Mortgage Meltdown

[Matthew328]

Just wondering what everyone thinks of the country's subprime mortgage meltdown....me working in the mortgage in industry this story really interests me

It'll eventually have a trickle down effect to everyone who owns a home..

[kaorder1999]

what the hell is it all about?

[coach]

lol ur not the only one wondering the same thing

[kaorder1999]

i dont pay attention to any of that crap on the news!

[mistanice]

There is only one good, knowledge; and one evil,ignorance. :eek:, now that I got that out of the way, I would like to know too.

[Matthew328]

Basically what is happening is due to many high risk loans being given to people who should not be getting their own homes....foreclosure rates have skyrocketed....over 50 mortgage lenders have gone out of business and its had a big trickle down effect in the economy...

Bascially the market is already saturated with homes that aren't selling and with all the foreclosures an already saturated market will be even more staurated which likely in turn will cause property values across the board to drop

I could explain to you what are high risk loans and what aren't if you wanna know that too!

[kaorder1999]

what are interest rates at right now?

[mistanice]

Originally posted by Matthew328
Basically what is happening is due to many high risk loans being given to people who should not be getting their own homes....foreclosure rates have skyrocketed....over 50 mortgage lenders have gone out of business and its had a big trickle down effect in the economy...

Bascially the market is already saturated with homes that aren't selling and with all the foreclosures an already saturated market will be even more staurated which likely in turn will cause property values across the board to drop

I could explain to you what are high risk loans and what aren't if you wanna know that too!

So are homes going cheap right now?

[kaorder1999]

Originally posted by mistanice
So are homes going cheap right now?

ive been looking at homes and it doesnt seem like homes are cheap!

[Matthew328]

its a buyers market right now....if you are patient and know where to look you can get some deals

[kaorder1999]

you can buy crappy houses cheaper right now. But houses that are in good shape are still holding their value

[mwynn05]

Ill out it the way I understand it. People are buying houses like cars....keep it for a few years get a new one and then they cant pay the mortgages

[Matthew328]

right now...but be patient...one good thing to look for is see how long a house has been on the market...someone who has had a house on the market for a while will likely take closer to the actual payoff than someone who hasn't had their house on the open market very long.

[mustang59]

The people who are really hurting are the ones with variable interest rates. They were great when rates were at record lows, but when rates started climbing the payments went up. Those who were stretched thin to start with can't make the larger payments and many are forced to sell or let it go back to the mortgage company.

[Matthew328]

Originally posted by mwynn05
Ill out it the way I understand it. People are buying houses like cars....keep it for a few years get a new one and then they cant pay the mortgages

That's part of it..part of it is a few years ago you could have a crappy FICO score walk into an office with a loan officer and state your income and walk outta there approved for a loan...no money down 100% financing...

Problem is, these subprime high risk loans have one of two problems

A) Its a fixed 30 year note but at a ridiculous high interest rate...borrower runs into some financial trouble is a late on their payments and now they cant refi into a lower rate because their credit score is even more jacked up and lenders have tightened restrictions...now the borrowers who are already delinquent run into just a little bit more financial hardship and boom they are in foreclosue, now besides being 3 months or so behind they have outrageous attorney fees tacked on...

B) Borrower gets a low initial interest rate, but what many times they don't realize is that it is an Adjustable Rate Mortgage (ARM). These loans have a very low initial rate, but after 24-48 months the rate starts to "adjust" and adjusts at an incredibly high rate every 6 months...borrower in the initial term has trouble and misses one payment, now their FICO score is lowered and they are unable to refi out of the ARM loan...so now the borrower who had the 750$ mortgage payment which they could manage with ease now has a 900$ payment...the 900$ payment is tough but the borrower tightens the belt and makes it and the payment is late every month so now late charges are tacked on...but 6 months later, boom the payment is now 1020$ and financially they can't afford it...and what do you know they end up in foreclosure also!

[mustang59]

Originally posted by Matthew328
That's part of it..part of it is a few years ago you could have a crappy FICO score walk into an office with a loan officer and state your income and walk outta there approved for a loan...no money down 100% financing...

Problem is, these subprime high risk loans have one of two problems

A) Its a fixed 30 year note but at a ridiculous high interest rate...borrower runs into some financial trouble is a late on their payments and now they cant refi into a lower rate because their credit score is even more jacked up and lenders have tightened restrictions...now the borrowers who are already delinquent run into just a little bit more financial hardship and boom they are in foreclosue, now besides being 3 months or so behind they have outrageous attorney fees tacked on...

