All Posts Tagged With: "Mortgages"
Subprime mortgages continue to be the riskiest type of mortgage you can get — and yet things are looking better for both subprime borrowers and subprime lenders.
How can that be?
Subprime mortgages are a form of financing designed for those with impaired credit. That’s a polite term for individuals who have low credit scores, often for reasons beyond their control such as a job loss, the death of a spouse, a divorce or medical expenses. In some cases, however, subprime borrowers have low credit scores for a very simple reason: They don’t pay their damn bills.
Notice that credit scores have nothing to do with income. Fast food workers who make payments on time and in full can have better credit scores than the richest family in town. The great secret of good credit is not how much you owe or how much you make it’s simply how you pay back your debts.
Subprime Mortgages and Fewer Foreclosures
The latest figures from the Mortgage Bankers Association show that subprime mortgages have become very much less risky — a concept which must be seen in context.
First, let’s look at how subprime loans have become less risky.
The MBA says that during the fourth quarter of 2013, the latest available numbers, lenders had started foreclosure proceeding with 1.66 percent of all subprime loans. This is a huge reduction from the first quarter of 2009 when lenders started foreclosures with 4.65 percent of all subprime mortgages. Indeed, the MBA reports that delinquency and foreclosure activity hit a six-year low in late 2013.
Why are there fewer subprime foreclosures today? Many new mortgage regulations under Dodd-Frank went into effect during January 2014 but large numbers of lenders – thinking ahead and wanting to avoid excess risk — started making less risky loans years ago. Their reward can be seen in the lower foreclosure start numbers. No less important, many of the lenders who were the leading suppliers of toxic loans are now out-of-business.
A second reason for fewer foreclosure starts concerns the marketplace in general. As RealtyTrac, the nation’s leading source for comprehensive housing data and listings, explains, “January marked the 40th consecutive month where U.S. foreclosure activity declined on an annual basis.” In fact, foreclosure activity in 2013 was down 18 percent from the year before.
One reason for fewer foreclosures is that the inventory of toxic loans originated between 2000 and 2008 continues to decline. A second reason is that the less-risk standards established under Wall Street reform are paying off.
Subprime Mortgages Remain Risky
That said, subprime loans remain more risky than other forms of financing. Again, using figures from the Mortgage Bankers Association, we can easily see why lenders are extremely cautious when making subprime mortgages, even with higher mortgage rates. The foreclosure start rates for various forms of financing looked like this during the fourth quarter of 2013:
- Subprime mortgages: 1.66 percent
- Prime mortgages: .34 percent
- FHA mortgages: .75 percent
- VA mortgages: .47 percent
- All mortgages: .54 percent
What these figures show is that even in better times subprime borrowers are nearly five times more likely to face foreclosure than prime borrowers, a pattern which has been fairly consistent for the past five years. The good news is that foreclosure levels in general are falling and that helps borrowers, lenders and mortgage investors.
Writing about mortgages and tiny houses, futurist Thomas Frey explains that “one of the biggest boat anchors for our lives tends to be our home and the gigantic home mortgage that comes with it. We sacrifice much for the sake of paying our mortgage.” (See: Why the Tiny Home Movement May Not Be So Tiny)
Frey’s commentary is exceptional, something which needs to be widely read. That said, I suspect the real problem he’s describing is not a joyous pilgrimage to homes with fewer than 200 square feet but rather an attempt to cope with a shrinking economy.
Mortgages and Economics
Frey says we should think of the trend toward tiny houses “as an obvious backlash to the banking, mortgage, and credit card industry. It’s also a backlash to glutinous consumption, poor job opportunities, and young people feeling betrayed by older generations.”
“The big thing this trend offers is freedom,” he argues, “and that’s not easy to quantify. It’s not just an efficient lifestyle, but a culture, a door-opener, a character-builder, and untethered nobility all rolled into one.”
Let me offer a different view: There is no backlash. Instead, we live in a contracting economy, one where there are fewer jobs, where the balance between workers and owners has largely been lost, and where the jobs that remain too often lead to static careers with little opportunity for advancement or personal satisfaction.
