Mortgage Lowdown

–By Priya Jestin, Staff Writer

As if the mortgage market didn’t already have its fair share of problem areas, now we have one more. Did you know that over 17 percent of all borrowers who take out limited-documentation or no-documentation mortgages have income they do not report on their tax filings? A recent report in the Washington Post brought to fore this dark truth of the mortgage market.

When you apply for a limited or no documentation mortgage you are supposed to state your income and assets to the loan officer. But, and here’s where the catch lies, you don’t have to show detailed proof of that information for the lender’s files.

Another thing that attracts people to this form of mortgage is that there is no income verification, no asset verification, AND you don’t require much documentation either to qualify. Fine, such terms can make any applicant drool and want such a loan. But what’s in it for the lenders? Better rates and compensation for the loan originator!

So, is it any wonder that this segment is growing by leaps and bounds? A survey sponsored by Inside Mortgage Finance, a Bethesda trade publication 39 percent of all low-doc borrowers this year are salaried wage earners. And this is roughly the same percentage as self-employed borrowers.

Mortgage companies do acknowledge the fact that taking on such undocumented clients could pose a big risk to them. But the lure of higher rates and fees lulls them into believing that these risk factors can be controlled. But what is worse is that these policies could encourage people to keep their income off record and thereby save on taxes.

–By Priya Jestin, Staff Writer

Real estate prices have been rising at a steady rate and have caused heartburn for more than just a few people. Many people belonging to the middle class are seeing their affordable first-home dreams going up in smoke. This rise in real estate prices has led to one more thing — mortgage fraud.

The fraud is being conducted from the most basic level — right from the appraisal stage. Fraudulent methods are used while appraising a property, which in turn inflates real estate values. Once these fraudulent values are entered into real estate multiple listing systems, they are used by legitimate appraisers for determining market values.

A recent study by FinCen shows that in the decade spanning 1996 to 2006, mortgage fraud increased about 1,400 percent! Moreover, the first quarter of 2006 showing a 35 percent increase in mortgage fraud activity over the first quarter of 2005. The report identified automated loan processing, sub-prime lending, and mortgage broker loan originations as prime “vulnerabilities” associated with suspected mortgage fraud.

Wonder how flexible mortgage works and don’t know how to figure it out — no problem, just read through. Owing to competition, mortgage firms offer flexibility plans for payments. This enables customers (borrowers) to pick i.e. to skip up to two mortgage payments in any 12 month period, and up to 10 over the life of a loan. Although this is just an example and you can take these figures as a possible assumption. But truly, various companies are coming up with such offers to make you feel a little puzzled. So, a skipped payment results in an additional loan, equal to the payment plus a healthy access fee, tacked on to the balance seems okay and is actually worth to look at.

Practically speaking, a borrower doesn’t need to go for a high-cost way to borrow for emergencies. What is needed is a no-cost way to accumulate a reserve within existing mortgage which would allows skipping or reduces payment when necessary and a truly flexible mortgage would provide this. The flexible mortgage would base the borrower’s payment obligation on the loan balance.

While you go for a no-cost mortgage a couple of points should be very clear to you. A no-cost mortgage is one on which the lender pays the borrower’s settlement costs. But there are certain exceptions to that. The per diem interest is the interest from the closing date to the first day of the following month. It is not included because it is not known until the exact closing date is set.

The taxes and insurance escrows involved, which are borrower funds set aside to assure payment of the borrower’s future obligations, are not covered because they are not a cost of the transaction. There is also a condition of homeowner. In that case, homeowners’ insurance is not included because, while required by the lender, it also benefits the borrower. Owner’s title insurance is not covered because it is optional or paid by the seller. When it comes to transfer taxes, if any, are not covered because the amount is sometimes uncertain, and it is set by a governmental entity. You can’t ignore the other costs, including the mortgage broker’s fee if there is one, which are usually paid by the lender.

The obvious questions we tend to ask is that what to do with our mortgage needs changing; the want to change existing mortgages with another one, get a new one altogether or transfer. This is a point where we try to figure out for new mortgage deals giving us a good save on money.

Various firms give high value to its existing customers. In doing so, they make the process of renewing or changing mortgage easy. That is exactly a mortgage reviewing service is supposed to do. If you are looking for one, search if they provide you with a transfer to any of the mortgage deals available with them without a hitch or extra cost levy.

Avail the mortgage review service, which is designed to ensure that you are well informed about new mortgage deal taking place giving benefits like choosing from an entire range of mortgage deals, or taking additional borrowings at the same time to spend to your liking. These services answer queries for your mortgage review. They even allow transfer with various charges as applicable. Prepare a checklist and pick the one that suits you best.