B) Borrower gets a low initial interest rate, but what many times they don't realize is that it is an Adjustable Rate Mortgage (ARM). These loans have a very low initial rate, but after 24-48 months the rate starts to "adjust" and adjusts at an incredibly high rate every 6 months...borrower in the initial term has trouble and misses one payment, now their FICO score is lowered and they are unable to refi out of the ARM loan...so now the borrower who had the 750$ mortgage payment which they could manage with ease now has a 900$ payment...the 900$ payment is tough but the borrower tightens the belt and makes it and the payment is late every month so now late charges are tacked on...but 6 months later, boom the payment is now 1020$ and financially they can't afford it...and what do you know they end up in foreclosure also!
This very thing happened in the early eighties in what had been fast growth areas (Houston, for example) and so many people lost their houses. I knew someone whose mortgage company didn't raise the payments when the rates went up, they just tacked the shortage of the payments onto their balance. When they got ready to see they actually owed MORE than their original loan.

[SintonFan]

My propertie's value has risen 25% just in the last 2.5 years. Lots of over-inflated real estate out there too. .
.
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Matt, I know a little about these companies and how desperate they are to
keep you up to date.
We fell behind one month after Christmas and I swear our mortgage company was calling us twice a day "reminding" us we we late on the payment.:doh:

[Matthew328]

Sounds similar to a loan modification.....it is possible to have a higher principal balance than an original principal balance.....

[Matthew328]

yes most mortgage companies are bound by agreements made with investors to make a certian number of attempts to collect on delinquent loans...

The company I work for, if you have a subprime loan we start calling on the 1st to get that payment in.....subprime investors have gotten very wary....

[kaorder1999]

what the hell is a subprime loan?

[kaorder1999]

is it just a loan where the interest rate is below the prime interest rate?

[Matthew328]

A subprime loan is generally considered a loan for someone with bad or subprime credit.....good credit is called prime credit....

There are times when someone with good credit gets a loan that falls into the subprime categpry, if its a "high risk" loan

[kaorder1999]

hell..I dont know what we got. I know we both had decent credit and out loan is locked in at like 5.75 and its transferrable. What does that mean?

[Matthew328]

check your note.....it'll say if you are locked in for 30 years or if its an ARM....

[kaorder1999]

Originally posted by Matthew328
check your note.....it'll say if you are locked in for 30 years or if its an ARM....

i believe we are locked in for 30.

[kaorder1999]

but there is no way we could get 5.75 right now is there?

[Matthew328]

you either have a prime loan or a FHA....those are good....dont let anyone talk you into doing a refinance

[Matthew328]

Originally posted by kaorder1999
but there is no way we could get 5.75 right now is there?

I doubt it....it would be really tough

[kaorder1999]

ok..now it makes sense...we did do an FHA loan...so that is good?

[Matthew328]

yes FHA loans are good....its a govt. regulated loan they are low risk loans....govt. loans have strict guidelines to make sure they are not high risk

[kaorder1999]

Originally posted by Matthew328
yes FHA loans are good....its a govt. regulated loan they are low risk loans....govt. loans have strict guidelines to make sure they are not high risk

well...good....i feel better now!

[SintonFan]

Originally posted by Matthew328
yes FHA loans are good....its a govt. regulated loan they are low risk loans....govt. loans have strict guidelines to make sure they are not high risk
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We are locked in at 6% for 30 with a FHA loan. Is that good?

[SintonFan]

Originally posted by Matthew328
yes most mortgage companies are bound by agreements made with investors to make a certian number of attempts to collect on delinquent loans...

The company I work for, if you have a subprime loan we start calling on the 1st to get that payment in.....subprime investors have gotten very wary....
.
We're not subprime, is it normal for companies to call if you are 30 days late?:confused:

[sinton66]

Yes, 6% is not bad at all.

[Matthew328]

6% is solid..

yes if you are 30 days late on your mortgage most companies will call you daily...in the state of Texas on the 61st day of delinquency you are eligible for foreclosure....one 30 day late on your mortgage will really hurt your FICO...

[44INAROW]

Matthew, if we're locked into a 30 year note with 6.25 interest - should be try to shop now or stay where we are?
by the way We got a notice at work (I am in the insurance racket) about a big mortgage company going belly up and they were just advising us of the situation etc.. I forgot the name of the mortgage company....

oops I didn't see Sinton Fans post before I posted this.. nevermind.. answered it already. while we're on the credit subject - if a married couple has the following - do they have good credit or middle type - I run credit reports all day at work for insurance etc but we don't see the particulars - just the bottom line which means which marketing tier to place the customer - I just don't know what the scores mean

Husband 780
Wife 720

[wildstangs]

My old lady and I are going the Dave Ramsey way....Save money for 3 or 4 years and buy a foreclosed house off someone trying to dump it.

