Do I Have to Have a 20% Down Payment for a Home Mortgage Loan?

Home mortgages didn’t used to have such a high down payment. Back in the late 2000′s we say the heyday of the 0% down loan. It was not uncommon for people to just put down 2-5%.

But, then all of a sudden things changed. And if you’ve been around in the last 5 years, it’s easy to see why. Does the term Mortgage meltdown ring any bells?

Well, since the subprime loan debacle, and all of the bad loans out there, lending standards have gotten tighter… should I go as far as say waaaay tighter.

I’ve heard of 40% downpayment with a minimum 750 credit score to get the best interest rates.

For the average, however… I’m seeing a 20% downpayment needed.

The Effects of a 20% down payment Requirement from Potential Homebuyers

Future homebuyers may be required to put a 20% down payment according to the newly proposed rules. The purpose of this is to prevent another possible financial breakdown.

The rules that are being proposed are ways to put into effect the Dodd-Frank Wall Street Reform and Consumer Protection Act launched in the U.S Congress in the past year. One of the many rules are to ask for a 20% down payment in order to ensure that the home loans being sold by the banks in the secondary market are safe, said Robert Fletcher, the Ohio Association of Realtor’s executive officer.

Fletcher said that implementing the rule on the 20% down payment will disqualify 60% of potential homebuyers. Since the housing market plays a main role in the economy, removing buyers considered as low risk from the housing market will be a big hindrance to the recovery of the economy, added Fletcher.

In Greater Cincinnati, the average price of houses is at $151,080. With the proposed rules, this will require about $30,216 down payment excluding closing costs. This amount is more than the average price of most brand new cars that consumers can afford.

The purpose of the risk retention requirements like the 20% down payment is to address the challenges in the residential, commercial and loan markets. It seeks to provide a solution to their problems by asking the organizations that are selling securities to maintain an economic interest in the credit risks of their combined and sold assets, according to the rules proposed by the regulating agencies.

Aside from shooing away potential buyers to the housing market, another effect of a 20% down payment requirement on home purchases is that more and more people could not afford to buy a home. It may also cause banks to become less willing to let the consumers take a loan for a more affordable cost. Overall, it will reduce the housing demand, cut house prices and eventually hurt the industry of home building.

On top of the down payment requirement, the proposed rule may also ask the homebuyer to provide a credit history, a proof of income and a documentation showing that the down payment source is valid.

Based on this, you can expect that lending standards are going to remain high for quite some time. If you are looking to buy a house, then you are going to need to make sure you have money to put down, and you will need the credit score to support your purchase.

Could you afford to pay a 10-20% down payment on your home? from CRA NC on Vimeo.

Bank of America’s Inaccurate Reporting of its Residential Mortgage Loan

Henry Blodget’s worries regarding the quality of Bank of America’s mortgage loans show several interesting details. However, he seems to be looking in an incorrect place.

According to a Blodget’s statement in “The Bomb That Might Blow A Hole In Bank Of America,” a Business Insider piece, the biggest bank of the country only accounted $19 billion worth of residential mortgage loans that are deemed to be nonperforming. This totals to only 5% of the entire residential mortgages on its balance sheet and a $21 billion worth of loss reserves in loans.

To begin with, the detail in the story of the $21 billion used to pay for expected losses from potentially bad loans is inaccurate. As of June 30, the bank reported a total of $37.3 billion for loan allowances and rent losses. This can be seen on page 129 of Bank of America’s 10-Q reporting with the Securities and Exchange Commission.

In terms of the chances that there was under-reporting of problem mortgages, the story given was a real mistake because the reported 5% also accounted for Bank of America’s mortgage loans that were obtained from Countrywide. Jerry Dubrowski, spokesman of Bank of America, established that they previously lowered the loans of Countrywide to an acceptable value.

Excluding the loans of Countrywide, residential mortgages that are fully-insured and loans that have already been lowered to a fair value, the Banks total mortgage loan amounts to $169.869 billion. This accounts to one out of four of the mortgage loans included in its main portfolio as of the 30th of June. $16.726 billion of this amount or 9.84% are categorized as nonperforming loans.

Bank of America divides the Countywide loans to show the past write-downs on loans considered as “purchased credit impaired.” This was also done in order to better represent the credit risk in the loan portfolio of the residential mortgage.

Blodget also says that about 35% of the bank’s residential real-estate loans amounting to $413 billion might be in trouble in the future. This is according to an unnamed analyst’s scrutiny of the securitized mortgage delinquencies in the entire industry.

However, according to Rochdale Securities’ Richard Bove, the idea that the bank’s credit quality in its self-originated core portfolio is weak as the loan portfolio from the wholesale lending operations of Countrywide is already beyond the imagination.

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Tips for Refinancing Your Home Morgage

One of the things that is continually asked these days is “Should I refinance my home mortgage?”

Things are moving so quickly with the economy, that it is no wonder that you may be confused and not sure whether or not to get a mortgage refinance.

The recent downgrading of the US credit from AAA to AA+ was a big hit to the nation and many people are trying to work out whether or not that is going to have an effect on home mortgage interest rates.

Keep in mind, Fannie Mae and Freddie Mac are part of the Government so the downgrade affects the two largest mortgage holders in the nation.

Additionally, the FED has announced that rates are going to stay low for the next 2 years. When the FED says low, that means close to zero.

