Guidebook to Fighting Foreclosure
Foreclosure is the ultimate penalty for property owners who default on their mortgaged obligations. The true health of the national economy can often be measured by its foreclosure rate, the percentage of homeowners falling into default and foreclosure. This is particularly true in America, where great emphasis is placed on homeownership. There are many reasons why mortgage borrowers fall into foreclosure . They may have bit off more than they could chew and obtained a loan they couldn't afford. Most who face foreclosure do so because a dramatic event has occurred, which has affected their ability to make payments, such as job loss, health problems or major emergency. Investors who face foreclosure often do so because they miscalculated, though occasionally mismanagement may be the cause. Regardless of the cause, the foreclosure process is a stressful and drastic event for most property owners, especially homeowners. Depression and despair are common results of foreclosure . But the...
When a lender fails to work out a loan in default, the property ends up on the courthouse auction block. Typically, experienced foreclosure specialists who accurately calculate risks win at this game. Yet, it's true you must start somewhere. If you get to know the condition and value of a property by talking with its owners in preforeclosure workout discussions that eventually failed to secure a deal, consider bidding at the public auction. Bidders who thoroughly prepare can walk away with great bargains, but not great financing. Most foreclosure sales require cash. To buy, you'll need wealth, a ready line of credit, or a money partner. As it turns out, the foreclosing lender often wins the auction because no investor stepped forward with a bid high enough to pay off the lender's lien.
You've seen those infomercials about buying foreclosure properties and uplifting introduction music and glossy materials on how to profit from foreclosure There are bargains to be found in purchasing distressed properties at foreclosure sales, especially if you know how the system works. This article will review the foreclosure procedure and how to prepare and shop for potential investments.
A real estate deed used to convey title to a property from the current owner to the owner's lender or creditor. This deed is normally used when the current owner is in default or foreclosure proceedings. By voluntarily surrendering the property, both parties avoid the costs and delay of further legal proceedings. The lender receives title without going through the usual court and auction process in exchange, the loan is terminated. Similar to the power of sale clause, this is a type of non-judicial foreclosure . For more information, see the All About Deeds and Everything You Need To Know About Foreclosures articles in the Real Estate In-Depth section.
Delinquencies and foreclosures have skyrocketed to the point where, as shown in Figure 3.2, nearly 8 percent of all U.S. mortgages were affected as of year-end 2008, an all-time high since the Mortgage Bankers Association started tracking this in 1972. This represents more than four million homes and roughly 1 trillion of mortgages. And the problem is rapidly getting larger, as in January 2009 alone more than 30 billion in Figure 3.2 Total Delinquencies (Seasonally Adjusted) and Foreclosures Figure 3.2 Total Delinquencies (Seasonally Adjusted) and Foreclosures mortgages defaulted and 274,000 homes received a foreclosure-related notice (default notice, auction sale notice, or bank repossession). The rate of monthly foreclosures has more than tripled since the peak of the bubble, as shown in Figure 3.4 . RealtyTrac.com estimates that over 1.5 million bank-owned properties are on the market, representing around one-third of all properties for sale in the United States. While the number...
There are many reasons that lead a homeowner to loan default and foreclosure. A drop in income, an increase in housing costs or bills, or just biting off more than the borrower can chew can all lead to foreclosure. on the promissory note, that defaults activates the mortgage or security agreement. It is the mortgage or security agreement that gives the lender the right to foreclose on the property. The lender cannot exercise this foreclosure right unless the borrower defaults on the promissory note. Even after a borrower defaults, the property remains in the homeowner's name. The path leading to foreclosure normally proceeds as follows 4. Foreclosure notice. If the lender's collection attempts still prove futile, the lender can then file for a foreclosure judgment from the court. Borrowers often will still have the option to reinstate their loan but at a greater cost. 5. Foreclosure judgment. After a foreclosure period of at least 60-90 days, the court will issue a foreclosure notice...
When you identify several advertised foreclosure specialists, give each one a call. Learn their backgrounds. Do they only dabble in the field of REOs and foreclosures, or do they make this field their full-time business When I telephoned an REO specialist in Orlando, he talked with me for an hour and a half about property availability, financing, purchase procedures, hot areas of town, rehab potential, estimating repair costs, portfolio lenders, strategies for buying and managing properties, selecting tenants, and a dozen other related topics. At one point during our conversation, he asked, I'll bet you haven't talked to any other agents who know as much as I do about REOs and foreclosures, have you I've been doing this 23 years. Last year, I sold 90 houses and rehabbed 16 others for my own account. Pretty impressive This agent represents the kind of pro you want to find. Although many agents claim expertise in REOs and foreclosures Sure, I can do that for you only a few actively work...
The loan cost me today They don't understand the importance of the life of the loan or, equally important, they have no vision of how long they will actually stay in a particular home or a particular loan. This is the big picture in the mortgage business - seeing past today into the future, both near and far. Just how long do you intend to stay in a home and in that initial loan, when you first purchase your house The answer to this question should be the biggest consideration in what type of loan program you choose, and very few mortgage brokers and bankers explain this.
In this section we investigate to what extent a logit regression model can explain the high levels of delinquencies and foreclosures for the vintage 2006 mortgage loans in our database. The regression coefficients are assumed to be constant over time, which allows us to interpret the time variation in the regression error term. All results in this section will be based on a random sample of one million first-lien subprime mortgage loans, originated between 2001 and 2006. where the event is either delinquency or foreclosure of a subprime mortgage loan after a given number of months (x) 1 (1 + exp( x)) is the logit function X is the vector of explanatory variables, including a constant and 3 is the vector of regression coefficients. We will report the following statistics for each Table 2 provides the definitions of the dependent and independent (explanatory) variables used in the empirical analysis. We use either the delinquency or the foreclosure dummy variable as the dependent...
But rather than effectively deal with their mortgage problem as soon as trouble hits, most owners hang on too long hoping for a miraculous rescue. Because miraculous rescues rarely occur, most of these people end up facing foreclosure. At that point, you maybe able to help these potential sellers salvage their credit score and part of their equity and at the same time secure a bargain for yourself. Faced with pressures of time and money, these property owners may accept a quick sale at a price below market value. The sellers' lender may even let you assume their existing mortgage on favorable terms. Because lenders lose money on foreclosures, the lender will review offers that credibly promise to improve its current doomed position. 8 Secret s 75-81 address foreclosures and REOs. My book, Investing in Real Estate, 5th ed. (John Wiley & Sons, 2006), explains their profit potential more thoroughly. Also, you might listen to my audio book, Goldmining in Foreclosures, Trump University,...