[Matthew328]

I'm by no means an expert on credit reporting and what you'd need to qualify etc..but it appears your scores are at worst above avg.....

Me personally a 30 year fixed 6.25% is very safe....a lot will depend on your equity and how much of your principle you have knocked off....I'd be very wary of a refi...especially if you have been in the mortgage for a while...if its a relatively new loan you might be OK with a refi if you can get a lower fixed rate...


Again always be wary of refi's when it sounds too good to be true generally it is

My expertise is in the area of foreclosure mainly...since what I do is help people who are in foreclosure

[Matthew328]

By the way if you want some good info on loan originations go to

http://creditboards.com/forums/index.php?showforum=9

some real good info here

[SintonFan]

Originally posted by 44INAROW
Matthew, if we're locked into a 30 year note with 6.25 interest - should be try to shop now or stay where we are?

Husband 780
Wife 720
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Oops! I looked into our rate. It is locked at 6.5% and I'm happy with that, for now.
.
.
I'm no expert 44IAR, but 780 and 720 look pretty good to me.:cool:

[lepfan]

We have a 6.125%....fixed rate (30 yrs)....with Wells Fargo. I think/hope I am safe....:)

[Matthew328]

yeah if you have a fixed rate you should be OK....fixed rate mortgages for the most part are low risk mortgages...most of the loans defaulting right now and causing foreclosures to go up are the high risk, Adjustable Rate Mortgages, no money down, 100% financing loans etc...

[mustang59]

Section D of the Dallas Morning News today has an article about subprime loans and the fallout. They're predicting problems for first time buyers and those seller wanting to move up.

[tree8400]

I live in the Frisco Area and about to be married should I buy a house or wait till we have some money to put down and then buy a house. We both have good credit scores, and stable jobs.

[kaorder1999]

Shakeout could chill home sales

Tougher loans could lock out some home buyers


09:54 AM CDT on Friday, March 23, 2007
By STEVE BROWN / The Dallas Morning News
stevebrown@dallasnews.com

The shakeout in the subprime mortgage business could bring a touch of frost to the spring and summer housing markets.

Industry analysts worry that tougher lending standards could lock out thousands of potential North Texas homebuyers at a time when home sales are already lagging.


MICHAEL HOGUE/DMN "I think it's pretty sure that some people who could get loans to buy a house six months to a year ago probably will have difficulty this year and next – especially first-time, entry-level buyers," said James Gaines, a research economist at Texas A&M University's Real Estate Center.

"Local builders and local Realtors should be somewhat worried that the number of potential buyers will decrease or at least shift into lower-cost submarkets as lenders start requiring equity down payments and tightening underwriting," he said.

And a slowdown in sales at the low end can spread upward in the market. If owners of entry-level homes can't find a buyer, they won't be moving up to higher-priced housing, Dr. Gaines said.

He said the mortgage industry "always tends to react in knee-jerk fashion, especially to problems."

Today's big problem for the mortgage business is billions of dollars of so-called subprime home loans that are now falling into default. These mortgages allowed many people who previously couldn't qualify for loans to purchase a home using no down payments, no income verification and initial low payments.

Later, when adjustable loan payments rise or borrowers get in some other financial pinch, they often lose their houses to foreclosure.

U.S. home loan payment delinquencies are now at the highest level in almost four years. Almost half of the current home foreclosures in Texas and nationwide are subprime home loans, analysts with mortgage giant Freddie Mac say.

During the last two years, subprime mortgages have accounted for almost 20 percent of the home lending business, said Freddie Mac's economist Frank Nothaft.

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With soaring foreclosures and many subprime lenders closing down, buyers who have relied on these mortgages will have a harder time finding a loan, Mr. Nothaft said.

"From what we know right now, it may disproportionately affect low- and moderate-income buyers," he said. "For them to get another loan for purchasing a home may be more challenging."

Even lenders who don't specialize in subprime loans are getting on the bandwagon with higher standards. Freddie Mac recently announced that starting later this year it will demand more income documentation and put in place tougher qualifying standards for some of the home loans it buys.

"We will bring what we regard as more sound underwriting in play, especially for these marginal applications," Mr. Nothaft said.

