Upside Down Mortgage

Archive for August, 2007

Ethics Subprime Lending

The first issue of concern is improved communication to subprime borrowers about the real, hidden cost of their adjustable rate mortgage (ARM) loans. This kind of loan is often suggested to subprime borrowers because the introductory rate of interest is so low – so low, in fact, that it’s often called a “teaser rate”. Before the appearance of the government Statement, ARM loans assessed huge penalty fees for refinancing the loan or prepaying it before the term expires. Often, the penalties continued for most of the duration of the loan.

Regulators tighten rules for subprime lending in the Statement by providing guidelines requiring subprime lenders to offer full disclosure of fees and rates associated with an ARM. Moreover, they state that “liar loans,” loans that ignore a borrower’s capability of repaying the loan and require no documentation of earnings, must be curtailed. These liar loans are also called “stated income loans,” “low-doc loans,” and “no-doc loans.” A borrower simply states the amount of his income, without being required to produce a W2 form or pay stubs to substantiate his statement. Based on what he has claimed, he qualifies for a loan he cannot really afford. It’s clear that this practice is the cause of at least part of the subprime market problem!

The Statement is specific about predatory and deceptive lending practices – what they are, and why they must not be used. Such predatory practices often victimize those who may not really understand what they are being asked to sign, members of particularly vulnerable groups: the elderly, minorities, and first-time home buyers. It is also very clear about the fact that not all subprime lenders can be considered predatory.

If you are a subprime buyer, what do these new regulations mean to you? For one thing, you can’t be entrapped in an ARM with an upcoming reset date: 60 days notice is now required. If you decide to refinance early in the loan, or if for some reason you become able to repay it early, no astronomical prepayment fees will be assessed. Lenders must now require proper documentation to verify income. This is a positive improvement, because a subprime borrower should never borrow more than he will really be able to repay. Many subprime financial institutions have gone under in recent years, simply because they ignored the critical need to determine accurately each home buyer’s capability to meet financial obligations. The regulations force subprime lenders to deal more ethically with subprime borrowers. They must show due diligence with their determination of these borrowers’ future solvency. Foreclosures ruin local real estate markets, as well as borrowers and lenders.

Earlier guidelines issued by the regulatory agencies have been tightened by the Statement. Some have been incorporated into its text; others, like the 2001 Expanded Guidance, are referenced. The intention of the federal agencies in tightening the rules for subprime lending is to protect subprime borrowers from lenders of questionable integrity, and to protect lenders from ruining themselves because of laxity in their underwriting practices. This document is bound to have a positive effect on the current downward-spiraling real estate market.

About the Author:

Learn When Did Subprime Lending Start and all the chaos as well as learning more about Expanded Guidance For Subprime Lending Programs when you visit http://www.subprimelendingcrisis.com

Article Source: ArticlesBase.com - Subprime Mortgage Lending - Regulators Tighten Rules

Freddie Mac Acting CFO David Kellerman Found Dead of Apparent Suicide

If you're new around here, you might want to subscribe to our Upside-Down Mortgage RSS feed. It's quite likely the only feed of it's type on the internet!

Loan Modification Kit

Loan Modification

Loan modification is restructuring your current mortgage loan terms with your lender. This is not a refinancing and can be done even you are behind on your current payments regardless of your credit situation. Submitting a loan modification can help you avoid foreclosure. Pro Loan Modification Kit™ can help.

Why conduct a Loan Modification?

If you are in a bad loan and want o lower your mortgage payment (interest rate) how even cannot refinance (no equity, bad credit, whatever the case might be) you might want to complete a loan modification. Only loan modification options available to borrowers are:

30 Yrs Fixed and 40 yrs Fixed (Fully amortized)

Conduction such loan modification can help a homeowner obtain a good long-term loan and put all the past due payment on the new re-structured loan.

Example:

Let us assume Mr. & Mrs. Doe have 2 loans on their property. The 1st loan is an ARM at 8.75% with a balance of $100,000.00. The 2nd loan is a HELOC at 9% with a balance of $10,000.00.

The mortgage payment on the 1st loan is $ 787.00

The mortgage payment on the 2nd loan is $ 75.00

However their property value is only $ 85,000.00 due to the housing market condition. Currently Mr. & Mrs. Doe is 6 months behind on their mortgage payment due to loss of job.

With a loan modification the homeowner can obtain a 30 yrs fixed mortgage on their 1st loan balance of $ 100,000.00 plus the past due payment of $ 5172.00 at a low rate of 6% and negotiate a charge off on the 2nd loan as the property value has decreased.

The borrower had the 1st loan for 2 years. Hence the new modified loan will be for the rest of the term 28 years with a new mortgage payment of $ 647.00

This way the borrower can keep their house and avoid a foreclosure.

About the Author:

Professional Loan Modification Kit - By bank professionals

Article Source: ArticlesBase.com - What is a Loan Modification and who should complete a Loan Modification?

Do-It-Yourself Loan Modification Kit