People are not choosing tiny homes because they love the joy of a 150-square-foot manor; instead they’re forced into smaller housing because the astonishing range of economic options available in the US after World War II are drying up. The new goal is not “freedom” it is instead survival in an economy which increasingly offers fewer opportunities. Little wonder that jobs — or the lack thereof — are now regarded as the biggest “problem” in America according to Gallup.
For instance, we are now debating whether to raise the minimum wage to $10.10 an hour. This means — if passed — that a full-time employee could make $21,000 a year (40 hours per week x 52 = 2080 hours per year. 2,080 hours x $10.10 = $21,008). A family of two might earn $42,000 a year.
How many households with at least two people can live well on $42,000 a year? And what if there are children in the household?
According to the Census Bureau the median household income in 2012 was $51,017. That’s up a whooping $17 from 2011. More importantly, the wages earned in 2012 are typically 9 percent lower than the same household earned in 1999. Is it any wonder that homeownership levels peaked in 2005? Or that student debt tops $1 trillion?
The reason more and more people now “want” tiny houses is not because such living spaces are wondrously desirable or somehow represent a cosmic notion of freedom, but because the American economy no longer produces the jobs, financial stability or opportunities for advancement enjoyed by our parents and grandparents.
Mortgages and Home Size
Frey says home size no longer bears any relationship to need, an issue identified in this space years ago. “In 1900,” he says, “the average house in the U.S. was a mere 700 sq. ft. with an average of 4.6 people living inside. A hundred years later, the average home had mushroomed to 2,500 sq. ft. with only 2.5 residents.”
In other words, one reason mortgages are so large is that big debt is necessary to finance big homes. One solution to this problem — societal norms be damned — is to buy a smaller, more affordable house. Frey points to tiny houses as an option. I don’t see that as a choice for most people but I remember that the home in which I was raised had three bedrooms and 1.5 baths, a home in which space was just not a problem.
Frey says we are seeing “a new breed of tiny homes that are comfortable, efficient, often portable, and most important, mortgage free. They represent freedom, freedom from debt, freedom from conspicuous consumption, and freedom to live a life of passion.”
Of course, another option is to rent. Savvy people who rent are trading tax breaks for the ability to move with ease and avoid declining home values, should they come. Home prices, it should be said, are now 8.9 percent lower at this moment then they were in 2007.
While I don’t believe that homes which are smaller than a house-trailer make sense for most people, especially those with children, tiny homes at least conform to Miller’s First Law of Real Estate: Never buy a house you don’t want to clean.
Subprime mortgages – once the bad boys of real estate lending – are coming back. Figures from the Federal Reserve Bank of St. Louis show that between 2007 and the start of 2013 subprime mortgages fell off the radar for most banks but now they have begun to make a significant comeback.
What happened to subprime mortgages and why have they begun to come back into the lending picture?
Subprime mortgages are a form of financing which is supposed to be a form of financing made available only to those with woeful credit, individuals who had bankruptcies and foreclosures in their credit reports, who routinely failed to pay back their debts, or who had a history of late payments.
Subprime Mortgages Impact Millions of Homeowners
The result of subprime mortgage overselling was that millions of borrowers were effectively overcharged for mortgage financing. Such homeowners were needlessly exposed to the type of lending which was most likely to wind up in foreclosure because of higher costs, substantial prepayment penalties and harsh terms and conditions.
Once the housing market began to go into decline in 2006 mainstream lenders began to back away from subprime lending as quickly as they could. By late 2008 and 2009 subprime loans were about as common as unicorn toes. In fact, subprime mortgages were so unappealing to most lenders that from 2009 to 2012 it appears that the Federal Reserve Bank of St. Louis did not even poll banks about their subprime mortgage preferences.
In 2012 the St. Louis Fed once again raised the question and found almost no banker interest in subprime mortgages. The picture began to change in 2013, and by the middle of the year roughly a quarter of the nation’s banks were showing a renewed interest in subprime lending.
Subprime Mortgages Make A Comeback
Why have subprime loans begun to show up once again as a lender offering?
