I haven’t had a chance to keep up with all the news surrounding the subprime mortgage problems, mortgage company bankrupties, mortgage company layoffs, their affect on the economy and now renters.  So I decided to just link to a couple of articles that I have saved and was planning on commenting about but thought you might want to read them for yourself.  

The one aspect that I didn’t really think about was the effect all this has on renters.  As an investor myself, it is a great time to buy because of the opportunity for rental income since mortgage companies are tightening up the purses.  With more people are having problems qualifing for a mortgage to purchase a home, they will need to rent which in turn creates a bigger demand for rentals and will eventually hurt the average renter who is already struggling.  As we all know, when there is demand, the price increases.

Below are links to articles I have read regarding the above mentioned and one, the first link, I read on MSN.com that was depressing.  It looks like unfortuantely more bad new for the future.  When will it stop?

The_Cost_Of_Living_Is_Driving_Us_Out

 Home Sales Plunge In August

Perfect Storm

Countrywide Cuts More Jobs

 Ameriquest Is Dead - not an article but Ameriquests site

A List of Mortgage Closures, Mergers and Layoffs

Home Prices Seen Falling Further Before Rebound

Existing Home Sales Dropped in July

An article written by NYTimes.com on August 12th tells us of how the subprime market is affecting higher priced homes.

When an investment banker set out to buy a $1.5 million home on Long Island last month, his mortgage broker quoted an interest rate of 8 percent. Three days later, when the buyer said he would take the loan, the mortgage banker had bad news: the new rate was 13 percent.

“I have been in the business 20 years and I have never seen” such a big swing in interest rates, said the broker, Bob Moulton, president of the Americana Mortgage Group in Manhasset, N.Y.

“There is a lot of fear in the markets,” he added. “When there is fear, people have a tendency to overreact.”

It seems that the market for jumbo mortgages has dried up.

Jumbo mortgages are most important in areas with high home prices, most notably on the East and West coasts. “In California, it has shut down the purchase market,” said Jeff Jaye, a mortgage broker in the Bay area. “It has shut down the refi market.”

To read the rest of this post click here.

FICO, Fair Isaac Corp, will be changing the credit scoring system. You may be asking why am I posting this on a real estate blog? Well, this affects the mortgage rates and monthly payments for people who have not closed on their home by September. Fair Isaac Corp is saying that this change will not have much affect. I will have to agree with the article from NewsObserver.com.

“Because businesses interpret scores differently, a slight change could be the deciding factor in whether a landlord decides to rent to you or whether your bank decides to increase the interest rate on your mortgage or home-equity loan.

For example, according to Fair Isaac’s Web site (www.myfico.com), the difference between a score of 620 to 659 and one in the range of 660 to 699 can result in a $163 difference in the monthly payment on a 30-year mortgage.”

This change will also affect others because of a “Piggybacking.” Piggybacking is a term used when someone with little or not credit is added as an authorized user of a credit card from someone with good credit to help build up their credit score, ex. a child as an authorized user on a parents credit card. There are other scenarios like this and the change will hurt the good credit scoring individual.

So what can you do about this?

Remove the authorized user from your account or switch to a joint account. Their are drawbacks to the latter so I suggest you head on over to MyFico.com to download tips on how to improve and maintain your credit score.

Another good article about this is located at STLtoday.com

A new tax deduction allows qualified families to write-off premiums for private and government mortgage insurance on loans that close in 2007.

According to privatemi.com, “Families with a household income of $100,000 or less will be able to deduct the full premium cost of PrivateMI in 2007, while families earning up to $109,000 can qualify for a reduced deduction.”

For answers to the most frequent questions regarding the deduction click here.

You should also consult with your tax advisor to determine your eligibility for this deduction.

According to the National Association of Home Builders, here are the life expectancy of various home components:

Component / Life Expectancy (in years)

Flooring

Laminate / 15-20

Wood / Lifetime

Sinks

Enamel steel / 5-10

Modified acrylic / 50

Countertops

Cultured marble / 20

Natural Stone / Lifetime

Whirlpool Tub / 20-50

Built-in Audio / 20

Source: "Study of Life Expectancy of Home Components," February 2007.

National Association of Home Builders and Bank of America Home Equity

 CNNMoney recently wrote an article about the upcoming subprime mortgage bust.  

