When the market is disrupted financial markets tend to seize up. The liquidity cycle may slow, freeze up to a degree or stop completely. This is true because banks are highly leveraged. A well capitalized bank is only required to have 6% of their assets in core capital. It is estimated that the residential mortgage meltdown will cause credit losses of about $400 billion dollars. This credit loss is about 2% of all U.S. equities. This hurts the bank’s balance sheets because it impacts their 6% core capital. To compensate, banks have to charge more for loans, pay less for deposits and create higher standards for borrowers which leads to less lending.

Why did this happen? Once upon a time after the great depression of the 1930’s a new national banking system was created. Banks were required to join to meet high standards of safety and soundness. The purpose was to prevent future failures of banks and to prevent another disastrous depression. Savings and Loans (which still exist but call themselves Banks today) were created primarily to lend money to people to buy houses. They took their depositor’s money, lent it to people to buy homes and held these loans in their portfolio. If a homeowner failed to pay and there was a loss, the institution took the loss. The system was simple and the institutions were responsible for the building of millions of homes for over 50 years. This changed drastically with the invention of the secondary market, collateralized debt obligations which are also know as collateralized mortgage obligations.

Our government created the Government National Mortgage Association (commonly known as Ginnie Mae) and the Federal National Mortgage Association (commonly known as Fannie Mae) to purchase mortgages from banks to expand the amount of money available in the banking system to purchase homes. Then Wall Street firms created a way to expand the market exponentially by bundling up home loans in clever ways that allowed originators and Wall Street to make big profits. The big stock market firms were securitizers of mortgage-backed securities and resecuritizers who sliced and diced different parts of the groups of home loans to be bought and sold in the stock market based on prices set by the market and market analysts. Home loans, packaged as securities, are bought and sold like stocks and bonds.

In the quest to do more and more business, the standards to get a loan were lowered to a point where, at least in some cases, if a person wanted to buy a house and could assert they could pay for it they received the loan. Borrowers with weak or poor credit histories were able to get loans. There was little risk to the lender because unlike the earlier days when home loans were held in their portfolios, these loans were sold and if the loans defaulted the investors or purchasers of these loans would take the losses i.e. not the bank making the loan. The result today is tumult in our economy from the mortgage meltdown which has disrupted the overall financial system and affects all lending in a negative way.

Who is responsible for this situation? All loan originators, including banks, are responsible for turning a blind eye to loans that were based on poor credit criteria. Under the label of “subprime” loans there were low documentation loans, no documentation loans and very high loan to value loans- many of which are the foreclosures we read about on a daily basis. Wall Street is responsible for pumping this system into a financial disaster that may grow from the current $400 billion dollar estimate to over a trillion dollars. Realtors, mortgage brokers, home buyers and speculators are responsible for their willingness to pay higher and higher prices for homes on the belief that prices would only go higher and higher. This basically fueled the system for the mortgage meltdown.

Are there any similarities to the saving and loan crisis of the 1980’s? Between 1986 and 1995 Savings and Loans (S&L’s) lost about $153 billion. The institutions were regulated by the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation. These entities passed laws that required the S&L’s to make fixed rate loans only for their portfolios. The rates that could be charged for these loans were determined by the marketplace. Imagine an institution with $100 million in loans at 6% to 8%. For years the interest rates on deposits were also regulated by the government. The interest rate spread between the two allowed institutions to make a small profit.

In 1980 the U.S. Congress passed the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). A committee was established in Congress. Over a period of years the committee deregulated the rates S&L’s could pay on savings. Nothing was changed with respect to what could be charged for home loans. Many institutions started to loose huge amounts of money because they had to pay market rates of 10% to 12% for their savings, yet they were stuck with their old 6% to 8% loans. Some executives in the savings and loan business referred to this committee as the damned idiots in Washington.

Many books have been written about these events. There is documented evidence of substantial wrongdoing by S&L executives who were trying to invest funds to save their institutions, sometimes for personal gains. Some were sophisticated criminals. Congress recognized their mistake in 1982 when the Garn-St.Germain Depositary Institutions Act was passed to allow S&Ls to diversify their activities to increase their profits. It also allowed S&L’s to make variable rate loans. It was too little too late. After bankrupt institutions were liquidated by the government, the surviving S&Ls were assessed billions of dollars by the Federal Deposit Insurance Corporation to replenish the fund that insures the depositors of all U.S. banking institutions.

