Mortgage Lowdown

There’s a lot going on in the sub-prime mortgage industry, and it’s not all good. Rising interest rates, increasing home prices, decreasing customer bases, defaulting customers, slowing housing sales, and soaring competition have forced most companies to either cut back operations, close shop or sell out to larger brokerage firms like Morgan Stanley, Barclays Plc and Deutsche Bank AG. Recent events that prove this:

• Mortgage Lenders Network USA Inc. (MLN), the 15th-largest issuer of sub-prime mortgages with $3.3 billion loans in Q3 2006, announced that it was temporarily not going to issue new loans through its wholesale unit.
• Ownit Mortgage Solutions Inc., the 11th-largest issuer in the market, filed for bankruptcy last week at the U.S. Bankruptcy Court of San Fernando Valley, California, with debts totaling more than $100 million.
• Sebring Capital Partners LP cut back on its staff in 2006, and subsequently closed down in December.
• Saxon Capital Inc. sold out to Morgan Stanley for $706 million last month; the latter is planning to cut 170 jobs.
• The year 2006 ended with the sale of First Franklin, National City Corporation’s sub-prime lending and servicing unit, to Merrill Lynch & Co. for $1.3 billion. The financial management company also acquired associated units, the National City Home Loan Services based in Pittsburgh, and NationPoint, headquartered in California.

The larger brokerage firms who are snapping up the smaller sub-prime lenders and servicing units are protecting themselves and spreading risks of default by packaging home loans into larger securities and selling them to clients who want interest income.

– By Pushpa Sathish, Staff Writer

A low interest and more points on your mortgage may not be such a good thing, according to a new study by Abdullah Yavas, Elliott Professor of Business Administration at Penn State’s Smeal College of Business, and Yan Chang of Freddie Mac. After a detailed perusal of data relating to 3,785 mortgages collected between 1996 and 2003, the duo concluded that those who buy points generally overestimate the time they need to pay back their loans.

The points system works positively for the borrower only when held for a long-enough period, and most of them never do. On an average, they paid off their mortgages 37.5 months earlier than the time when the points would pay off.

By purchasing points, borrowers lower the interest rate on the mortgage. One point is equal to 1 percent of the mortgage, charged as prepaid interest. Points that you pay to purchase your primary residence are deductible in the year you pay them on your federal income-tax return; points you pay to refinance must be written off over the life of your mortgage.

The researchers admit though that this data may be skewed because it was collected during a period of decreasing interest rates and soaring property values, a combination that led to a fair amount of refinancing activity.

According to recent reports, Katrina-related delinquencies have dropped to 37 percent of December 2005’s peak of $269.8 million. They however remain 3.5 times higher than pre-storm levels, according to Fitch’s latest U.S. CMBS loan delinquency index, which fell four basis points to 0.55 percent in August. Blackenterprise.com reports:

One basis point of the delinquency rate decline is attributable to the addition of seven new deals totaling $8 billion to Fitch’s deal universe. The remainder of the decline is due to loans becoming less than 60 days delinquent, being paid off, defeased, or liquidated and therefore dropping out of the delinquent universe.

Read more: Katrina-Related Mortgage Loan Delinquencies Falling

Heard of jumbo sandwiches, jumbo burgers, but what the heck is a jumbo mortgage? I heard the term recently and decided to check it out. Simply put, a jumbo loan is a mortgage loan that exceeds a certain fixed amount. Bestsyndication.com reports:

Currently (as of 2006), a jumbo mortgage loan is a loan more than $417,000. The limit typically changes each year. In 2005, the amount was $357,650. The great part about a jumbo mortgage loan is the approval process is the same for conventional loans for most lenders.

Read more: What the Heck is a Jumbo Mortgage Loan?

A good credit score is of great help when you apply for a mortgage. The better your credit score, the easier it will be for you to get a loan. So, if your score is not too good and you want to improve it before you purchase your dream home, try this tip to get your score back on track. Always TRY to pay your bills on time. Nobody likes people who ‘forget’ or delay repaying their bills. Did you know that if you delay payment on your bills by 30 days or more, it can lower your score by 50 points or even more?

So, you realize how imperative it is that you pay off your bills as soon as you receive them. But if you cannot pay your bills for some reason like being tied down with many things or if you have a habit of forgetting, you can easily go online and automate your bill payment procedure. This way, you don’t have to worry about getting late. If you have too much debt and begin to fall behind or cannot see a way out of your financial mess, it probably is time for you to get credit counseling.

Countrywide Financial Corp., the largest U.S. mortgage lender, recently said second-quarter mortgage volume fell 3 percent from a year earlier. Mortgage financier Freddie Mac said the average rate on 30-year mortgages is 6.74 percent, up from 5.66 percent a year earlier. Reuters.com reports:

"Big lenders are gaining market share because they have a wider spectrum of products and better pricing," said David Olson, co-founder of Wholesale Access, a Columbia, Maryland firm tracking the mortgage industry.

Read more: Countrywide mortgage loans drop, but shares rise