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May 12, 2010 12:53 pm | MA Foreclosures

Congress Aims To Make Things Easier For Borrowers

The government is doing all that it can to help high risk borrowers secure mortgage loans and a recent piece of legislation is evidence of that. With the Federal Reserve Board taking steps to cut federal interest rates recently, the United States House of Representatives is looking to help out sub prime lenders who are thought to have caused the real estate market turmoil to begin with.

The bill, which is expected to run through the House soon, is called the Expanding American Homeownership Act. It seeks to help people secure mortgage loans by expanding the capability of the Federal Housing Authority to take on more at risk borrowers. These risky propositions are often too dangerous for banks to consider, but the Federal government hopes to help these people out with their own insurance policy.

The primary goal of the new bill is to give power to the FHA, which stands as the biggest insurer of mortgage loans in the world, to give service to those who might otherwise negatively impact the regular market were they to secure loans through a standard lender. These folks, according to the thought of the federal government, are the kind that would fall victim to excessively high mortgage rates and fall into a huge financial pit with banks.

The bill was first introduced by Representative Maxine Waters of California. Mrs. Waters made comments that indicated her desire to help out those customers who had been pushed into unsafe mortgage loans before. In addition, she indicated that the new bill would do much to help out young home buyers who were getting their feet wet in a market full of tired lenders. There is speculation that the House will pass the bill, as it has gained widespread support among many of the more powerful representatives.

The bill itself is meant to give the FHA more options with which to operate. Their goal had already been to insure high risk mortgages, but now they hope to take it to another level. The bill would give the FHA a chance to charge higher interest rates in conjunction with taking on riskier loans. This would help the government protect itself, while also keeping sub prime borrowers from predatory treatment. In addition, the bill would enable the FHA to insure no money down loans and other low down payment loans, which favor young buyers. This interest in the first time home buyer is an essential aspect of this piece of legislation.

The bill also hopes to offset the rising cost of mortgage loan insurance premiums. These have been rising steadily and the bill would curtail that increase unless there was a primary need for such a rise to cover the cost of insurance claims.

Certain areas of the country would be likely to see a greater benefit from the bill. Places like California, Massachusetts, and New York are known to have larger, pricier loans because of the cost of property in those areas. Because the FHA has long been limited in how much money it can spend to insure a loan, it has been priced out of these markets. Now, it will have an opportunity to participate there, where home values seem to be on a constant rise.

There is another element to the bill which should help the overall real estate market in the long term. It would give the United States Department of Housing and Urban Development the right to assign counseling to home buyers prior to approving a low down payment loan. This change would help create a much more educated home owner base and reduce the chances that a foreclosure could occur. The long term ramifications of such a move could help bring the real estate market out of the downtick that it current faces.

Thus far, there has been good reaction for the legislation from those who provide mortgage loans. The Mortgage Bankers Association, which is a powerful group, has lent its support to the bill at this early stage. There are aspects of the bill which the MBA does not favor, however. A piece of the bill which mentions a long term housing trust is something that, according to the MBA, has the ability to delay the process.

A commitment has been within Congress to protect consumers from any form of unfair treatment. Financial regulators and mortgage loans providers need to do more in this regard, according to many of the House’s top legislators.

One way of doing this has been introduced in a bill that would enable the FTC to change guidelines about consumer credit information accuracy. This way, consumers wouldn’t have to worry about mistakes and falsehoods in their credit report. Because credit has become so important, Congress knows that borrowers must be protected as much as possible in this regard if they are to qualify for mortgage loans.
These changes, on the whole, should effect some change in the current real estate market. By getting people on the right track to success, the entire system can find prosperity.

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Elizabeth Warren – The Two Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke

Different Type Of Mortgage Rates

Out purchasing a house, you’ll need to apply for a good mortgage that’s suits your needs and income. It would be best to learn the type of mortgages available in the market and then study them before opting for them. Most known mortgages in Market are the fixed rate Mortgage and Adjustable Rate Mortgages.

There are other options in the market besides these mortgages which could be of your use if you are having a credit rating problem and are unable to opt for the fixed rate Mortgage or ARMs loans, let’s look at them.

Subprime mortgages

Egregious credit problems, such as a recent foreclosure, will prevent you from getting a mortgage. But lesser credit flaws won’t necessarily stop you from getting a home loan. An industry of subprime mortgage lenders has sprung up to serve the vast constituency of Americans who have credit problems.