The mortgage meltdown and the savings and loan crises are similar with regard to the presence of greed and criminal activity. They are very different with respect to the fact that the S&L crises originated from a broken government mandated regulatory system and the mortgage meltdown has been caused primarily by a system that went wild with greed.

This has impacted non-bank lenders such as private commercial finance companies that provide hard money real estate loans, purchase order financing and accounts receivable financing. Most of these firms have raised their prices and their origination standards for safety and soundness of operations.

The bottom line: Bank lending can be replaced by other sources such as commercial finance companies to some degree. Hard money, purchase order financing and accounts receivable financing will help some businesses grow during these difficult times. But for the average borrower, businessman, or business owner these are difficult economic times, caused by the mortgage meltdown, which are here to stay for several years.

Copyright © 2008 Gregg Financial Services

www.greggfinancialserivces.com

Seller Carry-Back Mortgages

The first step in understanding a seller carry-back mortgage purchase is to understand the mortgage itself and how it came to be. Oftentimes when someone owns their home free and clear and put it on the market for sale they are approached by a buyer who wants to purchase it but who cannot secure enough bank financing to do so. In this case, it is fairly common for the potential buyer to ask the seller if they will carry-back a mortgage on the property for a specific period of time until other funding arrangements can be made.

A seller carry-back mortgage is a good deal for the seller because they can charge a much higher interest rate than a traditional bank or lender can, yet they still have security for the money in the property itself. For the privilege of borrowing the seller’s private money, the buyer is asked to pay a higher interest rate, often twice the going mortgage rate at the time. The seller gains income each month as the buyer makes them payments and then at some agreed upon time in the future the buyer pays off the seller completely.

What if the Seller Needs Their Money Early?

As you know, what you plan for in the future, and what your future actually holds can be two very distinctively different things. You may agree to a seller carry-back mortgage of $100,000 today on your home with an end contract date 10 or 20 years from now. You relish the idea of the great interest rate you will be getting on your money, and you love those monthly payments which arrive in your mailbox each month. However, what happens if you become ill, or you have some other major life change which requires you to cash out that $100,000 investment? Then what do you do?

On any given day there are many people in this or similar situations. Think of people who have won the lottery or a large lawsuit payment which will take years to collect. The solution to the problem is to sell the seller carry-back mortgage to a third party. So, as a real estate investor, that is where you come in. You can actually purchase the mortgage, at a discount, and use your own private money lenders to fund the transaction.

Say for a moment that you find the mortgage above for $100,000 with 19 years remaining on it. The mortgage with the borrower is at 13%. You make an offer to purchase that mortgage for $70,000. At that point, you then line-up funding for the $70,000, at say 10%, from one of your private money lenders. At this point, you have $30,000 coming to you when the mortgage is paid off in 20 years. Additionally, you make 3% interest from each payment which is made to you!

While the above is a very simplified overview of the process of purchasing mortgages, you should be aware as a real estate investor that such things are very possible and profitable to do.

A prospective purchaser has to always present a request in order to meet the criteria required for a mortgage. This is the time when a purchase mortgage application is submitted. The tracking system of a purchase mortgage is very unlike than the other types of mortgage applications In the United States of America, the Mortgage Banker’s Association carries out a study every week. This study extracts information of all major mortgage applications. It makes use of a listing to assess the variations in the quantity of loan applications.

For Instance, if you are interested in purchasing the home of your dreams, your first step will be to acquire a purchase mortgage application. Because of this very reason, it foretells brief period transactions in a rather fine way. It comes a s a very lucrative offer in all dealings regarding acquisition of a house. Even for buying various other possessions, we require moolah and this moolah is provided by a mortgage most of the times. So, the most important step is to purchase a mortgage lead. There are of course certain pointers to be taken into deliberation -

The purchase mortgages have to be genuine. They have to be taken as a rule by reputed banks, bankers or finance companies. One definitely has to be wary of deceitful loan givers, which can cost them greatly.

Sometimes people who want to acquire a house try to merge their debts in their new purchase mortgage. It might seem to be a good idea at that time. But what most people fail to see is that even though the monthly dues become less, total payment of your dues is done more at a snail’s pace.

A purchase mortgage is quite difficult to buy. The complexity les in the fact that there is a finishing date. The borrower has to provide the complete funding within that period to draw the purchase to an end.

Even lenders have to decide whether you are a candidate who can be trusted easily or not. You can be marked as a perfect candidate for a mortgage if you adhere to the following principles-

Your credit and money disbursement patterns are good. There are no late payments or paying only the minimum amount due.

Your income is also taken into notice. The lenders like to see your earning capability.

