Jan
2nd

Catch the FHA Lending Wave – How to Get Ahead in This Changing Mortgage Environment

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Over the past 18 months or so, maybe longer, the mortgage origination industry has seen significant change. Most of our competition is gone, but so are the programs and lenders that provided so much of the money homeowners and homebuyers needed. With those programs gone, we originators are left to re-tool our kit and get out there and keep originating – or quit, I guess.

For me, when it came to re-tooling, I tried everything, and as I became comfortable – there was change. Whether the sources dried up, or underwriting guidelines tightened – whatever it was it seemed like I was constantly re-tooling – and my volume of production slipped by 80%! Because I have been doing this since the late 80’s – I simply had to find a new niche, a new way to grow my business and support my family. What was I going to do?!

When I started in this business, back with thermal paper fax machines (anybody remember those?!), there were really only 2 kinds of loan programs, government or Savings and Loan money. I stayed away from the government stuff, heard it was too hard and took too long and the government limited origination fees to just 1%, so I stayed with the S&L stuff. Now, with S&L’s gone and WallStreet money still not back yet – seems like the old days are here again – with the major focus on FHA loans!

I have seen statistics that expectations for FHA are in the range of growth near 1000% – seems as thought this time, I am not going to miss this wave! So, I read all I could, I even purchased some great training and reference manuals to ensure my understanding – and then I went out to originate. Although the learning curve was steep, I am now back to production levels I haven’t seen since the refinance boom of 5-7years ago. Although the numbers are similar, the revenue is not! Yes, it is true that origination fees are limited, but to encourage the use of these products, seems that YSP (yield spread premium) is what will fuel the economics of this new wave of FHA loan production.

Don’t miss it this time, learn all you can – the guidelines are strict – but with the millions of homeowners needing help our of those payment option arm, and high rate subprime loans pending their next adjustment – there is quite a demand for our services. Remember, there will always be a need for home loans, we as mortgage professionals just need to be ahead of the curve and ride the different waves of the market to serve our clients and earn our living – don’t quit, just do your homework, and ride this FHA wave!

Anyone who is in this business and is not making FHA loans, should learn how to get yourself or your company FHA approved.

To learn how, Download this: How to Get a FHA License

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Oct
13th

Will The Mortgage Lending Market Hit The Wall?

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At a distance, it is difficult to know when a freight train is about to hit a wall. You can hear screeching, denouncing the practices or even screams just minutes before. But what about the drunkenness of the mortgage credit market? Which sounds just wait to see this market as speed toward the proverbial wall? Some believe that the sounds can be heard in the distance.

Although many observers expected the market to higher rates and a slowdown in the housing market would make the furious pace of mortgage loans to a halt, their predictions were not pan out. Higher mortgage rates and a slowdown in the housing market have not yet resulted in significantly higher mortgage bank and the losses that these experts predicted. But what increases in mortgage rates predict crime? This is where the plot is interesting. According to the Mortgage Bankers Association, delinquency rates for mortgages rose a stunning 7% to 4.7% in the fourth quarter of 2005. Most market experts agree that this type of increase in delinquencies, if not, will give lenders a serious case of indigestion.

Despite the higher crime rates and other red flags, mortgage lenders are speeding ahead undaunted. They continue to ignore former Federal Reserve Chairman Greenspan’s warning that the market has become too aggressive. As a group, most mortgage lenders seem unfazed by the idea that borrowers are taking on too much debt, which loan to value ratios are too high and that many loans are being carried out with little documentation.

Both banks and consumers seem to be stretching. In California, lenders have allowed more than 20% of a house to pay more than half its pre-tax income for housing. HUD recommends that buyers pay less than 30%. Compounding the situation is that a large number are high risk, whether or variable interest rate only for mortgages.

A growing concern the Fed is the sub-prime mortgage market. Lenders in this market respond to borrowers with sub-par credit profiles. Sub-Prime loans now represent approximately 23% of new mortgages compared with only 5% to the mid-1990s. In the event of delinquencies and defaults globe, the sub-prime mortgage market could implode. Although many of these lenders back their loans to sell to investors, many maintain their own portfolios. Some of these lenders are particularly vulnerable because they retain the mortgages that are very difficult to sell.