The answer likely has to do with several trends.
First, the housing market has begun to improve in most markets and therefore mortgage loans have inherently less risk. For example, in the third quarter of 2013 the National Association of Realtors reported that existing home prices rose in 144 Metropolitan statistical areas out of 163 that they reviewed.
Second, today’s subprime mortgages are likely to be very different than the toxic loans offered between 2000 and 2006. For example, borrowers are going to be required to fully document loan applications and hefty down payments will be required, perhaps 20 to 30 percent down.
Third, the foreclosure crisis not only left more than seven million people without homes it also demolished lender profits and shareholder values. The banks who remain have no desire to repeat the fiasco and as a result have established tougher qualification standards.
Subprime mortgages are typically loans with tough terms and high rates. So does this mean all subprime loans are examples of predatory financing?
In the usual case the answer is no. Subprime mortgages are a form of financing which should be used only for borrowers with woeful credit, individuals with a history of failing to repay bills. Such borrowers — by definition — represent more risk to lenders and for that reason alone should face higher interest rates.
Unfortunately, with subprime mortgages many borrowers have failed to shop around and thus have been saddled with interest rates and tough loan terms which do not reflect their financial status. For example, the Wall Street Journal has reported that 55 percent of all subprime borrowers in 2005 actually qualified for FHA, VA and conventional financing. The Journal also reported that 61 percent of all 2006 subprime borrowers also paid more than they should for real estate financing, that they qualified for lower-cost FHA, VA and conventional loans. (See: Subprime Debacle Traps Even Very Credit-Worthy, December 3, 2007).
But if higher rates and subprime mortgages do not define a predatory loan then what does?
Subprime Mortgages Defined
Miller’s definition of a predatory loan is this: First, a loan which does not fully reflect the borrower’s credit history; that is, a mortgage where the borrower pays materially more than he or she should for financing. Second, a loan which is engineered to fail, financing offered by predatory lenders in the loan to own business. Third, a loan or lending practice which by any reasonable standard should be illegal under federal and state laws. Importantly, predatory lending is NOT a crime under federal law.
Here are several examples of predatory loans:
In this case the lender finances a property with an excessive number of points. In one recent case a borrower paid 15 point to obtain a mortgage. Also called “fee packing.” Note that under Wall Street Reform lenders may only charge points and fees equal to not more than 3 percent of the loan amount for qualified mortgages with an initial balance of $100,000 or more.
In this situation a property is repeatedly refinanced. The lender tells the borrowers they can save big money, say an interest rate which is lower by 1/8th, but each time the property is refinanced the lender gets thousands of dollars in points and fees. The lender will go back to the borrower every four to six weeks to refinance as long as the borrower will go along with such deals. With loan flipping the borrower does not obtain a material tangible benefit each time the property is refinanced.
Secret Balloon Note Features
Balloon notes are not defined as a qualified mortgage under Dodd-Frank, however one needs to be careful with balloon notes because they can be — or not be — a legitimate form of financing.
A balloon note works like this: a $100,000 mortgage at 4.5 percent interest with monthly payments based on a $30-year schedule and a five-year term. The result? Monthly payments for principal and interest of $507 for five years — and then the loan is over and the borrower must pay $91,158.
I have had balloon loans and they were not predatory because (1) I knew I had a balloon note, (2) I knew how much was due and (3) I knew when it was due. However, the very same loans would be predatory if the borrower did not know these three facts.
Interest increases in the event of default
With these loans the borrower gets financing at 4.5%. Six months later a payment is 20 minutes late and thus in default. The interest rate instantly rises to 7 percent. If the borrower is late again the interest rate rises further.
Interest rate increases upon default at a level not commensurate with risk mitigation
Direct payments to contractors
With this arrangement a borrower hires a contract to make repairs. Conveniently, the contractors gets the repairs financed through a “lender.” The lender pays a contractor directly. The loans are then sold into the secondary market. The borrower now owes the debt but has no leverage to assure that repairs are completed, done correctly, or meet expected quality standards because the contractor has already been paid.
