Global finance blog - news, jokes, life…

What mortgage opportunities will you find when you want to buy a house in this post-subprime world?

Regardless of fears and stories you may have heard about tight credit, mortgages are available.

In fact, interest rates are low — 5? percent for a 30-year fixed-rate mortgage, said Paul Lueken, president of the Illinois Association of Mortgage Professionals.

Riskier loans that did not make sense according to traditional underwriting standards are gone or have become very rare.

These include subprime mortgages designed for borrowers with bad credit that require little equity or down payment and little or no proof of income. Rates for these loans often escalate over the years.

Now 30-year fixed loans are popular again, credit scores are important and FHA mortgages are a choice for those who don’t have large down payments.

Adjustable rate mortgages are less popular these days because rates are not much lower than 30-year fixed rate mortgages.

Experts recommend shopping around for rates and meeting with a mortgage representative to examine what options are available.

Remember, besides a down payment, with most mortgages there are $1,500 to $3,000 in closing costs and a few months of payments in savings required as a reserve.

FHA

If you are a first-time buyer, consider an FHA mortgage, said Frank May, senior loan consultant with Green Valley Mortgage in Bloomingdale.

May said such loans are good for borrowers in the 620 to 680 credit score range, which would require higher fees or interest rates with conventional mortgages. Some FHA borrowers can have credit scores as low as the high 500s.

The very best credit scores are above 800, May said.

FHA (or VA loans if you are a veteran) have advantages:

• A borrower can pay as little as 3 percent for a down payment, which can come from either the buyer or as a gift from a relative. Closing costs are additional but can be paid by the seller.

• Generally, FHA borrowers should have housing expenses at or less than 29 percent of gross income and minimum payments for all debt at 41 percent. However, these numbers are flexible, and the FHA Web site, www.fha.gov, urges home buyers to consult with a mortgage professional.

However, such loans also have drawbacks:

• A mortgage must be $275,200 or lower. The median price for homes in the Chicago area in November was $247,000, according to the Illinois Association of Realtors.

There is talk of Congress raising the limit and lowering the cash requirement.

• If you have a down payment in the 20 percent range, you might want to get a conventional mortgage because mortgage insurance is still required with FHA loans.

Freddie and Fannie

So-called conventional loans sold to Freddie Mac and Fannie Mae are the backbone of American mortgages.

With such a loan, a mortgage cannot be more than $417,000.

If your credit score is good — but between 620 and 680 — you will pay a slightly higher interest rate and closing costs will be increased by hundreds or a few thousand dollars, May said.

A 30 percent down payment would negate less-than-perfect credit.

Borrowers also pay more if the down payment is less than 20 percent, but it can be as low as 5 percent, May said.

A conventional borrower should keep housing expenses within 33 percent of gross income and all debt within 38 percent bad credit payday loans. These guidelines are flexible depending on circumstances like great credit, assets, family size and expenses, or expectations of increased income.

Jumbo

What if you can afford a more expensive home — say one with a mortgage higher than $417,000?

You will need to have good credit and a down payment of at least 10 percent, but 20 percent is better, said Lueken, who is also president of 1st Advantage Mortgage in Lombard.

A credit rating should be 680 or higher, May said.

Such a loan also will cost more. The interest rate will be about a half-percentage point higher than a conforming mortgage, he said.

This is one area where second mortgages can be allowed, said Paul Diamond, executive vice president for sales at Flagstar Bank in Gurnee.

His company did a loan for a buyer in Chicago’s Trump Tower for which the person got a conventional loan, and a second mortgage for part of the amount above the conventional limit.

Credit dings

Then there are those people who are going to find it very difficult to get a mortgage. Experts recommend their best choice is to work for a year or so to fix their credit rating.

Nonprofit agencies like the DuPage Homeownership Center in Wheaton offer advice on how to do this.

Subprime mortgages for people with bad credit have become scarce.

Etc.

It is difficult for people who have not established credit or cannot produce tax returns that reflect all their income to obtain mortgages.

Self-employed people can still get what are called stated-income mortgages without providing all their tax information, May said.

Good credit is essential, and the rates might be a quarter- to a half-percentage point higher than with conventional mortgages.

People who fall below loan guidelines for homeownership still have some options.