Subprime defined

Generally, subprime mortgages are for borrowers with credit scores under 620. Credit scores range from about 300 to 850, with most consumers landing in the 600s and 700s. Someone who is habitually late in paying bills, and especially someone who falls behind on debts by 30, 60 or 90 days or more, will suffer from a plummeting credit score. If it falls below 620, that consumer is in subprime territory.

Few lenders will use the term “subprime” to describe you or your loan because it’s considered bad salesmanship. You might hear the word “non-prime” or, more likely, an adjective won’t be used to describe the mortgage at all.

Mortgages for people with excellent credit are somewhat of a commodity, with rates that don’t vary much from lender to lender for equivalent loans. That’s not the case with subprime mortgages. You might receive widely differing offers from different subprime lenders because they have different ways of weighing the risk of giving you a loan. For that reason, it’s important to comparison shop when your credit score is less than 620.

How subprime mortgages differ

Subprime loans have higher rates than equivalent prime loans. Lenders consider many factors in a process called “risk-based pricing” when they come up with mortgage rates and terms. This makes it impossible to generalize about subprime rates. They are higher, but how much higher depends on factors such as credit score, size of down payment and what types of delinquencies the borrower has in the recent past (from a mortgage lender’s standpoint, late mortgage or rent payments are worse than late credit card payments).

A subprime loan also is more likely to have a prepayment penalty, a balloon payment or both. A prepayment penalty is a fee assessed against the borrower for paying off the loan early — either because the borrower sells the house or refinances the high-rate loan. A mortgage with a balloon payment requires the borrower to pay off the entire outstanding amount in a lump sum after a certain period has passed, often five years. If the borrower can’t pay the entire amount when the balloon payment is due, he or she has to refinance the loan or sell the house.

Researchers contend that prepayment penalties and balloon payments are associated with higher foreclosure rates. The subprime mortgage industry contends that borrowers get lower interest rates in exchange for prepayment penalties and balloon payments, but that point is debatable.

Predatory loans

Subprime customers have to be on the lookout for predatory lenders who set out to cheat borrowers. There are several predatory tactics, and sometimes a lender will combine them. Some lenders soak naive borrowers with outrageous fees and sky-high interest rates. These lenders are likely to tell the borrower that his or her credit score is lower than it really is.

Another predatory tactic is to pressure a homeowner to refinance the mortgage frequently, charging high closing fees each time and rolling the closing costs into the mortgage amount. That goes hand in hand with another predatory tactic: Issuing a loan regardless of the borrower’s ability to repay it. When the borrower inevitably defaults, the predatory lender forecloses and sells the property.

An ethical mortgage lender doesn’t want to foreclose on a property because it is a money-losing process. An ethical lender makes money by charging interest and loses money by foreclosing. A predatory lender, on the other hand, profits by repeatedly collecting closing fees, then seizing the house.

To defend yourself from predatory lenders, find your credit score before shopping for a mortgage, and ask people whom you trust for referrals to mortgage lenders. And comparison shop by going to at least two mortgage brokers or lenders.

Other types of mortgages

The mortgage market is much more diverse than some borrowers think.Besides the standard fixed-rate and adjustable-rate mortgages, there are other types of mortgages and ways to finance a home.

1. Jumbo mortgage

This is considered a nonconforming loan because it exceeds the loan limit set by Fannie Mae and Freddie Mac, the two publicly chartered corporations that buy mortgage loans from lenders, thereby ensuring that mortgage money is available at all times in all locations around the country. The single-family limit changes annually and the current limit are always posted in related websites. If you need to borrow more than that, you will need a jumbo mortgage, which generally has a higher interest rate than a conforming loan.

Pro: Opportunity to buy larger, more expensive home.

Con: Pay a higher interest rate in exchange for the lender’s higher risk.

2. Two-step mortgage

These are mortgage rates combine elements of fixed- and adjustable-rate mortgages. They go by confusing names such as 2/28, 5/25 or 7/23. A two-step mortgage features a fixed rate and payment for an initial period, followed by one adjustment, then a fixed rate and payment for the remainder of the loan term. A 7/23, for example, has an initial fixed period of seven years, an adjustment and then 23 more years of payments following the adjustment.

Pro: Opportunity for damaged-credit borrowers to buy homes and to establish better credit.

Con: If your credit does not improve, you could be stuck in a high-rate loan for much longer than two or three years.

About the Author

Sanjay Kumar writes content about Banks Massachusetts , Online banking MA and Mortgage Rates .for more information visit at: Mortgage Rates

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