Can someone explain the housing mortgage bust to the layman?

Posted on Aug 4, 2023 in Unique Loan Programs

Question by Sam: Fha Loan question…….?
Where do I apply for this loan? Can I go to mortgage brokers or do I have to apply through the mail?

Best answer:

Answer by Boomn4x4
Almost any bank or mortgage lender would be able to get you an FHA loan.

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Mortgage Rates Fall To 11-Month Low; Homeownership Opportunities Extend
Conventional mortgage rates are available below four percent with some lenders; and VA loans and FHA loans are increasingly priced below four percent as well. Low mortgage … The index attempts to quantify the "opportunity" for a median-income-earning …
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Question by Springstorm: Should I refinance my mortgage interest rate?
Should I refinance my interest rate on my home mortgage? I have been in my home for 9 years and an employee from Chase finance (Chase is my current lender) said for me not to refinance since I have paid off a good portion of the interest. Is this true? Should I refinance? My Chase mortgage interest rate is 6.5 fixed.

Best answer:

Answer by stargrow
Dear Springstun, visit this

Let us look at it this way. Firstly no institution gives out a loan and does not require the interest on the loan because that is their profit on which the wheel of the business is oiled. No profit, dosage no business.

You would always be required to PAY BACK WHAT YOU OWE.

Now this is the other side of it. You must have signed documents and agreements when you were about to take the loan. It is possible, and it happens sometimes, that an incentive is placed in the agreement you signed, that stipulates that if you are able to pay consistently according to the payment terms(without defaulting) or that you were able to pay a particular percentage within a particular period or before a stipulated date, etc. It is possible that you could be rewarded with a waver of the rest portion of the interest.

I would advise you to look at your payment agreements again.maybe the employee is very familiar with you documents and knows that you are supposed to be enjoying this incentive for your prompt payments.
It could also be a company policy which may not have been written but the employees know of it.

This is what you will do.

1. Check you agreements and all the documents you signed and used for the loans and see if there is any incentive what soever pointing to what that employee has said.
2. Look within your local area or country or where you stay and see if there is a law by the government on issues like this that has given you the right for a waving off of the rest of the interest at this stage of your payments.
3. then go and see the employee’s boss or the man in authority, the final authority on these issues in their office and confirm if the employee’s claims are true. This is if there is no legislation that gives you that right.

But you need to know that what you signed is sacrosanct and binding on you both. it is a very long shot, depending on you experience on these kind of issues before you took the loan.

Do a little more research, I wish I could have been there with you so you could know all you should do as the events unfold.

You can only do what you have signed to do. This waver can only be authenticated if and only if by the federal or local law you are entitled to the waver or the lenders decide that by exgratia they will allow you not to pay the remaining interest that they have such a policy and it was not captured in the agreement and as such they will give it to you.

Do a little more research on the links I will provide you below, take you time there, there are a ton of info behind those links and let me know if my answer was helpful.

Remember all loans and interests are meant to be paid unless as stated above.

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Question by Mya Stafford: Question about Income Verification and Loans?
So, cost I recently quit my job after 2 years in May 2011 while working at the company I am currently employed at as of May 2011. I applied for a loan and they want income verification, which includes a recent paystub (which I will receive tomorrow), Federal Tax Returns, and 2009/2010 W-2’s. I have all this information (besides the paystub, which I am receiving from my new job). Would this be a problem? Seeing as I’m providing a paystub for a completely different company (Although I did write on my application my current place of hire), than the company whose Tax returns and W-2’s I have?
I have all that information for my OLD job, not my NEW job. I only have the paystub for my NEW job.
I’m earning 2 dollars more than that job, but it’s food service. I was a pharmacy technician before.

Best answer:

Answer by Charlie Tuna
My understanding is that it shouldn’t be a problem if:
– you are earning at least the same amount of money than on your previous job
– You are working on the same line of business

I think lenders don’t want to see instability in your employment, which represents a risk for them to collect in the future. It also depends on the type of loan and the amount.

In the end, being honest and open will serve you best.