A seldom addressed issue when buying foreclosure properties is the buyer's conscience (if you have one) bothering him or her about pushing people out of their home. Some people probably deserve to lose their home. Unfortunately, many people who face foreclosure do so because of a job loss, family crisis or widespread economic downturn.
A renegotiable rate mortgage (RRM) is a series of short-term loans secured by a long-term mortgage. The short-term loans are automatically renewable at equal intervals of three to five years each. The mortgage term may not exceed 40 years. The monthly payments are made in equal installments. However, at the end of the life of each short-term loan, the interest rate may be changed. Changes are based on the movement of an index such as the Federal Home Loan Bank Board's most recent monthly national average contract mortgage rate index. The interest rate is the only term'that may be altered. An interest rate modification results in a change of the monthly payment. The new payment amount remains stable until the loan term has again expired.
By far the fastest growing form of mortgage loan in recent years has been the credit line home loan. It is a second mortgage loan that permits any number of draws or balance reductions, subject to a maximum of 75 to 80 of house value, including the first mortgage loan. The monthly payment typically is the greater of a fixed percentage of the current balance, usually 1 ' 2 to 2 , or a modest dollar minimum. The interest rate is variable, usually prime (or another short term interest rate) plus one and a half to two percent. Draws against the mortgage usually are by check, though in some cases credit cards access the credit line.
Brokers refer to as a HELOC, is a different kind of home loan. An equity line has different rates and terms from a conventional first mortgage. In a standard home loan, or mortgage, your monthly payments cover both the principal loan and the interest you are charged. Most mortgage payments include escrow, or taxes and insurance. An equity line of credit payment does not reduce, or amortize, your principal loan amount and does not include escrow. You are borrowing the equity in your house and paying the bank an interest premium on that loan. With a HELOC, you pay only the interest on the loan and, generally, you get the money for less time than you do a standard first mortgage.
Conforming programs can be fixed-rate, ARMs, balloons or temporary buy-downs. The term conforming essentially apply to those mortgage loans that conform to the guidelines established by Fannie Mae (FNMA, or the Federal National Mortgage Corporation), Freddie Mac (FHLMC, the Federal Home Loan Mortgage Corporation) and Ginnie Mae (GNMA, the Government National Mortgage Association).
Suddenly, the banker is a guy who will help you. Now, he's your friend. The intention here is not to scare you into thinking that everyone in the mortgage business is a bad person, looking to rip you off, but don't trust this guy, just because a realtor sends you to him. Remember, they work together. The realtor needs the sale, and the When I worked in the mortgage business as a full-time loan officer and sales manager, the average customer was far more concerned with the costs of completing the loan and the final monthly payment than with the interest rate on the money they were borrowing. This is one of the biggest mistakes home buyers and people refinancing make in completing a home loan.
A reverse mortgage is sometimes called a deferred payment loan, and for a very good reason. Instead of paying off the home loan as you borrow money, the payments are put off (deferred). This is why reverse mortgages can be such a good choice for seniors when you're on a fixed income or living off of your savings, it can help to have some extra cash in hand to supplement. Because payment is deferred, you are spending the equity in your home, rather than earning it (as you would with a traditional forward mortgage). Since equity is an intangible value, you never feel the effects of the equity going down, but you sure feel the money flowing steadily into your checking account
A big myth about home loan interest rates is that they are completely controlled by what Alan Greenspan and the Federal Reserve say. Although Greenspan and the Fed play a role, it is a minor one. Adjustable Rate Mortgage rates are based on treasury notes, the notes that correspond to the term of the ARM. For example, the 3-year ARM has a rate that is based upon the 3-year treasury yield, just as the 5-year ARM is based on the 5-year yield.
So exactly how quantitatively important is the securitised mortgage market This market is most fully developed in the US. Figure 1.1 shows the rapid growth in the mortgage-backed securities issued by the US federal home loan agencies. During 2001 the issue of mortgage-backed securities by the major US agencies reached a peak of 1,092.6 billion. This was a feature of a fluctuating market, for example, there was an issue of 482.4 billion in 2000 having fallen from 685.2 in 1999.12 The new issues of mortgage debt depend upon changes in the prime market for mortgage finance and the varying figures emphasise this link. The total amount of outstanding mortgage-backed securities in the US was 3,041.9 billion as of 30 June 2002, indicating a phenomenally large market.13 sheet financing is creating a more rapid response in mortgage rate adjust-ment.14 Securitisation has also developed in the Australian mortgage market being led by government house building programmes in the 1980s, which used...
No magic system succeeds with owners who face foreclosure. Such owners contend with financial troubles, personal anguish, and indecisiveness. In addition, they probably have been attacked by innumerable foreclosure sharks, speculators, bank lawyers, and recent attendees of get-rich-quick foreclosure seminars. These owners are living with the public shame of failure. For these reasons and more, they are not easy people with whom to craft a deal. Yet, if you develop a sensitive, empathetic, problem-solving approach with someone suffering foreclosure, you may strike a win-win agreement but play fair. Other potential buyers will pay them a visit. A Here's my offer take it or leave it approach will anger the owners. It will not distinguish you from the dozen foreclosure sharks who try that ploy.
When a mortgage lender wins the bid at a foreclosure auction, the foreclosed property ends up as an REO. If the lender can't turn the property over to HUD, VA, or other guarantor, it will sell to a homebuyer or investor. As stated a few pages back, most lenders list their REOs with a Realtor, but some will negotiate directly with homebuyers and investors. Safer Than Buying at the Foreclosure Sale To buy direct from a lender typically presents no more risk than buying direct from any other property's owner.9 You can buy an REO much more safely than you could have bought the same property at its foreclosure sale. Depending on the lender's motivation, its internal policies and procedures, and the property LTV at the time of the foreclosure sale, you might buy below market price. Let's say the market value of a property at the time of its foreclosure sale was 585,000. The lender's liens against the property totaled 560,000. To win the property away from the lender at the foreclosure sale,...