The value of your home is also under scrutiny. So it is a must to be aware of the property trends in your vicinity.

Hence the bottom line is that there are millions of Americans who are drowned in debts to acquire their dreams. It is the duty of the government as well as the private bankers and finance companies to assist them as much as possible to make their dreams to purchase mortgage come true.

The second change is that the elimination of have financial products sales professionals in the Reverse Mortgage industry. Meaning that no person who sells financial investment vehicles, such as annuities, insurance and other financial products…., can write this mortgage. This is an important issue because in the past there have been people who were using the mortgage to fund these products.

The third change is that the former limits that were based on county limits with and average across the board of $232,000 have been eliminated. Now the new limits have been changed to $417,000, which has allowed more seniors to access the Reverse Mortgage and not have to bring money to the closing table.

On December first the biggest and best part of the program took affect! A senior who want to purchase a home in the past, who maybe had sold their home had to use the funds from the sale to purchase a replacement home. Now they can use a Reverse Mortgage to purchase that new home. The purchase of the new home is totally based on the appraised value and not on the purchase price. Now the source of funds can come from many sources such as Retirement accounts, savings, sale proceeds or other sources including a gift. The best part of the way of purchasing is that a senior will never have to make a mortgage payment for as long as they live in the home as their primary residence.

The Reverse Mortgage is a true no doc loan for a senior over the age of 62, they do not need good credit or in today’s credit environment they need great credit for a conventional mortgage. To qualify for a purchase Reverse Mortgage all you need to be is over the age of 62 of the youngest person and a percentage of the down payment in some cases. Here is a little inside secret! If the home that you are purchasing has a high appraised value and you can purchase it for a lot less you may not have to have any down payment. The amount of money available under the Reverse Mortgage is always based on the appraised value, in today’s economic turmoil; it is not uncommon to find a home that can be purchase for 30 to 40% of the appraised value. If a senior can locate one of these deals that could literally purchase a home with zero monies down and even in some cases receive some monies at closing.

This specialist believes that you should find a real estate agent who understands that basics of the Reverse Mortgage purchase mortgage and will be willing to help a senior find that perfect purchase, before they sell there existing home. If they find that perfect home and they sell their home they can keep all of the proceeds up to $500,000 tax free.

Now this does not mean that a senior who does not have a home to sell cannot use the Reverse Mortgage to own a home and stop paying rent forever. Any senior over the age of 62 can use this program to live the rest of their life without making payments, which will increase their available income to use on other necessities.

However, before purchasing mortgage points you should analyze the particularities of your desired mortgage loan and other factors that may affect whether you can take advantage of mortgage points or not. Though mortgage points can reduce the interest rate you pay for the mortgage, you need to put money down in order to obtain them and thus, only in the long run you can benefit from them.

Lowering The Interest Rate

If you wonder why anyone would want to purchase mortgage points, the answer is quite simple. By purchasing mortgage points you are reducing the total amount of the mortgage and thus the interest rate you will have to pay for the principal. A 0.5% reduction on your interest rate may not seem much, but over the full life of a 30 year repayment program, it can save you thousands of dollars more than it can cost you.

The interest rate reduction you can obtain by purchasing mortgage points will depend on your mortgage loan terms: the loan amount, the length of the repayment program, etc. Also, it will depend on the lender and on the money you have available so as to purchase the points. It makes no sense to worry about how you can reduce the interest rate by purchasing mortgage points if you do not have the money to do so.

A Matter Of Time

There is an issue that you should take into account when considering purchasing mortgage points: The fact that it takes time to cover the costs of the mortgage points purchases and start saving money with the interest rate reduction. It really depends on the loan and the lender but you can think of an average of 5 years in order to cover for the costs and begin the savings stage.

Thus, it is important for you to know, as far as possible, whether you will remain owner of the property for at least ten years or not. If you plan to sell and move out in the near future, you will not be taking advantage of mortgage points and thus, it would make no sense to purchase the mortgage points at all and you should actually refrain from doing so.

Conclusion

Purchasing mortgage points can save you a lot of money over the whole life of a mortgage loan and can also provide you with lower monthly payments by granting a reduction on the interest rate you have to pay for the money borrowed. Mortgage points are a form of down payment that greatly reduces the risk of the transaction for the lenders and lets them provide lower interest rates.

However, it only makes sense to close on such deals if you plan to stay in that same property for many years. Otherwise, putting such high amounts of money down will not be compensated by the interest rate reduction and the only ones obtaining any benefits from the transaction will be the lender and the next owner of the property.

