Refinance Options Limited for Subprime Arms
A private bit of research performed by Bank of America aims to identify the refinance options available for borrowers with subprime adjustable rate mortgages who hope to be able to refinance in order to afford the payments on their loans as they payoff mortgage notes.
Calculatedrisk reports that:
The analysis looks at both credit standards and current interest rates on alternative loans, and concludes that refinancing into a new subprime loan or, for those borrowers whose credit profile has improved since loan origination, a new Alt-A loan, is essentially not an option. The interest rates on new subprime and Alt-A, given the current environment, are simply too high to offer any improvement in the monthly payment.
The conclusion of the report? Roughly one third of home owners stand a chance of potentially qualifying for near prime alternatives as a means of getting out of their current loans. Most of their options lie with being able to qualify for government backed loans, as few private companies will touch subprime nowadays. All the rest seem to have few choices beyond staying with their adjustable rates, which unfortunately, tend to adjust upwards.
Housing Crisis Continues Unabated
The end sadly, in the case of the US housing market’s decline, is not near. Rather, the decline and the issues faced by homeowners seems as if it will continue downward with few bright prospects for the future.
The Sacramento Bee writes of the victims:
In a sense, New Century and other fallen lenders — as well as homeowners who are losing their properties — are victims of history. Until now, most experts say, the housing market had never undergone a serious swoon as long as the economy was still growing. Lenders took comfort in the argument that only a recession could do major harm to the housing sector and ignored signs that the market was going cold.
With such a downturn, many have been ignoring the benefits of obtaining a 2nd mortgage as a hedge against the steady housing decline.
As lenders continue to close up, it makes it more difficult for borrowers to find financing options, and as a result they default causing more lenders to close. The vicious cycle continues, hurting lender and borrower alike, and keeping the crisis quite alive.
Allstate Home Loans Shuts Down Without a Peep
Allstate Home Loans, shortly after being sold, has quietly shut down without much in the way of an announcement. The reason for the shutdown becomes increasingly clear when one reviews the sort of loans they funded:
TheTruthAboutMortgage writes:
Allstate Funding specialized in Alt-A as well as some subprime loans, averaging $50 million a month in fundings, with a high of $70 million in its best month.
Most of the loans were high-risk, high-profit, with the bulk being stated income, 100% financing, investment properties, with credit scores as low as 620, competing with the likes of New Century, Fremont, and Argent.
That’s quite possible on of the worst funding strategies I’ve ever read about. 100% financing of investment properties based on stated (often inflated or false) information provided by a client with a low credit score.
Investment properties, particularly as their value declines, and rents fall, become incredibly speculative. Sadly, failed speculation often leaves investors no choice but to ’send the lender the keys’ as refinancing to a second mortgage just isn’t possible in most of their cases.
Home Prices Fall More than 3% Nationally
In a record drop, Standard & Poor is reporting that housing prices have fallen 3.2% in the second quarter of 2006, a massive decline from a year ago when they grew at 7.5%.
“We are fast approaching the rate of price decline seen at the end of the 1990-91 recession, and the odds strongly favor blowing past this mark in coming months,” wrote Joshua Shapiro, chief economist for MFR Inc. “With supply overhang growing and mortgage financing tougher to obtain, home prices are going to soften considerably further in the quarters ahead.”
If would appear that the above quote summarizes the attitude most experts have with regard to the situation the current housing market faces. Grim, and likely to continue to decline.
As prices continue to fall, and loan rates skyrocket, many homeowners find themselves owing more than their home is worth, and so selling the home in order to satisfy their mortgage debt no longer remains an option. Such a situation, particularly with high mortgage payments, makes the prospect of one proceeding to pay off mortgage loans that adjust fairly grim.
Avoiding Foreclosure Scams
Facing foreclosure is a wild and painful time, one which brings with it overwhelming feelings of desperation, confusion, and despair. As such, it’s often the perfect time for a scam artist to attempt to prey on the vulnerability felt by the soon to be foreclosed.
When consumers are frantically trying to save their homes, they look for someone to trust. That’s where foreclosure scam artists step in. Rescue companies search public records and see your home is set to be foreclosed. They contact you by phone or email– sometimes even in person– and claim they can renegotiate the terms of your mortgage with your lender.
They charged high fees for their services and offer a money-back guarantee that they can stop the foreclosure. Most of what you hear from these companies is a lie!
Avoiding foreclosure can often be avoided here in Utah with a Utah home equity loan long before a payment gets past due. Careful financial planning is key here. If you can’t afford your payments one month, you should move carefully to stem the tide, and prevent a foreclosure early on.
