Evidence is growing that more borrowers will be approved for a mortgage without increasing risk to lenders through more sophisticated credit risk scoring that uses alternative data, such as unsecured credit and property history in consumer credit report analysis, according to a new report by the CEB TowerGroup.
“Traditional credit data and analytics continue to be relevant, but are not sufficient to satisfy the consumer credit reformation of today,” says the CEB TowerGroup’s senior research director, Craig Focardi. (More …)
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(MCT)—Good credit is important, especially when you’re looking to buy a house. Mortgage lenders have to know whether you’re able to repay the debt, and have to determine through your credit history if you’re willing to pay, as well.
They use credit scores to determine, statistically, how much of a loan you can afford, whether to approve it, and the interest rate. The scores are obtained from the three major credit bureaus: Equifax, Experian, and Trans Union.
The most common credit score issued is the FICO, named for Fair Isaac Co., which developed the mathematical formula. Rankings are from 300 to 950: The higher the number, the lower the loan-default risk. Print This Post
The use of mortgage financing in the housing market jumped sharply in the month of August, but the use of FHA financing declined, suggesting the government program is losing favor and private lenders are gaining market share.
“Conventional mortgages are making a comeback while FHA mortgages are not,” commented Thomas Popik, research director for Campbell Surveys. “Reasons for the growth in conventional mortgages include low rates, increased underwriting of high LTV mortgages by private mortgage insurers, and a price structure including insurance premiums that is cheaper than the FHA alternative.”
Mortgages were used to finance 68.9 percent of home purchase transactions in August, up from 67.5 percent in July. Significantly, not all mortgage financing products saw the same gains in market share. FHA-financed transactions rose only slightly from 25.5 percent in July to 25.9 percent in August. Back in January, FHA transactions accounted for 27.3 percent of all home purchase transactions.
Ellie Mae reported last week that the FHA share of mortgage originations has declined from 25 percent in May to 21 percent in August. During the same period, conventional mortgages increased their sales from 65 to 70 percent of all new mortgages. Purchase mortgages increased from 44 to 47 percent.
Real estate agents responding to the latest HousingPulse survey indicated mortgage availability has improved over the summer months, especially for homebuyers with less than 20 percent cash down payments. “Mortgages for homebuyers with less than 20 percent down were available more than in previous months,” commented an agent from California. “Contrary to media reports, there is no shortage of mortgage money available for buyers with down payments less than 20 percent,” reported an agent in Texas.
Real estate agents also commented on historically low interest rates. “Amazing rates – less expensive to pay mortgage per month than to rent. Unbelievable opportunity and buyers know it,” exclaimed an agent in California. “The money is almost free, with 3.785 percent being about average for a 30 year fixed-rate mortgage with 3.5 percent down,” contributed an agent in Washington State.
The National Association of REALTORS® is continuing its battle for greater access to credit. Last week NAR’s president Moe Veissi urged Fed Chairman Ben Bernanke to weigh in on three key rule proposals—the Qualified Mortgage (QM), the Qualified Residential Mortgage (QRM), and the Basel III capital standards—that Veissi said are both putting a chill on lending and have the potential tighten credit further. All three individually and certainly together have the potential to tighten credit.
For more information, visit http://www.realestateeconomywatch.com Print This Post
WASHINGTON (September 17, 2012) – New survey findings, combined with an analysis of historic credit scores and loan performance, show home sales could be notably higher by returning to reasonably safe and sound lending standards, which also would create new jobs, according to the National Association of Realtors®.
Lawrence Yun, NAR chief economist, said there would be enormous benefits to the U.S. economy if mortgage lending conditions return to normal. “Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year,” he said. “The economic activity created through these additional home sales would add 250,000 to 350,000 jobs in related trades and services almost immediately, and without a cost impact.” Print This Post
by The KCM Crew on August 2, 2012
The Office of the Comptroller of the Currency released their First Quarter 2012 Mortgage Metrics Report recently. In the report, they covered the success the banking industry is having in each of several categories regarding the current housing crisis. They found:
Loan modifications –
These are “actions that contractually change the terms of mortgages with respect to interest rates, maturity, principal, or other terms of the loan.”
Down 36.7% from last year.
Completed foreclosures –
Where “ownership of properties transferred to servicers or investors. The ultimate result is the loss of borrowers’ homes because of nonpayment.”
Up 2.7% from last year.
Newly initiated foreclosures –
“Mortgages for which the servicers initiate formal foreclosure proceedings during the month. Many newly initiated foreclosures do not result in the loss of borrowers’ homes because servicers simultaneously pursue other loss mitigation actions, and borrowers may act to return their mortgages to current and performing status.”
Down 8.1% from last year.
Short sales –
“Sales of the mortgaged properties at prices that net less than the total amount due on the mortgages. Servicers and borrowers negotiate repayment programs, forbearance, or forgiveness for any remaining deficiency on the debt. Short sales typically have a less adverse impact than foreclosures on borrowers’ credit records.”
Up 19.7% from last year.