 From CNNMoney:

“In October alone more than $50 billion in ARMs will reset,” according to Mark Zandi, chief economist and co-founder of Moody’s Economy.com. That’s a record, according to Zandi.

As a result, Doug Duncan, chief economist for the Mortgage Bankers Association (MBA), is expecting as many as 600,000 home owners will get into trouble with perhaps half of them actually losing their homes.

Unfortunately, this is not good news for the selling market but where there is bad news for some there is good news for others, buyers.

To see the a list of the hardest hit zip codes in America, click here.

To read the entire article form CNNMoney, click here.

Haddonfield and Cherry Hill make the list, 910 & 1170, of the top 1200 public schools in the nation according to a Newsweek magazine article.  To view the complete list click here.

Inman released an article today discussing the increase of suspected mortgage fraud is up 30% and that seems to be the beginning. In the article, they also provide you with MARI FRAUD INDEX graph of the top 10 states.

A very interesting article and it also tells you how the fraud is being caught. “Once a loan becomes delinquent, a lender may discover that it was made under false pretenses.” They also say what seems to be the biggest type of fraud; “The most common type of fraud in 2006 originations involved falsified employment histories and exaggerated income, MARI said.”

To read the full article head on over to Inman.

A recent article from Bankrate.com, (11 Credit Report Myths), discussed myths associated with credit reports.  Since I’m in real estate is my business, I thought buyers who are shopping for mortgages would like to read this article and in particular the myth #4.

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4. Too many inquiries hurt my score.
Once upon a time, this statement was true. But get with the times — in this millennium, the credit agencies recognize a shopping mind-set when they see one. If a batch of mortgage or car loan inquiries arrives within 30 days, it doesn’t count at all, Watts says.

“Outside that 30-day period, if we locate a mortgage or car inquiry that occurred 180 days ago, and then see more mortgage- or auto-related hits in the accompanying 14-day window, we err on the consumer’s side and still assume she’s shopping for one item,” he says.

“We really feel like we are capturing the true consumer experience and not holding it against them for being an aggressive or smart rate shopper.”

Furthermore, there’s no such thing as some fixed number of points associated with these inquiries, Watts says.

“Inevitably when a consumer or a lender evaluates a credit file, they think this item must be worth 20 points, this is worth 100 points,” he says. “In reality we design the FICO scoring model so that each credit report item is given a reasonable or statistically valid number of points.”

In English, that means credit scores are designed to predict the likelihood that you’ll fall seriously behind in repaying one of your creditors within the next two years. Some things have predictive value and some don’t. Inquiries fall in the middle.

“They’re not incredibly predictive, so they’re in the model but they don’t drive the boat,” Watts says.

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To read more click here.

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Recently I attended a seminar held by a mortgage broker regarding the many mortgage programs available to buyers.  It was truly amazing of how many programs are really out there for buyers to trap themselves.  The broker did an excellent job of explaining different kinds of mortgage programs and why we seem to be seeing a increase of homes foreclosing.  

Although it is unfortunate that there are more homes foreclosing these days, the fact of the matter is some of these buyers should not have been able to get a mortgage in the first place. 

So who is to blame for this current situation that seems to be only getting worse?  In my opinion, it wasn’t just the mortgage lenders but a combination of the buyers, real estate agents and mortgage lenders here is why.  

Buyers need to make sure they are within their budget instead of purchasing a home for the maximum amount of money a mortgage lender is willing to lend them.  Purchasing a home for the full amount a lender is willing to lend could be the difference between possible future foreclosure and living life the way you should live it.  Only one thing I can say here, budget, budget and budget.

Real estate agents need to be a little more responsible with their buyers.  A buyer is looking to an agent for their expertise and knowledge to guide them correctly.  I have lost deals because I didn’t believe purchasing a home was the best thing for that person at that time, even though they were qualified for a mortgage.  I have to live with myself at the end of the day and instead of helping someone enter a possible future problem, I’d rather loose the commission.  The buyer will respect and trust me more knowing that I am not just looking to make a quick buck thus leading to possible future referrals.  

Motgage lenders are also to blame because they were handing out mortgages like it was free lunch.  I think at one point, all you needed to qualify for a mortgage was a pulse.  This practice in a normal market would have never happened, which is where we are headed.

Again, this is just my opinion and the LATimes.com recently had an article regarding this topic which I thought was very interesting and backed up what the mortgage broker from the seminar was also saying.  It also seems to give a hint or what is to come in the mortgage business.