Mortgages avoiding credit crunch

You'll probably have to go to homeownership school. You'll have to prove you can really afford a mortgage. You may have to reconsider your location. And you'll have to run a gauntlet of scrutiny. Today's mortgages are a far cry from boom time loans, but they do exist and some lenders have money to burn.

by Broderick Perkins
© 2008 DeadlineNews.Com


Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - A new brand of home loan, customized with tighter controls and fewer defects is replacing those old mortgage models that crashed and burned when the economy hit the skids.

Don't expect these new babies to come off the assembly line like those mass-produced subprime rattle traps, but if you stick to the rules of the road, one of these loans could put you in the driver's seat.

Buckle up.

"You have to qualify. You have to prove your income. They have make-sense underwriting," said, Quincy Virgilio, 2009 president of the Santa Clara County Association of Realtors and broker-owner Realty World CA Property Network in San Jose, CA.

FHA-insured mortgages

The new darling of the homebuyer set, Federal Housing Administration-insured mortgage programs have for decades been available especially for low- to moderate-income families who may not meet requirements for conventional loans.

But with new loan limits as high as $625,500 they've become especially attractive in high cost areas. FHA loans are expected to account for 25 percent of the mortgages signed in 2009, according to the National Association of Realtors. Because of previously lower loan limits, FHA loans amounted to less than 4 percent of homes sold from 2003 and 2006.

The new FHA model also comes with low down payments and eased credit requirements.

"They are much more lenient (compared to conforming Fannie Mae and Freddie Mac mortgages) on how they look at credit scores. The score can be in the 600s vs. 700s, said Cheryl O'Connor, a finance expert with O'Connor Consulting in Danville, CA.

FHA features include:

• As little as 3 percent down.
• Financed closing costs.
• A 1 percent (of the mortgage) ceiling on the amount lenders can charge for closing costs.
• No prepayment penalties.
• Relaxed debt-to-income requirements.
• FHA-approved lenders only.
• FHA-approved appraisals only.

Virgilio says buyers who don't have 20 percent or more down will pay an upfront mortgage insurance fee amounting to as much as 1.75 percent (of the loan) and a monthly mortgage insurance premium that effectively tacks on another 0.5 percent to the interest rate.

"But you can structure your loan with participation from the seller paying closing costs. Not down payment assistance, but closing costs, but in this marketplace the seller is going for that," said Virgillio.

The best rates (typically fixed, rather than adjustable) go to those who have financial reserves, savings or investments amounting to at least two months worth of a PITI (principle, interest, taxes and insurance) mortgage payment.

Likewise, the best deals go to buyers with a 30 to 33 percent debt-to-income ratio when the debt includes housing and all other monthly debt payments.

In addition to FHA home-buying loans, the "Housing and Economic Recovery Act of 2008" created "Hope For Homeowners" which allows troubled mortgage holders to avoid foreclosure by refinancing into a more affordable, FHASecure mortgage, provided Uncle Sam gets a piece of the equity-growth action and provided the existing lender approves.

“People used to qualify with stated income. Now there is more documentation. And they aren't just documenting your income, but looking for assets in addition to your income and low debt-to-income ratios and low loan-to-value ratios.”
- Asmaa Egal, mortgage broker, Loan Republic Financial, San Francisco, CA

Membership-required credit unions

Credit unions are also rolling out the red carpet for home buyers.

The typically members-only financial institutions largely survived the credit crunch because, as non-profits, the fundamentals apply. They take in deposits. They make loans based on sound underwriting principles. They charge more on those loans than they pay on deposits.

Without the profit motive, there was no incentive to get involved in the subprime racket, no reason to sell and repackage loans as investments and no need to otherwise venture into untried and untrue investment schemes.

Along with fixed-rate 30-year mortgages at rates often lower than banks they also offer conventional adjustable rate mortgages (ARM) and hybrids all with rates typically lower than conventional lenders (Search "rates," then see "Ratedex").

"Credit unions have a tendency to be more lenient if you have a bank account with a credit union," O'Connor said.

Credit union originations rose a whopping 10.1 percent during the first half of 2008, according to the industry's federal regulator, the National Credit Union Administration (NCUA). Conventional mortgage lender loan originations took a nose dive, falling 17 percent during the same period.

Rural home loans

Don't get your knickers in a knot over the term "rural."

The nation's housing market includes a host of fine country estates -- large and small -- with land and available for a song! What's more, they come with government backed financing.

"Home buyers in the San Jose (and other) area still have one mortgage that is inexpensive and easy to get, but many people don't know about it," says Dan Auld a loan consultant with National Mortgage City.

Loans backed by the United States Department of Agriculture's (USDA) Rural Development Housing and Community Facilities Programs are limited, but you don't have to grow corn or raise chickens.

The loans are for:

• People living in designated rural areas where the population is less than 20,000.
• People with incomes under 115 percent of household median income for the area. In most areas, the upper income limit for borrowers will be $60,000 to $70,000 per year.
• People buying homes, not refinancing or taking out equity loans.

USDA Programs include no-money down loans (imagine that), home improvement and rehabilitation loans and grants, construction loans, loans for minorities and true to the work-ethic of rural life, sweat-equity loans that require buyers to help build their own homes.

Money for rural homeownership is available during the greatest economic downturn since the Great Depression because of sound lending practices and isolation -- both geographical and financial -- from the boom-bust markets.

The result has been more mortgage money to lend, not less. The federal ag agency's loan volume tripled in 2008.