For example, through its House America program, Countrywide offers ways to count extra income and help people with higher-than-average housing expenses or debt.

Counties and other local governments also have programs to help low-income buyers.

Some of the now-disappearing loans for people without income they can document made sense, Lueken said.

For example, someone with a large down payment and cash in the bank but no current income, which can happen in divorces, could be a good risk, he said.

The mortgage association is trying to change Illinois laws that eliminate all loans for which borrowers do not have to prove their income.

Because of new state laws starting July 1, FHA borrowers will not be able to take advantage of easier methods to refinance into a lower rate, he said.
Sourse

FRESH interest rate cuts may be needed to shore up US economic growth amid a protracted housing slump and financial market turmoil, Federal Reserve chairman Ben Bernanke said overnight.
The central bank chief said the outlook for economic growth in 2008 had “worsened” because of the housing meltdown, rising oil prices and weakened stock markets.

“In light of recent changes in the outlook for and the risks to growth, additional policy easing may be necessary,” Mr Bernanke said during a speech in Washington.

“We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.”

Mr Bernanke said the Fed will remain “exceptionally alert and flexible.”

Economists said Mr Bernanke’s remarks suggested the central bank will slash interest rates by more than expected at a two-day meeting on interest rates scheduled for January 29-30.

Stephen Gallagher, an economist at Societe Generale, said Mr Bernanke had raised “the odds for the larger 50-basis-point move”.

Most Fed-watchers expect the central bank to cut its key federal funds rate, currently at 4.25 per cent, at its first meeting of the year.

The Fed has trimmed borrowing costs by a full percentage point since September as concerns about the mortgage and credit markets have spiked.

“Bernanke’s comments indicate the Fed had done nothing to dissuade the market from an expected 50-basis-point rate cut later this month,” said Marc Chandler, an analyst at Brown Brothers Harriman.

Wall Street appeared to welcome Mr Bernanke’s stance, as the Dow Jones Industrial Average rose to around 12,818.14 points in mid-afternoon trading.

The Dow has plummeted from a record high of 14,164.53 points in early October.

“Financial markets had already raised the odds of a 50 basis point cut in the target federal funds rate to near 75 per cent, and Mr Bernanke’s speech did not dissuade the markets from the view that this is the most likely outcome,” said Brian Bethune, an economist with Global Insight.

Economists at Goldman Sachs warned in a briefing note Wednesday that the world’s biggest economy appears to be “falling into a recession.”

Mr Bernanke said the Fed is not forecasting a recession at present, but is anticipating slower economic growth.

The central bank chief said the housing downturn had shaken the financial markets which he described as “fragile” and made big banks more cautious about lending http://payday-faxless.com. Such strains would continue to pose economic risks, he said.

He said the housing market’s woes and “the subprime crisis,” home loans granted to Americans with poor credit, had heavily dented the earnings of some major banks, but stressed the “banking system remains sound”.

Mr Bernanke said the Fed’s new system of credit auctions, which have helped boost liquidity in the financial market, appears to have eased a wide-spread credit crunch.

The Fed chief also said the latest survey on the job market had revealed slower employment growth and that this could affect consumer spending, especially if companies cut back on hiring.

Consumer spending is a critical economic motor accounting for some two-thirds percent of gross domestic product (GDP).

Mr Bernanke said recent economic news suggested “the downside risks to growth have become more pronounced”.

“The demand for housing seems to have weakened further, in part reflecting the ongoing problems in mortgage markets. In addition, a number of factors, including higher oil prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending as we move into 2008,” he said.

Some economists believe the central bank will have to cut rates as low as 2.50 per cent by the end of 2008 to keep the economic ticking along.

Sourse

Outside auditors charged with overseeing the State Board of Administration knew more than a year ago that an internal report had red-flagged the agency for not adequately supervising the risky investments made by its money managers.

The SBA’s internal auditor, Flerida Rivera-Alsing, reported the findings in fall 2006 to the three-person panel of inspectors general who in turn are answerable to the governor, attorney general and chief financial officer, officials said.

Among the audit’s findings: the agency lacked adequate risk-management reviews, senior managers weren’t involved in setting investment goals, and the agency relied too heavily on a handful of large brokers to make investments.

“There was lots of discussion about that particular report because it did raise some concerns,” Melinda Miguel, chief inspector general to Gov. Charlie Crist, said Monday.