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Question by Alex the great: FHA Home loan question?
I am applying for an FHA home loan and my middle credit score is 618. The new FHA guidelines require a minimum score of 620, visit this site is there any exceptions that could get this pushed through?

Best answer:

Answer by loanmasterone
The FHA score of 620 is mostly a guideline, online there might be things found in you credit report or other items that might allow a lender to accept the responsibility of doing a mortgage loan for you.

In order to find out the type of loan programs you are qualified for you will have to fill out a loan application, with a mortgage broker, which you can find one in your local telephone book.

Make sure this mortgage broker or mortgage banker is able to do government loans such as FHA and VA loans if you qualify for one.

He will fill out this application, which takes awhile so grab your favorite beverage and sit down. Once you have completed the application, he will run your credit report which will have your credit scores. These credit scores will determine your interest rate.

The amount of your monthly debt payments you are required to pay as per your credit report and the amount of mortgage you can take on based on your income will determine the amount of house you will be able to purchase.

When you speak with the mortgage broker you will need the following documents to complete the loan application, there will be others, but this will get you started.

#1 One month of pay stubs for each person that will be on the mortgage.

#2 Six months bank statements from each bank in which you bank as well as statements from any 401K from you place of employment.

#3 Two years of federal income tax along with the W-2 that match.

Once he has all that he need to do he can then issue you a pre-approval letter so you can purchase a home. In this pre-approval letter will be the amount of house you are qualified to purchased.

Once he gives you this pre-approval you may now find a real estate agent to find yourself a home or he might have a referral.

Now make sure before you get your pre-approval you and your mortgage broker go over all your options as to the mortgage programs you qualify for, the interest rate, monthly payments.

If you are getting a FHA, fixed rate, two loans to eliminate PMI like an 80/20 or one loan, if you are qualified for and approved for a 100% loan.

You should select the loan that best suit your financial condition at the time. That could be an adjustable rate loan. It could be a fixed rate loan for 5 or 10 years and then adjust. Some adjustable rate mortgages only adjust once.

Make sure your mortgage broker explain all your options so you may make an intelligent decision.

What might be good for one person might not be good for you, in other words just because your friends and all your real estate buddies are telling you about the great fixed rate they got, your financial situation might call for something else.

So select the best option for you and your financial situation.

You should also get a Good Faith Estimate (GFE) which will indicate the cost you will have to pay for getting this loan. It will also indicate the amount of your down payment.

Once you have found a home the real estate agent will then prepare a contract for you and the seller to sign.

Your mortgage broker will now order an appraisal to show proof of the property value.

The mortgage broker might ask for additional information or documentation, don’t get all up tight this is normal, just supply the information or find the documents needed.

After the appraisal has been completed you will be called by your mortgage broker to sign your loan docs so you can take possession of your new home.

Before signing any loan docs make sure they say exactly what you and your mortgage broker went over when you decided on what mortgage program was best for you.

I hope this has been of some use to you, good luck

“FIGHT ON”

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Question by Meatwad: First time mortgage information?
Hi, order I’m currently getting ready to start moving on a mortgage and was wondering if I could get some advice on what to look out for, medicine and certain places that lenders, page sellers, and brokers try to ‘get you’. Any honest information will definitely be put to use and thanks in advance for any answers provided.

Best answer:

Answer by RT
Read the documents carefully – if there is anything you don’t understand – ask until you do understand – if you don’t understand it – don’t sign it.
Understand all fees, prepayment penalties, interest rate and if it can go up or is it fixed (hopefully), no PMI – mortgage insurance (hopefully).

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Question by wigberto.serpa: Can someone explain the housing mortgage bust to the layman?

Best answer:

Answer by AM-NM centaur
Lenders wrote mortgages on toilet paper (metaphorically) using no underwriting standards. The going joke was that if a human could fog a mirror (meaning if someone was alive and breathing) they were eligible for a mortgage, story regardless of income because we weren’t going to verify that.

Borrowers could not afford the interest rates that came after the initial teaser rates expired. Investors in securities backed by those mortgages lost much of their investment. Lenders and their investors (source of lenders’ money) are now reluctant to lend any money for new mortgages.

The whole problem essentially comes down to a complete lack of underwriting standards.

