Idaho Homes And Money Blog

Problems are a sign of life. If you have a big problem, be thankful for it. It proves that you are alive and functioning. The only people I know who have no problems are in the cemetery. (Some say, in fact, that the best way to judge a person is by the problem he or she has.)

Most people though, think that problems are bad. They feel that the ideal state of things would be problem free. So since we have problems, something must be wrong. As a result of thinking this way we end up wasting most of our energy thinking, “Everything would be great, if only I could just get rid of my problems!” I know right now that our market is creating several problems for you and I. I don’t think there is a day that goes by that I don’t run into someone who used to be in this industry and got out due to all the problems they had to face. I don’t want to speak against any of them personally but if they could have seen their problems as assets, they could have seen the benefits this business has to offer!

Have a great week. I hope it’s full of ‘big problems’! Please let me know how my team and I can help serve you and your clients problems.

Your friend in mortgage,

John West
idahorealestatemortgage.com

The federal government – in response to the lending crisis and numerous cases of mortgage fraud perpetrated against consumers in recent years – has just announced a significant overhaul of mortgage industry regulations.

The comprehensive package of rules includes these highlights:

• Most of rules pertain to subprime mortgages and make it harder to borrow without verification of assets and income.

• Those with bad credit may be adversely affected because tighter loan application standards for subprimes will remove their main source of mortgages.

• But ultimately the rules are intended to protect consumers from borrowing mortgages they cannot afford to repay and protect the nation from a repeat of the subprime mortgage crisis.

• Mortgage brokers must now be licensed. In the past many were not – and some even practiced despite criminal felony records. Now all mortgage lenders will be held to a higher standard of professionalism.

• But skeptics point out that whenever a profession is regulated, it usually cuts down on competition. Lack of competition typically translates into fewer brokers who can then charge higher fees. This may leave low income Americans at a disadvantage.

• The Fed severely curtailed the use of prepayment penalties. Prepayment penalties are substantial fees imposed on borrowers who choose to pay off their loans early in order to save money.

• Lenders will also have to start keeping detailed escrow accounts for property taxes and homeowner's insurance. That will help manage those important payments for homeowners while also limiting the risk that could arise from forgetting to pay obligations on time or not having adequate funds to make tax and insurance payments.

  But the escrow rules are primarily meant to put a stop to fraud. Sometimes corrupt lenders collect insurance and tax payments from homeowners and then pocket them instead of paying those policies and taxes as promised. Lenders are now expressly forbidden from pressuring real estate appraisers into artificially inflating or deflating home values. Companies that service mortgage loans must credit customer payments immediately and will have less flexibility regarding charging high late fees. They must also respond in a prompt and efficient manner to requests for customer account statements Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan, including home improvement loans or mortgage refinances. Until they receive the written estimate, consumers cannot be charged any fees except for a reasonable fee for doing a credit check. Lenders must also provide more complete and honest disclosure when placing advertisements for their loan products. One of the most powerful rules relates to borrowers who are preyed upon by lenders. In the past they had to prove that there was a pattern or systematic practice of such illegal predatory behavior in order to win lawsuits in court. Convincing a court of such habitual and intentional behavior can be nearly impossible to do, but under the new regulations it is no longer necessary. That makes it much easier for consumers to seek justice if they have been wronged by lenders, and the ruling was praised by many consumer advocacy organizations.

Will 'lemming loans' drive economy off the cliff?

In mortgage market's next big blowup, many Americans face losing their home

WASHINGTON (MarketWatch) -- For the first time in the nation's history, a significant number of Americans are being threatened with the loss of their home even though they still have a steady, good-paying job.

 

It's not just an issue for people with poor credit, those with subprime loans. It also affects people with good enough credit to qualify for a prime loan. Known as Alt-A mortgages, these loans were written for 1 in 5 U.S. mortgages and could have a big impact on the economy and on credit markets -- bigger, perhaps, than the effects of the recent shockwaves buffeting the subprime-lender market, economists say.

In coming months and years, the credit crunch that's now squeezing mainly the poor is likely to hit millions of middle-class homeowners who took out risky loans during the great housing boom earlier in the decade. More than 1 million families will lose their homes in the next few years, by one estimate. Another study predicts 2.2 million foreclosures.

This threat is new in American history. Its impact on the economy, and upon the American Dream, is uncertain.

In the past, homeowners have generally lost their home to foreclosure only when they suffered a major life-changing event, such as loss of their job, a major illness or death of a family member. A big jump in foreclosures was unheard of outside a recession that brought high unemployment.

But now, because of the recent popularity of loans geared to let people buy a more expensive home than they can truly afford, all it will take is the passage of time to trigger a default. At some point, all these loans are adjusted to switch from a low, subsidized monthly payment to the full amount required to pay off the loan.