Countrywide Bank Increases Interest Rates
In a perhaps desperate attempt to remain liquid, Countrywide has further increased the interest rate paid on savings accounts to 5.50% with a minimum $50,000 balance. Such accounts allow an individual to deposit up to 2 million dollars and enjoy high interest rate payments. It would appear Countrywide is then able to use such cash to handle its liquid cash obligations in order to continue lending.
While many are perhaps inspired by such a high rate to place their entire savings in such an account, one should always proceed with caution before depositing more than $100,000 in any one savings account due to FDIC limits. Should Countrywide’s attempt to get out of debt fail, the bank could potentially close up shop with depositors out any funds beyond the $100,000 FDIC insurance offered.
Nonetheless, such high interest rates certainly seem indicative of rising interest rates across the board. Only a few years ago, one could easily find mortgages that offered rates for less than 5.50%, often for periods up to 30 years. Lesson learned? One should always refinance when rates bottom in the future. Today’s high rates are certainly heading much higher than they were before.
Wells Fargo Announces End to 100% Financed Loans.
It would appear that Wells Fargo is doing its best, albeit a bit late, to get out of the prime lending market.
BlownMortgage reports:
“Wells Fargo will announce the elimination of 100% financing for all credit grades, loan sizes and document types shortly. This move acknowledges the recent downturn in the housing market and the lack of investor confidence in the US housing market. “
Apparently they’re scrapping every one of their 100% financed loans with the exception of ones known as 80-20 loans in which a bank typically reduces its risks by requiring another bank loan 20% of the mortgage total. Upon contacting Wells Fargo, it would appear that they will also continue to fund certain low down payment loans backed by government programs as well.
With lending standards continuing to get more and more strict, it seems likely that other lenders will soon follow suit in eliminating such 100% financed loans. This appears reasonable, as a loan with no down payment is an extremely risky loan to make.
Homeowners struggling to afford another home, or get a loan may wish to explore a home equity line of credit as a method of affording part of a home’s price.
Finding the Right Neighborhood for Longterm Appreciation
Finding the right neighborhood is one of the most important aspects of home buying and one that is all too often dismissed by buyers in a hurry to buy.
If you plan to own a home for at least ten years, then you’ll definitely want to live in a place you enjoy. If you plan to payoff mortgage loans, then chances are you’re going to be in the home for some time. Also keep in mind; prized areas sell for a good deal more than homes in normal ones. Appreciation is one of the fastest ways to develop net worth. The right location will guarantee faster appreciation, and a greater stability in a down market.
Avoid buying the nicest home in a neighborhood. A mansion in an otherwise terrible area will struggle to be worth much more than the homes around it regardless of its square footage. In fact, buying the worst home in a nice neighborhood is in fact a superior strategy, as it will stand a good chance of being worth close to the other homes around it.
Also look for a location full of single family homes with 3 or 4 bedrooms. Regardless of the state of the housing market, such homes will always be in demand by families.
Countrywide Chief Proclaims Party Over
Despite a recent partial bailout for Countrywide by Bank of America, it would appear from the words of their Chief Executive that the lender is far from being ‘out of the woods’ yet.
One article by Liz Rappaport quotes:
“When you have this level of delinquencies and foreclosures, there is no way it doesn’t have an impact on psyches and wallets,” said Mozilo.
“I don’t see the light here,” he added, noting that the current financial panic is among the worst he’s seen in 55 years.
With such dire reports from the lender’s leadership, Wall Street seems to be sharing the concern, with the stock’s recent rebound falling back down.
While the lender is certainly large enough to weather most storms, a wave of desperation seems to have hit every major lender in the industry as investors continue to shy away from purchasing sub prime loans at any price. It would appear that the only ones at this time willing to put any money into such loans are the home owners themselves as they struggle to pay off mortgage loans.
No matter what the outcome, it appears certain that getting a home loan in the future is going to be quite a bit more difficult.
Purchasing a New Home Safely in Utah
New home inventory is quickly piling up as the nation’s demand for new homes plummets. Builders as a result are increasingly offering tempting discounts to buyers. When considering purchasing a new home one should act carefully, as it is rarely in a builder’s own financial interests to spend more than necessary on a new construction.
An article written by Jennie Phipps of Bankrate.com warns:
About 15% of the 2 million dwellings constructed each year in the United States have at least one construction defect that demands repair, says Alan Mooney, president of Criterium Engineers, an engineering firm with offices in 35 states. Criterium’s primary business is new-home inspection.
“Buying a new home is a scary process,” says Mooney.
In order to best protect oneself in purchasing a home in Utah, one should get some sort of warranty coverage or insurance policy, as well as carefully photograph their property prior to moving in.
Carefully examine your purchase contract, preferably with an attorney, and avoid getting a loan from the builders themselves. Looking elsewhere for a home loan or a Utah home equity loan will generally provide better rates as well as terms.