If the past forecasts the future, the next several years will produce a strong need for rescuers. To build equity wealth fast, or perhaps to increase your affordability, ask foreclosure specialists whether borrower defaults, foreclosures, and REOs are piling up in your area. Although you can save big with seller financing, foreclosures, and REOs in all times and places soft markets spell buyer's delight.1 Yet, as high tide rolls in, many would-be buyers fear to even dip their toes in the water but if you're willing to take the plunge when others shiver in a blanket of worry, you will earn a gold medal.2 Now let's look at these lesser-known property finance possibilities in more detail. 2During the previous high tide of foreclosures and tough times in California (1993-1996), my books of that day went firmly against the accepted opinion that homes were no longer a good investment. I strongly urged homebuyers and investors to take advantage of the amazing buying and financing...
As mentioned above, the current property owner does have several rights and protections during this tax foreclosure period. During this redemption period, the property still belongs to the original owner and NOT the investor. The investor receives full foreclosure rights after the redemption period has passed. Even then the property stays in the original owner's name until the foreclosure proceedings have been completed and the tax deed is issued to the investor.
To look at, on loans in production that were years old was positive. Adam Davidson, National Public Radio As we now know, they were using the wrong data. They looked at the recent history of mortgages and saw that the foreclosure rate was generally below 2 percent. So they figured, absolute worst-case scenario, the foreclosure rate may go to 8 or 10 or 12 percent. But the problem with that is there were all these new kinds of mortgages, given out to people who never would have gotten them before. So the historical data was irrelevant. Some mortgage pools, today, are expected to go beyond 50 percent foreclosure rates. Even if a loan defaulted, the lenders didn 't think they'd suffer any losses, for two reasons Either they had sold the loan to someone else or they assumed that home price appreciation would bail them out. When home prices are rising rapidly, almost no borrowers default, because anyone in trouble can simply refinance. And, even in the event of a default and foreclosure,...
The Soldiers and Sailors Relief Act affects mortgages in several ways. One provision states that the court in which foreclosure action appears has the right to stop proceedings in which a civilian mortgagor, after induction to the military, is unable to comply with the mortgage agreement. For example, a mortgagor might be unable to meet his payments due to a reduction of income after entering the military. Another provision states that the mortgagee can collect a maximum of 6 interest while the mortgagor is in the military, unless the mortgagor's ability to pay is not affected by his military status.
If you have substantial equity in your house, the least-costly action to the lender may be foreclosure. While foreclosure is costly, the lender is entitled to be reimbursed from the sales proceeds for all foreclosure costs plus all unpaid interest and principal. While foreclosure makes the lender whole, it is a disaster for you. Your equity is depleted, you incur the costs of moving, and your credit is ruined. Hence, you must avoid foreclosure, if necessary by selling your house. Little or No Equity. If your financial reversal is temporary and you have little or no equity in your property, it will be easier to persuade the lender to offer payment relief. With no equity, the foreclosure alternative is more costly to the lender. or a deed in lieu of foreclosure. In the first, you sell the house and pay the lender the sales proceeds while in the second the lender takes title to the house. In both cases your debt obligation usually is fully discharged. (They do appear...
For the regressions in Section 3 we used as dependent variable the probability that a loan of a particular age is delinquent or in foreclosure, conditional on the loan not being terminated (prepaid or defaulted) before that age. Since the focus in this paper is on young loans (age below 24 months), we do not expect terminations to play an important role for the questions we address. We confirm in this subsection that our main results are robust to explicitly taking into account terminations. We re-estimate the results presented in Table 3 analyzing the effects of loan characteristics, borrower characteristics, and economic circumstances on the probability of delinquency and foreclosure but this time include loans that are terminated prior to the moment of loan performance evaluation. (or in foreclosure, or real estate owned), or terminated due to default. We define a loan terminated due to default when the month prior to termination the loan was in foreclosure or real-estate owned....
The logit regression specification used in Section 3 assumes that the regression coefficients are constant over time. That is, the effect of a unit change in an explanatory variable on the delinquency or the foreclosure rate is the same in, for example, 2006 as it is in 2001, holding constant the values of the other explanatory variables. We test the validity of this assumption for all variables in our analysis by running cross-sectional OLS regressions for each calendar month from 2001 to 2006 and checking the stability of the regression coefficients. It turns out that the strongest rejection of a constant regression coefficient is for the CLTV ratio. In this section we first discuss this finding and then turn to the question of whether lenders were aware of the non-stationarity of the loan-to-value effect, by investigating the relationship between the loan-to-value ratio and mortgage rates over time.
Nevertheless, even though you can buy a property with little or nothing down, first realistically (even pessimistically) critique your patterns of spending, borrowing, and saving. No cash, no credit, no problem may get you the financing you want, but it won't keep you out of foreclosure. Prudence dictates cash reserves. Do not merely buy a property you want to own it until you sell on your own schedule. Unfortunately, experience shows that little or nothing down borrowers suffer foreclosure at rates 4 to 10 times higher than borrowers who make a down payment of at least 20 percent. Play it safe. Budget carefully. Allow for the unexpected.
After you've located 203(k) advisors who know what they're doing, search for a property that offers good value for the money. In Quentlin Henderson's case, his Realtor found him a bargain-priced, six-year-old house that was in a sorry state because its former owners had abandoned it as a result of foreclosure. The good news for people who buy such houses, says HUD FHA's office in Orlando, is that purchase prices are generally low so that after repairs are made, the home's new value often produces instant equity.
Department of Veterans Affairs (VA) guarantees the payment of home loans for eligible veterans. The guarantee permits veterans to finance their homes with 100 percent (zero down payment) loans. As with any mortgage, lenders foreclose when VA borrowers fail to make their payments and fail to enter a workout VA financial counseling program. In exchange for a loan payoff from VA, lenders return the foreclosed homes to VA, which then tries to sell them as quickly as possible. 2. You cannot directly negotiate with or submit a bid to VA. You must submit your bid through a VA-approved real estate agent (your foreclosure pro). 2. VA offers investors favorable terms of financing. In my area, for example, investors can close financing on a VA home with total cash out of pocket of less than 6 percent of a property's purchase price. In addition, VA typically applies relaxed qualifying standards. VA buyers (who need not be veterans) must show acceptable, not perfect, credit records. For...
