your Future dream home and we can help achieve those goals. Boulder Financial has several divisions for this very reason. Real Estate Sales, Telecommunications, Mortgages, Property Management, and much more!
We are here to change the face of real estate and bring the future now! Visit our website at www.boulderfinancial.com to find out more about us and what we do that is different!
Interest rates as reported by Freddie Mac and those published by the Mortgage Bankers Association (MBA) diverged sharply for the week ending June 14 (Freddie Mac) and June 15 (MBA).
Freddie Mac’s Primary Mortgage Market Survey concluded there was a double digit jump in the rates of each of the four products the survey tracks, taking each to levels last seen nearly one year ago.
The 30-year fixed-rate mortgage (FRM) had an average contract interest rate of 6.74 percent, an increase of 21 basis points from the previous week. Points remained at 0.4. This is the highest the 30-year FRM has been since July 20, 2006 when it averaged 6.80 percent.
The 15-year FRM averaged 6.43 percent with 0.4 point compared to the previous week when it averaged 6.22 percent with 0.4 point. The last time the 15-year rate was higher was also July 20 when it averaged 6.44 percent.
Adjustable rate mortgages (ARMs) were up a little less dramatically than the fixed-rate products. The five-year Treasury-indexed hybrid ARM averaged 6.37 percent, an increase of 13 basis points from the week ended June 7. Fees decreased from 0.6 to 0.5. This is the highest rate for the 5/1 since July 6 when it averaged 6.39 percent.
The one-year Treasury-indexed ARM averaged 5.75 percent compared to the previous week when it averaged 5.65 percent. Fees were unchanged at 0.7 point. During the week ended July 27, the rate averaged 5.78 percent.
“Mortgage rates moved sharply upward this week, with rates on 30-year fixed-rate mortgages jumping more than 20 basis points, the largest upward movement in over three years,” said Frank Nothaft, Freddie Mac vice president and chief economist. “These moves parallel rising yields on Treasury securities, as concerns about inflation pressures and continuing strength of consumer and business spending have dimmed hopes for an interest rate cut.”
“Higher mortgage rates may weigh on the housing market’s gradual recovery. While demand appears to have stabilized, inventories of new homes remain high, putting downward pressure on construction and home prices.”
However the MBA Weekly Mortgage Applications Survey had a quite different outcome from the Freddie Mac survey. In the MBA report the 30-year FRM actually decreased albeit by a mere single basis point to 6.60 percent with points, including the origination fee, increasing from 1.44 to 1.58.
The average contract interest rate for 15-year FRMs was unchanged at 6.28 percent with points increasing from 1.39 to 1.42.
The biggest change was in the one-year ARM which more closely mirrored the Freddie Mac data, rising from 5.48 percent to 5.70 percent with points decreasing from 1.18 to 1.16.
Mortgage application activity was down 3.4 percent on a seasonally adjusted basis and 4.1 percent unadjusted from the previous week and was up 13.2 percent from the same week in 2006.
Refinancing represented 38 percent of all mortgage activity, the same as the week before, and the ARM market share rose from 18.7 percent to 20.3 percent.
Mortgage rates continued to climb last week according to the results of Freddie Mac’s Primary Mortgage Market Survey.
The 30-year fixed-rate mortgage (FRM) averaged 6.53 percent with 0.4 point, 11 basis points higher than the average for the week ended May 31. In the five weeks since rates began their current run-up the 30-year FRM has increased 38 basis points to reach the highest level since it averaged 6.55 percent during the week ended August 10.
The 15-year FRM averaged 6.22 percent compared to the previous week when the average was 6.12 percent. Fees and points were unchanged at 0.4. This was the fourth straight week of increases for the 15-year which averaged 5.87 during the week ended May 10. The last time the 15-year was this high was during the week ending August 3 when it averaged 6.27 percent.
