Market trends in the mortgage industry shows that a fuse on a second “mortgage bomb” has already been lit with consideration to Alt A Mortgages and Option Arm Mortgages. Their increase in popularity has a direct connection to the fall in real estate prices over the past few years. As the equity in the market dropped, lenders offered borrowers deals that were too good to be true. Lenders tended to overlook the borrowers income verification as well as their foundation for repayment. In essence, it let people qualify for loans which they could never repay in a normal market.

But hindsight is 20/20 isn’t it?  At the time, people didn’t want to get left behind.  It was the “greater fool” theory in action.  I think most people knew that they were overpaying for property but with the frenzy that was going on it was tough for people to see the forest through the trees.

One of the “features” of these loans were adjustments and/or resets.  Meaning, that payments can jump drastically, especially for people that were paying interest only or as some did, paying even less than the intere st owed.  This is called negative amortization and it was a key aspect of the Option Arm.

The Option Arm loan program had been around since the early 1980’s (remember Home Savings of America?). The Option Arm had a lot of bells and whistles for prospective borrowers. These bells and whistles often made borrowers overlook the fact that were assuming the risk of rising interest rates because the loan is an adjustable rate mortgage. But interest rates have been in a multi-generational downward trend, keeping the actual rates for these borrowers low.

So what caused Option Arm loans to rise in popularity after 20 years of being a small piece of the pie? Well two reasons. The first is that Option Arm loans do not verify the income of the borrow. “Stated Income” thus holds as the qualifying factor for the loans. Many over the years have referred to this practice as qualifying for “Liar Loans” and with the market cost dramatically increasing, the Option Arm has become quite popular.

But the second reason for the increase in Option Arm loans is a direct result on how brokers adjusted the loans margin. Lenders placed a higher value on the loan based on the margin that the loan came with. Loan officers were paid more in commission if they sold the loan with a higher margin rate. Since many homeowners don’t understand the full complexity involved with margins, the sharks in the loan market had the upper hand. Everyone offered the same “start rate” so all the offers seemed very much the same. But these sharks (mortgage brokers, loan officers, and employees of banking operations ) would simply increase the margin to gain the maximum in commission.

RESPA documents were (and still are, in my opinion) woefully inadequate. So borrowers took these loans without really understanding how they worked. Fortun ately, most of the loans are tied to short term interest rates such as the MTA – the 12 month moving average of the 1 year t-bill which has been below 1% since November of 2008. The worst of these loans went out with a 3.5% margin, so the reset rate for these loans will be low.  Most people will be okay as long as short term interest rates remain low.

Unfortunately, when the economy ultimately picks up, these loans that are locked into a Option Arm will see their payments rise. And this is where the “mortgage bomb” detonates. In an economy based on consumer consumption, we might see holders of Option Arms keeping their stimulus money in safe place to prepare for these increased rates.

Social Media and the government fail to see the true crux in the foreclosure epidemic. The culprit of the Great Real Estate Depression is a drastic reversal that mortgage lending models have experienced.

 The surge in the housing market stemmed from the greed of easy money.  Lenders were abash in capitol and were willing to extend it to who ever asked.  No money down and 100% financing? Sure we can do that! You’re not able to verify employment?  O that’s not a problem, just tell us what you make and we’ll believe you! Is your credit less than average, don’t worry we’ll lead a blind eye.  We know once you get into your payments you’ll be able to make them, if not, how about less then interest?

ARE YOU FREAKIN KIDDING ME? Well unfortunately, no, I’m not.  This was the state of the industry up until 2007-2008. I should know.  Lenders visited my companyevery day of the week, pleading with us to help get these loans out to a voracious marketplace.  And I won’t lie to you… we offered them.  Everyone did.

But in a quick reversal, today’s housing implosion was caused by lenders going to the other extreme. Today, you can’t get mortgage financing unless you have impeccable credit, sufficient and provable income, and verifiable assets.  Some would say common sense underwriting, but not me.  Today, lenders have effectively cut off half of the market.