Okay, you likely already know far more than you did a few minutes ago about the mortgage business. You either want to buy a home or refinance that high-interest mortgage you have on the house you bought years ago, or perhaps purchase an investment property. But knowing that mortgage brokers and bankers are salesmen, just drooling at the chance to take your money, you may be a bit timid. Don't be. Consider the mortgage game like a baseball, football or soccer game. Teams that play too conservatively, or not to lose, will most definitely find a way to lose. If you're timid in looking for your mortgage, you'll most likely lose, too. So, remember, the best approach when getting your mortgage is to go on the offensive.
Your originator not only depends on you for referrals, but you, too, have a chance to be on the receiving end of that axiom of the mortgage business. Do you know anyone who has gotten a reverse mortgage Chances are good that you do, even if you weren't aware of it. Ask around, and we bet you'll be surprised at who already has one. You can also ask if your friends or family know anyone who has one. Even if you have to talk to your sister's neighbor's hairdresser's mother, it can be worth getting an assessment of one originator's work.
How long has your company been in business Although this should not be the final deciding factor of your decision, I would recommend avoiding companies that have not been around for at least three years. The mortgage business is easy to get into, and there are a lot of hotshot brokers, who figure they can hang a sign on a building and start making a fortune. Over three trillion dollars in mortgages were completed in 2003, so more and more people want a piece of that pie. You want a professional, not a fly-by-night operation, looking to get rich and get out. Again, he'll be stunned that you know this term, as virtually no one outside the mortgage business uses or knows it. In fact, most mortgage brokers don't realize the true, honorable use of a Yield Spread Premium. Remember, as previously outlined, yield spread is what a lender pays a broker, because the broker sells you a higher interest rate than the lender's par rate for that loan program. In other words, a lender may pay three...
If you buy new windows, you'll not only pay for the windows, you will also pay an installation fee. When you purchase a car, you pay tax, title, assumption fee, etc. Just about every major purchase comes with extra costs or fees, and home loans are no different. Most people think they don't have to pay costs on a loan, because they are paying interest on the loan (they figure this is their fee - a premium on the money). A mortgage, however, does not come free it does have costs. While some are mandatory, others are not. Follow these guidelines, and you'll never pay too much for your purchase mortgage or refinance loan.
Congress enacted legislation that permits states, counties, cities, and various government agencies to offer below-market home loans. Under these programs state and local governments sell tax-free bonds to Wall Street (or European or Asian) investors to raise low-cost mortgage money. The government then uses this bond money to make lower-interest-rate loans available to first-time homebuyers (usually defined as anyone who hasn't owned a home for at least three years, or possibly homebuyers who have recently divorced and now want to buy a home on their own).
Fannie and Freddie require PMI on all home loans they buy with LTVs greater than 80 percent (less than 20 percent down) however, lenders who do not sell into the secondary mortgage market can make low-down-payment loans without PMI. These portfolio lenders frequently use that advantage to create a competitive edge over Fannie Freddie affiliated
Given the high tide of delinquencies, foreclosures, and bankruptcies rolling over the country, mortgage lenders have decided to approach troubled borrowers with a velvet glove and an olive branch rather than the iron fist of lawyers and legal process. The Mortgage Banker has published a variety of articles with titles such as Compassionate Servicing, Rescuing Latepay-ers, The Delinquency Story, and Wells Fargo Implements Freddie Mac's Early Resolution System. If you know you're going to face emergency bills, we can suspend your payments until you recover, says Paula Edwards, a workout and loss mitigation official with Countrywide Home Loans. But we can't do anything if we don't know. I've helped all sorts of people mechanics, doctors, judges, professors. But only when they call. Deed in lieu of foreclosure. Rather than suffer the stigma, costs, and stress of foreclosure, some deep-in-debt borrowers convey their property to their lender. If the lender accepts, it releases the borrower...
Josh Silver has been the vice president of research and policy at the National Community Reinvestment Coalition (NCRC) since 1995. He has a major role in developing NCRC's policy positions on the Community Reinvestment Act (CRA) and other fair-lending laws and regulations. He has also written congressional testimony and conducted numerous research studies on lending trends to minority and working-class communities. These studies include NCRC's Best and Worst Lenders, a comprehensive analysis of home lending in 20 metropolitan areas, and a report sponsored by HUD on the performance of Fannie Mae and Freddie Mac in financing home loans for minority and low- and moderate-income borrowers. Prior to joining NCRC, Mr. Silver was a research analyst with the Urban Institute. Mr. Silver holds a master's degree in public affairs from the Lyndon B. Johnson School of Public Affairs at the University of Texas in Austin and a bachelor's degree in economics from Columbia University. NCRC is the...
Good intentions mean nothing without the right tools. An aggressive internal training program that includes diversity as well as credit and product components is critical to ensuring that our staffs have the requisite knowledge to deliver consistent service to all of our loan applicants. We track training participation and send reminders to personnel who fall behind in their training. To police actual performance, we conduct a second review of all denied mortgages for minority mortgage applicants. These second reviews are conducted weekly, and committee members include the mortgage business line manager and staff members from compliance and community affairs. In addition, a formal fair-lending audit is conducted at least twice each year. Fair Lending Wiz software includes a number of tools that allow us to spot patterns for further review.
While there have been numerous advocates of SAM home loans, no large-scale program has been implemented. One cause of this is home appreciation is geographically correlated with income and ethnic racial characteristics therefore, the loan could be inherently discriminatory. A second cause is typical terms do not return a competitive yield to lenders. In income property lending, however, the SAM idea is used as one form of a participation mortgage loan.
Anticipating the end of the wave of subprime loan resets, in late 2008 some pundits were starting to get bullish on the outlook for the mortgage crisis. Unfortunately, they missed two things. First, there 's a big lag effect since it's not resets but rather homes being sold off that has an impact on the housing market. Resets often lead to default, which usually leads to foreclosure, but this takes a long time. It varies greatly by state, but on average it takes 15 months from the date of the first missed payment to the home being sold, and going forward this will likely take even longer given the glut of homes on the market and foreclosure moratoriums by many lenders and servicers. Thus, the housing market in early 2009 was feeling the impact of subprime loans that were made in late 2005, reset in late 2007, and defaulted in early 2008. Therefore, the impact of subprime resets tapering off won 't be felt until mid-2010.