The only category up significantly is short sales. And the rate of increase in short sales is accelerating. Print This Post
by The KCM Crew on May 16, 2012
Many of our readers have asked whether or not we believe the Mortgage Forgiveness Debt Relief Act of 2007will be extended past its current expiration scheduled for the end of the year. As a reminder, the legislation ensures that homeowners who received principal reductions or other forms of debt forgiveness on their primary residences do not have to pay taxes on the amount forgiven.
The reason this act is important in today’s housing market is that, without the act, debt is reduced through mortgage modifications or short sales qualifies as income to the borrower and is taxable. If the legislation is not extended, then it would require homeowners to complete a short sale or modification prior to year’s end in order to avoid a tax consequence. Print This Post
by The KCM Crew on May 7, 2012
We believe that short sales will be a major part of the real estate market in 2012. That is why we have dedicated this entire week to posts exclusively on this subject. We hope that by the end of the week you have a better handle on the need for short sales and a better understanding of the process. – the KCM Crew
It seems that the banks have finally realized that a short sale is a better option than foreclosure for them, the homeowner and the neighborhood. It is for this reason we believe that 2012 will come to be known as the year of the short sale. CNN Money reported on this exact point:
“We believe 2012 could be a record year for short sales,” said Daren Blomquist, vice president at RealtyTrac.
Banks are showing signs of being more open and willing to approve the deals — even if it means accepting less money. The average sales price for a short sale was $174,120 in January, down 4% from December and 10% year-over-year. Print This Post
In the first quarter of 2012, 79 percent of homeowners who refinanced their first-lien home mortgage either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table. Of these borrowers, 58 percent maintained about the same loan amount, and 21 percent of refinancing homeowners reduced their principal balance; the share of borrowers that kept about the same loan amount was the highest in the 26-year history of the analysis.
“Cash-out” borrowers, those that increased their loan balance by at least five percent, represented 21 percent of all refinance loans; the weighted average cash-out share during the 1985 to 2008 period was 50 percent. (More …) Print This Post
Courtesy of Forbes.com
The media has it all wrong – securing mortgage approval and satisfying credit underwriting guidelines are not the difficulties plaguing mortgage consumers. It’s in meeting the rigorous documentation requirements that most people fall flat. The good news is, the fix is simple. Just scan, photocopy, fax, and deliver every aspect of your financial life. Then, shortly before closing, check everything again.
Mortgage consumers who enter the mortgage approval process ready to battle their chosen mortgage lender will come out with a nightmare story to tell. As the process, requirements, and guidelines are the same for everybody, your mindset is the game-changer. Accepting the redundant documentation necessary for lender approval will make everyone’s life easier.
When I was a kid, my father occasionally issued directives that I naturally thought were superfluous, and when asked why I needed to do whatever it was he wanted me to do, his answer was often: “Because I said so.” This never seemed to address my query but always left me without a retort, and I would usually comply. This is exactly what consumers should do during the mortgage approval process. When your lender requests what seems to be over-documentation and you wonder why you need it, accept the simple edict – “because I said so.” You will find the mortgage approval process much less frustrating.
So, what’s the perfect loan? Well, it’s one that (a) pays back the lender and (b) pays back the lender on time. Underwriting the perfect loan is not the goal that mortgage lenders aspire to today.
The real goal is the perfect loan file. (More …) Print This Post
Federal Housing Finance Agency (FHFA) recently reported that the National Average Contract Mortgage Rate for the Purchase of Previously Occupied Homes by Combined Lenders, used as an index in some ARM contracts, was 4.08 percent based on loans closed in February.
Beginning this month, FHFA is calculating interest rates using un-weighted survey data. For January, a comparable rate based on unweighted data would have been 4.18 percent. Thus, there was a decrease of 0.10 percent from the previous month’s corresponding un-weighted rate. The average interest rate on conventional, 30-year, fixed-rate mortgage loans of $417,000 or less decreased 5 basis points to 4.36 percent from January’s figure based on unweighted data.
These rates are calculated from the FHFA’s Monthly Interest Rate Survey of purchase-money mortgages. These results reflect loans closed during the February 23-29 period. Typically, the interest rate is determined 30 to 45 days before the loan is closed. Thus, the reported rates depict market conditions prevailing in mid- to late-January.
The contract rate on the composite of all mortgage loans (fixed- and adjustable-rate) was 4.05 percent in February, down 9 basis points from 4.14 percent, based on un-weighted data, in January. The effective interest rate, which reflects the amortization of initial fees and charges, was 4.17 percent in February, down 10 basis points from 4.27 percent, based on un-weighted data, in January. This report contains no data on adjustable-rate mortgages due to insufficient sample size.
Initial fees and charges were 0.93 percent of the loan balance in February, up 0.04 percent from 0.89, based on un-weighted data, in January. Thirty-one percent of the purchase money mortgage loans originated in February were “no-point” mortgages, down three percent from the un-weighted share in January. The average term was 28.8 years in February, up 0.1 years from an un-weighted 28.7 years in January. The average loan-to-price ratio in February was 75.3 percent, down 0.4 percent from 75.7 percent, un-weighted, in January. The average loan amount was $244,300 in February, up $7,300 from an unweighted $237,000 in January.
For more information, visit http://www.fhfa.gov