 Real Estate is merchandise and like any other product; subtract half the market and watch prices fall.  It’s a simple computation.  If you’re looking to sell your home, just forget about those buying with a lower then 620 credit score.  And forget most of the self employed from being qualified; they typically cannot show the income for the mortgage they wish to buy.  Buyers then only have Fannie Mae, Freddie Mac and FHA as options; so besides the required down payments all three of the lenders have similar requirements.  So if you are denied by these lenders: so sorry; no loan for you!

 Think that’s bad? O it gets worse.  With all the homes racing into foreclosure, those properties returned to the lender are being grossly mismanaged.  Very few are occupied or even have a for sale sign.  Potential home buyers are less interested these days in purchasing a rescued property with the great deal homes up for sale. Additionally, investors are unable to qualify for homes due to the homes current state and market value.  This leads to a eventual decrease in the property’s price further depreciating the neighborhoods value.

 And if that wasn’t enough, these homes don’t qualify for assistance from the FHA financing commission.  In the current marketplace, the FHA’s requirements to obtain financing are more lenient than it has ever been.  But the FHA does have fairly strict guidelines for property standards based on lender owned homes.  With all the free money handed up by Dear Mr. Obama, we need regulations put in place to get the foreclosed properties in order! Instead of the strict guidelines put in place by creditors, these homes need their Loan Modification to be handled with care and attention.   Being in the industry since the early 80’s, I’ve never seen the market this strict.

What can we do? Reach out to your congressman. Tell him or her that we need regulations that will force lenders to start doing the right thing with their foreclosed properties. We need them to be more agreeable to modification requests.  We need policies that will require lenders to modify loans when the numbers clearly indicate that a home can be saved with a temporary payment reduction.

I know that as much as I rant about this, most people will not contact their local representatives.  So I have decided to draft my own proposals.  I plan to put my proposals into the hands of every congressman and senator in Washington. If you agree with my views, won’t you join me?  I’d like to include as many signatures as I can get with my proposals. If you provide your contact info, I’ll send you the proposals and when we’re ready to go, I’ll ask for your signature.  But it’s completely up to you… you can read my proposals before deciding to be a signor.  But I believe what I present will make sense and you will want to join us.  I’ll keep in touch with you until then.

Life today is really very hard and everything’s in a very tight budget and it seems that your pay and your wife’s is just enough for the daily needs of your family and there’s no way for you to spend extra money for the things on the things that your family needs. Now, what if you want to do some house repairs? How on earth can you get to repair your house and bring back to its original beautiful condition? Have you had some word from the grapevine about loan mod programs? This is one of the options that you may want to go for if you need some financial help for your troubled loans. However, before you can go to a lender and apply for one, it is highly recommended that you need a kind of DIY loan mod kit first.

So, how do this DIY loan mod kit can help you? First and foremost, you have to realize that it is not that easy to apply for a loan modification program. You need to go through a lot of processes first so that the creditor can be finally convinced that you do need a lot of help from a loan modification program. You need to fill up a lot of papers and you need to complete all the requirements and most of all, you have to pre-qualify yourself in order to find out if you really are qualified for such program. Now, try to imagine if you don’t have any ideas of what to do. Without a DIY loan modification kit, you will probably be coming back and forth trying to accomplish everything. It would be a waste of time, right?

With a Do It Yourself Mortgage Modification kit, you can prepare yourself before you can ever go to a lender and say that you need a loan modification program to help you save your house that you have put up for mortgage against the loan you have applied for and it seems that you will lose it through foreclosure.

Many people will never realise the best investment ideas are usually the simple ones. One of the secrets though is knowing where to go for the lowest risk but with the best return.

Try and disregard the current property downturn as historically house prices do increase quite dramatically over the years. Property investments can still be a good investment for you.

A good property investment relies on the old saying location, location, location. Location is the number 1 factor when looking at property investment.

