Mortgage Rate News

When my husband and I were looking for a home last year, it was just as the subprime thing was starting to come to light. No crisis, though. Mortgage interest rates were just below 6% and it was still possible to get a home with no down payment. We have a good credit score, and resonably good income (albeit 1099 income). And as I shopped around for mortgage lenders, I got some pretty wild offers:

1. Approval for $350,000, even though we worked out that we could comfortably afford a $200,000 home mortgage. (We ended up with a mortgage for $187,000.)
2. An awesome teaser rate of 4.9% for five years.
3. Interest-only loan, good for seven years before starting to pay on the principal.
4. A 40-year mortgage on a $400,000 home, at a variable rate (set low for the first three years at 4.5%).

With craziness like that, it is no wonder that many people came to believe that they could get a bigger, more expensive home with little to no trouble.

What a difference a year can make.

We’re extremely glad we bought last year, since our fixed-rate mortgage loan, which featured a down payment, would never be approved this year. Even with our credit and a down payment, the fact that nearly all of our income comes from my freelance writing makes us seem risky in the current climate. So, while we probably would have been approved for something, we would not have been approved for the house we are in.

I think a lot of people trying to take advantage of the buyer’s market right now are having to scale back their mortgage loan expectations. Rather than getting nearly anything, some folks are having to rethink what they will get in terms of a home mortgage loan. Some people are finding that they:

• Need a larger down payment.
• Need better credit.
• Have to choose a smaller home.
• Will have to pay a higher interest rate.

As a result, some would-be buyers are considering alternatives. Some are simply saving up so that they can make a larger down payment when credit eases. Others are buying smaller homes and waiting for the market to improve, hoping they can upgrade in a few years when all of this is over.

If you have a home equity line of credit (HELOC), even if you haven’t tapped it, it may be in for a freeze. Since the credit market crisis has been underway, banks have been limiting the amount they allow for a HELOC, as well as freezing HELOCs that have already been approved. Bambooclat.com points this out about the worries afflicting banks with regard to second home mortgage loans right now:

The number of homeowners who have been affected have been in the tens of thousands, as more and more banks are trying to stem mortgage losses. As banks are dealing with heavy losses from their subprime mortgages and additional high risk loans, the viable home equity loans are also taking a hit as the bank pulls the money before this equity credit line also becomes a problem.

This is bad news for many people. For most of us, our most valuable asset is our home. In times of trouble, it is common practice to tap into the equity in the home in order to help meet expenses. Unfortunately, right now banks are closing that avenue — especially in places where the housing market has dropped significantly. The worry is that the drop in home values will lead to an immediate negative equity situation. If a homeowner goes into foreclosure in such a situation, it costs the mortgage lender more money in the long run.

Another issue is the aggressive cuts being made by the Federal Reserve. Another rate cut is expected Wednesday. Because a HELOC is usually a variable rate, it is affected by a Fed rate cut more than a first home mortgage loan would be. So banks are not making as much when it comes to interest, either. In the mind of the mortgage lender, the return on the HELOC is not sufficient to offset the risk. Even if you have good credit.

As a result, some with good credit are looking for alternatives. There are companies out there starting to serve a niche market of people with good credit. These folks are being offered unsecured loans at reasonable interest rates in order to provide an alternative to tapping a HELOC that may be frozen.

Tags: HELOC freeze, home equity, home mortgage loan, home equity second mortgage,
second mortgage, HELOC, home equity line of credit

With home prices dropping and with foreclosures continuing to mount, the government is announcing that new measures are being considered to help struggling homeowners. The idea is for the government to take a more direct role in helping prevent foreclosures by guaranteeing loan modifications. CNN Money reports on some of the issues surrounding the ideas to help prevent foreclosures:

“Loan guarantees could be used as an incentive for servicers to modify loans,” Bair said. “Specifically the government could establish standards for loan modifications and provide guarantees for loans meeting those standards.”

That way, she said, “unaffordable loans could be converted into loans that are sustainable over the long term.”

Authority for this — along with the funding — would, of course, come from the recently passed $700 billion bailout. It seems to me that there is an awful lot that is now being done in the name of that bailout. Billions of dollars are being thrown about. Is anyone keeping track? Have we already exceeded, with all of these promises of cash to various industries, the $700 billion? Does it really matter anymore? I guess since none of the money is “real” at this point, arbitrarily throwing it around doesn’t really make a difference right now. Things are just sort of going to “happen.”

While the idea of guaranteeing home mortgage modifications is nice, if it was going to be done it should have been done months ago — before people began losing jobs due to the economic slowdown brought on by home foreclosures. It’s a vicious circle. At any rate, it may be too late; my guess is that many of the people seeking home mortgage modifications can’t even afford a modified loan at a modest fixed rate. It may be necessary to offer 40 year or 50 year fixed rate mortgage loans to make them affordable for some of those facing foreclosure.

Tags: home prices, home mortgage, home mortgage loan, home mortgage modifications,
prevent foreclosures, mortgage lenders, government home loans