The said Lessees hereby pledge and assign to the Lessors all the furniture fixtures, goods and chattels of said Lessees which shall or may be brought or put on said premises as security for the payment of the term herein reserved, and the Lessees agree that the said lien may be enforced by distress foreclosure or otherwise at an election of the said Lessors, and do hereby agree to pay attorney's fees of ten percent of the amount so collected or found to be due, together with all costs and charges therefore incurred or paid by the Lessors.
HELOCs and home equity loans are often lumped together for analytical purposes because they share common risk factors They are junior not only to first mortgages, but also to accrued interest, foreclosure costs, brokerage commissions, and other expenses in the event of a default. In the current declining home price environment, first mortgages are almost always impaired upon default, meaning HELOCs and home equity loans suffer a total loss in fact, sometimes even more than 100 percent, since there 's a cost to write off the loan.
The combined LTV ratio rather than the first-lien LTV ratio is believed to be the main determinant of delinquency and foreclosure, because it is the burden of all the debt together that may trigger financial problems for the borrower. In contrast, the first-lien LTV is the more important determinant of the mortgage rate on a first-lien mortgage, because it captures the dollar amount at stake for the first-lien lender.14
The mortgage business is the only business I know where you earn a ton of money in one year and give it all back during the next three. He added that even though the housing market was tanking and the business of lending on homes right along with it Countrywide was in a position to capitalize on the market's wreckage, that as other lenders failed, Countrywide would pick up market share, meaning his company would get a bigger piece of the pie, something equities analysts loved to hear. Gaining market share was what it was all about not just in mortgages but in any business. In the mortgage business, the bigger machine you operated, the more money you made. Angelo 's creation had a 15 percent market share, which meant that 15 out of every 100 loans closed in the United States belonged to Countrywide. It was an impressive number. But Angelo wanted 20 percent. That 's just the kind of guy he was. HomeBanc, though, was a direct lender to consumers through its retail storefront branches....
The subprime mortgage crisis of 2007 was characterized by an unusually large fraction of subprime mortgages originated in 2006 being delinquent or in foreclosure only months later. The crisis spurred massive media attention many different explanations of the crisis have been suggested. The goal of this paper is to answer the question What do the data tell us about the possible causes of the crisis To this end we use a loan-level database containing information on about half of all U.S. subprime mortgages originated between 2001 and 2006. The relatively poor performance of vintage 2006 loans is illustrated in Figure 1. At every mortgage loan age, loans originated in 2006 show a higher delinquency rate (left panel) and a higher foreclosure rate (right panel) than loans originated in earlier years at the same ages. Note that 2001 was a fairly bad vintage year as well, ranking second, both in terms of the delinquency and the foreclosure rates. Figure 1 Actual Delinquency and Foreclosure...
What are the risks if financial institutions don't respond to predatory lending issues being raised today They face new and costly legislative and regulatory initiatives. More importantly, they will face substantial risk of litigation. Unlike TILA or other consumer laws, the federal and Ohio fair housing laws place special obligations on the entire housing industry, including financial institutions. One of these obligations is that the duty of fair housing and fair lending is non-dele-gable. Almost a quarter century ago, in one of the first cases involving a racially discriminatory refusal to make a home loan, our federal court found in favor of the victim of discrimination in John and Susan Harrison, Plaintiffs, v. Otto G. Heinzeroth Mortgage Co. and Otto G. Heinzeroth and John Haugh, Defendants, 430 F. Supp. 893, 896-97 (N.D. Ohio 1977) and held that
In 1981 the Federal Home Loan Bank Board issued regulations incorporating both variable and renegotiable rate mortgages into adjustable mortgage loan regulations. An adjustable mortgage loan (AML) permits adjustment of the interest rate, which may be implemented through changes in the payment amount, the outstanding principal loan balance, the loan term, or any combination of these variables. (FHLBB Res. No. 8-12069 1981.) As with VRMs and RRMS, interest rates must be decreased as the index decreases, and of course may be increased as the index rises. The lender may increase the loan term up to 40 years to cover interest rate increases (although such an extension is not an option that must be offered to borrowers).
Each year, FHA insures hundreds of thousands of new mortgage loans. (The total number of these outstanding FHA mortgages runs into the millions.) When FHA borrowers fail to repay their lenders as scheduled (absent a successful workout), the owner of the mortgage will force the property into a foreclosure sale. Then (speaking generally) the lender turns in a claim to HUD (FHA's parent). HUD pays the lender the amount due under its mortgage insurance coverage and acquires the foreclosed property. HUD puts the property, along with all the others it has acquired, up for bid to the public. To buy a HUD property, submit a bid package to HUD according to set procedures. Violate a rule, and your bid package is tossed out. That's why you need a foreclosure pro. After HUD opens the bid package, it accepts the bid that nets HUD the most money except that homebuyers receive priority over investors even when the investor submits a bid that HUD thinks superior. HUD sets bid deadlines that give...
If the lender learns of the sale, it might mail the seller a nasty letter and demand a very large check. With the loan called due, someone would quickly need to pay off, refinance, or negotiate a settlement with the lender. Weak borrowers who can't come up with the cash, credit, or negotiating power to satisfy the lender face foreclosure. The buyers may lose the cash they've invested in the property. On the other hand, if you are financially strong enough to deal with this call potential, your risks are low. You simply refinance (obtain a new loan). Not so with subject to transfers. In those cases, the seller's credit and finances remain at risk for as long as the mortgage remains outstanding. If the buyer pays the mortgage late, the lender forwards scurrilous remarks about the seller to the credit bureau. If the property goes into foreclosure, the lender will chase down the seller for any money (deficiency) judgments the court awards it.