Miguel chairs the SBA’s Audit Committee, which last month began an investigation of the agency’s investments in shaky, mortgage-backed securities that prompted a $14 billion wave of withdrawals in November from a local government investment pool. A withdrawal freeze to stop the run forced some cities and schools, which used the fund to invest spare operating funds, to scramble to pay salaries and bills.

Miguel, officials from the agency and Chief Financial Officer Alex Sink were grilled Monday by a panel of legislators who wanted answers about how those mortgage-backed investment decisions were made.

Lawmakers on the Joint Legislative Auditing Committee questioned why the SBA and auditors who oversaw the agency couldn’t say what had been done to fix problems spotted by the 2007 audit.

“Who was minding the store, and why didn’t we see the red flags in March and get on them?” said Rep check cash advance. Susan Bucher, D-West Palm Beach.

Miguel, who is heading up the new audit, said she recalled discussing the slow progress of the audit in late 2007, and that copies were forwarded last spring to all three trustees who oversee the SBA. Although the agency hasn’t said what fixes it made, Miguel said the process shows investigators were keeping an eye on the agency.

“It shows we weren’t asleep at the wheel,” she said afterward.

Acting SBA Executive Director Bob Milligan said Monday he has been trying since last week — when the Orlando Sentinel first reported the existence of the audit — to find out what the response to it was and asked for patience while he gets answers.

“Some things have been acted upon — not all,” he said. “I’m trying to sort through that right now.”

In the final audit finished in March, SBA managers wrote they would “consider” most of the 18 “high priority” recommendations. A follow-up report that was supposed to be produced three months ago highlighting what was done has yet to be produced.
Sourse

Wisconsin’s largest bank, Marshall & Ilsley Corp., better known as M & I, expects to write off $195 million in bad debt in its fourth quarter, compared to only $15 million last year, largely resulting from the downturn in the housing and real estate market. The delinquent loans are concentrated in Arizona and Florida residential construction and land development, the bank said.

The debt is one of “several unusual events which will impact M&I’s financial results for the quarter and year ending December 31, 2007,” said the bank’s Dec. 17 statement.

M&I will offset the expected mortgage losses with a one-time $526 million gain and $1.7 billion capital infusion from the spinoff of its former financial technology arm, Mentavante Technologies.

Because the credit market is “currently unfavorable,” M&I also has retired $1 billion of Puttable Reset Securities, to reduce future borrowing costs cash advance loan. M&I incurred a one-time after-tax charge of $48 million for retiring the debt, but expects to recover it through lower financing costs over the next three years.

Milwaukee-based M & I also expects to pay $5 million as its share in the proposed settlement of an anti-trust lawsuit brought by American Express against Visa. M & I was not named individually in the lawsuit but has exposure as a Visa member bank.

“Despite these challenging market conditions, we are fortunate to have one of the strongest capital positions in the industry,” M & I president and CEO Mark Furlong said in a statement. “We believe we are well positioned to weather the downturn in the real estate market.”
Sourse

President George W. Bush and Treasury Secretary Henry Paulson have unveiled their subprime mortgage relief plan, which they call the “New Hope Alliance.” The corporate media coverage of Bush’s Dec. 6 announcement was massive. Sadly, the number of families whom this plan will help is miniscule.

Subprime mortgage loans are characterized by interest rates that start at 1 percent to 2 percent but soon “reset” to much higher rates. The Bush administration claims its plan will help families avoid foreclosure by freezing interest rates on some subprime loans for the next five years.

The administration has attempted to portray its mortgage relief plan as a lifeline for at-risk borrowers. But the plan is more akin to a wish list for the very same banks and mortgage lenders whose insatiable greed helped create the currently unfolding economic crisis.

The Bush-Paulson plan includes a maze of eligibility requirements that are designed to disqualify all but a handful of the more than 2 million households facing foreclosure. Housing advocacy groups estimate that less than 2 percent of subprime borrowers nationwide would qualify for a rate freeze under the administration’s plan. And it provides no help for the growing number of renters across the country who have been left homeless since their landlords entered foreclosure due to a subprime loan.