Other big mortgage companies are also making moves, including requiring borrowers to have more upfront cash, higher income levels and better credit scores.

While these adjustments are aimed at reducing mortgage defaults and foreclosures, they will inevitably result in fewer home sales in North Texas this year.

"Yes, there is a buzz that the tightening will have an effect on marginal buyers," said Jim Fite, president of Dallas-based Century 21 Judge Fite Realtors. "Also the lack of 100 percent financing will have an impact on home sales."

But Mr. Fite and other local housing executives say that changes in the mortgage market are welcome and overdue.

"Is there really a surprise that many of these loans went into default and then the lenders went under?" he asked. "As we have seen in the past, there is a 'correction cycle' that is occurring."

And any correction is likely to bring some pain. It's too early to tell what the full impact will be, analysts say.

Sales of homes to low-and-moderate income buyers were already falling in the Dallas-Fort Worth area before this round of mortgage changes.

During the last three years, sales of new homes priced at $150,000 or below have dropped by more than 20 percent. Homes at that end of the market are typically purchased by first-time buyers.

"Since 2003, builders have reported that this group as a whole has represented a deteriorating credit pool," said Ted Wilson with Dallas-based housing analyst Residential Strategies. "Many of the builders that initiated new product lines focused on the entry-level buyers have now abandoned them."

Builders say they are closely watching the shakeout in the mortgage market.

"For us right now it's a constant concern," said Louie Ocana, Dallas-Fort Worth division president for Centex Homes. He thinks it's a good idea for the lenders to toughen standards.

"But let's not get so stringent that we can't get loans," Mr. Ocana said.

Builders like Centex also worry that customers who qualify for financing when they contracted to buy a house may not be able to get funding later when construction is completed.

"There is a propensity of that happening, especially in the entry-level market," Mr. Ocana said. "We do a lot of work with our buyers to make sure it doesn't happen."

A&M analyst Dr. Gaines agrees that the biggest shock will be at the low end of the market.

"The entry-level subdivision market is going to feel the changes the most," he said. "First, financing will become harder to obtain.

"Secondly, these are the areas where many of the foreclosures are or will concentrate, creating downward pressure on local prices and values, making it more difficult to refinance adjustable rate loans or to finance new acquisitions."

Worries about tougher lending standards are so widespread in the housing sector that builders have lowered their expectations for the year, the latest industry survey found.

"Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line, and some are already seeing effects of the subprime shakeout on current sales activity," said NAHB chief economist David Seiders. "The pendulum certainly is swinging back.

"Subprime lending standards have already adjusted, with some subprime lenders out of business and others requiring higher credit scores ... and requiring documentation of borrower income, assets and debt loads."

Dallas real estate agent Antonio Matarranz, who caters to many first-time buyers, said that home investors and speculators will be hardest hit by the mortgage changes. By some estimates, investors have until recently accounted for more than 25 percent of nationwide home sales. Investors have also played a significant – albeit hard to quantify – role in the Dallas-Fort Worth condominium and new home market.

"It's a fallacy that the first-time market is a subprime market," Mr. Matarranz said. "That's not the real story."

He says entry-level buyers will still be able go get home financing at attractive interest rates and with low down payments.

"I hope the subprime lenders disappear," Mr. Matarranz said. "What they did was abuse the industry and abuse the people."

[mustang59]

Originally posted by tree8400
I live in the Frisco Area and about to be married should I buy a house or wait till we have some money to put down and then buy a house. We both have good credit scores, and stable jobs.
You might consider researching loan options and see what it would take to get into a house. I live in your area and there are lots of home available right now. My suggestion to a young couple looking for their first house would be to not buy at the very top of your price range. Just because you quality for a loan doesn't necessarily mean the payments won't be a hardship for you. In other words, you don't want to be "house poor".

[kaorder1999]

thats a great point...we were approved for like 180k but bought a 90k house

[Txbroadcaster]

Originally posted by mustang59
You might consider researching loan options and see what it would take to get into a house. I live in your area and there are lots of home available right now. My suggestion to a young couple looking for their first house would be to not buy at the very top of your price range. Just because you quality for a loan doesn't necessarily mean the payments won't be a hardship for you. In other words, you don't want to be "house poor".
When I worked for a Rent to Own store in the DFW area we rented to MANY Mortgage poor people living in million dollar homes and having to rent furniture because they were maxed out

[kaorder1999]

we bought a cheaper one because we like having money at the end of the month to play with as well as money to save!