Is there an alternative to subprime mortgages and predatory loans? Yes. Don’t borrow. Instead pay down bills, make a budget, stick to the budget and bulk up savings. Your credit profile will evolve and you will be able to finance with better loans and lower costs.
Foreclosure activity is falling through the floor — at least relatively speaking. The latest figures from www.realtytrac.com show that 2013 foreclosures fell 26 percent when compared with 2012. The bad news? The wealth gap continues: Nearly 1.4 million properties faced foreclosure notices, a still-huge number given that there are roughly 50 million mortgaged homes in the US.
“Millions of homeowners are still living in the shadow of the massive foreclosure crisis that the country experienced over the past eight years since the housing price bubble burst — both in the form of homes lost to directly to foreclosure as well as home equity lost as a result of a flood of discounted distressed sales,” said Daren Blomquist, vice president at RealtyTrac.
“But the shadow cast by the foreclosure crisis is shrinking as fewer distressed properties enter foreclosure and properties already in foreclosure are poised to exit in greater numbers in 2014 given the greater numbers of scheduled foreclosure auctions in 2013 in judicial states — which account for the bulk of U.S. foreclosure inventory.
“The push to schedule these auctions is certainly coming at an opportune time for the foreclosing lenders,” Blomquist added. “There is unprecedented demand from institutional investors willing to pay with cash to buy at the foreclosure auction, helping to raise the value of properties with a foreclosure filing in 2013 by an average of 10 percent nationwide.”
|Year||Foreclosure Filings||Annual Change|
|2013||1,361,795||down 25.85 percent|
|2012||2,304,941||down 14.59 percent|
|2011||2,698,967||down 29.45 percent|
|2010||3,825,637||down 3.33 percent|
|2009||3,957,643||up 25.33 percent|
|2008||3,157,806||up 43.32 percent|
|2007||2,203,295||up 74.99 percent|
|2006||1,259,118||up 42.20 percent|
Chart Copyright 2014 OurBroker.com
In looking at 2013, RealtyTrac found:
- States with the highest foreclosure rates in 2013 were Florida (3.01 percent of all housing units with a foreclosure filing), Nevada (2.16 percent), Illinois (1.89 percent), Maryland (1.57 percent), and Ohio (1.53 percent).
- Total foreclosure activity in 2013 increased in 10 states in 2013 compared to 2012, including Maryland (up 117 percent), New Jersey (up 44 percent), New York (up 34 percent), Connecticut (up 20 percent), Washington (up 13 percent), and Pennsylvania (up 13 percent).
- Scheduled judicial foreclosure auctions (NFS) increased 13 percent in 2013 compared to 2012 to the highest level since 2010. NFS were the only foreclosure document type among the five tracked by RealtyTrac to post an increase nationwide in 2013 compared to 2012.
- States with big increases in scheduled judicial foreclosure auctions included Maryland (up 107 percent), New Jersey (64 percent), Connecticut (up 55 percent), Florida (up 53 percent), Pennsylvania (up 24 percent), and New York (up 15 percent).
- The average estimated value of a property receiving a foreclosure filing in 2013 was $191,693 at the time of the foreclosure filing, up 1 percent from the average value in 2012, and the average estimated market value of properties that received foreclosure filings in 2013 has increased 10 percent since the foreclosure notice was filed.
- The average time to complete a foreclosure nationwide in the fourth quarter increased 3 percent from the previous quarter to a record-high 564 days. States with the longest time to foreclose were New York (1,029 days), New Jersey (999 days) and Florida (944 days).
- Including the 2013 numbers, over the past eight years 10.9 million U.S. properties have started the foreclosure process and 5.6 million have been repossessed by lenders through foreclosure.
Subprime mortgages are an endangered species. The problem is not that such loans can’t be made under Wall Street Reform, and it’s not that such loans won’t be made, it’s just that there will be a lot fewer of them.
Subprime mortgages are appropriate for individuals with poor credit histories because such borrowers are seen as substantial credit risks. For instance, the FHA accepts borrowers with 3.5 percent down as long as their credit score is 580 or above. Below 580 you need at least 10 percent down.
