Home Mortgage Weblog

Have you ever wondered how mortgagers raise money to lend to homeowners? Or once they exhaust their funds, how do they raise more capital to continue being in business! One of the most common ways lenders raise more capital is by selling their existing loan portfolios to other organizations.

In effect, a loan that you took from a lender may actually no longer be vested with the same party. This may sound confusing, but in reality, lenders usually sell their loan portfolios to government backed organizations like Fannie Mae, Freddie Mac and Ginnie Mae. These organizations in turn usually sell consolidated portfolios further to investors. This way, lenders are able to raise more capital and provide more loans and keep increasing their business.

The presence of a government backed organization in the middle serves as a semi-regulatory authority. In case of defaults or required resetting of schedules, these organizations play the role of looking after the interest of the lender as well as the borrower.

While, this maze governs the process of transference of the loan portfolio from one party to another, the responsibility of collection of payments or dealing with defaulters is still vested with the company that has issued the loan to the customer in the first instance. Now, with the realty market expected to go into recession, loan defaults are expected to increase. A larger number of defaults will affect the entire chain of companies in the mortgage maze and exert a downward pressure on their bottomlines.

Though there is a lot of talk about a dip in the US realty prices, it is yet to show up in the price data. Latest results show that realty prices are still robust. Median home prices in January 2006 were steady at $211,000.

Latest results from the Office of Federal Housing Enterprise Oversight (OFHEO), the U.S. agency that monitors mortgage lenders Fannie Mae and Freddie Mac, average realty prices in the residential sector grew a robust 13 % through the fourth quarter of 2005. The growth in the top 10 markets was higher at 18 % for the same period.

The OFHEO report also segregates the country into areas that are experiencing robust growth vs regions with flattened prices. Prices on the coasts and in the growing areas of the West and the South were soaring, while they were flat in the middle and the northern regions.

In the high growth regions like Arizona, prices appreciated by 35 %, Florida 27 %, California 21 %, Washington 18% and New Jersey 16 %. Growth in Phoenix was at a high of 40 %.

Some states that experienced growth of lower that 5 % include Michigan, Ohio, Nebraska, Indiana and Kansas.

Realty prices are expected to start their southward march soon and the US Fed’s next move on interest rates will largely govern the velocity of the decline. Analysis of the price data reveals that while prices in some regions had shot up substantially, the increase in other regions was moderate. In the likely scenario of a dip, prices that had grown too rapidly will experience rapid declines. On the other hand regions, where prices had grown moderately are likely to experience stagnation or a moderate dip.

To read more on this topic, click here.

Nearing retirement? Worried about how to maintain your lifestyle in the coming years? You have worked hard all your life to make the home you own; now let your home work for you, while you enjoy your years of leisure.

There is a great product on the market for you. Your home can actually give you both lump sum money and regular income through a product called ‘The home equity conversion mortgage’. Some of the key requirements to be eligible for this product are that first of all you need to be over 62 years of age. Secondly, you should not have any outstanding mortgage on your home. All taxes and insurance pertaining to your home must also be fully paid up. In this mortgage, instead of you paying the mortgager, the mortgager will pay you. Also, there is no fixed timeframe for the closure of the mortgage.

If the value of your home is say $600,000, you can actually raise a lump sum of $50,000 and get an additional monthly income of $800 every month or even more depending upon the exact value of your home. Moreover, the capital raised through this mode can be used for any legitimate purpose like children’s education, a vacation or purchase of a new property or for daily expenses. After your death, your heirs have the option of either refinancing the debt or selling the property and cashing out on the balance home equity.

To read further on the home equity conversion mortgage, click here.

If you have been contemplating buying a home for yourself and have watched the prices go through the roof and thought that you’ve missed the boat, you are in for a surprise. You are in luck, because property prices are expected to start softening for sometime to come.

The reason for this is that interest rates have shot up and easy money that fuelled this growth is no longer available. With the Fed having raised interest rates continuously, interest rates on adjustable rate mortgages are near 6%.