Property prices usually double every ten years in the UK. You can make the most of your property investment knowing this. Great investment ideas are usually the simplest and property is one of the simplest, and best.

Let me spell out a quick example. We’ll keep figures nice and round for ease of calculations. A house is bought for 150k and on average ten years later it should be worth around 300k.

If (in the above example) buying on a mortgage you should shop around for the best deals as even a little saving on your mortgage rate could mean a big cash saving. Remember you always need to keep some cash available for the next good investment idea.

**A bit off topic but you can discover how to shave years off your own mortgage with our mortgage overpayment calculator**

Back to what we were on about before.

Searching for a good mortgage can be time consuming but worth it in the long run if your investment idea is to be profitable. The mortgage is a key factor in any property investment idea.

A lot of fledgling investors get caught out by the rises and falls of the property market. They buy in the peak then panic and hope to sell in the trough. This can be route one to the poor house doing it like this.

If simple equals best then you need a simple system to profit from any investment ideas you have. If you are thinking of property investment then the simplest way is to wait for a trough, get in the game with the best location you can afford and if renting, get a good team to manage the rentals.

As the wheel is a classic example, simple ideas usually tend to be the best. Don’t get caught up in a myriad of detail while searching for investment ideas. Keep it simple! Click this link for some good investment ideas

Today I’d like to present you with some pros and cons of Reverse mortgage. I’m no financial advisor, but being a Toronto realtor for years, I’ve met many people that used or wanted to use this financial product. One of the house loans available is called “reverse mortgage”. Using this product, you can get the money according to the price of your house.

This financial product may be also called “Equity Release”, as in the UK, where it is quite popular. The typical client using the reverse mortgage is a person over 60 years in need of some more cash, not willing or not able to keep the monthly payment schedule.

Basic rules

The reverse mortgage means that you can get the cash for the value of your house and it gathers interest with time. The client or his/her spouse is allowed to stay in their house as long as needed, since the debt has to be paid back only after they sell the house or the client (or spouse) moves out or passes away. Usually, you can gain between $20,000 and $500,000 up to 30% of your home equity. If you are older than 70, the maximum is set to 40% of the home price. The next paragraph explains the main ups and downs of this way of getting money.

Ups

The mortgage is tax-free. You don’t have to pay any monthly amount. The ownership of your home does not change. This is an excellent option for people whose house is mortgaged or who have other liabilities to pay, and who want to remove the regular payments from their budget. There is a possibility to pay the interest gradually, so that the loan amount stays the same. If the client decides to mortgage another house in his ownership (partly or fully), it is possible. If you decide to leave this programme, you may do so at any time. No fees are charged, on the condition that you have been participating for at least 3 years.

Gradually, the interest rate becomes smaller. The financial institution has no chance of foreclosing in case the client borrowed more money than his home is worth. The bank is not allowed to charge more than the rightful price of the home, actually even if the home gradually has lost part of its value.

Downs

Before you enter the program, you have to pay about $1,300. It can happen that in a couple of years only, the credit is quite likely to be as big as your lifelong property value. In case the interest rate equals 10% and the initial loan was $50,000, the debt amount doubles once in every 7 years. That means you will owe $100,000 after 7 years and $200,000 after 14 years. In many cases the loan value swallows all the home price, even if the home value grows with time.

If we recap what we said before, the equity release is a suitable financial product for people who need to get some money in a considerably short time, who own some property and don’t have sufficient regular funding. One of the specifics of this kind of loan is that as long as you stay in your house, its title still remains in your name. Even people who don’t have sufficient income or have other financial responsibilities may use the reverse mortgage. One of the risks of the reverse mortgage may be that if used by a considerably young person who is not able or willing to pay off the interest rate regularly, it may become very costly, as the amount borrowed increases with time and growing interests, leaving the borrower with very little or no house value left. If you are interested to find out more about this option, contact your financial adviser.