[Adidas410s]

Originally posted by tree8400
I live in the Frisco Area and about to be married should I buy a house or wait till we have some money to put down and then buy a house. We both have good credit scores, and stable jobs.

If you forsee yourself building up extra cash in the near future...then I would wait to buy a house. Unlike buying a car (where putting a $3000 down payment on a $30,000 5 yr note @ 5% saves you about $350 in interest)...putting down money on a house makes a significant difference in the amount of interest that you pay. Consider this...

You're buying a $250,000 house at 6.5% I(r) that is fixed for 30 years. Also assume that you will not be making any additional payments towards principal and plan to make the monthly payments for 30 years. (An unlikely scenario...but follow me...)

Scenario 1
- no down payment, financed $250,000
- In the first 5 years, you will pay about $77,568 in interest
- In 30 years, you will pay about $318,861 in interest!!!

Scenario 2
- 10% down payment ($25,000), financed $225,000
- In the first 5 years, you will pay about $69,811 in interest
- In 30 years, you will pay about $286,975 in interest!!!

As a result...

- You save $7,756.83 in interest paid over the first 5 years of the note by putting money down.
- You save $31,886 in interest paid over the full 30 year term of the loan.

This goes to show you just how important it is to make a down payment on a house. Even if you think, "I'll build up extra money and in a few years make a big lump sum payment to principal that will lower my monthly payments"...you still aren't coming out better off. This is because lenders don't expect you to stay in the home for 30 years so they instead front load the interest payments into the note so that they get more of the money before you move the house. In the above scenarios, you are paying over 24% of the interest over 16% of the life of the loan.

Is that clear at all???

[Matthew328]

Adidas is right....100% financiag (loans with no down payments) are tough...you are getting raped on the interest with those....a mortgage is based on a bell curve....

At the start of the mortgage nearly all of your payment is interest, you aren't knocking any of your principle down....about 15 years into the note about half your payment is principle and half is interest...then at the end of the note you are paying all principle and very little to no interest..

Putting a big lump some down on principle and then trying to lower your payment is called a principle recast....its not much good the first 10 years or so of the loan because you are still paying a ton of interest....


My best advice to anyone getting a new mortgage is be educated, don't let some loan officer dangle keys in front of you and you sign away....many times emotion plays a role, you or your spouse falls in love with a house and you just have to have it and the next thing you know, you are "house poor"

Kaorder did the right thing, he and his wife qualified for a 180k loan but they only got a 90k house...very smart, new homeowners should do the same thing, stay in the house make your payments on time, build your credit and career and then find your dream house...

The days of the zero down, stated income loans are dwindling its just too risky for the lenders and its a bad deal for the homeowner..if you can't afford a 5-10% down payment you may not be ready to own a home..

[Blastoderm55]

Originally posted by Matthew328
if you can't afford a 5-10% down payment you may not be ready to own a home..

Exactly why my fiancee and I have yet to buy one. Well, that and the ridiculous wedding expenses. :p

[SintonFan]

We put down 5%. I wanted to put down 10% but the lady said we couldn't for some reason...:confused:

[tree8400]

I know what can afford its just in this area that there are no 90 thousand dolllars houses trust me. Well i appreciate everything that you said adidas thanks for the help. We just hate renting a house that is a piece for 900 dollars a month its hard to save paying that to someone else.

[Adidas410s]

Originally posted by tree8400
I know what can afford its just in this area that there are no 90 thousand dolllars houses trust me. Well i appreciate everything that you said adidas thanks for the help. We just hate renting a house that is a piece for 900 dollars a month its hard to save paying that to someone else.

Living in Collin County can sure make things difficult. You could consider the option of living further away from work (some good values to be found in Allen for example) and trading time for money. I live at the High 5 in a 5 or 6 yr old apt complex and have a 40 mile drive to work. However, it's about $150 cheaper/month for me to do that than to live in Uptown/Oaklawn area and have a 25 mile drive to work. I sacrificed the time for the money because it's the "better" decision for now and allows me to save some money each month....it's not much money but it's better than nothing.

[mustang59]

Originally posted by Txbroadcaster
When I worked for a Rent to Own store in the DFW area we rented to MANY Mortgage poor people living in million dollar homes and having to rent furniture because they were maxed out
When we moved here 14 years ago this was our 3rd house to buy so we had a pretty good downpayment. The realtor kept telling us we could afford a higher priced home but we didn't want to be house poor. It was so funny that many of our neighbors had rooms with no furniture for so long because all their money went to the mortgage.