Helping Washington State homeowners learn more about their mortgage options.
The other day, one of my past clients asked me:
“I was wondering if there are issues that could arise if this credit crisis continues in a downward spiral? The market hasn’t been doing well in the past week with concerns about the “credit crisis”.
Is there any reason for concern that we could have our home loan called in early if our mortgage company gets into trouble? Are there other issues that we should be thinking about if this causes a ripple affect to other areas of the economy?”
This graph from the New York Times paints a picture that I can’t call pretty.
"So what’s gone wrong in the last few months? An unfortunate combination: more loans in default (many borrowers were never in a position to pay them off), risky bets worth billions made by some investors (deals now gone sour), and the reversal of the housing boom."
A big hat tip to Behind The Mortgage.
Five gold stars to Sandy, one of my clients who I helped with financing a few years ago when they bought their dream home in Eastern Washington, for asking me this regarding the current market:
“I was wondering if there are issues that could arise if this credit crisis continues in a downward spiral? The market hasn’t been doing well in the past week with concerns about the “credit crisis”.
Is there any reason for concern that we could have our home loan called in early if our mortgage company gets into trouble? (We are with CitiMortgage right now). Are there other issues that we should be thinking about if this causes a ripple affect to other areas of the economy?”
I’m going to address the “bold issue” first. Your loan will not be called due if the company you’re making mortgage payments to gets into trouble. The mortgage company you’re making payments to does not hold your mortgage. They are actually just receiving and processing the payments. They receive a small percentage of your payment for “servicing” the loan. Your mortgage has been bundled with other mortgages and has been sold to investors as mortgage backed securities (bonds). If something were to happen to the mortgage company you make payments to, you would just be sending your mortgage payment to someone else.
Continue to make your mortgage payments (including your property taxes and insurance) on time and your mortgage will not be called due early.
I’ll address Sandy’s other excellent questions in a follow up post.
A correspondent lender is a blend between a bank and a mortgage broker. What sets correspondent lenders apart from others is that they have significant credit lines that allow us to fund loans which are then sold to the lender after closing. A correspondent lender processes, underwrites and prepares the loan documents which allows them more flexibility than the traditional broker. Correspondent Lenders have access to many different lenders unlike most banks. Even if bank mortgage companies can broker, loan originators often will not as they’re typically paid a lower commission if they do not use their bank’s products.
So why is now such an important time to select a correspondent lenders? With banks pulling back (or suspending) products or repricing and lenders shutting down, it’s important to work with a Mortgage Professional who can make adjustments if needed in a rapidly changing market. Many were caught at closing when they sent loans to American Home Mortgage, one of the nations largest lenders. If you were getting ready to close with a mortgage broker, the loan would need to be re-processed, re-underwritten, and new loan docs prepared and delivered to escrow. With a correspondent lender, as long as the rate had not changed, you could possibly keep the same docs and your escrow appointment.
Because it is more difficult to become a Correspondent Lender vs. a Mortgage Broker there are fewer of us and therefore, we’re a bit more challenging to find. How do you know if your Mortgage Professional is employed with a Correspondent Lender? Ask. A “mortgage broker” or “mortgage banker” is not the same as a correspondent lender.
A Correspondent Lender just may make the difference in your transactions closing on time in this uncertain market.
Last week we received a postcard from our friendly tax assessor informing us that our assessed value increased 14% over last year. When I owned my first home, this news would probably excite me. What it really means is that our mortgage payment is going to increase.
Your note rate determines the principle and interest portion of your mortgage. However, property taxes and home owners insurance can and do change…count on it. Your mortgage company received the same notice about your property taxes, too (this is one reason why you pay the "Tax Service Fee" when you obtain a mortgage).
Our new assessment is effective for our 2008 real estate taxes. Once this rolls into place in the beginning of the new year, our mortgage company will contact us and may offer the following options, after reviewing our escrow account:
We will most likely opt to have our payment increased.
Please do be aware when you’re buying a home, that even if you have a fixed rate mortgage, the taxes and insurance are not "fixed". If you currently own a home in the Pacific Northwest where our values are still strong, be prepared to have your mortgage payment increase in 2008.
And for those of you who are squeaking by making your mortgage payment, this is even more reason to put away your credit cards and to have your credit reviewed by a Mortgage Professional in the event you need to restructure your current financial position (do this at least 6 months before you need to refinance so you have a chance to make any corrections or improvements to your credit). Don’t wait.
What? You’ve never thought of FHA mortgages as “hot”? Read about this scenario of a client I recently helped and you just might be cooing “that’s hot”, too! [Read more…]
You better double check with your Mortgage Professional. As of Sunday, July 22, 2007 underwriting guidelines are tightening up for interest only conventional (loan amounts $417,000 and lower) mortgages.
So what does this mean?
Previous Guidelines: If a buyer was preapproved using a 5/1 Interest Only LIBOR ARM based on an interest rate of 6.125% (note: this is NOT a rate quote and is only for purpose of illustrating the guideline changes) earlier this week qualified for a payment in the amount of $2041 (plus taxes and insurance), they could borrow $400,000.
New Guidelines: The current index for LIBOR is 5.4 plus the margin of 2.375% for this particle loan program = a fully indexed rate of 7.775% for the same ARM mentioned above. Qualifying the borrower for a $2041 payment based on a 30 year amortization at 7.775% means the borrower now qualifies for a loan amount of $284,200.
This will obviously have a dramatic impact on purchases and refinancing out of interest only products. This is still very new and we’ll see if non-conforming products follow suit.
Here’s what you need to do:
This is not the time to be hiding or not dealing with your mortgage…guidelines are changing quickly and you need to be proactive and responsible with your largest investment. If you need help, find a qualified Mortgage Professional such as a Certified Mortgage Planning Specialist, who has been acquired additional training and education or get a referral from someone you trust and respect.
I have been glued to the television watching two days of testimony from Fed Chairman Ben Bernanke to the House and Senate. Maybe I’m a mortgage nerd, I find this amazing.
I’m convinced a majority of our elected officials are there just to grandstand and don’t have a clue about their personal mortgages! Many of our representatives are treating Mr. Bernanke as if he personally doled out inappropriate subprime mortgages in an abusive fashion. Other random tid-bits that I found interesting from the Q&A sessions are:
I watched as much of the two day testimony as possible…ah, I’m glad I’m not Ben!
To read his prepared testiomony, click here.
Rhonda Porter is a Licensed Mortgage Originator MLO121324 living in the greater Seattle area. Rhonda began her career in 1986 in the title and escrow industry and began her mortgage career in 2000. She enjoys helping people understand the mortgage process and started writing The Mortgage Porter in late 2006. Read More…
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