Local, state agencies

O'Connor says don't overlook local -- city, county and state -- housing assistance programs that often cater to first-time and or low- to moderate-income home buyers.

More information is available about state housing efforts from the HUD web site.

Local contacts are available through the National Association of Housing and Redevelopment Officials.


Also see land consultant Curtis Seltzer's "How To Be A Dirt-Smart Buyer Of Country Property" (Infinity Publishing, $34.95).

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the Deadline Newsroom, DeadlineNews.Com's news back shop. Perkins is also a National Real Estate Examiner. All the news that really hits home from three locations -- that's location, location, location!

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Credit Unions Roll Out Red Carpet

Remember credit unions? They could be your home financing salvation if you need a home loan and your local mortgage lender or bank won't give you the time of day.

by Broderick Perkins
© 2008 DeadlineNews.Com


Unauthorized use of this story is a copyright violation -- a federal crime.

Deadline Newsroom - Been down to your friendly neighborhood credit union lately?

What are you waiting for?

You could find that elusive home loan you been unable to get anywhere else.

How's that again?

Credit unions didn't need a bail out during the Great Depression, they didn't need federal intervention during the Savings & Loan debacle and they don't need government assistance now.


Well, except perhaps help getting the word out.

See, credit unions avoided writing subprime home loans and other funny money mortgages like the plague. When subprime borrowers came knocking, they sent them down the street to that now boarded up mortgage outlet. They also shunned those Wall Street smoke-and-mirror securities that turned out to be all smoke and mirrors and no security.

That means credit unions are relatively untainted by the credit squeeze and they have both money to burn and -- as long as they keep rolling the way they roll -- a sound business foundation for lending and savings that isn't likely to come tumbling down around them.

Instead of fearing the next Great Depression, member-owned credit unions are bracing for what could be their boom time in home loans and other financial services, now that banks and mortgage lenders are crashing and burning.

Mortgage production among credit unions is small by comparison to banks and mortgage lenders, but their originations rose a whopping 10.1 percent during the first half of 2008, according to the industry's federal regulator, the National Credit Union Administration (NCUA).

Meanwhile the Mortgage Bankers Association (MBA) reported bank and mortgage lender loan originations took a nose dive, falling 17 percent during the same period.

Credit unions are solvent, thriving and rolling out the red carpet but if you go shopping for a credit union mortgage, leave your subprime attitude at the door.

You won't be coddled, you can't get away with lying on your application, your creditworthiness will have to pass muster and you likely won't get more home than you can truly afford.

Credit unions are more willing than many lenders to make homes loans for the creditworthy, but the old fashioned way. Credit unions need to make money to thrive, but they are non-profits not in the business to make a profit. Credit unions serve member consumers who come together to pool their money with the expectation they'll get a return on their investment.

What a concept.

For non-profits, the fundamentals apply: They take in deposits. They make loans. They charge more on those loans than they pay on deposits. Voila! A thriving business.

Without the profit motive, there was no incentive to get involved in the subprime racket, no reason to sell and repackage loans as investments and no need to otherwise venture into untried and untrue investment schemes from hell.

Credit unions hold most loans to maturity and return the interest to members in the form of interest-bearing checking, savings and CD accounts. The rest they invest low-risk smart so they can continue to serve members.

Also, because credit unions didn't hop a drunken ride onboard the get-rich-quick home loan assembly line, their members aren't suffering the kind of housing hangover many home owners face today.

Less than 1 percent of all credit union mortgages are 60 days or more late, according to their Credit Union National Association (CUNA), which is just absolutely beside itself these days.

It should be.

Along with fixed-rate 30-year mortgages they also offer conventional adjustable rate mortgages (ARM) and hybrids.

It gets better.

As with other financial products -- savings and CDs -- rates on loans are often better at credit unions. The spread isn't as much with mortgages as it is with credit cards and car loans, but credit unions' mortgage rates are competitive.

As of October 15 CUNA reported (Search "rates" then see "Ratedex") the average rate on a 30-year fixed rate mortgage was 6.27 percent; for a 1-year ARM, 4.91 percent. Meanwhile, the MBA reported an average 6.47 percent for a 30-year loan and an average 6.67 for a 1-year ARM.

"Credit unions are the safest depository institution in the country to put your money in right now," says Dan Mica, President and CEO of CUNA.

He has room to boast.

Just as the Federal Deposit Insurance Corporation (FDIC) insures accounts up to $250,000 in federally insured banks, credit unions are likewise regulated and federally insured by the NCUA for the same amount.

There is one beware.

In an obvious attempt to cash in on vulnerable consumers looking for mortgage relief and home loan alternatives, phishing operations have cast a wide net over the credit union industry.

Phishing is fraudulent email masquerading as real email from a real business. Some of them can be quite convincingly elaborate, using company logos and links to web sites that also appear bona fide. Phishing email scams seek your reply (do not hit the reply button) in order to gain your personal information for use in identity theft operations or other nefarious deeds, ultimately to get at your cash or financial accounts.

If you know you don't have an account with a given company, if you haven't asked your company to contact you by email, delete suspicious emails. Financial operations that need to reach you still do so by regular mail and telephone. Only you should initiate email contact with your financial services.

Along with financial products and sage savings, credit, mortgage and home ownership counseling and advice, the credit union industry, just like others in the financial sector, is hard at work thwarting phishing and fraud.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the new Deadline Newsroom, DeadlineNews.Com's news back shop. In both cases, it's news that really hits home!

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