December is a time when most Americans will run up at least a little extra debt in order to celebrate the holiday season. Now, if we only saved up our money the other 11 months of the year, this wouldn’t be a problem. But we don’t. In fact, for the last two years, Americans as a whole have been spending more than we save. That hasn’t happened since the Great Depression. We are officially living on credit. Americans have become used to living on credit. We think nothing of whipping out the plastic to get those things we “need,” like iPods and flat-panel televisions.

Americans generally understand that we have a serious problem. They just don’t know how to fix it, or are unwilling to take the measures to fix it. It’s not easy. There are no quick, painless solutions. We simply need to stop spending the money we don’t have, and deal with the resulting economic fallout, which will be significant. We can’t stop the pain, but we can keep adding to it. For one thing, we should work to come up with an alternative energy source to oil, which will keep hundreds of billions of dollars from flowing to the Middle East, money that is used to fund wars against us, which further erodes our treasury. Not only could we stop the oil dollars from flowing out, we could reverse the process and export energy to the world. (more…)

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A rush to profit by funding home purchases for Americans with poor credit records has come back to bite the hands that fed the movement. The year-long slump in the U.S. housing market has resulted in smaller profits or losses at lenders of so-called subprime mortgages, until recently the fastest growing segment of the $10 trillion U.S. residential loan market. For years, higher margins on such mortgages paid off for lenders and Wall Street as rising home values reduced risks to investors.

Now lenders such as New Century Financial Corp. (NEW.N: Quote, Profile , Research) and Accredited Home Lenders Holding Co. (LEND.O: Quote, Profile , Research) are reining in practices that they concede have helped cause a rapid rise in defaults. They are taking a harder look at practices such as accepting stated, rather than proven, income documentation in mortgage applications. “The time has come” for an end to easy credit, said Bob Moulton, president of Americana Mortgage Group Inc., a mortgage broker in Manhasset, New York. Moulton, who deals with prime and subprime loans, said lenders who were once aggressive in vying for high interest rate loans have suddenly made themselves scarce. (more…)

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If you’re in the market for a mortgage, you’d do well to arm yourself with some knowledge before you go knocking on lenders’ doors. I’ll soon point you to where you can learn a lot in short order, but first, here are a few mortgage traps to be wary of, some courtesy of mortgagetrap.org.

When you get a mortgage, you’ll unavoidably face a flurry of fees. But not all of them are perfectly legitimate. Ask for itemization of fees and scrutinize them. (Know that if one lender quotes you a very low interest rate, it may make up the difference in steep fees.) If a mortgage broker is charging you an underwriting fee, question it, since the lender does the underwriting, not the broker. If you’re charged $100 for a credit check, question that, since these generally cost between $10 and $20. (more…)

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The lending business must embrace a licensing initiative by state banking and mortgage regulators if it is to keep from crumbling under the weight of fraud and unethical loan brokers, a proponent of that project said here last week. A national residential licensing system “has the potential to transform today’s mortgage industry and imbue it with a level of professionalism and accountability that will make it easier for responsible mortgage companies to operate and harder for unethical companies to compete,” said Tim Doyle, vice president of industry and agency relations at the Conference of State Bank Regulators.

Creating a standardized licensing system among the states moves beyond simply raising the profile of mortgage fraud by attempting to stem the tide of unethical and illegal behavior. “It’s time to turn the dynamic around,” said Doyle, who joined CSBR recently after a stint in the public affairs department of the Mortgage Bankers Association, where he was charged with managing the issue of mortgage fraud for the association. CSBR is a professional organization representing the state banking regulators in all 50 states, the District and the U.S. Territories. In 37 of those states, banking departments also are responsible for regulating the mortgage business as well as banks. AARMR represents mortgage regulators in all states. (more…)

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“We are purchasing a $400,000 home that we want to finance with a 30-year fixed-rate mortgage. While we can more than afford the cost of a 20 percent down payment, I would prefer to keep my money in my investments instead. I was thinking of financing 100 percent (using an 80/20 to get out of paying PMI) but was unsure whether this type of loan structure would result in a higher interest rate on the first mortgage?”

