Archive for Mortgages

Taking the Hassle Out of Getting a Mortgage by Paul Ferraresi

The time consuming process of getting a home loan is frustrating. Online programs have removed a great deal of the paper work.

One new entry in the online mortgage program is “Stream Loan”. A fantastic article from Barron’s’ February 27, 2017 explains the benefits of using this program.

LINK TO ARTICLE

http://www.barrons.com/articles/streamloan-guides-borrowers-to-mortgages-1488000319?mod=BOL_archive_twm_col&tesla=y

Here’s what you can do to get the best Interest Rate deals

5 Key Websites

Credit.com
Shop for the credit card that’s best for you based on interest rate, rewards or other features. Also try cardratings.com.

Bankrate.com
The site lists the best and latest rates on mortgages, savings accounts, auto loans and other financial products from lenders nationwide.

HSH.com
Find calculators here that can help you determine the size of the mortgage you can afford and the cost of refinancing.

AARP.com
Check out more than a dozen AARP calculators and tools to help you manage your finances. Search for “Money Tools.”

MyFICO.com
The company that produces the widely used FICO credit score offers tips on how to improve your score to qualify for better credit terms.

Mortgage Due At Death

If you have a Will and you die then your estate must pass through probate (the term probate is “To prove valid, authentic”). Now, if you do not have a Will, you actually do have one and it is called the State Statute. Your assets do not go where you think they should. None the less, without a Will your estate still has to go through probate. (Settling a Will is very time consuming and costly. We always recommend that if your asset base is over $100,000 then you should use a Living Trust).

When you die your estate goes through probate. Your estate administrator must inform your mortgage lender of your death. Even if the mortgage is signed by both spouses, the lender has 4 months to decide whether to honor the mortgage or call it in for full payment.

From 1982 to 2012 interest rates dropped and very few loans were called in. With increasing interest rates on the rise, expect more mortgages to be called in by banks. Protect yourself by having adequate life insurance or liquid cash to pay off the loan should it be called. Better still, set up a Living Trust to hold all your assets and the loan call could be averted.

Reverse Mortgages

I am NOT a fan of reverse mortgages. There are far better alternatives that could have been employed earlier in life to enhance one’s wealth.

There are an increasing number of bad results that come about from these reverse mortgage programs.

Example: Under HUD regulations, when a spouse with a reverse mortgage dies, the lender can require the surviving spouse, whose name was NOT on the mortgage, to repay the loan or lose the home through foreclosure. The regulation affects thousands of widows and widowers.

If you have obtained one of these reverse mortgage programs get sound legal advice and protect yourself before a death occurs.

The Great Mania

In the mid 1970’s President Jimmy Carter introduced the Community Reinvestment Act (CRA). The outcome was to force banks to lend on home mortgages for people that could not pay back the loan. The goal was home ownership for everyone. President Bill Clinton increased the requirements for banks to participate during the mid 1990s. It took years to build this mania into a housing bubble that crashed in 2008.

Here are some excerpts on what happened.
From: Martin Conrad, Barron’s Magazine, Feb 11, 2013.

The boom of the 1950s and 1960s, featuring rising incomes and wealth, occurred in a well-balanced economy.

The value of housing averaged 80% to 90% of gross domestic product in this era – about half of the peak value set in the mania that ended so badly in 2008.

During the 1970s and 1980s, as the large baby-boom generation grew to adulthood and formed households, housing markets were distorted. The result: about a 50% rise in the aggregate values of housing, to 120% of GDP.

During the 1990s, the U.S. enjoyed renewed prosperity, with a booming stock market and the creation of 20 million jobs. Housing valuations moderated, and the aggregate value of housing declined to a bit over 100% of GDP, not much higher than the average during the postwar boom.

In the late 1990s, there was a major banking reform. The Glass-Steagall Act, a reform of the Depression era that had separated investment banking from commercial banking and had given only the latter government-supported deposit insurance, was repealed. This began an era of mass securitization of mortgages, which enabled large-scale lending to subprime borrowers. Other features of the period included making loans with little or no documentation of borrowers’ ability to pay, and loans with low or no down payments.

This culminated in a final manic race to the top, when the aggregate value of housing exceeded 170% of GDP.

The inevitable but unexpected result was a wave of mortgage defaults and a catastrophic decline in housing values. The market for securitized mortgages declined and then collapsed in 2008. In that year, houses with mortgages had about $11 trillion in aggregate mortgage debt that was collateralized by a net equity of zero.

At its peak in 2006, 2007 and 2008, this mania had over allocated as much as $10 trillion to the housing sector, based on the long term average of housing value to GDP. This misallocation came at the expense of more productive and more sustainable economic opportunities in manufacturing, infrastructure, and technological innovation. The catastrophic losses also were a major factor in the extremely unequal distribution of national wealth, as the middle class lost approximately 40% of its net worth, most of it on overpriced and overleveraged housing.

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Once again, government instituted regulation, when not beta tested, although well intentioned, always leads to failure. If the CRA was never implemented, then, this housing crisis would never have taken place. History shows time and again when governments interfere with free markets…a collapse takes place.