So we could define subprime borrowers as those with credit scores below 580, though some lenders might set the bar at 620 or even 640.
Under the new mortgage rules which went into effect January 10, 2014, lenders can freely make subprime loans. However, if they want to offer subprime financing and have the loan defined as a qualified mortgage within the safe harbor created under Dodd-Frank then they must follow a number of guidelines. For instance, monthly debts cannot generally exceed 43 percent of the borrower’s income. Another standard limits lender compensation to fees and points worth not more than 3 percent of the loan amount for mortgages of $100,000 or more.
Lenders might also make loans that are not “qualified mortgages” but doing so creates a different set of issues: For instance, the lender faces a lot more liability, not a good result at a time when lenders have recently paid out legal settlements of more than $100 billion to resolve past claims from borrowers, mortgage investors and government agencies.
Another option is to make smaller loans, mortgages which allow larger fees. According to the Consumer Financial Protection Bureau, the following scale applies:
- For mortgages with an initial balance of $100,000 or more fees and points cannot exceed 3 percent of the loan amount.
- For mortgages with an initial balance of more than $60,000 but less than $100,000 the fees and points cannot exceed $3,000.
- For mortgages with an initial balance of more than $20,000 but less than $60,000 the fees and points cannot exceed 5% of the total loan amount.
- For mortgages with an initial balance of more than $12,500 but less than $20,000 the fees and points cannot exceed $1,000.
- If a mortgage is less than $12,500 then points and fees cannot exceed more than 8 percent of the loan amount.
From a lender’s perspective subprime mortgages are difficult because they may not generate enough income to justify the work required to produce a profitable loan, especially with smaller mortgages. One solution, according to the Mortgage Bankers Association, is to allow higher points and fees for loans of as much as $150,000 rather than the current cut-off of $100,000.
Raising the high-fee threshold to $150,000 is unlikely because too many borrowers would be exposed to more-expensive loan fees, including borrowers with solid credit histories. For instance, the typical midwest home now sells for just $151,100 according to the National Association of Realtors, meaning that most borrowers in midwestern states would suddenly face higher fees if the rule is changed.
Meanwhile, if you’re a home buyer or looking to refinance, speak with as many lenders as possible if you need subprime mortgages. In particular, as an alternative check into FHA mortgages and speak with local community housing organizations.
Real estate news is one of the most popular subjects online, especially those stories and features which offer enduring interest to readers over time.
That seems like a simple formula but it’s amazing how much appears online which is neither reality-based nor especially logical. So, as a place to start in the quest for evergreen articles and blog items, we need information which is both factual and logical.
To validate material online we need to use links and references. This is now the accepted norm, while before we counted on print editors and fact checkers to assure that content was accurate and really worth our time. In effect, readers must also be editors, as has been pointed out by Ryan Holiday in Trust Me, I’m Lying.
Another way to validate material is to use a spellchecker. The question is not whether or not you have great spelling skills, but whether humans make mistakes and read past errors. They do, so use a spellchecker.
Next we need to write with spirit, animation, sparkle and fire. Nobody likes dull stuff, so our prose has to include adjectives, illustrations, examples and a currency to which people can relate.
Five Keys To Real Estate News
What catches people’s interest?
First, things which are usable, that answer a question right now.
Second, feature items which involve the first, the largest, the tallest, the oldest, etc.
Third, how-to pieces that help readers better understand how things work.
Fourth, there are certain topics which always interest readers: They include interest rates, VA financing, FHA mortgages, foreclosures, Fannie Mae, Freddie Mac, the Federal Reserve, buyers, sellers, trends, bargains, tips, tricks, money and wealth.
Fifth, celebrity counts. We want to know where Hollywood stars live and how much politicians paid for their houses.
Perhaps most importantly, one needs to write in plain language. A big vocabulary is great but try to translate information into words people can readily understand without a quick trip to the dictionary.
Here’s a short list of such OurBroker postings which readers seem to like.