Your intent is to invest the $80,000 that would otherwise go into a down payment. But a down payment is also an investment. The return consists of the reduction in upfront costs, lower interest payments in the future, and lower loan balances at the end of the period in which you expect to be in the house. I calculated the annual rate of return on investment in the case cited above, assuming you intended to be in the house for seven years. It was 15.6 percent before tax, and it carries no risk. Investments that good are not available in the marketplace. (more…)

search for : 30-year fixed-rate, financing 100 percent, annual rate of return

More American homeowners are slipping behind on their monthly mortgage payments, especially those who had subprime credit histories and scores when they applied for their loans. Roughly one of every 20 homeowners with a mortgage — 4.7 percent — was at least 30 days late during the third quarter, according to the Mortgage Bankers Association’s national delinquency survey released last week. The survey examined payment performances on over 42.6 million active home mortgages.

Though the overall trend in delinquencies is upward, Mortgage Bankers Association chief economist Doug Duncan said the slightly higher rates were expected as the housing boom wound down. They are also well below the recent high points reached during the 2001-2002 period. The subprime late payment jumps, however, “were noticeably larger” than projected, “particularly for subprime adjustable rate mortgages.” The reason for the spike: “subprime borrowers are more likely to be susceptible to the cumulative increases in (short-term) rates we’ve experienced, and the slowing of home price appreciation that has resulted,” said Duncan. But “it is important to remember,” he added, “that delinquency and foreclosure rates have been quite low the last two years.” The national foreclosure rate of 1.05 percent during the third quarter was up slightly compared with the same period the year before. But today’s rate is well below the 1.6 percent level reached in early 2002, when subprime foreclosures hit 8 percent. (more…)

search for : monthly mortgage payments, credit histories, mortgage, subprime, subprime adjustable rate mortgages

Despite the recent fluctuations in real-estate prices nationwide and sale prices that have fallen short of sellers’ expectations, homeownership has proved to be a good long-term investment, financial experts agree. Buying a home is the largest investment most people will ever make, said Shrikant Nadkarni, a certified public accountant, certified financial planner and shareholder at WithumSmith+Brown PC’s Somerville office. “Owning a home over a long period of time is generally a good investment idea,” Nadkarni said. “It brings financial obligations and forces savings through paying down the mortgage while building equity.”

Homeowners, though, have to be mindful of tax savings from mortgage interest and property taxes, and costs of things needed to keep a house in good condition, like reroofing, repainting and updating appliances, aAnd timing and market conditions are key to whether buying a home will end up being a profitable endeavor, as history shows. People who bought in the 1980s had to wait until 1998 to match the 1988 peak-of-market prices. Recent price downturns are nothing new in real estate. But people are cautioned people about the more exotic mortgages available. which enable people to buy with no money down or with adjustable rates (ARMs). When the housing prices do dip a bit this is going to be a deadly thing. . . . Their monthly payments will go up. It’s just too bad that the criteria is not a little more stringent to make sure that these people can afford to continue with these houses. Surely people should buy, but they should be qualified to buy. (more…)

search for : real-estate prices, Owning a home, building equity

Early next year my husband Gerry and I will reach two milestones in our finances: Our mortgage’s outstanding balance will drop below $100,000 and, more significantly, more of our monthly payment will go toward principal than interest. With the passing of both of these milestones, Gerry and I will be that much closer to paying off our 20-year fixed-rate mortgage, a process we’re hastening by making additional principal payments of $195 a month. (Why the odd figure? I’ll get to that later; the short story is that it is part of $395 a month in spare cash we debated over where to invest. )

Some people believe paying off a mortgage is a stupid move, and would advise us to forgo the mortgage prepayments and invest that $395 a month elsewhere. This school of thought holds that the wisest financial move you can make is to get mortgages with the lowest monthly payments possible — refinancing as rates decline — and never pay off the loans, a strategy that improves your cash-flow and lets you benefit from potential home-price appreciation. (more…)

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