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2 Comments

  1. lenders gave large loans to people who really could not afford it. some started at low rates and then jumped up when interest rates went up or if they had teaser rates.

    many loans were actually for the full or more than the full house value at the time of the purchase, so when the housing market started to tumble (prices that is) not only did some people’s payment go up, but the actual value of their home plummeted down as well.

    So not only could they not afford the new payment, but they could/can not sell the house for what is owed on it.

    that leaves a difference between the market value and what is owed. so many people do a “short sale” where they take whatever they can get and the lender agrees to take it to prevent foreclosure – but then what happens to the difference between the sale price and the unpaid loan amount???

    that is a big problem (along with many others in connection with this whole mess) and many of these people doing the short sale will have to pay taxes of approx 50% for the difference between the loan payoff amount and the short sale amount accepted.

    some legislation is being proposed to forgive this tax liability to these owners, and a lot of people don’t agree with it.

    now many mortgage companies etc are also going bust because they do not have the payment monies coming in from these people who are just walking away from these homes.

  2. Those who study mortgage trends have said that there has been a pretty consistent pattern of a “bust” in mortgages about every 18 years since World War II. We’ve seen problems like this before and we will survive this “crisis.” If you’re looking for a mortgage right now, rates are still very good. The world is not ending (as the politicians who are itching to “help” would have us believe).

    Now to your question… In summary, EVERYONE involved played a part in the “bust” to some extent or another.

    BORROWERS — Rather than living within their means, many borrowers decided that they wanted to have a bigger, more expensive house than they could afford. In order to afford these houses, they often turned to loan products such as “Interest Only” loans. With IO loans, you basically pay the minimum amount possible every month and the principal is never reduced. To complicate matters, some loans featured “zero down” where the borrower had absolutely NO equity in the property. Here is an illustration of a typical problem: A property is worth $ 800,000 at the time of purchase. The borrower takes out an Interest Only loan for $ 800,000 (putting nothing down). Then the property value drops to $ 700,000. Now the borrower has a loan for $ 800,000 for a property that is only worth $ 700,000. The borrower has ZERO equity in the property so guess what… they walk away from the property and the lender ends up taking the loss.

    MORTGAGE COMPANIES (BAD OR POOR UNDERWRITING GUIDELINES) — In an effort to make as many loans as possible (and to sell these loans to foolishly eager investors), many mortgage companies relaxed their guidelines beyond reason. Some loans had a Loan-to-Value (LTV) ratio of 100 (or higher on rare occasion!). If the property was worth $ 100,000, then an LTV meant that $ 100,000 was loaned to the borrower (as stated before, no equity). The lower the LTV, the less risky (and more desirable) the loan is. Another arguably stupid mortgage product was the “80-20” loan. A loan with an LTV of 80 or lower is not considered risky in the mortgage business. Therefore, Mortgage Insurance (MI) is not required for loans with an LTV of 80% or less. (If a borrower has an LTV of 85 and pays it down to 80, then they can drop the MI from the loan.) MI is basically insurance against borrower default. For example, if a borrower defaults on his loan and the lender forecloses and sells the property and loses $ 2000 in the process, then the MI company will cut a check to the lender for $ 2000 to make the lender “whole.” Rather than requiring borrowers to carry MI on their loans (which would have mitigated risk), the mortgage companies allowed the borrowers to take out a second loan on the same property (a “second lien” or Home Equity Line of Credit or HELOC). This HELOC money was then used as the “money down” on the first loan so that MI could be avoided. For example, if the property is worth $ 100,000, the borrower might get a HELOC for $ 20,000 and put that money down on the first loan, thereby lowering the LTV to 80 (thereby exempting them from MI). Another popular loan was an Adjustable Rate Mortgage (ARM) or “Fixed-Adjustable” (where the Interest Rate is fixed for a few years and then starts to adjust (up or down) based on a financial instrument). Borrowers were allegedly given a low “teaser rate” and then (because they bought too much house) couldn’t make the payments with the higher interest rate when the rate adjusted. (It seems hard for me to believe that an interest rate adjustment would be so severe that it would prevent someone from making their payments, but that’s what the borrowers allegedly claim.) Maybe this is too many detailed examples, but suffice it to say that a lot of stupid mortgage products were offered by mortgage companies (and accepted by borrowers).

