UPDATE: Mortgage Article Library
By admin | November 28, 2007
Please visit our newest addition to The Mortgage Info Guide website; the Article page has been expanded to include important information regarding home loans.
Some of the newer subjects include:
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How home loan boom went bust
By admin | November 28, 2007
Derek Brown knew Detroit had a problem when a grocery clerk he knew quit his job to become a mortgage loan officer.
“Everyone was selling mortgages. There were mortgage offices on every block,” said Brown, president of Quorum Commercial and past president of the Detroit Real Estate Brokers Association. “One day bagging groceries and the next day selling my mother a mortgage? What the hell is that?”
In few places did the subprime mortgage frenzy hit with such a dramatic impact as in Detroit where, almost overnight, residents went from struggling to get loans from banks to having loan officers knock on their doors, offering subprime refinance deals — with interest rates that are higher than those on conventional loans.
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Today, many of those sweet deals are turning sour. In August alone, there were 3,900 new foreclosure notices in Detroit.
Those foreclosures are the hangover from a heady time, when almost anyone could get — or sell — a mortgage.
Foreclosures have existed since there were mortgages. Money is lent on the condition of repayment. When homeowners don’t make payments, the institution “holding the paper” can demand return of the house.
In the past, banks lent their own money to home buyers; if they weren’t paid, banks often lost money. Thus, banks had an interest in making good loans. Today, the vast majority of loans aren’t held by the institution that made the loan. Instead, loans are bundled with others and sold to bigger lenders, until they end up as mortgage-backed bonds on Wall Street.
Mortgage-backed bonds today are a Wall Street staple. Most people own some of them in their 401(k)s. With thousands of loans bundled in one bond, the financial risk of any particular loan failing is diluted.
In effect, mortgage lenders today act less like banks than like car dealers: Once a mortgage is sold, their interaction with the homeowner is done. Instead of making money on 30 years of interest, lenders make their money on closing fees.
As lenders became further separated from the risk of bad loans, their goal changed: Quality didn’t matter; quantity did.
No licensing required
In 2005, at the peak of the subprime mortgage market, an estimated 30,000 people were selling mortgages in Michigan — a number inflated by the fact that Michigan is one of only a dozen states that does not require licensing, training or background checks to make loans.
“There was no policing of the industry and no barrier to get in,” said Emil Izrailov, who started his career selling subprime mortgages and is now chief operations officer of Kaye Financial Corp. in Bloomfield Hills. “There were people who couldn’t read or define a loan application who were selling $300,000 loans.”
On the other side of the table, home buyers were asking for loans that would have seemed outrageous a few years earlier.
In Shelby Township, John Karpinki got a $650,000 no-money-down mortgage just 22 months after he was released from prison, where he spent 12 years. The home is now in foreclosure.
“People would come in and tell me what kind of loan they wanted,” said Nicole Jackson, who worked in the subprime market in Detroit for years. “If I didn’t sell them a loan, the person down the street would.”
Jackson said she believes she treated home buyers fairly, but she knows some loan officers took advantage of buyers to make more money.
She recalled sales representatives from big subprime lenders such as Countrywide Financial and Long Beach Mortgage bringing lunches to her office as they pitched their new mortgage products. Loan officers decided which loan to offer buyers “by profit, by ease of use, by how much it worked for our clientele, even by how much we liked the sales rep,” Jackson said.
Sometimes, she and others would sell home buyers risky mortgages when there were better loans available through government programs. “There were bad products out there we were selling,” Jackson said.
Modern get-rich scheme
Types of loans that had been reserved for homeowners and businesses with unusual circumstances began being applied to everyone who walked in. There were low-document loans and no-document loans (that quickly earned the nickname “liar loans”); there were loans made for 100 percent of an inflated appraised value of a house, and loans in which the payment was so low, debt actually increased each month.
The result was an anything-goes atmosphere where almost anyone could qualify, if they or their loan officer were creative.
Izrailov worked at a loan company where he was trained to answer the phone with, “Yes, you’re approved.”
“You weren’t allowed to sell (home buyers on) the rate,” Izrailov said. “If they ask your rate, you tell them the payment instead. You weren’t selling the (best) rate; you were selling the savings they’d have per month.”
Homeowners were able to get home improvement loans and loans to move to better neighborhoods. As prices rose, many took out loans turning that equity into cash. Those making the loans were making $2,000 to $10,000 on every mortgage and refinance. It was quick and easy, and highly profitable.
Selling mortgages between 2002 and 2005 became a get-rich scheme much like day trading in the late 1990s.
Izrailov knew a doctor who sold mortgages in the evening from his home.
The lack of training and porous policing led to abuses. Thomas Stallworth, executive director of the Black Caucus Foundation of Michigan, said he believes Metro Detroit was targeted by “aggressive salespeople, taking advantage of people with a lack of sophistication.” The bigger the loan, the more those loan officers make in commission. “So they encourage consumers to take out larger loans than they can afford or they really need,” he said.
