Tml-mortgages asked:


Refused credit mortgages set to “grow and grow”

14/08/2006 16:25:00

The sub-prime and near-prime mortgage market is tipped to grow and grow following new research.

A survey commissioned by Alliance & Leicester indicates greater demand for refused credit mortgages could be forthcoming, with four in five brokers expecting the market to grow.

The top reasons for borrowers to seek out a sub-prime or near-prime market are defaulting on debts or credit cards payments or simply having a bad credit rating, the research found.

Figures indicate that Britons are increasingly struggling to manager existing debts, suggesting that the potential market for sub-prime mortgages could swell.

Around two lenders in five report that the typical sub-prime customer is likely to be struggling financially, with many on a low income.

More than 85 per cent of brokers also report that customers are now realising that a sub or near prime mortgage can help rebuild a poor credit score.

Mehrdad Yousefi, head of intermediary mortgages at Alliance & Leicester, said: This market is becoming increasingly competitive with more lenders offering these specialised mortgages.

It is encouraging to see that brokers say their clients know the value of these type of mortgages and that it is a good way of getting potential buyers on the housing ladder while enabling them to repair their credit history by maintaining regular payments on their financial commitments.

Datamonitor estimates that 9.1 million people were refused credit by mainstream lenders in 2005, further indicative of potential growth in the refused credit mortgage market.

Personal debt has already crossed the £1 trillion barrier and the rising insolvency rate suggests that borrowers are struggling to cope, indicating a growing demand for refused-credit mortgages in the future.

As traditional lenders were tightening their criteria, the refused credit market could prove ever more attractive and other high street lenders were also likely to start catering for those with a ’slightly lower credit profile’.

As more lenders capitalise on this growing market, the increased competition could see better deals for mortgage holders.



Troy

Robert Griffin asked:


Many homeowners are concerned that the declines in the housing market will adversely affect the reverse mortgage market. Since home equity has dropped substantially and will continue to into the unforeseeable future, concerns about new reverse mortgages and existing one have arisen.

In a reverse mortgage, the bank makes payments to the homeowner instead of the homeowner making payments to a bank. To qualify for such a mortgage, a senior must be at least 62 years old and have equity in the home. Retirement savings diminished by stock-market declines are a big reason for renewed interest in reverse mortgages. It gives seniors some breathing room while their retirement holdings become available.

Those who already have a reverse mortgage should not worry about being poorly affected by the housing slump. The terms of a reverse mortgage remain the same through the life of the loan. A line of credit or monthly payments will continue to be available according to the terms of the loan. However, if for those who have not yet taken out a Reverse Mortgage, the declining home values could adversely affect their options. Borrowers may find that their homes are worth much less than they believed, and they may be unable to qualify.

A federally insured reverse mortgage is a good option right now, as it enables senior citizens to take money out of their homes. The number of reverse mortgages backed by the government in March and April rose from nearly 20% since last year. In April alone, the government insured 11,660 reverse mortgages, the highest monthly total since the government-backed program began in 1990. By contrast, the number of new home-equity loans, which similarly allow homeowners to tap the equity in their homes, fell around 70% in the first quarter from the prior-year period, according to Inside Mortgage Finance.

Increasingly, seniors are using reverse mortgages to supplement their retirement savings, which have been decimated by stock-market losses. At the same time, more seniors now qualify for a reverse mortgage since Congress in February raised the maximum home value that seniors can borrow against to $625,500 from $417,000. The bill also capped reverse-mortgage origination fees at 2% on the first $200,000 and 1% on any amount over that, not to exceed $6,000.

Though the FHA doesn’t make any loans, it insures lenders against any losses on federally insured loans, called Home Equity Conversion Mortgages. No one can fully predict the full extent of loss in the reverse mortgage business, but the Department of Housing and Urban Development recently asked for nearly $800 million in taxpayer money next year to counter deteriorating home prices. It is the first taxpayer subsidy in the 20-year history of the program.

Since a tough housing market has made it harder for seniors to sell their homes, a reverse mortgage may be an ideal solution.  If you would like an information packet or would like to set up an appointment with one of our Reverse Mortgage Specialists, Please call (866) 683-3690 or view our online Reverse Mortgage Information.



Phillip

Rob Blake asked:


Mortgage Banks and Brokers everyday are closing home buyers and refinancers at a higher rate than they deserve! This artificial upping of the rate and the revenue created by doing so are hidden from the customer. This hidden ripping-off of the mortgage consumer is called Yield Spread Premium overchaging if the loan is originated by a broker and Service Release Premium overcharging if the loan is originated by a mortgage bank…you know, Countrywide, Wells Fargo, or Bank of America.

Prof. Howell E. Jackson, Associate Dean for Research and Special Programs Harvard Law School, testified before the Senate Banking Committee on January 8, 2002, and testified to the following:

“…the vast majority of borrowers pay yield spread premiums - on the order of 85 to 90 percent of all transactions. Moreover, the average amount of yield spread premiums is quite substantial, on the order of $1,850 per transaction, making these payments the most important single source of revenue for mortgage brokers. In other words, contrary to the Department’s assumptions, yield spread premiums are not an optional form of financing made available to a limited number of borrowers with special needs. Rather these payments constitute by far the largest source of compensation for mortgage brokers and are imposed on almost all borrowers who obtain mortgages or refinancings through this segment of the industry.”

