Mortgage Rate News

One of the latest trends to hit the housing market is the presence of what is known as the “buy and bail.”

Buy and bail

This is an interesting decision that is being made by many people right now. In the buy and bail scheme, someone who sees that he or she is in too deep with a mortgage makes a plan to buy a new home and let the old home go into foreclosure. It works with the buyer moving in quickly. InvesterCentric Blog explains how it works:

For example, say a pair of homeowners bought their home two years ago for $400,000 and now it is worth $200,000. So rather than keep the existing home and its inflated mortgage, before their credit gets damaged they go buy a new home for today’s price of $200,000 and let the old home go to foreclosure. Works great for them, right? Sure, their credit will be bad for a few years, but surely they find that is worth $200,000.

For the most part, the borrowers are able to get the loan by claiming that they will rent out the old house to pay the mortgage (and maybe even generate a little income). This way, it appears that they are still solvent enough to buy a second home — especially one that is so much more reasonably priced. They key is that those participating in buy and bail pull this off before they start missing mortgage payments. At this point they are still desirable borrowers from a bank’s point of view.

As soon as the mortgage for the new place is approved — with its more manageable payments — the plan changes. The borrowers then simply let the old house going into foreclosure.

Foreclosure as a financial decision

This idea of foreclosure as a “smart” financial decision is not a new thing in the housing market crisis. For months now, some people have been deciding that it makes more fiscal sense to simply walk away and deal with the consequences of bad credit for a few years.

What’s new about this, is that there are those who are making concerted effort to get into a new house before things get really messy.

Tags: foreclosure, buy and bail, home mortgage loan, financial crisis,
mortgage lenders, financial trend, credit

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