“So, looking back, we know what led up to the housing correction – risky lending chasing rising home prices fueling more risky lending – until the bubble burst. Looking at the situation now, there are some short-term remedies to minimize the pain as the correction plays out. Looking ahead, there are some longer-term remedies that would help protect borrowers and sustain a healthy demand for homes.
But stepping back from the particular problems and solutions, what are the greater lessons we can learn from this experience, to ensure – as best we can – it never happens again?
Lessons tend to get better and clearer over time, but already, at least four seem clear.
Lesson one: When they say the old rules don’t apply, apply the old
“Long-term, I believe the focus should be two-fold. First, we need to make balanced reforms to the lending system. Second, we need to restore the fundamental healthy demand for housing, based on people who want and can afford to buy a home…
There are five key areas that are ripe for reform:
First, mortgage brokers should be licensed. A House-passed bill, supported by the brokers themselves, would create a national registry of loan originators regardless of where they work in the industry. It also establishes strict national standards for loan originators that include criminal background checks, fingerprinting, continuing education and testing.
Second, predatory lending laws should be strengthened. Clearly we need to tighten
“Let me sketch some immediate actions that I believe would make the slowdown shorter and shallower…
Here are five short-term remedies:
First, the Treasury Hope Now initiative is an important step. By helping a set of subprime borrowers to freeze their payments at the initial ARM rates, we can avoid creating a whole new class of distressed borrowers.
Second, lenders and policymakers should pursue the most generous means possible to refinance ARM borrowers facing resets into long term, fixed-rate mortgages. This will require innovative high quality products that replace the sloppy credit that has been – appropriately – withdrawn from the market. There is now, for example, a 40-year mortgage designed to keep payments lower but
“Let me review briefly how we got here.
As the decade started, incomes were rising and interest rates were low and stable. Demand for homes outpaced supply, driving a sustained boom in home prices. Affordability plummeted.
Nevertheless, first-time homebuyers scrambled to get in, spending more and more of their income to purchase homes. The mortgage market, being efficient and responsive, offered new loan products with features that lowered initial monthly payments – teaser-rates, interest-only, negative amortization, and the like.
These products shifted more risk to consumers. But demand continued to spiral prices upward. Credit underwriters kept underwriting, and all bets were covered by the upward march of home values. Homeowners took…
We’re including a speech by Daniel Mudd, the President and Chief Executive Officer of Fannie Mae. He does a good job of explaining everything that’s been going on with the housing market. We’ll include the main areas of his speech in five blogs so that you can read it.
“It is clear that housing is critical to the US economy. The building, selling, buying, lending, fixing, and furnishing of homes generates 9 million jobs, six percent of all employment, and more than 20 percent of our gross domestic product. Typically we spend 20 to 30 percent of our income on housing, and our homes represent 18 percent of our net worth.
It is also clear that the housing correction has been damaging to the economy. It’s taken $166 billion off the GDP,…
The FHA Modernization Act will soon be reducing the 3% down payment requirement to 1.5%. This act will also increase the loan limit from $251,000 to $417,000. These two improvements will make it easier for home buyers around the country to get the home loan they need.
This act will also help people not looking to buy a new home. The FHA is another element that is being used right now to help people refinance to save their sub-prime loans. It is estimated that about 53,000 will have refinanced using FHA in the last four months. This is good news since statistically, FHA-backed loans less often result in foreclosure than many other types of loans.
It’s tough to tell who qualifies for the new 1.5% down payment and the new loan limit…
A big advantage of using an FHA loan is that you only have to put 3% down. And, you can get a third party to pay that 3% for you, which means that you don’t have to make a down payment. This is one way of getting a 100% loan for buyers.
When negotiating the sales price, you can get the seller to contribute 3% to a non-profit organization like Nehiamiah or AmeriDreams. These non-profits then turn around and grant the money back to the buyer for a fee. This fee is usually a few hundred dollars. So, basically you’re getting the seller to buy your down payment. The main caution for FHA loans is that the home you buy has to appraise for the purchase price – but this is something you would want to happen anyway with the home you’re buying.
The…
Two things are very important when building credit. First, you need to have a high limit and a low balance. The more you have of this combination, the better your score. Second, you need to make your payments on time. These two things will build a credit score in no time.
For example, I had a lady last week who had a credit score in the low 500s. Her credit report showed that she had not paid a few things. She actually had paid these things, but the creditor did not update the report to show that she had paid in full. So, I made two corrections in her report showing that she had paid what she in fact had. Doing this changed her ratio of credit limit to amount owed (in other words, her true balance). Correcting this amount owed increased her…
We’ve included a list of everything you need to get started on your home loan. These requirements are standard for any lender. Depending on the lender, you may not need all of this information upfront, but they’ll request the following at some point during the loan approval process.
1. Pay stubs for the most recent 30-day period.
2. Bank statements for all your accounts (checking, saving, 401K, etc.) for the last 2 months.
3. W-2 tax statements for the past 2 years (if you’re self-employed or have a commission-based income, you’ll need to provide personal and business tax returns for the past 2 years along with your most current year-to-date profit/loss statement).
4. Employer info (name, phone number, and address) for your
Some home buyers (especially first-time home buyers) think that a down payment is the only cost of buying a home. However, they soon realize that their down payment is one of many costs that require cash or a check upfront. So, how much should you expect to pay before closing on your new home?
Depending on the type of mortgage you choose, you will probably make a down payment anywhere between zero and twenty percent of the purchase price of your home. This range is very large, but the good news is that you get to choose what size down payment you’ll make in the very early stages of house hunting. You can talk with your home loan officer to find out what mortgage type is best for you (and this decision will largely be based on how much money