One point equals approximately 1 percent of the amount of the loan. For example, for a loan of $200,000, one mortgage point would equal $2,000. Mortgage points are usually paid at closing, in cash. Some buyers borrow money in order to pay points, though this will increase the closing costs and the amount of the loan.

So how much do mortgage points save you in the long run? In most cases, buying mortgage points will only lower your interest rate slightly. Typically, each mortgage point you buy lowers your interest rate by 0.125 percent. So if you have a 6.5 percent rate, and you purchased one mortgage point, it would be lowered to 6.375. You will need to use a mortgage calculator to see how much you save each month. You should also calculate how long it will take before you reach the ‘break even’ point. The break even point is when you recover the cost of purchasing the mortgage points. There are four steps in calculating the break even point:

Calculate the amount of your monthly mortgage payment at the normal interest rate.

Calculate how much your monthly mortgage payment would be if you did purchase one mortgage point.

Subtract the lower payment (results from number 2) from the higher payment (results of number 1).

Divide the amount of one mortgage point by the amount saved each month (results to number 3). The result of this calculation is the number of months needed in order to reach the break even point.

In general, the simplest method in calculating whether you should purchase mortgage points is to decide whether you can afford to make the upfront payment required at closing. If you are interested in purchasing mortgage points, but have to struggle to find payment for them, perhaps they are not the best option for you. Borrowing to pay for mortgage points will not only increase the closing costs, but also the amount of your loan.

You should also keep your specific situation in mind when deciding whether to purchase mortgage points. Are you planning on keeping this mortgage for a short time, or an indefinite period? If you expect to keep your mortgage for a long time, it may be a good idea to purchase mortgage points. The longer you plan to stay in the same house, the more you’ll benefit from the lower interest rate that buying mortgage points at the time of purchase can allow you.

If you’re interested in purchasing mortgage points, be prepared to negotiate before signing. But before you reach the negotiating table, make sure you know what to expect as to the costs of purchasing mortgage points. Check your local newspaper to research current rates. This will give you a good idea of how much it will cost to buy mortgage points.

One of the simplest ways to make purchasing mortgage points relatively painless is to let the seller pay for a portion of them. You will need to discuss the terms of your loan with your broker or lending institution to see if this option is available. If it’s allowable, you can negotiate with the seller to see if they are willing to pay for a portion of your mortgage points. The seller will likely ask to raise the price slightly, but even so, you will be able to move into the house for less.

When speaking to your broker or lending institution, you should ask for points to be quoted to you as a dollar amount, and not as percentage points. This way you will have a clear idea of how much you will be required to pay, if you do decide to pay mortgage points (just keep in mind, with refinances, these fees are typically rolled into the total loan amount). Having the points available as a dollar amount will also make it easier to negotiate.

Here are some of the basic types of mortgage loans:

Fixed-rate home loan mortgage -

As the name suggests, this is a plain-vanilla home loan. Basically you borrow a certain amount over a certain period at a fixed rate of interest. You then pay the same monthly installments for the life of the home loan. The benefit of a fixed-rate home loan is that you can easily budget for the repayments. The downfall of a fixed-rate home loan is that you could end up paying a higher rate of interest than everyone else – no one knows what interest rates will be in 15-20 years time!

Adjustable-rate home loan mortgage -

Mirroring the fixed-rate mortgage is the adjustable-rate mortgage. Again, you borrow a certain amount over a certain period, however in this case the interest rate is not fixed, but is adjustable (or ‘floating’ as you may also hear it called). The upside to adjustable-rate home loans is that the interest rate at the start of the loan period can be lower than the fixed rate would be. The downside is that it is difficult to budget for, as the amount can change, and you are at the mercy of something outside of your control – interest rate fluctuations, which can change quickly.

Hybrid home loan mortgages -

Trying to fill the void left with the downside of the fixed and adjustable/variable-rate home loans, the hybrid home loan lets you fix the interest rate over the first part of the home loan, and then switch to an adjustable/variable rate later. The upside of hybrid home loans is that they allow you to budget for your repayments during the expensive time when you first buy the home. The downside is that if floating rates are much higher than your fixed rate when the switch happens, you could find you are paying a much higher repayment each month.

