Constant Fluctuations in the Mortgage Market

There are continuous fluctuations in the mortgage market this summer following an 8 percent increase in the lending between the months of June and July.

Based on the data from the Council of Mortgage Lenders (CML), the loans for home buyers and remortgages increase to £12.7 billion in July, which is it’s a record high since September and is up by 2 percent in the same period of the previous year.

The overall market was generally invariable, although the lending figures fluctuated due to distortions brought about by one-off events, like the Olympics and the Diamond Jubilee.

Meanwhile, according to CML, they still cannot confirm whether or not the recently released £80 billion Funding for Lending plan has motivated banks to lend more to hopeful homeowners.

Caroline Purdey, CML market and data analyst, said that they are looking forward to September figures because the effects of the Olympics and Diamond Jubilee are already insignificant.

However, Mark Harris, the chief executive of SPF Private Clients, cautioned that any constant recovery in the housing market is still a long way to go. Moreover, Harris said that the ongoing eurozone crisis, the focus on Olympics, and the low consumer confidence might lead to a slight decrease in transactions over the next two months.

In the past few weeks, there have been several inexpensive five-year fixed-rate deals released. This has been considered as an answer to the Treasury and Bank of England’s lending scheme. Its objective is to improve the economy by allowing credit to flow to home owners and businesses.

Earlier, a lot of homeowners had been glad to remain on their lender’s standard variable rates after mortgage deals expire. However, remortgaging is currently anticipated to increase. Moreover, the deals have been mostly intended at borrowers who can pay huge down payments and there are doubts that the scheme will not succeed in improving lending to first-time buyers.

Five Tips Before Considering a Reverse Mortgage

Reverse mortgages are known for allowing senior homeowners aged 62 or older stay in their homes. However, this comes together with excessive fees and limitations. Before considering whether or not to get a reverse mortgage, the following are five tips recommended by experts.

First, delay the timing of the loan because by doing this, you can borrow more against your equity and save more in terms of interest. Another way that you can save on interest is when you begin receiving payments. Moreover, there is more accumulation of interest if the loan period is longer.

Second, be aware of the different types of reverse mortgages. In general, there are three categories: Home Equity Conversion Mortgages (HECMs), which are backed by the federal government; proprietary reverse mortgages, which are basically private loans; and single-purpose reverse mortgages, which come together with limitations in terms of what you can spend the money on.

Third, assess the fees and rates. Reverse mortgages charge a lot of fees, for instance, origination fees, costs for closing and servicing the loan, premium for insurance, and interest rates.

Fourth, avoid lump sum payout. Taking as much money at once results to a situation where homeowners have to handle the money properly, and at the same time still paying for property taxes, insurance, and other costs. If the homeowner fails to pay, the home can be lost to foreclosure. Moreover, the homeowner can end up paying fees that are 5 percent more than those who don’t take the money.

Fifth, look for alternatives. One option is to sell the home because you can draw all the equity you have built up, unlike in reverse mortgage, where you only receive a portion of the equity since you have to pay for fees and interest. Another option is to sell the home to relatives and then renting it back so that it stays within the family.

New Foreclosure Prevention Law Signed

Among a number of new state laws signed is a foreclosure prevention bill that would require banks to evaluate the advantages of modifying mortgages against the disadvantage they get by foreclosing on a home. It also states a provision that would require banks more clarity in proving home ownership prior to putting a house in foreclosure.

Gov. Deval L. Patrick signed it on August 3 and portions immediately took effect. However, some local officials and activists were not familiar with the new law yet. Patrick is still accepting any additional legislation that will provide homeowners more protection.

The bill is known as An Act Preventing Unlawful and Unnecessary Foreclosures. It requires creditors to verify whether the net present value of modifying a loan is greater than the possible value of foreclosure. If so, the loan must be modified.

In contrast, if the net present value of modifying the loan is less than the value of foreclosure, then creditors are not required to modify it.

