First Mortgage Buyer

Before you settle on a new lender, you may want to check the Mortgage Lender Implode-O-Meter at ml-implode.com. The site proclaims a mission of transparency, education, and accountability for the mortgage industry. The site was started in January 2007 by blogger Aaron Krowne who realized that the housing market was critical to the success of the US economy and grew frustrated by the lack of coverage of the sub prime housing crisis by the mainstream media. Starting with a single page with only 6 lenders listed, ml-implode.com soon had dozens of lenders listed and began picking up national media coverage from Bloomberg and CNN. It is now consdered and authority on the current state of the mortgage crisis in the US and received over 100,000 visitors a day.

The site breaks down the large mortgage companies into 3 categories.

• Imploded Lenders: Lender may be operating in some capacity but has possibly filed for bankruptcy or halted major operations. Can include prime, subprime, retail, or wholesale lenders.
• Ailing Lenders: Lender is scaling back operations or have recently been in manifest financial, legal, or operational distress. Most of the industry currently falls into this cateogory so Aaron reserves this list for the most glaring cases.
• Non-Imploded Lenders: Unfortunately, this area seems to include only sponsored listings so you may want to check another independent source before taking this portion at face value.

Although it is a community centric forum, the editorial staff requires that 2 out of 3 of the following criteria be met before a company makes it to the “implosion” or “ailing” list:

• At least $20 million/month in origination volume (any stage of origination)
• At least 3 states of origination
• At least 50 employees

Over all the site has some great information and is organized in a consistent manner. I highly reccomend giving it a look or even subscribing to the feed if you want to stay up to speed on the latest mortgage implosions.

The FHA, or Federal Housing Authority, is a federal government agency that was created in the 1930’s. The US was just beginning to rebound from the Great Depression and the FHA was developed to help add stability to the mortgage market and improve housing conditions. In 1965 the FHA was joined with the Department of Housing and Urban Development (HUD) and together they have insured of 34 million mortgages.

Typically an FHA does not rely on a persons credit score as much as a traditional loan and they also do not require as much of a down payment, currently only 3%. Since the interest rate is not dependent on a credit score, the rate is the same for everyone. This is advantageous to someone with a lower credit score, but does not reward someone with a high credit score.

In order to qualify for an FHA loan there are several requirements you must meet. You must been employed by the same company for at least two years and maintained the same or more income throughout your employment with the company. If you have ever had a Bankruptcy, it must be at least two years old and you must have had at least two years of good credit since the bankruptcy. If you have had a Foreclosure, it must be at least three years old. You must also be in good standing with any of your lenders and not had more than two 30 day late payments in the past two years. Your mortgage payment will usually be based off of 30% of your total monthly income.

FHA loans were extremely popular in the late 30’s and early 40’s, but today it is estimated that they only account for 3% of all current home loans. If you have less than perfect credit, they may however be a great way for you to get a loan.

Buying a new home is a big step and for some is the largest investment they have ever made. Most people can not afford to buy a home outright, so they get a loan instead. This loan is called a mortgage and there are two main kinds.

Fixed Rate Mortgage

With a fixed rate mortgage you are guaranteed by the lender to maintain the same interest rate during the entire length of your loan. The major advantage to this type of loan is that if the federal interest rates go up, you are locked in at a lower rate that can not be changed by the bank. There is a flip side to this though, because if the federal interest rate goes down, your interest rate will not.

Most people that finance their home with a fixed rate mortgage, do so over the course of 30 years. The advantage to this is that you get a larger tax advantage and because it is spread out over 30 years a lower monthly payment.

Others opt for a shorter mortgage of 15 or 20 years. Generally the shorter the loan, the lower the interest rate. This means you pay less interest, but because you are paying over a shorter time the monthly payments will be higher.

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage, as the name implies, is a mortgage that does not have a fixed interest rate. The interest rate is set to be re-evaluated at a predetermined period. The interest rate can go up or down and a cap is placed on the percent it can change each time.

The frequency that the interest rate adjusts is set by the bank, as is the amount the interest rate can change each time. For example say you are offered a 4.9% 3/1 ARM. This means that the first 3 years, the interest rate will stay at 4.9%. After that your interest rate will adjust every 1 year. The percent that the interest rate can go up or down is set at the time of the loan, but it is often 1%. So in 4 years when the interest rate change, you would probably be paying 5.9%. The next year it would be re-evaluated and would either raise or lower 1%.

The advantage to this type of loan is that your initial interest rate will be generally less expensive than a fixed rate mortgage. If you keep the loan without refinancing though, you will likely end up with a much higher interest rate because except in times of recession, your interest rate will not typically go down. An adjustable rate mortgage is perfect if you intend to refinance or sell your home within a few years before the interest rate changes.

This week Senator Barack Obama outlined his plan to save the US housing market while speaking to a group of Union members in New York. His plan centers on the modernization of the financial regulatory system as well as a second stimulus package. According to Senator Obama, the regulatory agencies in Washington have let the special interest set the agenda for reform.

The Obama plan is a three prong approach.

1. Modernize the Financial Regulatory System

This includes giving the Fed supervisory authority over any institution where the Fed is a lender of last resort; i.e. Bear Sterns. Obama also wishes to increase disclosure requirements for investment institutions and streamline the entire process of regulation. Currently, many institutions are regulated by multiple agencies with overlapping areas of authority. This makes it difficult to identify who is responsible for enforcing compliance.

2. Help Homeowners Facing Foreclosure

Obama proposes the start of a new Housing Security Program to give lenders an incentive to refinance existing mortgages into fixed 30 year mortgages backed by the federal government. He also proposes closing the Chapter 13 bankruptcy loophole for mortgage companies and defining mortgage fraud and predatory lending at the federal level.

3. $30 billion Economic Stimulus Package Specific to the Mortgage Crisis

The stimulus package would set aside $10 billion in foreclosure prevention for home owners in danger of losing their home. Another $10 billion would go to state and local governments that are facing revenue shortfalls due to the housing market. The rest of the package would be used to extend the length of unemployment benefits for full time workers and offer compensation to many part time workers not currently included in the system.

March 29 (Bloomberg) — President Bush announced plans yesterday to increase government assistance to distressed homeowners in an effort to curb the current crisis in the mortgage industry. This is no doubt in response to pressure from leading Democrats who have been vocal in their criticism toward the administrations “wait and see” approach.

Although no firm details have been announced, the primary target of the Bush plan will be to tackle the problem of “underwater” loans or loans that are larger than the actual value of the property. This will mean that cooperation with lenders will be essential as any strategy will require  the lenders to forgive part of the loan and refinance the remaining principle with backing from the government. The plan will likely require that homeowners remain in their homes, are able to afford the new payments, and that their lender is willing to sign off on the changes.