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) had an average rate of 6.24 percent with 0.6 point, up from last week when it averaged 6.19 percent and 0.5 point. This was also the highest level for the 5/1 ARM since the week ended August 3 when it averaged 6.27 percent.
The one-year Treasury-indexed ARM gained 8 basis points over the previous week’s rate of 5.57 percent. Fees and points increased from 0.6 to 0.7. The last time the 1-year was this high was the week of August 10 when it averaged 5.69 percent.
Frank Nothaft, Freddie Mac vice president and chief economist commented about the report, “Mortgage rates climbed this week owing to market concerns of a tight labor force and wage growth. May’s unemployment rate remained at the second lowest level since May 2001 while average hourly earnings rose. Additionally, unit labor costs increased 1.8 percent over the first three months of the year, tripling the original estimate, and fueling inflation fears.”
“Meanwhile, Freddie Mac released a new purchase-transaction only version of its Conventional Mortgage Home Price Index this week which showed a sharp deceleration in house-price appreciation in the first quarter of 2007. As house prices grow less quickly and household incomes rise, the housing market will likely recover from its current slump, but perhaps not before the end of this year.”
Rate increases for fixed-rate products were even more pronounced in the results of the Weekly Mortgage Applications Survey for the week ending June 8 released by the Mortgage Banker’s Association.
The average contract interest rate for 30-year FRMs was up 26 basis points to 6.61 percent from a week earlier while points, including the origination fee, were down from 1.5 to 1.44.
The 15-year FRM increased to 6.28 from 6.13 percent with points increasing to 1.39 from 1.2.
However, the rate of the one-year ARM dropped significantly, from 5.74 to 5.48 percent with points increasing to 1.18 from 1.14. This represented the first time in recent memory that the yield curve between the 30-year FRM and the 1-year ARM widened to over one full percent.
Mortgage activity as measured by loan applications increased 6.6 percent on a seasonally adjusted basis and 17.4 percent when unadjusted (the previous week was holiday shortened), and was up 16.1 percent compared with the same week in 2006.
The refinance share of mortgage activity remained unchanged at 38 percent of total applications. The adjustable-rate mortgage (ARM) share of activity increased to 18.7 from 17.8 percent of total applications from the previous week.
Among NAR’s major legislative goals is to secure tax relief for individuals who, under current law, must pay tax on any portion of a loan that a lender forgives on a short sale, foreclosure or similar circumstance. Bipartisan companion bills in the House and Senate have been introduced. Senators Stabenow (D-MI) and Voinivich (R-OH) and others have introduced S. 1394. The companion House bill, H.R. 1876, was introduced by Messrs. Andrews (D-NJ) and Ron Lewis (R-KY). Timing for their further consideration is uncertain.
In response to a flood of defaults among borrowers of “piggyback” loans — which are taken out, along with first mortgages, by home buyers with little or no cash for a down payment — lenders are demanding greater documentation on such financing or are dropping this option from their menus altogether. All of this means that investors in bonds backed by piggyback mortgages could endure some pain. Unlike with bonds backed by primary loans, which do not realize losses until the lender sells the foreclosed property, bonds underpinned by piggybacks see the entire balance of the loans written off as soon as the borrower goes into default — after three to six months of missed monthly payments. “Losses have come in earlier than expected and higher than expected,” according to Grant Bailey of Fitch Ratings’ residential mortgage-backed securities group, who says while none of the company’s investment-grade piggyback bonds have taken a loss to date, “it’s probably only a matter of months until they do.”
Mortgage rates continued to climb last week according to the results of Freddie Mac’s Primary Mortgage Market Survey.
The 30-year fixed-rate mortgage (FRM) averaged 6.53 percent with 0.4 point, 11 basis points higher than the average for the week ended May 31. In the five weeks since rates began their current run-up the 30-year FRM has increased 38 basis points to reach the highest level since it averaged 6.55 percent during the week ended August 10.