Popular Real Estate News
Mortgages shouldn’t be a big worry, but for a lot of Americans that hasn’t been the case during the past few weeks. The national government closed its doors from September 30th through October 16th. More than 800,000 federal workers were not paid as a result — but many, many more outside the government lost hours, income and opportunity because of the national shutdown. Even national cemeteries and the Grand Canyon were closed.
Think of the government shutdown as a warning shot. If federal workers do not have assured paychecks then who does?
It’s nice that some mortgage lenders have instantly offered forbearance to workers directly and indirectly impacted by the shutdown, but that’s not universally the case. And, it’s good, I guess, that mortgage rates have fallen since the start of the government shut-down and the near default on the national deficit.
Mortgages & Paychecks
If you live paycheck to paycheck then in time you will lose, the only question is when. You’ve got to protect your interests so here are five basic steps to take:
First, bulk up savings. It’s usually said that you should have the equivalent of six mortgage payments on hand and in cash. You need this cash not only for financial emergencies but also because things can change — what if you lose a job?
Second, you need a budget. How much do you spend each month? Where can costs be cut?
Third, re-think big costs. Do you need a new car or just a really good used car? The difference can mean thousands of dollars in savings. Take a very careful look at how CarMax sells and finances used cars before looking elsewhere.
Fourth, look at refinancing. Mortgages are now less expensive then before the federal shut-down and deficit debacle. Speak with lenders for details.
Fifth, the economy is changing. What skills do you have going forward? We now live in a world with downsizing, offshoring, outsourcing, smartsizing, rightsizing and a hundred other cutesy terms that mean we are losing jobs and income inside our borders. In fact, household income today is less than it was in 1999! Protect yourself. Look into the fields that are expanding and areas that are necessary and local such as car repair, nursing and plumbing.
It used to be that one person with a high school education could support a family. Then it took two people. Then you needed a college education. Now two people with college educations may well delay marriage, starting a family or buying a home because the national economy is so fragile.
Don’t be a victim. Save and be prepared for the tough economic times which lie ahead.
The state of New York is cracking down on lenders who charge from two to ten times the going rate for “force-placed” homeowners insurance. Under new rules such alleged price gauging, kick-backs and “reverse competition” are out, at least in the Empire State.
But while New York moves ahead to end a legalized scam with mark-ups of as much as 1,000 percent, lawmakers in other states are doing nothing to curb homeowners insurance abuse. Also unprotected are taxpayers, meaning that if a property with a federally-insured loan is lost it is taxpayers who will foot the bill for any losses.
Force-Placed Homeowners Insurance
What is force-placed homeowners insurance and how does it work?
When you get a mortgage there is a requirement to pay property taxes and homeowners insurance. These requirements make perfect sense because if taxes are unpaid the property can be sold at public auction by the local government. As to homeowners insurance, that’s necessary because the property and it’s “improvements” — the house and any other structures on the property — are security for the loan. To assure that the value of the security is not lost to fire or other hazards lenders require that owners maintain adequate levels of homeowners insurance.
“Force-placed insurance,” says New York’s Department of Financial Services, “is insurance taken out by a bank, lender, or mortgage servicer when a borrower does not maintain the insurance required by the terms of the mortgage. This can occur if the homeowner allows their policy to lapse (often due to financial hardship), if the bank or mortgage servicer determines that the borrower does not have a sufficient amount of coverage, or if the homeowner is force-placed erroneously.”
Well, so what. If the homeowner does not carry insurance then surely the lender should be allowed to step-in and get the required insurance — with the bill going to the property owner.
That would be fine if lenders charged reasonable fees. However, according to New York, “the premiums charged to homeowners for force-placed insurance can be two to ten times higher than premiums for voluntary insurance — despite the fact that force-placed insurance provides far less protection for homeowners than voluntary insurance. Indeed, even though banks and servicers are the ones who choose which force-placed insurance policy to purchase, the high premiums are ultimately charged to homeowners, and, in the event of foreclosure, the costs are passed onto investors. And when the mortgage is owned or backed by a government-sponsored enterprise, such as Fannie Mae or Freddie Mac, those costs are ultimately borne by taxpayers.”