In addition, the provision of the new law required lenders to do everything to certify that they own the loans before they put a house into foreclosure.

According to District 3 City Councilor George Russell, the new law is a good one because it can help majority of the families affected by foreclosures, which are actually tenants and not owners. Russell added that banks evict the family living in the house, sell it for a lesser amount of money or a short sale to a third party, and the banks take the loss.

City Manager Michael O’Brien is also in favor of the new foreclosure prevention law. According to O’Brien, what caught his interest were the provisions concerning the proof of ownership. In housing court, there have been a lot of lawyers showing up at hearings and each claiming their client is the owner of the property.

Moreover, O’Brien said that the new law will provide various incentives to the public to encourage home-ownership.

New Home Lending Rules Proposed by CFPB

The Consumer Financial Protection Bureau (CFPB) proposed a policy which states that mortgage servicing must provide clear monthly billing statement, must warn borrowers prior to interest rate hikes and assist them avoid foreclosure. Moreover, it requires companies to credit people’s payments without delay, correct errors immediately and keep better internal records.

According to Richard Cordray, director of CFPB, the main disappointment among companies in the industry reflects that all services must meet basic standards of good customer service. Cordray added that the proposal shows two basic, common-sense standards.

The key players in the nationwide crisis are the mortgage services since they are accountable for foreclosing on homes when people are no longer able to pay. They have encountered a lot of criticism for their practices such as charging of excessive fees, foreclosing without completion of the required paperwork, and not helping people stay in their homes through modifying their loan terms.

The proposal states that companies will be required to provide billing statements that give details about how much of a payment is going to pay down principal, how much goes to interest and how much goes to fees. Also, if interest rates are expected to change, they should provide the borrowers with an estimate of the new payment amount. Lastly, consumers will be allowed to consider refinancing if they dislike the new rates.

In addition, the proposed policy help ensure that borrowers are not coerced to pay excessive premiums on homeowners insurance that services oblige them to have. Moreover, companies would be required to inform the borrowers twice prior to charging them for insurance. If the borrowers can prove that they already had coverage, then companies would have to cancel the insurance.

Finally, companies would be required to associate a staff with delinquent borrowers so that they can be assisted in avoiding foreclosure.

The public can give a comment about the proposal until October 9 and the rules will be finalized by CFPB on January 2013.

FHA Refinance Applications Increase Nearly 200 Percent

According to the Single-Family Outlook report for the month of June, there was an increase in the refinance applications for mortgage loans insured by the Federal Housing Administration (FHA) by almost 200 percent from May to June because of the rise in applications for streamline refinance loans.

There were 188,810 FHA loan applications for the month of June, which is up by 52.1 percent from the 124,125 applications submitted one month earlier, and 43.3 percent more than the 131,796 applications submitted in the same month of the previous year.

Moreover, loan applications for refinancing an existing mortgage increased 198.3 percent, from 34,407 applications submitted in May to 102,640 applications submitted in June. It was also up by 190.2 percent compared with 35,367 applications submitted in the same month of the previous year.

In contrast, the number of applications for purchasing a home declined 4.3 percent, from 82,726 applications submitted in May to 79,138 applications submitted in June. It is also decreased by 9.7 percent from 87,674 applications submitted in the same period a year ago.

In terms of completed applications, it decline by 5.7 percent, from 114,008 in May to 107,533 in June. However, June’s completed applications were still 6 percent higher than the 101,469 applications one year earlier.

The loans for purchased homes made up 63.9 percent of the overall completed FHA insured loans in June, which is up by 3.8 percent from May but 7.7 percent lower than June of the previous year.

Refinanced loans made up 31.3 percent of the overall completed loans in June, which is down by 22.3 percent from May but up by 58.5 percent from June last year.

For a home buyer securing FHA loan in June, the average FICO score was 695, which decreased four points from May and five points from the previous year. In addition, the average FICO score for refinanced loans in June was 707, which decreased by four points from May and increased by nine points from last year.