2. The banks are the one’s that set the guidelines for anybody who does business with them. Since a mortgage broker does not lend you the money (the bank does that the mortgage broker works with) they were told that they would not be honoring anymore fixed second mortgages or HELOC’s. This lead to a mad dash from all of the smaller companies to close these loans so they could sell them to the bank before the deadline or they would not be able to close.

3. What lead to this rush was a realization that the housing bubble had finally burst. Home owners now owed more than what their house was worth and property values were dropping quickly. Most people that took out a second mortgage did so for home improvements, credit card bills, weddings, etc. The majority of people rolled in a bunch of debts so they could have one mortgage payment that they could write stuff off on their taxes instead of a bunch of smaller payments. This usually saved them payments on their overall monthly payments but all this did was increase people’s appetite to spend more and use their home as an ATM.

4. Now the mortgage companies see the dip in home prices and most could do second mortgages up to 100% of the value of their home. Appraisals were coming in much lower now than even just six months before so they could not give them another second mortgage or even be able to roll a first and second mortgage into one. Mortgage companies look at the loan to value (LTV) of the house and if both combined to over 100% there was nothing they could do.

5. When home owners started defaulting on their home loans and went into foreclosure what happens is if there is a first and second mortgage on the property the company that has the first mortgage would get paid back first in the event of a short sale or auction. The mortgage company that holds the second lien position on the house would get whatever proceeds that were left over…if any. Many received none because there was no way that the house was going to sell for what the home appraised for when they did the loan.

6. With no money coming in to cover the foreclosures the banks just said they are no longer going to do second mortgages up to 95% or above of the homes value. Many large banks like Chase, Bank Of America, and Wells Fargo might still do them because they would hold onto the mortgage note and service it themselves. What these large companies did was shut off the companies that sold the mortgage notes to them, ie the mortgage brokers. What happens is all of the mortgage notes the mortgage broker would have closed on get sold to the larger bank (that actually funded the loan) in a bundle. The banks would accept the notes in one packet and start servicing the loan and collect your interest. The banks left a lot of trust to the mortgage brokers to do the right thing (and most did) but it meant that some mortgages could squeeze through without going over thoroughly. The banks decided it would be in their best interest to get rid of all the small companies selling them the second mortgages and do it all in house.

7. The banks do not know how much farther the real estate market is going to go down. Of course the National Realtors Association says that home prices are leveling off but you should not believe that for a second. Remember that Realtors work on commission and they want to reassure you that you are getting a good deal. If you are not in a rush to buy a home right now, try and wait until about June of 2009 before you start looking to buy. You will probably save another 8%-15% on the purchase price of the home.

8. The banks have realized that home prices have not leveled off yet so they are not in a rush to do the second mortgages yet. What would happen if they did is let’s say that they start doing second mortgages back up to 95% or 100% of the value of the home. People default on the loans and the home goes into foreclosure. The banks should know that the real estate market is probably going to drop another 5%-15% across the country until June 2009 or when home prices get back to what they were before 9/11 happened. So now the bank would be holding onto the note for a second mortgage on a home that is worth 5%-10% less than what it could be sold for. This would leave them with a 5%-10% loss on the money that they lent. Banks are not in business to lose money and this is a losing scenario.

9. The banks are now trying to fight back to all of the mortgage brokers and correspondent lenders (Correspondent lender is a lender that is big enough to fund the home loans but typically borrows from a line of credit they have with a larger bank like Countrywide and sells that bank the mortgage note. A great example of a correspondent lender is Quicken Loans. They do not keep any of the loans and sell them after closing to the larger bank for a quick profit and releasing themselves of the note and the responsibility of the property in case of foreclosure) to take these second mortgages back. It’s becoming a game of hot potato because nobody wants these second mortgages and the finger is being pointed everywhere.

10. Instead of doing second mortgages for every body the banks have decided to only let certain borrowers take out a HELOC. The qualifications have gone up and many banks now will only let you take a second mortgage up to 80% LTV and you need to have over 700 credit scores with no mortgage lates in the last 12 months. Many also make you open up a checking account with them and you have to have to your payments automatically withdrawn. This is a safer bet for the banks because now they can handle the down turn in the market for a little longer and not have to worry about losing out in case of foreclosure or anymore short sales. If you are in the market for a second mortgage or HELOC good luck finding one. You should start out with your local bank and then call up a big bank like Chase or Bank Of America to see what they can offer.