If Professor Jackson testified on Service Release Premium that mortgage banks receive, I’m sure his statments would echo the same as above.

The Governments own numbers, which are grossly understated I might add, say this Yield Spread and Service Release premium overcharging costs American home owners $16,000,000,000 a year…each any every year!

To beat these guys at their own game, you simply must learn how they price out a loan including this rip-off! Reading this article is a good start, however, the complete guide to eleminated Yield Spread and Service Release Premium overcharging is outlined in my ebook, Mortgage Secrets Exposed!. See the resource box at the bottom for more information.

Understanding how to price out a loan by reading Mortgage Bank Rate Sheets is really quite easy though it may seem intimidating at first. It will all become clear as you read this narrative on how we do it at our company, Integrity First Mortgage, Inc. in Denver. So, settle in and take the 10 minutes to read this article and understand this practice.

Doing so will save you 10s of $1,000 over your lifetime owning and financing houses. A small price to pay indeed!

Here we go!

All of mortgage lenders we work with at Integrity First Mortgage, Inc., furnish us with rate sheets on a daily basis via the internet or by fax. We follow the rates several times a day in order to properly quote the best available rate and term to our customers. When reviewing the rate sheet, we also determine which rate will NOT create a rebate from the lender known as a Yield Spread Premium. We believe upping your rate to make additional revenue over the 1% origination fee is deceptive, dishonest, and a bad business practice. And believe me, other companies do not hold that opinion.

Let us use the rate sheet data below to demonstrate how we determine the rate that we quote to our borrowers. We will also show you using the corresponding HSH Survey data how other Brokers and Banks are making enormous undisclosed profits in the form of Yield Spread Premium.

Lender Rate Sheet (see below ) data was collected from a real Wholesale Lender (Ampro Mortgage ) Rate sheet dated 03/10/2006. You can confirm the HSH data is real as well by visiting HSH dot com.

30 Year Fixed

Rate 15 Day 30 Day 45 Day

5.750% 1.350 1.475 1.600

5.875% 0.611 0.736 0.861

6.000% 0.039 0.164 1.826

6.125% (0.392) (0.267) (0.142)

6.250% (0.773) (0.648) (0.523)

6.375% (1.180) (1.055) (0.930)

6.500% (1.623) (1.498) (1.373)

6.625% (2.029) (1.904) (1.773)

6..750% (2.280) (2.155) (2.030)

HSH ASSOCIATES The Nations Largest Publisher of Mortgage

The Nations Mortgage Market: Average Rates for Residential Mortgages Week ending March 10, 2006

Owner-occupied 1-4 Family and Condos: Previously Occupied Homes Source: HSH Associates

National Ave. SURVEY CONVENTIONAL MORTGAGES

30 Yr

6.51%

In our example, we will quote our borrower a 30 year rate that carries a lock period of 30 days. If we are seeking to earn only a 1.0% origination fee and NO yield spread premium (back end fee), we will quote the rate of 6.000%. According to the rate sheet, 6.000% actually costs .164% Discount payable to the Lender not Integrity First Mortgage. On this rate sheet, 6.000% is as close to par pricing as we can get. As you can see the next higher rate, 6.125% creates .267% of Yield Spread Premium and that is not good. (YSP is shown in (.267) parenthesis). So with this example, look at the costs for a loan at 6.00% with us.

Rate: 6.000%, $200,000 Mortgage Loan x 1.0% Broker Origination Fee + 0.164 Discount = $200,000 x 1.164% = $2,328.00

Now we will show how everyone else does it! First realize that banks and brokers do not usually quote you the rate you will close with. They will bait-and-switch with low-ball rates and artificially lowered closing costs to get you to apply with them. Then on closing day, the rates and costs are higher than you expected, but they claim their Good Faith Estimate was in deed just that…an estimate. You have the moving van idling in parking lot, so you sign. They count on the fact you are painted into a corner and have but one option…sign.

How do I know this to be true?

One reason is 15 years of asking folks, “How did your last loan go…any surprises at closing?” About 85% of those folks answer, “Yes” to that one. Second, every closing exit poll conducted by Fannie Mae and Freddie Mac show the same results. But the most compelling reason is up above on HSH Survey data. It shows for the week ending Mar 10, 2006, the National Average interest rate on CLOSED Loans was 6.51%!

(NOTE: HSH has an agreement with their 2000+ survey participants to give them closed loan rates, not lobby rates or other teaser rates.)

I guarantee you that all those folks did not sign a Good Faith Estimate at application showing them 6.5% because that is not the rate advertised all over the news, radio ads, and the internet over the prior 4-6 weeks when these folks were applying. The loan officer for the bank or broker could not very easily advertise 6.00% and have them sign at 6.5%…everyone would balk. So they show them 6.00%, get them to sign, and then sometime during processing or just at the closing, the borrower is informed his rate had to be adjusted upward. The loan officer will get very creative on explaining all the reasons why this had to happen, but suffice it to say, this was the plan from the beginning. So with this rate sheet data, let us look at what they made.

Rate: 6.500%, $200,000 Mortgage Loan x 1.0% Broker Origination Fee +1.498 YSP = $200,000 x 2.498% = $4,996.00

The banks and brokers simply cannot forgo the Yield Spread Premium overcharging because at the very least it DOUBLES their income for each loan!

Now with this tutorial and our daily rate sheet updates you can protect yourself from the most egregious consumer rip-off in history.

Good Luck!



Caroline