And Q2 2008 That Were in Foreclosure 89 Subprime Mortgages Entering Foreclosure Foreclosures Are Nothing New of Foreclosures since 2006 92 Early Problems Foreclosure Rates of Subprime Cumulative Foreclosures through September Cumulative Foreclosures through September 0utstanding Federal Home Loan Bank Ratio of 0utstanding Federal Home Loan Figure 5.39 Drivers of Foreclosures Strong Appreciation or Foreclosures Highest for Areas with Biggest Price Declines 209 Foreclosure Sales (Q3 2007-Q3 2008) 226 Breakdown of Bank Home Loans 366
The loan-to-value ratio is in fact a rather complex variable to interpret. Measured at origination it is more likely to reflect credit market constraints. Measured at this point of time it may also reflect information asymmetry between borrower and lender, say regarding property-specific house price volatility (see Deng et al. 2000). The loan-to-value ratio may also proxy personal characteristics such as attitudes to risk. There is the possibility that the loan-to-value ratio should be treated as simultaneously determined with the default decision (see Brueckner 1994b, 1994c). So the point of time to which the measured loan-to-value ratio relates is important. There is also a need to be precise regarding when a household defaults. This is often taken as mortgages subject to foreclosure, but a property might be sold during this period and thus avoid default (Phillips et al. 1996). Ambrose & Buttimer (2000) recognise this issue and follow Kau et al. (1992) by defining default as the...
Freddie Mac was created in 1970 to promote an active national secondary market for conventional residential mortgages and has been issuing MBS since 1971. At the time of its creation, thrift institutions were the backbone of conventional home lending, and the intention of Congress was to improve liquidity for these institutions and to ensure the flow of funds from capital markets to them. As a consequence, Freddie Mac was governed as an entity within the Federal Home Loan Bank System, with stock held by member thrift institutions and the bulk of its loan purchases conducted among thrift institutions. However, the 1989 Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) restructured Freddie Mac to give it a market-oriented corporate structure under the regulatory control of the Department of Housing and Urban Development (HUD).
So, on your 50,000 equity line of credit, your payment is 177.00 each month. This is an incredibly low payment for a loan of this size. This gives you a great deal of power, because you can control a large sum of money for an extremely low monthly payment. It is this low, because you are only paying the interest on the loan. A fully amortized loan of 50,000, including escrow, for example, would call for a monthly payment around 500, over 300 more than your equity line payment. And, obviously, a 50,000 mortgage payment is a home loan that does not give you control of the money it simply pays off your house. You probably pay well over 300 each month for your car, which might be worth roughly 20,000, but it has no residual value in other words, instead of appreciating in value, as your home does, it's value decreases. Yet, you still pay 300 each month, even when the car's value declines all the way to 5,000 and below. And, worst of all, you can't use your car as a tax write-off, but you...
The two government-sponsored enterprises that purchase enormous numbers of home loans in the secondary market, Federal National Mortgage Association (aka Fannie Mae) and Federal Home Loan Mortgage Corporation (aka Freddie Mac), have developed detailed guidelines for qualifying self-employed borrowers. Lenders looking to sell such loans to the agencies must follow the guidelines. The problem is that implementation can be complicated and time-consuming, especially when the declared income comes from a corporation or a partnership. If you own 25 or more, you are considered as self-employed.
The use of credit scoring models to better predict whether an applicant might default allows the lender more flexibility in making traditional home loans. During the last 10 years, the banking industry has greatly expanded its efforts to make credit available to less qualified applicants. For example, the housing mortgage secondary-market agencies, Fannie Mae and Freddie Mac, have broadened their underwriting criteria to accept alternatives to the traditional qualifications. Banks have started lower interest-rate or no-fee affordable housing programs, created first-time homebuyer programs in which borrower training replaces some of the missing qualifications of the borrower, and expanded the list of qualifications for potential borrowers. Many bankers also have said that credit scoring models have been crucial in permitting banks to approve more borrowers' applications than traditional underwriting criteria would have. All of them said that today they...
If you would like to buy a low- to mid-priced home, carefully consider the FHA 203(b) program. In this context, the meaning of mid-priced depends on where you live because FHA sets specific loan limits for each locale around the country. In high-priced cities such as Los Angeles, San Diego, Washington, D.C., and Boston, the FHA maximum loan currently tops out (for single-family houses, condos, and town homes) at 362,790. In the lowest-priced areas of the country, the maximum FHA home loan comes in at 200,160. Because FHA limits vary, consult with a mortgage loan advisor in the area where you would like to own. Compare these limits to home prices to see if the FHA 203(b) can work for you. (You also can check limits by locale at www.hud.gov.)
The fee that bothers people the most is the origination fee, or what some mortgage people call a broker fee. This is often confused with points, but should not be. Points are something completely different. The origination or broker fee is what you pay the loan officer to originate or create and complete your home loan, whether it's a purchase or a refinance. All mortgage people charge them, whether they work for a mortgage brokerage or for a bank. Remember, if you're told there is not a broker or origination fee, chances are you're paying a higher interest rate, and this is how they're making this fee.
Monthly payment is 803, over 200 more monthly. Of course, you'll pay off this loan in half of the time. Many people are enamored with a shorter term loan, because they feel they'll get rid of their home loan much more quickly. This is another numbers trap, and I rarely recommend taking a shorter term.
A provision in the mortgage deed that allows the lender to sell the property upon the borrower's default on his or her obligation, without a foreclosure suit. This is common with deeds of trust or in title theory states. The lender simply delivers and records a notice of default, and then sells the property at auction. If the selling price is insufficient, the lender may further sue for a deficiency judgment. Similar to the deed in lieu of foreclosure , this is a form of non-judicial foreclosure . For more information, see the Mortgage Deed and Promissory Note and Everything You Need to Know About Foreclosures articles in the Real Estate In-Depth section.
An informal term referring to borrowers and applicants with extremely damaged and abysmal credit, usually with credit scores below 500. The only financing hope for D-credit borrowers would be expensive non-conforming loan programs. D-grade borrowers are often currently in foreclosure , bankruptcy or repossession or have just completed such actions within the past year. Consumers can still be graded D when the foreclosure , bankruptcy or repossession is two to five years old if that consumer has not made strides in rebuilding credit. However, with proper attention to debt payments, a D-credit borrower can usually return to A-grade within five to seven years. For more information, see the Analyzing Credit Reports article in the About Loan Processing section.