Post from: The Top 10 Reasons

The Top 10 Reasons Mortgage Companies Stopped Doing Second Mortgages

2. In the time period between 2002-2007 interest rates on a 30 year fixed were anywhere from 4.75% to 7.5%. Historically mortgage rates have been in the 8.5%-13%. This was mainly in the 1970s-1980s. With rates so high back then people had to save up as much money as possible to put down on the house just to make the monthly mortgage payment. With rates so low in 2002-2007( historically speaking they are still low today) there was a influx of new buyers that could get approved on mortgages and buy expensive homes that 8 years ago they could not dream of owning.

3. Mortgage rates started their climb back up in mid 2005. This was the mid point of the housing boom. From 2002-2005 there were the most homes ever built in a year by year comparison in the history of the United States. Homes were going up as fast as they could because there was somebody buying a home for investment, vacation, or primary residence. This drove prices up through the roof. Of course everybody thought that prices were going to keep going up because real estate as a whole has never ever gone down and is considered a solid investment.

4. So why did mortgage rates start going back up in 2005-2006? The reason is that with all of this cheap money floating around the world now the banks, hedge funds, and investment companies needed to start making a better return on their money. They had to much cheap money out there and it was a lot of cheap money that if something were to happen like a couple trillion dollars in adjustable rate mortgages adjust and a bunch of homes go into foreclosure they could protect themselves in case of a some of that happening. I mean that would never happen…oh crap. Spoke to soon.

5. Now in early 2007 rates are up about 2% more than what they were over the past two years. This kind of is in line with historical fluctuations but now the banks are starting to reel in what is becoming the mortgage disaster.

6. Real estate prices peak out across the country and prices don’t just level out they start declining rapidly. People that took out mortgages now owe way more than what their house is worth. The banks are panicking because now they cannot approve anybody on a loan. This is bad because now they can’t just do loans and sell them in bundles like they have been doing for the past 5 years they are getting stuck with them.

7. Foreclosures start popping up every where. It does not matter what town you live in even the so called rich people are feeling it. The economy is tanking because now there are no new houses being built which causes people in construction to get laid off, the finance sector starts crumbling and the nations largest mortgage lender (Countrywide) sees their stock price drop $40 in the matter of a month from $50 a share to $4.

8. So why is it easy to make mortgage rates predictions now? Its pretty simple. Interest rates are never going to get as low as they were during the housing boom ever again. It will be bad business and will let people, including the banks take on too much risk without any reward. The banks are giving away cheap money just to make it look like they are writing business (to please shareholders).

9. Mortgage rates are probably going to hold in this 6.75%-8% range for a couple years. Interest rates cannot go down because it has been proven that the average consumer has no restraint and feels like they can buy whatever they want. The market can’t raise interest rates back over 10% because now all of the people that are currently in 30 year fixed rate loans in the mid 6%’s will not take out another loan because now they will have to pay 4% more than what they are paying now if they want to take cash out of their home. The banks don’t want you to save money and pay cash for your purchases they would rather you take more money out at relatively the same interest rate. If people start paying cash then the financial sector will falter. More finance jobs will be lost and banks will go bankrupt. I really think this is a good thing because now people will not be paying interest on anything.

10. To all the people who played it smart and locked in a 30 year fixed rate mortgage in the 5%’s you should feel happy about what you did. Interest rates are never going to get that low. To the banking industry, sorry about your luck. I guess there is a learning curve for everything. So over the next two years while this housing mess starts to cool down we can all learn from our mistakes and know what and what not to do when it comes to mortgages. 

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Post from: The Top 10 Reasons

The Top 10 Reasons Its Easy To Make Mortgage Rates Predictions

2. If you miss 4 payments on a mortgage the bank has the right to kick you out of your home. They really do not want to, but you gave them no choice. This really sucks if you had owned the home for a number of years and have built up some equity. You don’t keep the equity unless you can sell it before the foreclosure proceedings start.