To see our list of recommended mortgage lenders with competitive rates for refinance, purchase loans, second mortgages, home equity loans and all other mortgage loans, visit this page Recommended Mortgage Lenders

Purchase the Home of Your Dreams

Our planet is a hi-tech gizmo world today. Sophisticated equipment surrounds our lives. Now the demands have exceeded the supplies and the dollar has reached a level of exhaustion. Our motto has become to buy and own as many stuff as possible. It is also not feasible to own every thing. Therefore it is for us to decide what is best for us and what is not. The contemporary market too takes our wishes into a lot of consideration. That is the major reason why we have financial help and mortgages. The mortgage that we concentrate here is the purchase mortgage.

A prospective purchaser has to always present a request in order to meet the criteria required for a mortgage. This is the time when a purchase mortgage application is submitted. The tracking system of a purchase mortgage is very unlike than the other types of mortgage applications In the United States of America, the Mortgage Banker’s Association carries out a study every week. This study extracts information of all major mortgage applications. It makes use of a listing to assess the variations in the quantity of loan applications.

For Instance, if you are interested in purchasing the home of your dreams, your first step will be to acquire a purchase mortgage application. Because of this very reason, it foretells brief period transactions in a rather fine way. It comes a s a very lucrative offer in all dealings regarding acquisition of a house. Even for buying various other possessions, we require moolah and this moolah is provided by a mortgage most of the times. So, the most important step is to purchase a mortgage lead. There are of course certain pointers to be taken into deliberation -

The purchase mortgages have to be genuine. They have to be taken as a rule by reputed banks, bankers or finance companies. One definitely has to be wary of deceitful loan givers, which can cost them greatly.

Sometimes people who want to acquire a house try to merge their debts in their new purchase mortgage. It might seem to be a good idea at that time. But what most people fail to see is that even though the monthly dues become less, total payment of your dues is done more at a snail’s pace.

A purchase mortgage is quite difficult to buy. The complexity les in the fact that there is a finishing date. The borrower has to provide the complete funding within that period to draw the purchase to an end.

Even lenders have to decide whether you are a candidate who can be trusted easily or not. You can be marked as a perfect candidate for a mortgage if you adhere to the following principles-

Your credit and money disbursement patterns are good. There are no late payments or paying only the minimum amount due.

Your income is also taken into notice. The lenders like to see your earning capability.

The value of your home is also under scrutiny. So it is a must to be aware of the property trends in your vicinity.

Hence the bottom line is that there are millions of Americans who are drowned in debts to acquire their dreams. It is the duty of the government as well as the private bankers and finance companies to assist them as much as possible to make their dreams to purchase mortgage come true.

When cottages first became the vogue around the turn of the last century, those getaways were generally charmingly rustic structures designed to give their owners a taste of a simpler way of life for the summer season. But today, recreational property markets are reporting a stunning increase in teardowns and renovations – as rustic simplicity gives way to luxury accommodations. Today’s recreational property mix covers the gamut from luxury waterfront homes, resort-style condominiums, ski chalets and timeshare properties. Many of the traditional-style cottages are still standing, of course… and they sell for top dollar

on the rare occasions that they actually come on the market.

But more and more average Canadians have cabin fever: they’re looking for a recreational property both as an investment and an enhancement to their own lifestyles. And for many, the goal is achievable: we’ve seen historically low mortgage rates over the last few years – and greater affordability for ordinary Canadians. But financing a recreational property is more challenging than funding a principal residence. Traditional lending institutions typically find second homes a much less desirable investment. Purchasers are often advised to take out an equity loan or a second mortgage on their principal residence in order to buy the recreation property.

But the lending landscape has been changing in the past few years. We are beginning to see that some lenders have developed flexible new mortgage products and policies that are specifically designed for the recreational property market. The upshot is that Canadians who are longing for that cottage or condo may now be able to bypass conventional lending criteria – opening the door to ownership much sooner than they imagined. Recreational property mortgages are available for owner-occupied second properties, including winterized and nonwinterized, with as little as 15 per cent down for purchasers with good credit. And in some cases, 10 per cent down could get you into the recreational property market if you qualify. Typically, the vacation property needs to be located in a known vacation area, have approved plumbing, and year round access.

And do your homework. In today’s heated recreational property market, some purchasers have an edge in the marketplace because they are cash buyers. To level the playing field, buyers who are financing their purchase may want to consider talking to a professional to determine approximately how much they qualify for before launching their search.

For some, recreational property is an attractive investment, with rentals providing an extra income stream. But the allure is usually more emotional: a cottage or condo often becomes a symbolic centre for family life, where families come together at all ages and stages in their lives to share common activities and traditions.

If you’re dreaming of your own beach sunset or the perfect ski slope at your door, begin with a conversation with a mortgage professional. Your own getaway could be closer than you think!