In the not-too-distant future, millions of Americans may receive a letter advising them of their mortgage "reset" or "recast" with the same dread they now feel for a pink slip or for bad news from their oncologist. The only difference: They know (or should know, if they noticed what they were signing) exactly what's coming: An average monthly increase of $1,512 in their monthly mortgage payment.

Because this risk is so novel, experts don't have a clear grasp yet on how big of an impact the credit crunch might have on the economy. Most economists say the problems won't spread too far beyond the poor, and that the extent of the losses to families, mortgage underwriters and investors will be small in the context of a $13 trillion economy.

But others think the risks are widespread and that the economy could be hit hard by the failures in the credit market. It could take years to fully recover.

"This is different," said Mark Zandi, chief economist for Moody's Economy.com, who warns that the problems in the subprime mortgage market will spread. "It will mean the difference between an economy that will glide through the slowdown and an economy that sputters." "The risks are all negative," Zandi said.

 

According to a Credit Suisse report, tighter lending standards, increased foreclosures, more supply on the market, lower prices, and less construction of new homes will affect all parts of the market.

"It's not just a subprime issue," Ivy Zelman, a housing analyst for the bank, wrote in the report.

Researchers are studying three major channels through which a mortgage meltdown's shockwaves could rattle the economy.

The most direct way would be through falling home prices.

Demand will continue to fall. Tougher mortgage underwriting standards will eliminate about 20% of the potential buyers, including 50% of the subprime buyers and 25% of the Alt-A buyers, according to estimates by Credit Suisse.

 

The supply of homes would also grow.

Foreclosures and homes dumped on the market by desperate sellers would further depress prices, which in turn would further depress voluntary home sales and home building in a vicious downward spiral, some analyst say. Housing would remain a drag on the economy and on employment for far longer.

 

Payment shock

In a weak market, some homeowners facing a large payment shock would find it difficult, if not impossible, to refinance their loan or sell their home for what they owe on it. About 13% of the owners who face a mortgage rate reset this year have less than 5% equity in their home, and therefore will not be able to refinance unless they have other assets.

If prices fall 5%, the percentage with no equity would grow to 23%, according to Christopher Cagan, director of research for First American CoreLogic, a mortgage research firm in Sacramento. And if prices fall 10%, it would jump to 35%.

And then there's the chilling effect of a slowdown on consumer spending. According to Federal Reserve data, consumers have taken about $3 trillion in equity out of their homes in the past five years, adding about 7% to disposable incomes every year. That boost kept the economy humming and has driven the personal savings rate below zero for the first time since the Great Depression.

If home prices fall or even flatten out, consumer's ability to fatten their wallets based on home equity would be curtailed.

Even consumers who didn't take out any equity increased their spending during housing's big heyday, and they'll probably slow their spending as prices flatten out. Homeowners experiencing rising equity felt richer and didn't feel the need to save as much. Economists say consumers spend about 5 cents of every extra dollar in housing wealth.

In addition, households faced with much steeper mortgage payments would cut back on discretionary spending to avoid defaulting on their mortgage.

The third transmission channel is financial.

In dollar terms, the scale of the potential losses from resets of adjustable-rate mortgages is insignificant when compared with the size of the capital markets. Cagan estimates losses of just $112 billion out of a $9 trillion mortgage market, leading him to conclude that mortgage resets won't break the economy or the financial system.

The deeper question is what will happen to investor sentiment. "This has the potential to undermine global investor confidence," said Zandi of Economy.com. The result could be a general drying up of credit, even to the most qualified and untainted borrowers.

And once investors turn cautious, it's difficult to predict how it will play out. After all, in the Asian financial crisis of 1997-98, even countries with sound policies were punished by investors rushing to get their money out of Asian markets. There's not much reliable information about who owns the riskiest mortgages.

Investors who eagerly bought these risky mortgages on the secondary market are having second thoughts, not just about subprime mortgages, but also all the other bits of paper in their portfolio that they didn't pay much attention to. They are finding out that there's not as much collateral in the collateralized debt obligations, known as CDOs, as they were led to believe.

In a paper issued last month, Joseph Mason, a finance professor at Drexel University and visiting scholar at the Federal Deposit Insurance Corp., and Joshua Rosner, managing partner of Graham Fisher & Co., concluded that the market hasn't accurately priced in the risk of default on non-traditional loans, or of the even-more complex mortgage-backed derivatives they are spun into.

The quality of the underlying asset is opaque to the investor as well as to regulators.

"Even investment-grade CDOs will experience significant losses if home prices depreciate," Mason and Rosner wrote. And decreased funding for mortgages from big investors "could set off a downward spiral in credit availability that can deprive individuals of home ownership and substantially hurt the U.S. economy."

 

Boise Idaho Homes Loans.com want's to help.

Foreclosures can really be very painful.

Losing your home can be very devastating especially if you have already spent years paying for your mortgage

If you have further questions, please contact us at (208) 321.4161