Thus, it is best for you to wait till prices to soften. Buying at softer prices will enable you to build on home equity as the markets recover again later.

To read more about timing your buy, click here.

Don’t be in a hurry to trash your home mortgage papers, even after you have paid the last instalment. After the closure of your mortgage, you will need to ensure that the lender issues you proof of clearance of the title. Procedures vary from state to state.

You may need to pursue this activity as the lender does not have a monetary incentive to undertake this activity. Even though state laws require lenders to return the papers within 15 to 21 days, rarely do they do this before 90 days. However, for you, this is one of the most important last steps to fully owning your property. Also, if you were to take a sudden decision to raise capital against your property or to sell it, you may be unable to do so until the lien is cleared.

When you took you home mortgage finance, did the loan officer brief you on all aspects extensively, or was he vague and you were so desperate to close the deal that you did not bother to find out?

Owing to the homeowner’s eagerness to close a loan, mortgage officers have been taking advantage and not acquainting customers appropriately. But, help is at hand. After the Ameriquest settlement, loan officers, especially covered in the settlement will be bound to explain details of the offer extensively.

This will cover major aspects of the offering, including interest rates and changes, pre payment penalties, service charges, and any exceptions applicable.

Given the current deceleration in the realty market, customers should also ensure that they assess all terms and conditions carefully and have them included in the legal contract for a safer tomorrow.

The recent rise in interest rates is turning home mortgage customers edgy. With mortgage companies beginning to hard sell fixed rate mortgages, you might get tempted to switch your ARM to a fixed rate mortgage.

However, before you take that decision, you need to consider a variety of factors that will enable you to evaluate if your switch will be profitable or not.

Factors that one needs to evaluate:

• How long you intend staying in your house
• The current interest rate on your mortgage
• When will that rate begin to adjust and how high can it go
• Rates on competing products
• Whether your loan carries a prepayment penalty

If you do not intend staying long and plan to sell your property, it may not be worth making the switch. A detailed analysis of these factors will help you take the best decision.

With the realty market slowing down, the number of homeowners, who are falling behind on their payments is on the rise. Evidence from Bay Area suggests that the number of default notices issued moved up 11 percent in the last quarter of 2005 to 2292 compared to 2074 notices issued in the same period of the previous year. Across the state of California, 14999 default notices were served, up 15.6% from 12978 in the previous year. If a number of instalments become outstanding, the property can go up for auction. In the scenario of an appreciating market, the homeowner could easily sell the property and exit the loan. But, with the growth slowing down, homeowners may find themselves in a sticky situation. The realty price growth peaked at 20.2% in early 2005. It was down to 16.2% in the last quarter of the previous year.

There is no clear cut answer to this vexing question. If one were to compare it to the stock market bubble, one can clearly see a similar rapid increase in prices. Essentially, a lot of money poured into the stock market and made it reach an unsustainable price point. The case with property markets may be similar, with soft home mortgage loans having been available for several years.

However, home mortgages are backed by pieces of real estate and critics feel that any similar crash can be ruled out.

Real estate is not like stocks, where, with a slight fluctuation, a lot of trading can drive the price in either direction quite rapidly. People do not buy and sell their homes just because prices are expected to fluctuate. Conversely, prices stay stable, if people do not want to buy and sell real estate like stocks.

Effectively, we can say that real estate markets may be overheated, and one may expect gradual correction in the prices, but a bubble like crash is unlikely.

One’s own house evokes mixed memories like the toil and sacrifices before you actually possessed it. It is but natural that you must know all the formalities involved in assigning the house to the lender, repayment schedule. You should also know whether repayment is to the same lender from whom you have borrowed or transfer of loans and subsequent payments, as is vogue in some countries. Total transparency is the name of the game that is providing details of the lender’s services. Lending organizations are so sensitive to avoid late fee whilst transferring service point on home mortgages.