The right of a distressed borrower to recover property that has been transferred from their ownership, usually during a foreclosure process. To exercise this right, the borrower will have to pay off the debt obligation. Most property owners will have both an equitable right of redemption before the tax sale or foreclosure auction and a statutory right after the sale. For more information, see the Everything You Want To Know About Foreclosures article in the Real Estate In-Depth section.
When foreclosure begins, all junior lien holders should join in the suit. If the property sells for less than the debt, the junior lien holders can sue the mortgagor on the note. If the property sells for more than the debt, the junior lien holders are paid off out of the surplus in order of their priority, with the mortgagor receiving the balance. The purchaser of the property then receives the property free and clear of the first lien (which was foreclosed) and all liens junior to it. The only exception to this involves real estate taxes. All real estate tax liens must be paid from the foreclosure sale, or the property passes to the purchaser subject to all unpaid taxes. The purchaser must then pay the remaining taxes due or lose the property.
Lien theory is a more modern approach to creating loan security and is used in most states. In lien theory states, the lender is considered to hold a lien, rather than title, against the property for security of the debt. A lien is the right to have property sold to satisfy a debt. In the event of default on the promissory note, foreclosure proceedings are initiated, and the title is conveyed
Failure to meet or perform a contract obligation. With mortgage loans, the lender may declare the loan in default any time after a payment becomes past due beyond the grace period. However, most lenders will not declare default until the borrower is at least one to three months behind. A default notice will activate the foreclosure proscriptions of the mortgage deed. For more information, see the Mortgage Deeds and Promissory Notes article in the Real Estate In-Depth section.
Because of the redemption and foreclosure period required, the investor must be willing to wait six to 24 months before receiving full ownership of the property. Because the investor does not own the property until after the redemption period has passed and foreclosure has been completed, the investor will be unable to obtain mortgage financing. Note, however, that tax certificates can and are routinely bought and sold after the auction. This is perfectly legal and allows investors to cash in their investments ahead of schedule. You will also find that most tax foreclosure properties tend to be in the poorer and often least marketable areas of town. Thus, the potential for immediate gain with these properties tend to be minimal.
Mortgage insurance, both government or privately issued, protect the lender by guaranteeing a portion of the loan amount against losses. For example, if a lender holds an 80,000 mortgage (with expenses) and sells a foreclosure home for only 75,000, the mortgage insurance would reimburse the lender for that 5,000 short-fall. FHA and VA loans are essentially mortgage insurance programs conventional loans require private mortgage insurance (PMI). With conforming loans, mortgage insurance is required whenever the LTV ratio exceeds 80 . For more information, see the Mortgage Insurance article in the Mortgage Industry section.
Another approach requires that foreclosure proceedings must be held, as in lien theory states. This requirement makes these states' mortgage laws equal in borrower protection to that of lien theory states' requirements. The only difference is in the formal wording of the instrument.
Note that a foreclosure is not required because the property never left the seller's possession. The installment contract just provided the buyer with an opportunity to purchase the title to the property, as long as the contract conditions are met. To remove a failed installment buyer, the seller would have to initiate legal eviction procedures.
Most home equity loans are limited to 10-year, 15-year or 20-year terms. Interest rates on home equity loans tend to be higher than standard first mortgage loans, because home equity loans tend to be riskier for the lender. In the case of a default and foreclosure, the auction funds first go to pay off the first mortgage loan and all applicable legal, administrative, tax and court fees. Only the surplus will then be applied to paying off the second mortgage.
A type of mortgage deed in which a third party holds the title in trust as a security, while the borrower continues to make payments to the lender. Most residential mortgage lenders will not allow the loan to close while the subject property is in a trust. The loan programs that will close with a trust normally use a deed of trust. The borrower conveys the legal title to the trustee, who retains the property until the debt to the lender is paid in full. If the borrower defaults, the trustee may sell the subject property to satisfy the debt, without benefit of foreclosure proceedings.
Quitclaims are also recommended if the grantor (seller) is unsure about the quality of the title he or she possesses. For example, if you obtained a property through a foreclosure sale or adverse possession, you may want to consider using a quitclaim deed when you sell it.
I was talking to a friend once about the mortgage business, and I used the phrase loan programs. He asked me what I meant by this phrase. So, I asked him what kind of loan he had on his house. He said, I don't know I've got a regular loan. When I started talking to more friends and family about mortgages, I soon realized very few people understand much about their own home loans. More important, though, very few of them see
Title work - exam, recording, title policy, and other legal matters involved with the title of your home is a necessary evil with home loans. Just as your home must be insured against fire, flood or other sorts of damage, its title must be insured, as well. A title insurance policy is usually around 3.50 per thousand dollars of the loan, and these fees are mandated by the state. So on a 100,000 loan, your title policy will be about 350. All the other work the title company does will cost roughly 500, bringing total title costs to a little less than 900. It can be much more, if you have a large loan amount.
I've always loved radio commercials for mortgage companies, where the radio guy pumping the company says, And remember, at ABC Mortgage Company, you'll never have to pay points. Now, this confuses the average person, who automatically believes that ABC Mortgage gives away home loans.
With all of these foreclosures coming to market and very little financing available to purchase all of the high-end homes available, the supply factor is going to bring down values rapidly and this does not even count Ma and Pa Homeowner who want to sell. Based upon what I see so far in 2009 prior to the spring and summer selling season, my best forecast is that homes with present values over 750,000 will lose at least 30 in 2009 and those currently worth over 1.5 million will likely decline even more.
Banks and thrifts come to the mortgage market with an overwhelming advantage in short funding. Savings and checking deposits make up most of the funds, with the rest coming from wholesale borrowings from the Federal Home Loan Bank system or other institutional market. The deposits usually come at a very low rate of interest, although the cost to acquire the deposits--by building and operating a network of branches is higher than the interest alone. The duration of these liabilities usually ranges from one to three years. This creates banks' key competitive advantage. No other core mortgage investor has access to this
We first discuss the main characteristics of the loans in our database at origination. Second, we discuss the delinquency and foreclosure rates of these loans for various segments of the subprime mortgage market. In Figure 1 we showed that for the subprime mortgage market as a whole, vintage 2006 loans stand out in terms of high delinquency and foreclosure rates (for variable definitions, see Table 2). In Figure 4, we again plot the age pattern in the delinquency rate for vintages 2001 through 2006 and split the subprime mortgage market into various segments. As the figure shows, the poor performance of the 2006 vintage is not confined to a particular segment of the subprime market, but rather reflects a market-wide phenomenon. In Figure 5 we plot the delinquency and foreclosure rates of all outstanding mortgages. Notice that the fraction of FRMs that are delinquent or in foreclosure remained fairly constant at about five percent from 2005 on. These rates are consistent with those...