And it gets worse:
“Certain force-placed insurers competed for business from the banks and mortgage servicers through what is known as ‘reverse competition.’” That is, rather than competing by offering lower prices, the insurers competed by offering what is effectively a share in the profits. This profit sharing pushed up the price of force-placed insurance by creating incentives for banks and mortgage servicers to buy force-placed insurance with high premiums. That is because the higher the premiums, the more that the insurers paid to the banks. This troubling web of kick-backs and payoffs at certain force-placed insurers helped push premiums sky-high for many homeowners.”
Here’s what the New York rules will do when they become effective:
___ Force-placed insurers will not issue force-placed insurance on mortgaged property serviced by a bank or servicer affiliated with the insurers.
___ Force-placed insurers will not pay commissions to a bank or servicer or a person or entity affiliated with a bank or servicer on force-placed insurance policies obtained by the servicer.
___ Force-placed insurers will not reinsure force-placed insurance policies with a person or entity affiliated with the banks or servicer that obtained the policies.
___ Force-placed insurers will not pay contingent commissions based on underwriting profitability or loss ratios.
___ Force-placed insurers will not provide free or below-cost, outsourced services to banks, servicers or their affiliates.
___ Force-placed insurers will not make any payments, including but not limited to the payment of expenses, to servicers, lenders, or their affiliates in connection with securing business.
___ Force-placed insurers must provide adequate notification requirements to ensure homeowners understand their responsibility to maintain homeowners insurance, and that they may purchase voluntary homeowners insurance coverage at any time.
___ Force-placed insurers must not exceed the maximum amount of force-placed insurance coverage on New York properties.
___ Force-placed insurers or affiliates must refund all force-placed insurance premiums for any period when there is overlapping voluntary insurance coverage;
___ Force-placed insurers will be required to regularly inform the Department of loss ratios actually experienced and re-file rates when actual loss ratios are below 40 percent – helping make sure that premiums are not inflated.
With any luck — and despite cries of outrage and “over-regulation” — the New York decision will spread to other insurance regulators nationwide.
Lenders are getting hammered with claims that they refuse to make loans, thus artificially creating a “tight” mortgage market.
This is a great urban myth, somewhat like large alligators in the sewers of New York. But it doesn’t make sense and — oh yes — it plainly is not true.
Let’s start with logic. Why are lenders in business? To originate loans. How do they make profits? By making loans. What does a lender want to do with every borrower they encounter? Get them a loan. What happens to lenders who don’t make loans? They quickly make new job plans.
Or, let’s look at it this way. Imagine that Lender Smith has $100 million a vault and lends none of it. How much money does Smith make? That would be zero, nil, zip because money in a vault — while nice to look at — generates nothing. Taking the same money, stick it under a mattress, and you get the same result.
How much money is Smith losing? At first it might seem as though Smith has no loss because he stuck $100 million in a vault and still has $100 million in crisp cash. But in terms of buying power — the real measure of wealth — Smith is a loser. The reason is that inflation erodes the value of money and at this writing inflation is at 2 percent. The $100 million placed in a vault last year can now only purchase the equivalent of $98 million.
Because of inflation and the erosion of buying power Lender Smith is forced to make loans, invest elsewhere or see the value of his wealth reduced. Smith knows this — and now you too.
Now let’s move on to facts and reality.
The Mortgage Bankers Association said that in the first quarter originations for properties with one to four units amounted to $482 billion — up from $373 billion a year earlier. The MBA also said in July that it expects originations in the second half of the year to total $606 billion, up from the $527 billion it had forecast at the beginning of the year.
But wait, what about credit scores? Can you get a mortgage with a credit score below 720?
Sure. There is plenty of mortgage money out there for borrowers with imperfect credit. More than 40 percent of all FHA borrowers have credit scores between 620 and 680.
The next time someone tells you that the mortgage marketplace is tight or only those with perfect credit can get a loan, ask if news was delivered by an alligator, a large one from beneath Manhattan.