    INVESTORS — In their quest to make a “fast buck”, investors bought up tons of these mortgages since these riskier “sub-prime” loans brought higher returns (higher interest rates). These investors should have performed a “due diligence” on the loans they bought; but they didn’t. When investors purchase loans, there is usually (if not always) a “buyback” provision. This means that if a loan goes bad and the investor finds that there was some irregularity in the underwriting (the loan decisioning process) that the mortgage company who sold them the loan is required to “buy back” the loan. The problem is that most mortgage companies are “cash poor” (meaning that they borrow the cash that they lend from a “warehouse lender” temporarily until they can sell the loan to an investor and pay back their warehouse lender). So when these loans started going bad (hundreds of millions of dollars worth!), the investors demanded the mortgage companies buy back the loans (according to their agreement). So mortgage companies were now looking at buying millions and millions of dollars worth of loans back when they had little or no money of their own! So what happened? Countless mortgage companies declared bankruptcy. With all of the hullaballoo around bad mortgages, investors decided to stop buying sub-prime mortgages. Since there was nobody buying these mortgages and since mortgage companies don’t have their own cash, mortgage companies found that they could no longer make these sub-prime loans. The sub-prime market dried up almost instantly.

    RATING AGENCIES — The job of rating agencies is to investigate the creditworthiness of investments (many of which included mortgage debt). These agencies did not do their due diligence and ended up giving these investments an artificially high rating. So investors thought the investments were less risky than they were. Investors will always buy investments that have a high return and low risk (but obviously they weren’t low risk).

    THE GOVERNMENT — The government has always put pressure on mortgage companies to make loans to poor and/or minority borrowers. Because these borrowers typically have worse credit and/or less income and/or greater debt, they had to go to the “sub-prime” market to get a mortgage loan. Is it so hard to imagine that a borrower with less income, more debt and bad payment habits will default on a loan (especially when they’ve put little or no money down)? Of course not. But the government continues to “wish away” laws of basic economics and common sense. In order to “do right” by poor people and minorities, the government expected mortgage companies suspend their normal sound underwriting guidelines and business sense. (Obviously, the sub-prime problem goes beyond just poor borrowers, but my point is that the government contributed to the crisis to some extent.) The government is now poised and ready to exacerbate the crisis beyond what it is now by “freezing” interest rate adjustments. Here is an illustration of the problem: Let’s say you have $ 5000 in cash. I’m a bank and I tell you that if you deposit your $ 5000 with me that I will pay you 1% during the first 2 years but then I will pay you 7% after those 2 years. So you deposit your money at the low rate of interest. After two years (when you’re about to get your higher interest rate), the government comes in and says, “Sorry. You’re not getting your 7% as promised. In fact, you can’t take your money out of that bank; you must leave it there and only collect 1% for another 10 years.” What will happen when you have another $ 5000 to deposit? Will you put it in my bank? Absolutely not. Why? Because you don’t know if you’ll really get the return you agreed upon. In the same way, if the government steps in and says to the investor/lender, “Sorry… you’re not getting the return on your money that you negotiated… and you can’t take back your money; you’ve got to leave it at the low rate,” then guess what the investor is going to do. He will never invest in mortgages again! He will take his money to China or municipal bonds or any other vehicle in which he can get a RELIABLE return on his money. If he DOES decide to put money into mortgage debt again, he will demand a higher return to compensate for the greater risk that the government will step in and “help” again. (In other words, Interest Rates on mortgages will go up for EVERYONE!) Thank you Big Government Democrats and George Bush!

    REGIONAL PROBLEMS — Some regions in the USA had events that made the mortgage problems particularly bad. For example, inflated property values in California started deflating. Condos in Florida didn’t sell as thought and many sit vacant. Companies providing jobs in the “rust belt” (such as Michigan) have moved or gone under; thereby leaving the local homeowners with no income with which to make their mortgage payments.

    Sorry for such a long answer. Hope it all makes sense.

    Thanks!