Rate Cut Expected by Borrowers

According to national loan approval data from Mortgage Choice, which is the largest mortgage broker in Australia, demand for variable rate home loans achieved an eleventh month high in July due to the rumors of another rate cut in the upcoming months.

Variable rate demand increased to 85 percent of all new home loan approvals for the month of July. This was the highest ever since August of the previous year, when it was 86 percent of all new home loan approvals.

The only state that reported a decrease in the variable rate demand was Western Australia, from 86 percent in June to 81 percent in July. In the meantime, the average increase of variable rate across the rest of the states was 3.75 percentage points.

According to company spokesperson Belinda Williamson, most of the borrowers feel positive about variable interest rate like they did in August 2011, when borrowers had encountered nine successive months of constant interest rates, which was followed by decrease in the rates.

In addition, Williamson said that the borrowers’ expectations of another rate cut in the approaching months may be strengthened by the low inflation figures in the previous month. Apparently, borrowers are focused on obtaining the lowest interest rate possible. In fact, the top two variable rate loan options in July are common for having low interest rates.

Demand for discount rate loans increased to 44 percent, while demand for basic variable rate loans increased to 20 percent. Moreover, demand for standard variable rate loans decreased in the previous month, from 19 percent to 18 percent. Similarly, demand for fixed rate loans significantly decreased from 18 percent to 15 percent.

In contrast, the only state that reported an increase in the fixed rate loan demand was Western Australia. This may be due to the effect of the mining boom on living costs and borrowers searching for ways to limit their expenses.

Guidelines in a Mortgage Loan Process

In the past few years, the mortgage loan process and procedural policies have been much more rigid, which is clearly brought about by the foreclosure crisis. A borrower’s financial records are thoroughly inspected to make sure the borrower is qualified in terms of credit score and that the procedures for various loan products are followed.

For products such as FHA and VA, the loan approval process involves sourcing the borrower’s funds. This means accounting for the borrower’s cash on hand and where it came from, including money for deposit requirements. For instance, FHA loans ask for at least 3.5 percent of the overall purchase price as a deposit.

While there are a few FHA loan products that do not have this requirement (i.e. purchasing a HUD-owned home), the majority of FHA loan products require at least 3.5 percent down payment.

The down payment can be in terms of “gift funds” from a friend or family member. In either case, affidavits must be signed by the borrower and the benefactor. The affidavits must state that the funds are not a loan, but indeed a gift.

In conjunction with the affidavit, a proof of funds or “gift letter” is also required by the lender from the benefactor. This is typically a bank statement that shows the money was from the benefactor’s account before making the gift and ensures it was not lent by another source. Moreover, the borrower’s bank statement must show a deposit entry for the same amount of the gift.

The borrower must always be aware of the requirements of the loan product that is appropriate for the purchase. Ask the lender to give comprehensive details about every guideline, and make sure to ask questions if there is anything you are not able to understand. More importantly, properly validate the source of your funds so that your transaction will be closed.

Attempt to Resolve Home Loan Rates Begin

According to the most recent figures from the Reserve Bank, the floating rate mortgages is 61.7 percent of the overall mortgage lending by banks for the month of May, which is a decrease from the 63.1 percent during the month of April.

Consequently, it is the first monthly decrease ever since August of the previous year, in which floating rate mortgages was 56.3 percent of the overall mortgage lending. However, the figures during August a year ago was obviously an irregularity given that the floating rate mortgages percentage had been increasing ever since August of the year 2009, where it was 22.8 percent of the whole.

The size of the shift is happening into the one to two-year fixed rates which make up 13.3 percent of the whole during the month of May, an increase from the 11.8 percent during April and 9.6 percent during February. The most popular were pre-GFC, two-year fixed-rate mortgages.

Based on figures from other central banks, the price war has caused mortgage approvals to extensively increase but credit growth has hardly increased.

There was an increase in the household credit growth of 0.2 percent during May for a third consecutive month and a progress of the zero to 0.1 percent growth observed during the last seven months. On the other hand, the growth during May 2007 was 1 percent and 1.1 percent during May 2006.

According to Nick Tuffley, the chief economist of ASB Bank, the credit growth figures are already the net and are being restrained considerably by insurance payouts in Christchurch but the rebuilding is just starting.

The net mortgage lending increased by only 1.5 percent from that of May in the previous year but the $558 million growth during May was significantly higher than the $343 million growth during April.

In addition, Tuffley said that the growth for the month of May is the highest since October 2009. It is estimated that lending will be even stronger for June.

FHA Recoils on New Policy

A policy demanding borrowers to settle their disputed bills in their credit reports before they are qualified to have another loan has been canceled by the Federal Housing Administration.

The FHA has ordered to make the annulment of the policy effective on July 1. This policy would have had a big impact on people with undisputed bill accounts listed on their files where the amounts range from $1000 or more. According to some experts if ever the policy was pushed through, one out of three FHA applicants for loan would find it difficult to get qualified.

The withdrawn policy would have required borrowers who had collections of unpaid bills to settle the amounts before they could apply for a new loan. They could do this either by paying the amounts in full or by applying a repayment schedule. If you fail to do so then you would not be allowed to have FHA loans.

Disputed bills are very common to the files of every borrower in the United States; however it does not pose a very serious risk to credit. These bills would however, result to many altercations and disputes among the overpricing of dealers and consumers. The same is through with open collection accounts, however they are considered more threatening by the lenders because they often get unpaid during the extension period.

Those who opposed the policy said that the terms were more in favor of the lenders and it was very heavy on FHA borrowers, which composed of low income households, first-time buyers and other minority groups. They also said that the policy would not be very helpful in seeking out the credit risks in private lending for the agency. This is because these private persons are already imposing overlays in the mortgages of borrowers.

So to sum it all up, borrowers are no longer required to pay off their undisputed debts, however they must be wary of overlay prices from private lenders for they might be the reason you could not get a loan despite the fact that the FHA is more giving.

Assistance Programs for Refinancing or Buying a New House

In terms of refinancing or purchasing a new house, there has been a wider range of options compared to the past for consumers who have little or no equity in their homes or who have experienced some financial problems.

Homeowners had a few or no option in refinancing into a loan with a low interest rate after the fall of home prices during the middle of the year 2007. Moreover, homeowners who lost their homes had to wait for a long time to buy a new one.

However, throughout the previous couple of years, there has been a development of several government assistance programs. Also, in the private sector, programs that are intended to assist consumers who encountered financial difficulties are being offered by banks and credit unions.

According to the president of residential lending for Zions Bank, Kim Casaday, only a few people are aware of the available resources. In fact, a free counseling is being offered by Zions for Utahns in order to assist them in terms of homeownership. Options for homeownership can be checked in Zion’s website, Thehomeownerscafe.com.

One of the major assistance programs is the Home Affordable Modification Program (HAMP). It helps consumers get a lower mortgage rate, lower monthly payment or other kinds of assistance to avoid losing their homes.

Another assistance program is Home Affordable Refinance Program (HARP). It helps homeowners who are not late in their mortgage payments but are not able to refinance due to the fall of home prices.

On the other hand, Utah First Credit Union is offering a no-wait housing loan intended for those who are not eligible for conventional financing. Consumers can apply for loans with a maximum of $320,000, and they may apply immediately after their short sale, foreclosure or bankruptcy. However, those who are qualified for the loans will be charged a higher interest rate and must have a 20 percent deposit.