The Center for Responsible Lending released a report that predicted that “nearly a fifth of consumers who borrowed money to buy a house in the past two years will default on their mortages and lose their home.”    The CRL is a nonprofit research organization that specifically and aggressively combats what it refers to as “predatory lending practices” that are becoming more and more prevalent with the current sluggish housing market and the relaxed landing standards.

This prediction seems validated with the announcement last week by the Mortgage Bankers Association report that delinquency rates for mortgage loans are up again in the third quarter. 

So, what is a person to do.  Well, first of all, be very aware of the various loan options and why they are structured the way they are.  If you have bruised credit, consider holding off on the purchase and repairing the damage so that you don’t have to settle for subprime lending options that set you up to become one of the statistics.  Some will argue that renting while trying to repair credit is the equivalent of throwing money down the drain.  But really, if you accept a bad mortgage situation and ultimately end up losing your home — is it really any better? 

As the new year begins, we are welcomed by a real estate market that is going to get tougher and tougher.  Interest rates are on the rise, not just in the United States but globally.  And, just this past Thursday, Susan Bies, noted that it was underwriting practices of lenders that were leading to rises in the number of late mortgage payments.  The risk, she noted, was their fault and they needed to crack down. 

Specifically Bies noted that there was too many instances of lenders combining nontraditional loans (remember the interest only loans I mentioned a week or so ago?!?) and utilizing a “risk layering” practice that put the borrower at risk if the interest rates rose. 

For the borrowers like you and I, it is very important to remember that the more sluggish the housing market is, the more we are at risk.  As the market continues to sink buyers can expect higher risks in the long run and a tougher time obtaining financing in the near future.  This is truly a time when the term “Let the buyer beware” is applicable. 

Sometimes it happens.  You find the perfect home to purchase but as of yet you haven’t sold the home you are vacating.  You realize you need a short term cash flow relief, but are not sure where to get it.  If you are certain that the current home will sell within the market you are located, consider requesting a Bridge Loan.  The bridge loan is specifically set to provide relief and act as a bridge between these type of transactions.  This isn’t the perfect cure all situation and should be carefully considered.  For one thing bridge loans can carry a very high interest rate, although with diligence and superb shopping skills you may find a reasonable rate.  The other downside is that the property you are waiting to sell often becomes the security of the bridge loan.  If for any reason the property doesn’t sell, you not only have some high interest debt to deal with, but your property could be lost.  As with any financial transaction of this nature, seek some professional guidance before signing anything and remember to read each document carefully to be sure that it contains only those items that you specifically agreed to.

Interest Only Loans are making a resurgence in the Home Equity and Home Buyers market.  Some advertisements are touting them as the “new” option, but in reality interest only loans have a very long history.  During the period of the Roaring 20s, interest only loans were the home loan type of choice in the mid-west.  Then, when the Country entered the Great Depression and the bottom fell out of the stock market, lenders found themselves with a lot of foreclosures, most of which had no cash equity value available to them.  At that point, interest only loans were pretty much shelved.

The same things apply to interest only loans today.  Because there is not a way to promote equity in them, and because when the actual mortgage+interest payments begin, they are often way too high to afford; interest only mortgages are not for the average home buyer.  Sure, they serve a purpose in investment situations where a property will not (hopefully) be held for more than 5 years.  But if you are looking for loan options that allow you to gain equity and still have an affordable payment, stay away from the interest only loan product.  It simply is not for you.

When shopping for a mortgage loan, most people simply look at the interest rate.  If it seems reasonable, then that’s good enough for them and they sign the papers.  Sometimes, however, that approach is no better than taking a stack of twenty dollar bills and lighting a match to them.  The outcome is the same — you have lost money forever.  For one thing, the interest rate really doesn’t tell the whole story.  In addition to looking at the interest rate (yes, it is a major component to the decision), it is also important to also look at all other fees associated with the loan.  Specifically, look closely at origination fees, any processing fees, and closing costs.  Most lenders will provide an estimate document that has all these figures clearly spelled out.  This estimate document gives you the information you need in order to comparison shop the loan figures to other lenders.  Remember, this is a HUGE investment, keeping as much of your money as possible should be your first and highest priority.

A good rule of thumb for the origination fee is about 1.2-1.6%.  Closing costs will generally be in the range of 3-4%.  While these costs could be influenced by the location of the property, anything outside these windows should be considered suspect and investigated throroughly. 

The short version of the concept it this – lenders are in the lending business to make money.  Don’t simply assume they are giving you the best deal to get your business — because, truthfully, they may not be.  Competition, at least in this case, can be a very healthy thing for your bottom line.  Don’t hesitate to ask questions and if you don’t get the answers you need or want, pick up your paperwork and move on to the next lender.  Someone will recognize what you are seeking and give give you the service you deserve.  

It used to be that buying a home was part of the whole American Dream.  You found a partner, fell in love, got married, and then bought the house.  Today, however, more and more single people are becoming first-time homebuyers.  In fact the National Association of Realtors has estimated that one in every four first time home purchases are being made by singles — with single women outnumbering the single men purchasing homes at a two-to-one ratio.  It’s really not a bad idea.  Buying a home provides a sense of financial security that just can’t be found through renting.  Besides the obvious tax breaks, a home generally increases in value creating a stable and accessible account for future financial necessities.  Not to mention there is just something about purchasing your first home that brings a sense of accomplishment that renting just can’t offer. 

Alan Greenspan says the housing adjustment is over, or at least the worst of it. Of course, Greenspan is no longer the chair of the Fed, but he does seem to have a finger on the economy’s pulse nonetheless, and we can only hope he’s right this time, too.

While overall home prices are dropping fast and furious, resales were up in October, which is good news for those selling their homes.

The basic lesson we can take away from all of this is that “trends” don’t really mean as much as what is actually happening in your area, with the kind of home you’re looking to buy or sell.

In some areas, home prices are still rising, while in other areas, they’re flat, and in yet other areas, they’ve been plunging.

It’s like not counting your chickens before they hatch. Watch what home markets in your area are actually doing.

For the first time in 13 years, home prices are falling. This is Bad news for those getting ready to sell. If you have a lot of equity, now might be the best time to get it out and invest it in something stable and liquid with a real rate of return, rather than seeing your equity disappear with lower home prices.

However,  if you’re getting ready to buy your first home, falling home prices are great for you, and will allow you to buy more home, for the same money, than you might have gotten even a few months ago. You’ll definitely want to take advantage of falling prices if you’re currently looking for a home.

Whether this is good news for you or bad, it’s also a reminder to keep abreast of what’s going on in the housing market, as an owner or a prospective buyer.

If you’ve ever owned a home in Australia, you might be familiar with mortgage accelerator loans. Now they’ve come to the U.S.

The way this works is, you deposit your paycheck into a special account. Every dime of it. Then, you use that account to pay your expenses, and every dime you don’t spend, goes to pay principle on your mortgage.

I’m not sure this is the best way to prepay a mortgage. I’m not even sure that prepaying a mortgage is really a good idea; I’ve been doing a lot of research on the topic and realize that prepaying does not protect you from foreclosure, where saving that money in a contingency fund could.

But that aside, if you want to prepay your mortgage, this is an interesting way of doing it.