I’m going to talk about things to think about before refinancing, but before I do, I want to say that it may be a good idea to refinance if you have great credit, and the interest rate you lock in can drop your monthly payments by hundreds of dollars.

Three Factors to Consider Before Refinancing

Recently, the Fed announced that they are maintaining the low interest rates until the year 2013. This is good news for those with good credit standing and for those with some home equity left because these individuals and families still have a chance to refinance their mortgage with the lowest rates. However, even if low rates are available at the moment, this does not mean that it is always a good idea to refinance. Here are the reasons why:

First, since low rates will continue for a little while, refinancing should not be rushed. Individuals and families can still make use of the time to build a strong credit so that when the decision is made to finally refinance, the lowest rates are obtained.

Second, it is best to consider the fees that come with refinancing. With this, it is best to keep the loan long enough to be able to justify the charges. Find out about the fees that you might potentially pay; those that you will surely pay; and those that you may or may not pay. Familiarity with these charges is important before refinancing in order to generate extra savings.

Third, note that points gathered from payments can be deducted in one’s taxes for the entire duration of the loan. With this, the cost of the loan will greatly decrease because of tax savings. For example, if an individual obtains a mortgage of $300,000 and pays 2 point or 2%, he or she has to make an upfront payment of about $6,000. If the person belongs to the 25% tax bracket, the savings will be 25% of $6,000 or $1,500 for the entire duration of the loan. When computing for the real after tax cost, the 2 points will generate a tax savings of $4,500. This is obtained from deducting $1,500 to $6,000.

Despite the low rates these days, it is best to think things through before refinancing. Consider and compute the costs and check if there are savings that can be obtained from it. Otherwise, postpone refinancing if after a thorough computation, it ends up as a bad deal even when the rates obtained are lower.

Whether or not to refinance is really a personal choice. I have friends that have refinanced 5 times in the last year. And, everytime they have refinanced, they have saved hundreds of dollars. Their current interest rate will be 4%. Now, their mortgage is close to 1 million. They live in a home in Hawaii.

The point is, you need to make sure that you do the numbers, do the research and make sure that you are comfortable with the numbers.

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As a support to their clients’ efforts to meet the requirements of the Federal Deposit Insurance Corporation’s (FDIC) Large Bank Pricing Rule, specifically in the subprime loan reporting that will start effective Oct 1, 2011, Experian is creating a complete product to be made available to its banking clients. The company, known for being a leader in global informatio

n services, will allow its clients to use its credit attributes together with its debt-to-income insight model (SM) in order to deliver the complete reporting requirements needed on subprime loans.

The latest reporting requirements for large banks, qualified as having at least $10 billion in assets, describes a subprime loan as a type of installment or revolving loan with one or more of the following properties: First, at least two 30-day delinquencies in the past year or at least one 60 day delinquencies in the last two years. A second requirement is foreclosure, judgment, charge-off or repossession in the previous 24 months. The third is bankruptcy in the last five years. Fourth is a debt service to income ratio of at least 50% which limits the ability to pay for the living expenses of the family once the entire amount of the debt-service monthly requirement is deducted.

With the company’s combined delivery of the needed reporting characteristics, the clients are provided with an option that they can rely on and easily access as they address their requirements in reporting. With this, clients must also check with their regulatory and legal compliance specialists regarding their specific reporting requirements.

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Michele Pearson, Experian’s Consumer Information Services Vice President, says that once the new regulation takes effect, the FDIC rates of the bank will be directly affected by the composition of its assets. This then becomes a different situation from the present environment, where the charges in the insurance rates of deposits are based on its size. The implication of this is that banks that have subprime loan amounts which are considered of a higher risk may have higher charges in their FDIC insurance rates. Pearson further adds that their company is committed to provide their clients with the complete products that will help them comply and maintain their usual business without experiencing any interruption.

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Two-thirds of Past Due Mortgage Payments on Loans come from 2005 to 2007

Mortgage loans that were obtained between 2005 and 2007 account for almost two-thirds of delinquent balances said Equifax. Although there is a decrease in the number of past due accounts of at least 30 days, those for 60 and 90 days are still continuously increasing.

In 2010, first mortgage loan write offs, installment loans and revolving accounts of home equity totaled to $304.6 billion. According to the analysis of Equifax, the number will keep on rising without any indications on when it will reach its peak. This number is way above the $126.7 billion total of loan write offs in the year 2006 and 2007.

According to the estimates of Equifax, as of May 2011, the total amount of first mortgage in the early stages of foreclosure is at $319.7 billion. This started in the years 2006 and 2007, a not surprising fact since those were the years when subprime lending activity started to rise.

REO properties is a main obstacle to the recovery of the economy, says Equifax. The reason for this is that REO rates stay high while lenders are struggling to get rid of their properties through short sales and auctions.

The completion rate of foreclosure is at 1.45%. This is in the same level as bankruptcies which are at 1.6% at the present time. Equifax says that the same rates indicate that most REO properties are brought about by the bankruptcy proceedings.

Equifax Mortgage Services’ senior vice president and general manager Craig Crabtree says that real estate owned properties and shadow inventory are performing a main role in the current mortgage market and slowing down the road to recovery of the economy.

Even if there are some stabilized lending sectors, there is still a high volume of past due first mortgage loans which has caused a slowing down of the foreclosure process. The mortgage market will keep on impacting the growth of the economy until the foreclosures are processed.

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