Subprime Lending Gets New High

Subprime lending is recovering again in the United States. Although there is still a limited number of subprime mortgages available in the market, because of the large amount of loans that still remain unpaid by home buyers.

Lending to people with less than stellar credit has increased for both auto loans and credit cards, banks are anticipating the number of loans to rise up to $600 billion for car loan purchases in the near future. Lenders are being less tight with car loans because it is surprisingly a profitable business today.

Only 25 percent of lenders think that subprime lending will continue to be profitable in the next few months. Half of them see that this increase will come from automobile loans; this is according to the latest survey released this week.

Andrew Jennings, the chief analytics officer of Minneapolis Fair Isaac Corp., believes that it is a significant figure to take note of. It just means that the lenders in the industry are currently starting to loosen up, although it does not necessarily mean that the number of subprime loans will increase rapidly.

Experian says that 44 percent of all the citizens in America that had loaned for a car in the first three months of this year had FICO scores lower than 680. The ratio is up by 2 percent compared to last year, however still 2 percent lesser than the ratio prior to the recession in 2008. Most of the loans still came from commercial banks.

When the housing industry fell into a flop, the number of subprime mortgage lending has been inexistent. However, loans for cars to people with less than fair credit have continued to be profitable even after the failure of the housing industry.

Customers continue to progress and work hard in paying back every last cent they had borrowed for their car mortgages. Though the sudden increase in the automobile industry still remains a mystery to many analogists, it does prove on thing: subprime lending to cars are safer for money lenders and consumers alike.

Analysis of Reverse Mortgages

A lot of senior Americans are discovering that although they are free from mortgage, they are poor in terms of cash. As a result, a reverse mortgage came about. This type of mortgage let people aged 62 or above to loan money against their home’s equity.

A reverse mortgage differs from the normal home loan because it does not require a payment unless you move, sell or die. It is the most appropriate home loan for those who plan to stay at home for a long period of time. The loan will become less costly if you stay longer, since there are high upfront fees.

Unfortunately, based on the report from Consumer Financial Protection Bureau, which was forced to assess reverse mortgages as component of the Dodd-Frank financial reform act, this type of loans also has its own setbacks. However, reverse mortgages have a huge potential to be a significant part of the financial market in the near future.

One of the few issues concerning reverse mortgages that the bureau found out is a lot of people, especially the seniors, are not aware of the details of a reverse mortgage.

Another area of concern is that people are getting loans at a much younger age. In the previous year, more or less half of borrowers were aged below 70.

According to the bureau, getting a reverse mortgage prior to reaching retirement or early in retirement will increase the risks to consumers. Using home equity early on, borrowers might end up lacking financial resources to fund a future move. Moreover, CFPB discovered that as of February this year, 9.4 percent are at risk of foreclosure due to outstanding property taxes and insurance.

In addition, CFPB director Richard Cordray said that it is very crucial that consumers are aware of what they are applying for and that it is the best loan for them.

Mortgage Terms Restricted Further by The Bank of Israel

According to information from reliable sources, the Bank of Israel is planning to release, for the second time, macro-prudential measures in real estate, so as to avoid formation of a real estate bubble due to mortgages brought about by the most recent expansionist monetary policy. In the previous year, the Bank of Israel decreased the interest rate for the month of July to 2.25 percent.

Moreover, two measures are actually being planned by the Bank of Israel. First, immediately limit the loan-to-value (LTV) of mortgages to 33-40 percent. Second, raise the banks’ requirements for mortgages, to decrease their motivation to approve new mortgages.

In addition, the sources said that the monetary council talked about the two measures during the meeting last Monday. The council’s decision is to decrease the interest rate once again.

As a result of lower interest rates, it is more sensible to invest in real estate and less sensible to invest in financial assets. Because the monetary council was disturbed by the mortgage data released by the Bank of Israel, they decided to include it in the agenda of the meeting.

Based on the data from Bank of Israel, the new mortgages increase 35 percent to NIS 4.1 billion during the month of May from NIS 3.02 billion during April. Also, new mortgages were at its highest point at NIS 4.8 billion during May of the previous year. While mortgages by investors were up by 30 percent during May compared to April, 40 percent of new mortgages were created at 60 percent LTVs and the share of these mortgages also increased significantly.

Although Bank of Israel believed that the mortgage figures for the month of May were for only one month, assessment of the figures indicates that there is a trend. The sources added that the officials at Bank of Israel gave a warning to Governor Stanley Fischer that the existing macro-prudential regulations were not enough.

How to Qualify for a Mortgage Rate Below 4 Percent

Based on data from Freddie Mac last Thursday, the average rate on a 30-year fixed-rate mortgage was 3.66 percent, together with a fee of 0.7 percent of the mortgage amount, which is also equivalent to a rate of 3.81 percent with no fee.

The agency found out that it is the lowest interest rate since it started tracing the numbers during 1971. In the same period of the previous year, the interest rates were 4.51 percent.

In order to get a loan with this interest rate, the borrower must have a credit score of 740 or higher and be able to pay deposit of 25 percent or higher. Taking this into consideration, the borrower will more likely only pay a little bit more with a minimum of 20 percent in home equity.

On the other hand, borrowers with a credit score between 720 and 739 will also pay a little bit more, provided that they also comply with the general approval standards.

However, if you have a low credit score and are financing a smaller sum of your home’s value, then you might still be eligible to get the same low rate mortgage just like those with higher credit scores. According to Mark Maimon, the director of sales at Universal Mortgage in Brooklyn, someone that has a 700 score and financing 50 percent of the home’s value can also get the same rate as someone with an 800 score and financing 75 percent.

Nevertheless, if your credit score is low, you might be required to either pay a huge amount as deposit or have a large number of money in the bank. If not, then you might not be eligible for a low rate mortgage.

As a result, a lot more borrowers have ask for help from the loan program of the Federal Housing Administration, which is more merciful.

CFPB Informs Seniors of the Hazards of Reverse Mortgages

Based on a report by the government, a lot of older Americans are in danger of ending up in a bad condition due to misunderstanding of the loans’ complicated terms.

According to information from the Consumer Financial Protection Bureau, there is an increasing tendency for the older to get the money at a young age and in aggregate rather than of installments paid every year which intended to allot the money through their retirement.

Homeowners failed to pay 10 percent of reverse mortgages since they cannot continue with the mandatory payments for property tax and insurance. CFPB was concerned about the growing use of the product through the last ten years and was exploring into new policies. Moreover, the difficulty of terms of reverse mortgages causes scammers to target the seniors.

Hubert Humphrey III, head of the Office of Older Americans and former Minnesota attorney general, said that while reverse mortgages may be suitable in certain situations, the seniors are still confused about its details.

CFPB is thinking about insisting on better explanation of the reverse mortgages terms and more rigorous monitoring, together with restrictions on ambiguous advertising.

According to Norma Garcia, a senior attorney of CFPB, reverse mortgages are an expensive option in borrowing money.

Reverse mortgages are intended for people 62 years and older who want to get loans based on the equity of their homes. However, homeowners are not required to pay every month, unlike the typical home equity loan. In addition, a reverse mortgage loan is less difficult to qualify for compared to a home equity loan.

Richard Cordray, CFPB’s director, said that although reverse mortgages are a good option for seniors who want to improve their retirement income which does not involve selling their home. A lot of seniors know about reverse mortgages but they have trouble comprehending the product and the trade-offs that comes with it.