The 15-year FRM averaged 6.22 percent compared to the previous week when the average was 6.12 percent. Fees and points were unchanged at 0.4. This was the fourth straight week of increases for the 15-year which averaged 5.87 during the week ended May 10. The last time the 15-year was this high was during the week ending August 3 when it averaged 6.27 percent.
he five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) had an average rate of 6.24 percent with 0.6 point, up from last week when it averaged 6.19 percent and 0.5 point. This was also the highest level for the 5/1 ARM since the week ended August 3 when it averaged 6.27 percent.
The one-year Treasury-indexed ARM gained 8 basis points over the previous week’s rate of 5.57 percent. Fees and points increased from 0.6 to 0.7. The last time the 1-year was this high was the week of August 10 when it averaged 5.69 percent.
Frank Nothaft, Freddie Mac vice president and chief economist commented about the report, “Mortgage rates climbed this week owing to market concerns of a tight labor force and wage growth. May’s unemployment rate remained at the second lowest level since May 2001 while average hourly earnings rose. Additionally, unit labor costs increased 1.8 percent over the first three months of the year, tripling the original estimate, and fueling inflation fears.”
“Meanwhile, Freddie Mac released a new purchase-transaction only version of its Conventional Mortgage Home Price Index this week which showed a sharp deceleration in house-price appreciation in the first quarter of 2007. As house prices grow less quickly and household incomes rise, the housing market will likely recover from its current slump, but perhaps not before the end of this year.”
Rate increases for fixed-rate products were even more pronounced in the results of the Weekly Mortgage Applications Survey for the week ending June 8 released by the Mortgage Banker’s Association.
The average contract interest rate for 30-year FRMs was up 26 basis points to 6.61 percent from a week earlier while points, including the origination fee, were down from 1.5 to 1.44.
The 15-year FRM increased to 6.28 from 6.13 percent with points increasing to 1.39 from 1.2.
However, the rate of the one-year ARM dropped significantly, from 5.74 to 5.48 percent with points increasing to 1.18 from 1.14. This represented the first time in recent memory that the yield curve between the 30-year FRM and the 1-year ARM widened to over one full percent.
Mortgage activity as measured by loan applications increased 6.6 percent on a seasonally adjusted basis and 17.4 percent when unadjusted (the previous week was holiday shortened), and was up 16.1 percent compared with the same week in 2006.
The refinance share of mortgage activity remained unchanged at 38 percent of total applications. The adjustable-rate mortgage (ARM) share of activity increased to 18.7 from 17.8 percent of total applications from the previous week
As the problems with subprime mortgages continue to work through the system, GreenPoint Mortgage, a subsidiary of Capital One Financial has announced it is closing 12 of its operational centers and some branch offices with the loss of approximately 440 positions, primarily account executives, underwriters, and loan processors.
The affected offices are located throughout the country including locations in California, Idaho, Texas, Florida, Minnesota, and North Carolina and primarily handle underwriting and processing of loans.
GreenPoint, headquartered in Novato, California, is licensed to conduct mortgage business in 49 states and in 2005 had revenues of $210.4 million. In 2005 it operated 45 offices and employed 2,700 persons.
GreenPoint became a subsidiary of Capital One when the latter acquired North Fork Bancorporation in December of 2006 for $13.2 billion in cash and stock.
Julie Rakes, a spokesperson for GreenPoint said that the decision to close the offices was part of a consolidation of its operations which have been impacted by the fallout from the subprime market and the resulting tightened lending standards. GreenPoint is not a subprime lender, Ms. Rakes said, but its focus is the near prime market, largely the sector called Alt A mortgages. Tightened lending guidelines have reduced the volume of loan originations (some reports have said that the company was a specialist in low- and no-document loans) and have caused liquidity issues. “In order to remain competitive, we have had to review our staffing and make some difficult decisions. We do not take these decisions lightly and we at GreenPoint and Capital One fully realize the impact on our associates.”
