Mortgage Rate News

Even as Lehman Brothers files for bankruptcy, Bank of America has turned its sights on Merrill Lynch, buying it out for close to $50 billion. Bank of America has, indeed, created a reputation for itself as a kind of savior, especially since its earlier acquisition of embattled mortgage lender Countrywide.

And now Bank of America is hauling an investment bank out of the fire. The offer, however, is already down to $24.63 from the original $29 a share offer it made. Of course, as one might guess, Bank of America stock is down a bit this morning. The question is whether or not BoA can absorb the losses that Merrill is seeing due to its riskier CDS and real estate investments.

Mortgage lending and the current crisis

This current crisis amongst investment banks can’t be good for would-be mortgage borrowers. This is because it is quite evident that liquidity is going to suffer. Banks will be less willing to lend money to each other, and that means that they are going to be even more reluctant to lend money to the likes of “regular folks” like you and me. So chances are that the mortgage market (and the housing market) is about to get tighter.

Indeed, mortgage lenders, to make up for their extremely lax standards that led to this crisis, are now tightening things — probably too far. And with investment banks failing left and right, it is no surprise that  capital is getting harder and harder to find. So it also means that you will have an even harder time getting a home mortgage loan. Before you apply for a mortgage loan, make sure your ducks are in a row, because you will need:

• Good credit.
• A down payment of anywhere between 5% and 20%.
• A desire for a less expensive house.
• Documented income.

Tags: Bank of America, Merrill Lynch, home mortgage loan, home loan,
Lehman Brothers, mortgage lenders, mortgage market

One of the questions that I have been asked a lot lately is this one:

How likely am I to get a home equity loan?

As with most personal finance questions, it really does depend on your personal situation. And what a mortgage lender is willing to for you (which is increasingly less and less). But there are ways to get a shrewd idea of how likely you are to get approved for a home equity loan.

Mortgage lenders are wary of giving out risky loans again. Gone are the days when you could get a second home mortgage for 90% of your home’s equity. Some mortgage lenders, believing that the real estate market would just continue appreciating at a rapid rate, were offering home equity loan options that amounted to 125% of a home’s available equity.

New expectations for home equity loans

Mortgage lenders now expect a little more in terms of the people they lend money to now. Bad credit home equity loans are becoming scarcer as mortgage lenders want borrowers with less risky credit scores. Many lenders want a credit score of at least 650 (which is lower than what many mortgage lenders will accept for a first home mortgage loan).

Additionally, many mortgage lenders want to make sure there is plenty of equity in the home. With home values dropping, lenders want to make sure that the homes used for collateral aren’t going to suddenly take a nose dive and be worth less than you owe on the home.

Finally, mortgage lenders are becoming more prone to verify income. Many mortgage lenders, who used to fudge income numbers in the past, as well as let some documentation slide, are tightening up requirements.

So, if you have plenty of equity in your home, and if you have sufficient income and good credit, you are likely to get a home equity loan.

Tags: home equity loan, home equity, home mortgage loan, home equity second mortgage,
second mortgage, home values, reader question

Citigroup Inc. got its fair share of hits, thanks to the mortgage market and credit market messes. Subprime mortgage writedowns, as well as other credit related writedowns, totaled more than $7 billion. So for quarterly earnings, Citi is reporting a $2.5 billion loss.

And this is good news.

New stock market conventional wisdom: “not that bad” is the new “good”

The news of Citi’s loss of “only” $2.5 billion is having a rather positive effect on the stock market. All around the world, stock exchanges are getting a bit of a boost as they contemplate the fact that Citi didn’t lose as much as analysts forecast the company to lose.

When mortgage lenders and others who deal with borrowers first started sustaining heavy losses as the mortgage and credit markets imploded, all sorts of dire warnings were made and all sorts of losses predicted. As a result of all the gloom and doom, snything that comes up “better than expected” or “not that bad” is considered a victory for that stock. And the stock market derives “confidence” that the worst of the crisis might be over. (Forgetting that this same thing happened last quarter, and things got worse.)

But, in the end, Citi needs to actually start making money. Posting gains and what-not. So BloggingStocks reports on the plans Citi has to do that thing the company was started for in the first place:

What will Citi do to start making money? It plans to cut $15 billion in costs in the next two to three years– It canned 6,000 people in the quarter — it will sell $400 billion in what CEO Vikram Pandit calls “legacy assets” and it will strive for 9% revenue growth.

Meanwhile, Citi has had some luck strengthening its capital base. It raised $13 billion in common and preferred stock during the second quarter which left it with a strong capital position — a Tier 1 capital ratio of 8.7% — well above its 7.5% target.

Tags: credit market, writedowns, home mortgage loan, mortgage loan blog,
subprime mortgage, subprime writedowns, loss Citi