While pass-through securities often are spoken of as certificates, they are issued in book-entry form on the book-entry system of the Federal Reserve, and only Government National Mortgage Association (GNMA, or Ginnie Mae ) certificates are convertible to physical form. It is not necessary to own an entire pool (although many institutional investors prefer to own entire pools, the larger the better). The minimum investment is 25,000 in a Ginnie Mae pool and 1,000 in a Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac ) or Federal National Mortgage Association (FNMA, or Fannie Mae ) pool.
Given the strong credit performance of prime conventional loans, defaults generally are ignored as a component of prepayments in conventional pools. For example, in 2004, Freddie Mac reported serious delinquencies (delinquent 90 days or more or in foreclosure) of 0.73 to 0.87 on loans in portfolios and securities, whereas Fannie Mae reported 0.57 to 0.64 . Government loans, on the other hand, experience serious delinquencies at two to three times higher rates. For example, in its National Delinquency Survey, for the second quarter of 2004, the MBAA reported a serious delinquency rate of 2.84 for FHA and 1.66 for VA loans. In addition, Ginnie Mae permits servicers to buy delinquent FHA and VA loans out of pools (at par) under certain circumstances. These loans can be rese-curitized (usually as private CMOs or Fannie Mae or Freddie Mac guaranteed securities) if the loans become current again, or reperform. As a result, servicers have an incentive to buy out eligible loans having premium...
(d) Foreclosure proceedings (whether judicial or otherwise) are instituted on any mortgage or any lien of any kind secured by any portion of the Premises and affecting the priority of this Mortgage. (a) Declare the total Secured Indebtedness, including without limitation all payments for taxes, assessments, insurance premiums, liens, costs, expenses and attorney's fees herein specified, without notice to Mortgagor (such notice being hereby expressly waived), to be due and collectible at once, by foreclosure or otherwise (c) In the event that Mortgagee elects to accelerate the maturity of the Secured Indebtedness and declares the Secured Indebtedness to be due and payable in full at once as provided for in Paragraph 2.02(a) hereinabove, or as may be provided for in the Note, or any other provision or term of this Mortgage, then Mortgagee shall have the right to pursue all of Mortgagee's rights and remedies for the collection of such Secured Indebtedness, whether such rights and...
For Many Foreclosures (September 2008) 93 Table 5.1 Selected Subprime Hybrid Loans in Foreclosure Foreclosure Start Rate 216 Q2 2008 That Were in Foreclosure 374 Table A.25 Delinquency and Foreclosure Start Rates for U.S. Table A.26 Foreclosure Rates (1999-Q2 2008) 378 Table A.27 Subprime Originations and Foreclosure Start in Foreclosure (Percentage of Number) 382 Table A.29 Number of Home Mortgage Loan Foreclosures Table A.30 National Subprime Foreclosure Rates by Table A.31 California Subprime Foreclosure Rates by Table A.36 Prime Mortgage Cumulative Foreclosure Starts through September 2007 by Year of Origination and Product Type (January 1999-July 2007) 404 Table A.37 Subprime Mortgage Cumulative Foreclosure Starts through September 2007 by Year of Origination and Product Type Table A.39 Mortgage Origination and Foreclosure Starts by FICO Scores Distribution (Percentage of Total by FICO Score Distribution) 413 Table A.40 Mortgage Origination and Foreclosure Starts Loan Purpose by...
An exculpatory clause relieves the borrower of personal liability to repay the loan. Thus, if the borrower defaults, the lender can look only to the property foreclosure for recovery of the debt. In effect, the lender may not sue the borrower on the note or obtain a deficiency judgment, if sale of the property at foreclosure does not provide sufficient funds to cover the loan's balance. Obviously, borrowers prefer to negotiate loans with exculpatory clauses, but lenders are usually unwilling to allow them.
When interest rates plummet, as they did in 2003, the Cash-out refinance is one of the best home loan programs available. If you want to pay off high-interest credit cards, a car loan, get money for home improvement or combine two mortgages into one, this is the Lenders do add a slight premium to your rate, usually one-eighth to one-quarter of a percent to take out cash. But if you're paying off credit cards at nine, 10 or even up to 19 percent, imagine the money you're saving, if you roll these debts into your home loan at say 6 or less, with an Adjustable Rate Mortgage.
Table 3 shows the results of the logit regression described in Section 3.1 with the delinquency (panel A) or foreclosure (panel B) dummy variables 12 months after origination as the dependent variables. The explanatory variables are listed in the first column. Focusing on the marginal effect of the regression coefficients, defined in Equation 2, we see that the mortgage rate is the most important factor explaining cross-sectional differences in loan performance. The positive sign means that a higher mortgage rate Delinquency Dummy Foreclosure Dummy FICO Score (-) Payments on the loan are 60 or more days late, the loan is in foreclosure, or the loan is real estate owned. The loan is in foreclosure or is real estate owned. We consider four product types FRMs, Hybrids, ARMs, and Balloons. We include a dummy variable for the latter three types, which therefore have the interpretation of the probability of delinquency or foreclosure relative to FRM. Because we expect the FRM to be chosen...
For all other applicants, non-conforming loan programs are available with a variety of alternative financing opportunities. It is even possible to provide refinance a home from foreclosure, as well as providing motgage financing for borrowers with recent bankruptcies. Please consult the Damaged Credit Options and Repairing Damaged Credit articles for more information. Specific articles on borrowers with bankruptcies or foreclosures are also available.
Fortunately for home mortgages, the influence of secondaiy mortgage market agencies has in recent years encouraged the widespread use of a standard home mortgage contract. This document, promulgated by the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal National Mortgage Association (FNMA), is well crafted to protect the interest of both mortgagor and mortgagee in the typical home loan situation.
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