“They don’t get paid unless they sell a mortgage,” Brown said. “Nobody thought about what would happen when the music stopped.”
Original Article Here
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Homeowners looking for more than mortgage advice
By admin | November 11, 2007
KUSA - Homeowners finding themselves in deep depression over a foreclosure could be referred to a suicide hotline when seeking help from a mortgage counselor.
Zach Urban of Brothers Redevelopment says he’s had a suicide hotline number on hand in his office ever since he heard a woman’s cry for help four years ago.
“It was so dire, and they felt so overwhelmed, they thought the best solution would be to end it all,” said Urban.
Urban says as a housing counselor, he’s not qualified to offer any psychiatric help, but it’s his duty to refer a caller to the suicide number, depending on their words or mental state.
“It’s something that every few months, someone opens up and says, ‘Listen, I don’t know what else to do here. This is something more than I can handle,’” said Urban.
In Prineville, Ore. last week, a couple went into their closed garage, turned on the car and ended their lives after losing their house to foreclosure.
Court records showed the couple lost the home this summer after fighting in court for more than a decade with financial trouble.
Last Friday, a North Houston man ended a 12-hour standoff with police by taking his own life rather than giving up his home to foreclosure.
A Houston Police spokesman says the man had told police he would not be taken from the home alive.
At Denver Health’s Psychiatric Emergency Services, Dr. Douglas Ikelheimer says any mention of the word suicide must be treated with help.
“When people start talking about suicide, when they even start saying it in a joking matter like, ‘Oh life isn’t worth living,’ that type of comment must be taken seriously,” said Ikelheimer.
The number of homeowners looking for help with foreclosures has risen dramatically nationwide and in Colorado over the past few years.
At Brothers Redevelopment, a mortgage counseling office, they received 50 calls the entire year in 2000 with homeowners seeking advice. Now in 2007, that number is up to 50 calls a day.
Colorado ranks sixth in the nation for foreclosures, reporting one foreclosure filing every 109 households, up 30 percent from the third quarter of 2006.
Original Article Here
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How to Save BIG Money on Your Mortgage
By admin | November 5, 2007
Okay, now for the good news. Is there really a way in which you can literally save bucketfuls of money on your mortgage? The answer is an unequivocal yes! And no, it does not involve refinancing and the costs of obtaining a new mortgage. As a matter of fact, it doesn’t have to cost you one red cent. The banks know about. They’ve always known about it. There isn’t even anything that they can do about it because it’s perfectly legal and ethical.
You may or may not have heard of the bi-weekly mortgage. (Actually, it’s not new at all.) If you have, you may even have dismissed it as a scam to take your money. People have been charged as much as $500 or more for “initial fees”, “setup fees”, or “membership fees”, along with monthly service charges. Was this a scam? Well, no, it actually wasn’t. Even some banks began offering these programs. But the plain truth of the matter is that you don’t need to pay a bank or anyone else to put you into a bi-weekly “conversion”. This is a concept that you can quite easily administer yourself. And it costs you nothing. All that you will actually be doing is changing slightly the way in which you make your monthly mortgage payment.
You see, normally you would make twelve monthly payments per year, correct? (Obviously.) But what if you were to split your mortgage payment and pay an amount equal to one half of it, say, every other Friday? (This actually makes sense because it corresponds more directly with the way in which most Americans receive their paychecks.) Over the course of one year that would add up to 26 of these half-payments. (There are 26 two-week periods in one year. 26 x 2 weeks = 52 weeks = 1 year.) Now, if you’ve made 26 half-payments, it would mean that you’ve made 13 full mortgage payments. By simply splitting your payment in half and paying it every two weeks, you’re actually making one additional payment!
But is the bank going to allow you to do this? Probably not. Banks are generally not set up to handle half-payments, or even two-week time periods. So, how do you do it? Very easily, actually. Just open another checking or savings account and deposit those half-payments into it every two weeks. Then when your normal mortgage payment is due, make that payment from the new account. After the course of one year there will be enough funds left in the account to make one additional normal payment (26 bi-weekly payments, remember?). So along with the 12th normal payment you make an additional full payment, which should be applied to you your principal balance.
Be sure to specify to the bank that this extra money is to be applied to the principal balance only. Banks have been notorious for making incorrect applications of money in the past. You must also be sure that the extra payment does not trigger a prepayment penalty in your mortgage contract. This is very unlikely, but it’s better to be safe and sure than sorry. So check you mortgage paperwork. For most modern loans, if a prepayment clause does exist, it would only go into effect for a much higher prepayment amount than the one additional monthly payment that you would be making (say, 20 - 25% prepayment in a year, for example).
Original Article Here
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