Other red flags ahead for the sub-prime segment are as follows: many of these lenders do big business in California, where the median house price rose by 16% during 2005 to more than $ 548,000, many of These lenders require only limited documentation of borrowers, almost inviting fraud, and this segment has aggressively pushed interest-only, adjustable rate and negative amortization mortgages to borrowers weakest. As rates continue to rise, these loans will put the squeeze on innocent borrowers who are likely to see their monthly payments rocket.

CIBC analysts believe that in the face of rising rates, up to 10% of households in the U.S. could face financial crisis as a result of aggressive lending that they have taken. Many of these borrowers are on the label as to shock more than $ 1.3 trillion in adjustable-rate mortgages compared to the increases. Some borrowers will face increases in pay over 150%.

What sound does a freight train that when it comes to hitting a wall? Ask the mortgage lenders who have worked for some of the banks during the 1990s. A number of these banks collapsed after writing very aggressive lending during the past few years. Some lenders made loans that were as much as 125% of the values of home, thinking that the housing boom would continue forever. Some accuse mortgage lenders of moving mindlessly as a group of lemmings. Perhaps the metaphor that should be modified. Lemmings rarely develop Alzheimer’s disease and rarely found pounding the walls.

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Oct
12th

Subprime Mortgage Lending – Regulators Tighten Rules

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The first issue of concern is improved communication to subprime borrowers about the real, hidden cost of their adjustable rate mortgage (ARM) loans. This kind of loan is often suggested to subprime borrowers because the introductory rate of interest is so low – so low, in fact, that it’s often called a “teaser rate”. Before the appearance of the government Statement, ARM loans assessed huge penalty fees for refinancing the loan or prepaying it before the term expires. Often, the penalties continued for most of the duration of the loan.

Regulators tighten rules for subprime lending in the Statement by providing guidelines requiring subprime lenders to offer full disclosure of fees and rates associated with an ARM. Moreover, they state that “liar loans,” loans that ignore a borrower’s capability of repaying the loan and require no documentation of earnings, must be curtailed. These liar loans are also called “stated income loans,” “low-doc loans,” and “no-doc loans.” A borrower simply states the amount of his income, without being required to produce a W2 form or pay stubs to substantiate his statement. Based on what he has claimed, he qualifies for a loan he cannot really afford. It’s clear that this practice is the cause of at least part of the subprime market problem!

The Statement is specific about predatory and deceptive lending practices – what they are, and why they must not be used. Such predatory practices often victimize those who may not really understand what they are being asked to sign, members of particularly vulnerable groups: the elderly, minorities, and first-time home buyers. It is also very clear about the fact that not all subprime lenders can be considered predatory.

If you are a subprime buyer, what do these new regulations mean to you? For one thing, you can’t be entrapped in an ARM with an upcoming reset date: 60 days notice is now required. If you decide to refinance early in the loan, or if for some reason you become able to repay it early, no astronomical prepayment fees will be assessed. Lenders must now require proper documentation to verify income. This is a positive improvement, because a subprime borrower should never borrow more than he will really be able to repay. Many subprime financial institutions have gone under in recent years, simply because they ignored the critical need to determine accurately each home buyer’s capability to meet financial obligations. The regulations force subprime lenders to deal more ethically with subprime borrowers. They must show due diligence with their determination of these borrowers’ future solvency. Foreclosures ruin local real estate markets, as well as borrowers and lenders.

Earlier guidelines issued by the regulatory agencies have been tightened by the Statement. Some have been incorporated into its text; others, like the 2001 Expanded Guidance, are referenced. The intention of the federal agencies in tightening the rules for subprime lending is to protect subprime borrowers from lenders of questionable integrity, and to protect lenders from ruining themselves because of laxity in their underwriting practices. This document is bound to have a positive effect on the current downward-spiraling real estate market.

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