Federal regulators directed banks today to properly explain the risks posed to borrowers from interest-only and other nontraditional mortgages.

The regulators said that banks needed to make sure that the loans they made were “consistent with prudent lending practices, including consideration of a borrower’s repayment capacity.”

There has been an explosion of nontraditional loans in recent years, raising worries about the risks to the financial system should there be a sizable number of defaults if borrowers are unable to meet rising mortgage payments.

“Mortgage delinquency rates are rising and foreclosure rates are also beginning to pick up.

But the Mortgage Bankers Association said that delinquency and foreclosure rates remained “well with the range of historical norms.” The organization criticized the regulators’ action.

“The guidelines propose a one-size-fits-all underwriting standard that will unnecessarily choke industry innovation and diminish consumer choice,” said Regina Lowrie, chairman of the mortgage group.

But these types of loans also expose borrowers to far greater risks. (Read More)

Source: The Seattle Times: Real Estate

Many lenders in recent years have offered “stated income” and other limited-documentation mortgages aimed especially at self-employed applicants.

Dubbed “liar loans” by industry critics, stated-income mortgage programs allow applicants to bypass standard underwriting requirements for W-2s or copies of personal and corporate income tax records.

The 4506-T form authorizes the lender or the investor providing the money for the mortgage to obtain transcripts from the IRS summarizing income and tax data for as many as four years.

Until now, the process of faxing in 4506-T requests to the IRS and obtaining transcripts has been paper-driven and non-electronic.

But now, with the IRS promising to provide electronic transcript tax data within one to two business days in an electronic format, more lenders are likely to run income checks before closing — even on loans to applicants who are not self-employed or using stated-income programs.

Typically lenders want to see two years of returns, so the IRS policy change means costs will jump by $9 per loan application.

Though lenders will be able to deal directly online with the IRS, most are expected to continue working through third-party vendors such as Veri-tax, who can handle large volumes of requests per month, but at a higher cost.

For example, some large wholesale lenders have required borrowers to sign the forms, but not date them or indicate the tax years to be checked.

With income checks likely to be faster and more frequent in the new electronic format, it will be more important than ever for home mortgage applicants to follow the IRS instructions on Form 4506 to a “T.”

Even if the loan officer insists that it’s the mortgage company’s standard procedure — or worse, a precondition for obtaining the loan itself — never sign an incomplete 4506-T. (Read More)

Source: Washington Post

Prices of single-family homes across the nation depreciated in January compared with January 2006, the worst results in more than 13 years, according to a housing index released yesterday by Standard Poor’s.

The S P/ Case-Shiller composite index showed a drop of 0.7 percent from a year ago in the price of a single-family home based on existing homes tracked in 10 metropolitan markets.

In January 1994, the index dropped 0.9 percent compared with January 1993, S P said.

For its 20- city composite index, prices fell 0.2 percent.

The Commerce Department reported Monday that sales of new homes fell to the slowest pace in nearly seven years, after a larger decline in January.

On a year-over-year basis, 11 of the 20 cities in the S P index show negative annual returns in the prices of existing homes.

On Monday, the Commerce Department reported that sales of new single-family homes fell 3.9 percent to a seasonally adjusted annual rate of 848,000, the slowest sales pace in nearly seven years. (Read More)

Source: Baltimore Sun

The Hallmarks, who live in Annapolis, knew the standard options: They could hunker down, stick with their $70,000 credit line and risk further payment jumps in the months ahead.

Alternatively, they could refinance their first mortgage and pull out an additional $70,000 to pay off the credit line.

According to Freddie Mac, the congressionally chartered mortgage investment giant, roughly nine out of 10 refinancings this year have involved cash-outs, many of them to pay off variable-rate credit lines.

They telephoned their lender and asked to convert their variable-rate credit line into a fixed-rate mortgage note with a fixed term.

But the answer was even better than yes: The rate was fixed well below the 8.25 percent bank prime that the floating credit line was tied to, and there were no fees involved.

Both the J.P. Morgan Chase and Citibank home equity groups now let floating-rate credit line customers divide their accounts into as many as five separate “baskets” with different terms and rates, anytime, at zero cost.

For such borrowers, a cash-out refinancing might not be as attractive as a rate lock on the $50,000 credit line balance.

Bottom line on floating-rate credit lines: Even if your bank hasn’t told you about it, check out your fixed-rate options.

Depending upon your primary mortgage amount, interest rate and the size of your credit line, locking in a fixed rate on a credit line you thought could only go up might be your best move. (Read More)

Source: Washington Post

Northern California home sellers suddenly face liquidity issues in a falling real estate market. The best analogy is to picture a listed stock without bids … it has been difficult for many to comprehend to the level of the market correction and to adjust to the new real estate environment. Fitch Properties http://www.realtydollars2u.com provides unique equity saving options and advice to property owners whom cannot afford the industry typical six percent listing fee.

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