3. It is said that owning a home is the “American Dream” but its really a pain in the butt. If anything is broken or needs maintanance its coming out of your pocket. With all of this upkeep the home really owns you.

4. If you ever have default on anything like a car loan or credit card and it goes into collections the courts will slap a lien on your home. This means that if you refinance your home or sell it these liens must be paid whether you want to pay them or not. No mortgage company can do a new loan on a property unless they are paid.

5. The city or state government can just take your house out from underneath you if they plan on putting up a new highway or something else. Sure you will get offered some money but they are telling you that you really don’t own the property, they do.

6. With inflation being at the fore front of every financial happening who would want to pay down their mortgage to at least get rid of the loan. People need that extra money for gas, college educations, weddings, etc.

7. Americans love debt and we are taught to keep spending instead of saving and paying things off.

8. Many senior citizens still have a mortgage on the same home that they have lived in for 30 or more years. The reason is because they are on a fixed income and needed to take money out.

9. There is always going to be a new addition needed for a house or even worse the need to get a bigger house increasing the debt you need to pay back. Why can’t you just stay where you are at and find a way to live simpler?

10. Even if you are one of the few people that do not have a mortgage don’t even think about not paying your taxes. Missing property tax payments will put your house first in line to be auctioned off through a Sheriff Auction. Worse than that you will probably see your house on one of those late night infomercials talking about buying tax lien properties for $685 when the value of the home is $150k.

Post from: The Top 10 Reasons

The Top 10 Reasons That You Will Never Own Your Home

2. If a borrower misses 4 payments in a row the lender has the option to start foreclosure proceedings on the home. It is in the contract you signed with them and they are only doing what the contract says.

3. After you have missed 4 payments the bank holding the mortgage note has not received 4 months of interest on the principle balance they lent you. As an example a loan at $200k at 6% interest would have a principle and interest payment of $!200 a month in which $1000 of that is strictly interest. It sucks seeing that number. So in the 4 months you have missed these payments that’s $4800 that the bank could not relend or use to pay their own bills like salaries to their employees.

4. As soon as the foreclosure starts the bank has to hire people to go out to the property to see what condition it is in and if it needs to brought back up to code. The local county government will have to be contacted to get the previous owners name off of the deed. Then a realtor has to list the property. All of these people do not work for free and now the bank has to dip into their savings to pay these people to hopefully get it sold.

5. Since the bank owns the house out right now they have to do things like cut the grass and pay property taxes on it now too. So really that $1200 payment is lower its probably more like $1500 now with taxes and home owners insurance.

6. So the bank is spending money to just keep the house in working order while they try to sell it. Even if they are to sell it the banks usually undercut all the homes in the area so they can get it off their books. Most banks take a big loss with foreclosures. There is usually a loan that is still over 80% of the value of the home so even if they sell it and make 10% in equity all of the money they missed in monthly payments, taxes, upkeep, realtor fees, paying the next door neighbor kid $15 a week to cut the grass really adds up.

7. The mortage company is also not doing what they intend to do which is do loans and create new business. They are having to spend a lot of time going out and basically clean up the financial disaster that a foreclosure is so they can move on.

8. Put yourself in the banks shoes for a second. A borrower that takes out a $200k loan at 6% will pay $231,676.38 JUST IN INTEREST over the span of 30 years. So this means that you will pay $431,676.38 total over 30 years to pay off your house if you just make your minimum monthly payments. Kind of makes you want to be a bank now huh. Just sit back and watch the checks come rolling in every month for basically working one time.

9. The mortgage company is always going to be the one that is going to get the bad rap in this one. Its so easy to blame the bank but nobody ever said that I should have never taken that loan because I could not afford it.

10. The trickle down starts happening where banks have to start laying people off because you could just not make your payment. This causes jobs to be lost and companies to fold. This also affects your neighbors because now the mortgage company is going to want to sell this property below everybody else’s lowering property values in the neighborhood. The stock market starts tanking and property values drop quickly. Luckily this will never happen because real estate is the safest investment of all time…um…poop.

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The Top 10 Reasons Mortgage Companies Do Not Want You To Foreclose