Mortgages

New Standards for ‘Safe’ Loans

By LISA PREVOST

Mortgages

New federal regulations require mortgage lenders to do what should go without saying: verify that prospective borrowers can pay.

Yet during the housing bubble, many lenders all but abandoned traditional underwriting standards, and the resulting wave of foreclosures has taken years to recede. An “ability-to-repay” rule, adopted last month by the Consumer Financial Protection Bureau and effective January 2014, is intended to protect borrowers from again falling victim to risky lending.

“The rule sets standards for what’s a safe loan and what isn’t,” said Kathleen Day, a spokeswoman for the Center for Responsible Lending, “and it takes away a lot of the tricks and traps that lenders were using to talk people into refinancing.”

Required under the Dodd-Frank Act, the rule prohibits the “no-doc” loans common during the bubble. Before making a loan, lenders must document the borrower’s job status, income and assets, debt, and credit history. Lenders must also calculate a borrower’s ability to pay the principal and interest over the length of the loan. They may not base their calculation solely on the payment due when an introductory “teaser rate” is in effect.

Via The NY Times

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NJ State Leads Nation in Down-Payment Size

BUYERS in New Jersey have the highest down-payment rate in the country, putting down an average 13.71 percent of the purchase price, according to a new report from LendingTree. That surpasses percentages in cities like Washington, and states like New York, Hawaii and California, though only by tenths of a point. In New York, the average down payment works out to 13.47 percent. The national average is 12.24 percent, for the year ending in November.

Of course, very few borrowers pay the average percentage, which is computed by figuring out the average down payment on conventional loans made by banks and government-insured Federal Housing Administration or Department of Veterans Affairs loans, which have down payment minimums of 3.5 percent.

Countrywide, about a quarter of all mortgage loans are government-backed, according to lending specialists.

Full Article Here:

Law of Unintended Consequences – Mortgage Shopping

May 06, 2011 11:30AM By Kenneth R. Harney

What if the federal government spent years designing a tool to help consumers shop intelligently for mortgages — comparing lenders’ rates, terms and total settlement costs — but consumers ignored it or didn’t use it?

No need to speculate here; it appears to have already happened. A new survey of 1,000 American consumers suggests that the “good-faith estimate” disclosures that all homebuyers and refinancers receive at loan application to facilitate shopping are not getting the job done.

Federally mandated good-faith estimates spell out the lender’s charges, all anticipated fees for title insurance, escrow and settlement services, plus other key costs. The most recent version of the GFE, released at the beginning of last year, contains space for consumers to take one lender’s estimates and get competing quotes from as many as three others. It also requires lenders to stand behind their estimates — guaranteeing that some of them won’t increase by even a penny at closing, and others won’t increase by more than 10 percent.

Full Article Here: Via Real Deal

Private Mortgage Insurance Easier to Obtain

WITH private mortgage insurance considerably tougher to get last year than at any point in decades, many borrowers flocked to loans insured by the Federal Housing Administration.

They had little choice. Lenders typically will not offer mortgages to borrowers with down payments below 20 percent, unless the borrowers get insurance to indemnify the lender in the event of a default. And the federal government was the only entity willing to back many of these borrowers during the housing market slump.

Now private mortgage insurance, or P.M.I., could be making a comeback. Some mortgage insurance companies like Genworth Financial and Radian Guaranty have been easing underwriting standards — sometimes eliminating geographic restrictions, in the case of Genworth, for instance, and offering insurance to some borrowers with down payments of as little as 5 percent.

Rohit Gupta, the chief commercial officer for Genworth’s domestic mortgage insurance business, attributed the relaxed standards to a more stable housing market, along with improved financial conditions for the nation’s major mortgage insurance companies.

Full Article Here – Via NY Times

A Tough Time for Self-Employed Borrowers

By BOB TEDESCHI

MOST borrowers are facing a much tougher mortgage environment than a few years ago, but for those who are self-employed or own small businesses, maneuvering through a loan application can be even more arduous.

Before 2008 these borrowers, many of whom have difficulty documenting their income, often used what are known as stated-income loans. Lenders focused on credit histories and earnings estimates, circumventing the need for pay stubs or W-2s.

But during the mortgage crisis, stated-income loans became known as “liar’s loans,” because some borrowers falsely inflated their incomes, and qualified for more than they could afford.

Today, stated-income loans have nearly disappeared. Those still available through regional lenders like Hudson City Savings Bank come at a cost: interest rates around a quarter of a percentage point higher than conventional loans and down payments of at least 30 percent.

The self-employed borrower’s only choice, mortgage brokers say, is to submit two years’ tax returns and hope that they qualify for a conventional loan.

Full Article via NYTs

When Not to Pay Down a Mortgage

By RON LIEBER

This week, the Federal Reserve reaffirmed its intention to stop buying mortgage-backed securities, signaling the likelihood that the mortgage rates you can get today are as good as they’re going to be for a long while. Once the Fed stops buying, after all, rates are likely to go up.

And current rates are quite good. At about 5 percent, in fact, they’re so good that they’ve helped change the age-old debate over whether homeowners should make extra mortgage payments to pay off their debt well before their loan periods are up.

Back when rates ran at 7 or 8 percent, making extra payments offered what amounted to a guaranteed return on your money. When you’re ridding yourself of debt that costs you much less, however, it’s easier to imagine a future when you could more easily earn a higher return by investing those potential extra mortgage payments someplace else.

Meanwhile, at a time when just about everyone knows someone who is unemployed or who owes more on a home loan than the house is worth, keeping extra cash someplace more liquid than a mortgage seems like a safer approach.

So is the case against extra payments closed for good, given that so many people have locked in rock-bottom mortgage rates for the long haul?

The answer depends on two things: how likely you are to leave the extra money in savings and how good it would feel to wipe your debt out years earlier than your mortgage requires.

Full Article