Mortgage Loan Outlet

In a recent article, the chief economist for LendingTree, Cameron Findlay stated that borrowers need to have a few borrowing qualifications met to get the lowest mortgage rates.  First, you’ll need a FICO credit score of 720 or higher, a loan-comparison website. 

To avoid surprises, you should obtain your credit score before you apply for a mortgage loan, says Nancy Flint-Budde, a financial planner in Salem, N.Y. Your credit score is based on information in the credit reports compiled by the three main credit bureaus: TransUnion, Equifax and Experian. You can order a free copy of all three of your credit reports once a year at www.annualcreditreport.com. You’ll have to pay extra for your credit score.  

Once you have received your credit reports, check them for errors that could hurt your score. If your reports show late payments make sure the info is accurately reported.  The only way to repair the damage is by showing mortgage lenders that you can prove it was a mistake or “you must have change your ways”, says Craig Watts, spokesman for Fair Isaac, who developed the FICO score. That will take time, because you need to demonstrate a pattern of on-time payments.  However, if your credit reports show large credit card balances, you can raise your score quickly by paying them off, Watts says. Your “credit utilization” ratio, which reflects to the amount you’ve borrowed as a percentage of your available credit, accounts for 30% of your credit score. Credit repair solutions are available if you need help getting errors and duplicates removed from your credit report.  Read the complete story by Reporter Sandra Block>

In a recent article, James Sterngold considers the impact many consumers aren’t seeing in mortgage relief from TARP.  As the new owner of $172.5 billion of preferred shares and warrants in 208 U.S. financial institutions, the Treasury Department hasn’t succeeded in thawing frozen credit markets, leaving taxpayers propping up an industry that won’t lend to them.

While inter-bank lending rates have fallen since Congress approved the $700 billion Troubled Asset Relief Program on Oct. 3, most bank lending to consumers remains tight and mortgage rates were high. The average credit-card rate was 14.33% on Dec. 16, according to IndexCreditCards.com in Cleveland, almost unchanged from 14.41% in October 2007.   That’s prompted criticism from Alan S. Blinder, a professor of economics at Princeton University in New Jersey and a former Federal Reserve vice chairman, who says the government should take a more active role as a stakeholder in the nation’s banks.   “With the banks in a state of catatonic fear now, they’re just sitting on the capital,” Blinder said in an interview. “I don’t fault the banks one bit, since this shows Wall Street they’re safer, but then this doesn’t get you much improvement. If you’re taking money from the public purse, we should get something in return, and we’re really not.”

Jeffrey Garten, a professor of international trade and finance at the Yale School of Management in New Haven, Connecticut, and a Commerce Department undersecretary during the Clinton administration, says banks should be forced to increase their lending or risk having taxpayer money taken away. “The government isn’t acting aggressively enough to demand a quid pro quo,” Garten said. “The public good is the key to the private good in this case. It’s not the other way around.”

$8.5 Trillion

Although the government has committed more than $8.5 trillion to energizing the economy, and the Fed cut a key lending rate almost to zero, banks haven’t made it easier to borrow. The Fed said consumer credit fell by $6.4 billion in August, the largest drop in 65 years, and then by $3.5 billion in October, the first time since 1992 that there were two months of declines in a year.

In its most recent quarterly Senior Loan Officer Opinion Survey in October, the Fed reported that about 85% of U.S. banks said they had tightened standards on commercial and industrial loans to companies with more than $50 million in annual sales, up from 60% in July. 95% said they increased the cost of those home loans. About 70% said they made it more difficult to obtain prime mortgage loans, and almost 65% said they did the same for consumer loans.

Mortgage Rates

While mortgage rates have declined, they haven’t fallen as fast as bank borrowing rates, meaning financial institutions are demanding more profit for every dollar they lend. Average rates on thirty-year home mortgages fell to 5.14 % last month, according to data compiled by McLean, Virginia-based Freddie Mac. That’s down from 6.67% in June 2007, before the worst turmoil in the housing market. At the same time, the spread of mortgage rates over the 10-year Treasury bond yield rose to 2.958 percentage points from 1.567. 

The spread of rates on so-called jumbo mortgage loans, those of more than $729,750, is close to a record at 1.6 percentage points above the rate for smaller mortgage loans that conform to terms of ones Freddie Mac and Fannie Mae will purchase, according to financial data firm BanxQuote in White Plains, New York. A year ago the difference was 0.23 percentage points.

High interest rates have angered consumers. The Fed has offered relief in the form of rule changes that allow banks to raise interest rates only on new credit cards and future purchases, not on existing balances. Banks will also have to give cardholders 45 days notice of changes in terms, up from 15 days. Those changes aren’t scheduled to take effect until July 2010.   Read the complete article online >  

According to a report in the Wall Street Journal, the Treasury Department is considering a plan to reduce mortgage rates on loans for home financing to 4.5%. On Thursday, Federal Reserve Chairman Ben Bernanke urged the government to consider sweeping steps to prevent foreclosures, including buying risky home loans and mortgage refinancing them under more favorable terms to homeowners.  Prices on mortgage loan securities, which would most feel the impact of any such moves, barely budged on either development. Many mortgage insiders are concerned because the newly released financing plans are simply considered to be another temporary fix that likely would not be the solution to the housing and foreclosure crisis.

Last week, the Fed agreed to buy $600 billion worth of mortgage loan securities, guaranteed by Fannie Mae and Freddie Mac, and agency debt in an effort to prop up the home loan market. That helped bring mortgage rates down nearly one-half of a percentage point.  The latest plans lack crucial details on how they would actually work. For example, it’s not clear in a slowing economy if there will be enough qualified buyers who will actually risk buying a home when they are uncertain about their jobs and the value of the home they buy.  “People are confused about the plans,” said Kevin Cavin, mortgage strategist at FTN Financial. 

Another issue, he said, is that Treasury’s plan would only help new home buyers, not those who need to refinance existing home loans. That could be impractical to implement, as well as unfair, to those homeowners stuck with mortgage loans at higher rates.  “How can you separate purchase borrowers from refinance borrowers in terms of mortgage rates?” Mr. Cavin said.  If the government directly buys loans extended for home purchases, it will create a two-tier market, said Mahesh Swaminathan, mortgage strategist at Credit Suisse. Refinancings “will occur in the regular market and possibly at higher rates,” he said.  FHA mortgage refinancing has been supporting most of the loan programs designed to stem the foreclosure crisis.  Steve Park of Mortgage Brokers Network said, “FHA home loan programs have become Main Street for brokers and lenders nationally.  Park continued, “The good news is that any bit of lower rates will help everyone.”

Even though government intervention is clearly necessary, some market participants are worried that if it is prolonged it could have a disruptive impact on markets, since they would no longer be establishing fair value.  “While reducing mortgage rates is a key goal, it should not destroy the market’s ability to function on its own,” said Mr. Swaminathan. “Government purchases cannot be the permanent solution.”  Yet another twist is that it is unclear whether these proposals will be altered or even suspended when the Obama administration takes over in January.  But the urgency to address the housing situation is clear.

Mr. Bernanke, speaking earlier Thursday, cited estimates showing as many as 15% to 20% mortgage loans may be “under water,” meaning more is owed on the house than it is worth.  The chairman estimated that mortgage lenders are on track to initiate 2.25 million foreclosure proceedings this year, more than double the rate before the crisis.  Housing weakness has been a drag on the overall economy, Bernanke said, adding that “a slowing economy has in turn reduced the demand for houses, implying a further weakening in the mortgage and housing markets.”