The Bush administration has ensured, however, that the plan is agreeable to mortgage lenders and Wall Street banks by making lender participation in the relief plan completely voluntary. In other words, the banks and mortgage lenders don’t have to freeze interest rates if they don’t want to. They are likely to do so only if they decide that the housing market is so glutted that going the foreclosure route could leave them stuck with property that can’t be sold.

This hollow “relief” plan stands in stark contrast to the hundreds of billions of dollars in bailout money that the Federal Reserve has handed the Wall Street banks and investment funds over the past few months.

These bailout funds have come in the form of massive liquidity infusions and central bank purchases of collateralized debt obligations http://payday-nofax.com. CDOs are asset-backed securities that are tied to mortgage loans. Banks such as Citigroup and Bank of America hold this now-worthless paper in massive quantities. The Federal Reserve has been attempting to bail the major banks out of their crisis by essentially taking the worthless paper off the banks’ balance sheets.

Working-class households are entering into foreclosure and bankruptcy at levels not seen since the Great Depression, yet it is the rich capitalist investors and bankers who are given hundreds of billions of dollars in rescue funds.

Across the country, once-vibrant working-class communities have turned into near ghost towns as “For Sale” signs and boarded-up windows have become ubiquitous. Workers are also suffering under the weight of rising food and energy costs at the same time that the economic downturn is intensifying the bosses’ drive to slash wages and cut jobs. Yet the only relief plan the president can conjure up is to tell workers to “hope” that banks will voluntarily freeze interest rates on some mortgages.

Recent polls suggest that the economy is fast becoming the number one issue on the minds of potential voters in the 2008 election. Eager to garner votes, the Democrats have also been outlining proposals for mortgage relief. It’s part of a debate within the ruling class over how to smooth over some of the massive fallout from the currently unfolding crisis.

“Relief” for the working class will not come through the empty proposals of ruling-class politicians. It takes the organized resistance of the multinational working class against the banks and swindlers on Wall Street who are robbing workers of their homes. Democrats and Republicans can debate back and forth endlessly over their mortgage plans, with little consequence. But millions of workers in the streets demanding a moratorium on foreclosures, layoffs and wage cuts would create the potential for truly lasting relief.

News Sourse

Mortgage applications for the week ending Nov. 30 were up 22.5 percent from a week earlier, the Mortgage Bankers Association said today, as interest rates on 30-year fixed-rate mortgages fell below 6 percent and loan refinancings rose dramatically.

The average contract interest rate for 30-year fixed-rate mortgages fell to 5.82 percent, down from 6.09 percent the week before. That’s the rate for a loan with an 80 percent loan-to-value (LTV) ratio and an average of 1.07 points, including origination fees.

The average contract interest rate for 15-year fixed-rate mortgages fell to 5.38 percent, down from 5.69 percent the week before, with points decreasing to 1.12 from 1.13 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year adjustable-rate mortgages (ARMs) rose to 6.28 percent, up slightly from 6.24 percent the week before, with points increasing to 0.99 from 0.96 (including the origination fee) for 80 percent LTV loans.

Falling interest rates were accompanied by a surge in applications, particularly refinances, the MBA reported in its Weekly Mortgage Applications Survey.

The market composite index, a measure of all mortgage loan application volume, was 791.8, an increase of 22.5 percent on a seasonally adjusted basis no teletrack payday loans. On an unadjusted basis, the index was up 24.2 percent compared to the same week a year ago.

The seasonally adjusted refinance index, which measures applications for refinance loans, increased 31.9 percent from a week earlier, to 2761.3, outstripping a 15.2 percent increase in the purchase index, which rose to 464.3.

The refinance share of mortgage activity increased to 56.0 percent of total applications from 51.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 11.6 from 14.6 percent of total applications from the previous week.

The seasonally adjusted conventional index increased 21.9 percent from the previous week to 1138.4, and the seasonally adjusted government index increased 27.8 percent to 214.0.

The MBA also issued revised numbers for the week ending Nov. 23, saying an error by one reporting company inflated the purchase index reported Nov. 28 while underreporting loan refinancings.

The refinance index was 2093.0 rather than the 1862.9 originally reported and the seasonally adjusted purchase index was 403.2 rather than the 450.1 originally reported. The seasonally adjusted market composite index for the week ending Nov. 23 was 646.3 rather than the 652.5 originally reported.

Sourse