She stressed that the actions were primarily a consolidation and restructuring and that the territories which were served by the closed offices will merely be shifted to other operational centers where full service will continue to be provided.
Employees have been offered a severance package which includes outplacement services and employees who wish and are able to do so have been invited to apply to other Green Point offices where vacancies may exist.
It is estimated that at least one third of Muslims will refuse conventional mortgages because they violate shariah law, Islam’s guiding body of rules, by charging interest. But it’s also believed that these potential home owners will pay more to make their mortgages religiously sound.
“They are very loyal to the faith-based products,” said Akram Sheikh, senior vice-president of Anchor Finance Group LLC, in an interview at the Islamic Finance World North America conference in Toronto yesterday. “Their own inner conviction will lead them,” Mr. Shiekh said.
A shariah-approved mortgage could be structured as a co-ownership between the buyer and the lender in which the buyer leases to own — so as to avoid interest payments.
But the rules about what constitutes a shariah-approved deal can be fuzzy and religious scholars are constantly debating the rules.
At least another third of Muslims who are comfortable with conventional mortgages can be convinced to choose one closer aligned to their faith, further adding to the market potential, Mr. Sheikh said.
In Canada, shariah-compliant mortgages are between 100 and 300 basis points more expensive than conventional mortgages. In the United States, however, the spread narrows to between 40 and 100 basis points, according to Rehan Huda, vice-president of business development at Amana Canada Holdings Inc. The gap between Canada and the United States is likely a reflection of the maturity of the American market — a gap that will shrink as Canada catches up.
In addition to fat margins, there is huge potential for growth. About 40% of the 7.5 million Muslims in the United States do not own a house. The market could be immediately worth about US$1.7-billion if financial institutions can convince only 1.25% of these potential home owners to take out a mortgage, Anchor’s Mr. Sheikh said.
The Islamic Co-operative Housing Corporation Ltd. and UM Financial Inc. are the two main players in the Canadian Muslim-mortgage market.
“Demand is so high,” Amana’s Mr. Huda said. “These companies have huge waiting lists.”
Amana is in the process of applying for a Canadian bank license in order to get a piece of this specialized market.
At present, the major Canadian financial institutions are not yet serious players in this facet of finance. By way of contrast, institutions like Fannie Mae and Freddie Mac, two major home mortgage companies, are already participating in the market in the United States, Mr. Huda said.
Some of the Islam-approved mortgages are structured so they can be securitized, giving financial institutions a way to minimize risk associated with carrying mortgages. While these are not currently the most popular form of home financing on the market, Mr. Huda expects them to blossom because they are better aligned with conventional banking practices.
Senate Bill 07-085 is new legislation that has created consequences for those Colorado mortgage brokers who have improperly influenced real estate appraisals. According to the Colorado Department of Regulatory Agencies, this law has made improperly influencing appraisals a deceptive trade practice. The bill defines this unacceptable influence as: compensating, coercing, or intimidating an appraiser in order to influence his or her independent judgment of value on a property. Upon the first conviction any party that violates this law is guilty of a class 1 misdemeanor. The second conviction would lead to a class 6 felony. However, this bill does not limit a Colorado mortgage broker to request that an appraiser consider “additional appropriate information.” Nor does it limit mortgage brokers from providing further detail or explanations of appraisers opinions. Last of all, the bill does state that a Colorado mortgage broker can ask an appraiser to correct erroneous information. Furthermore, it is very important that an appraiser gives his or her objective opinion about the value of a property. Many people have lost their home due to being “upside down” in the property. As well as, this new accountability for Colorado mortgage brokers is very important due to fact that it will hold them accountable to any inappropriate conduct that they could be involved in. If a mortgage broker paid an appraiser extra to exaggerate an appraisal, it puts the bank in a bad position. The reason arises in the case of default and the house has to be taken back the bank could lose tens of thousands of dollars. As the state continues to place the legal framework for appropriate origination practice, it will only continue to strengthen the industry by eradicating those who do not truly care about it.