As a mortgage broker I am at a loss to understand the US Home loan system,?
in Australia you have to have 2 out of the 3 of the following: Income ,equity (deposit) ,good credit rating : and you need a really good explanation if you cannot provide 3 out of 3 ,can anyone involved in Lending explain to me how it came about that banks where willing to lend to NINJA’s (no income ,no job’s no assets) as I really cannot see any reasoning other than a quick buck to be made by the bank and the lender and hope to god you weren’t at the bottom of the pyramid when it all fell over.
Was it it really that easy to borrow money or are we in other countries not getting the full story?
Grannie ,I think you are exactly righ about the type of house people are willing to settle for ,I see it all the time ,
A little background: my fiance and I bought our first home in February 2008. We qualified for a first time homebuyer loan. The interest rate is 6.3%. We do not pay PMI. We have about 11% equity. We have paid on time every month, and even paid a little extra towards principal.
A couple of weeks ago, I checked BOA’s mortgage rates and a 30 year fixed were at 5%. Refinancing into one fixed mortgage at that amount would save us a significant amount of money each month.
So I call to ask if we can refinance. They said we wouldn’t have to pay PMI, but the rate they offered me was 6.6%! I asked why I wouldn’t get 5%. They said it was because we didn’t have a whole lot of equity yet. But I feel that’s unfair because if I were a new customer just buying now, I would be getting 5%. Is this typical?
I’m pretty unhappy about this. I am contemplating applying for a mortgage at another (local) bank so we can refinance to a lower rate, but that means I’d have to go through that whole horrible loan process again! It would have been much easier with Bank of America since we already hold the mortgage with them.
Should I be more persistent with them? Or just accept my fate and let the “historically low” interest rates pass us by?
Hi, yes you’re right, we have a split loan, I forgot to spell that out. The interest on the larger chunk is low-ish but the smaller one is higher. Combined, the weighted average is 6.3%. I did suspect that they might tell us we would have to pay PMI if we got a regular 30 year fixed, but they said no, they just offered a ridiculous interest rate higher than our current. They did say, well yes, new customers will get a better rate. But how then are people refinancing at low rates? I guess they are going to another bank?
HI,
I think you’re not getting the real story.
I sincerely doubt ANY loans were made to NINJA’s. The problems involved either adjustable rate mortgages, 2 income families buying at the very top end of their qualification, then one losing a job…Inexperienced couples, using the 103% financing, not considering the total expenses involved in owning a home, not having anything invested in the home and not modifying their lifestyle to compensate.
I’m not saying that all buyers were to blame, obviously if the company you work for sends all the jobs overseas including yours, you end up in a financial mess, but in my opinion a lot of the home mortgage problems stem from too many people unable to “settle” for a modest house as their first home and needing that 3000 square foot house for 2 people just starting out….Makes no sense to me but I’m old school and actually lived in a house with “only 1 bathroom” for 20 years and survived just fine.
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LikeDislikeI’m a REALTOR, not a lender, but from where I sat, yeah, the US had some very “creative” ways of qualifying borrowers.
There were all sorts of loans available, including:
The NINJAs, but not really since borrowers did need to show some assets – just what is an asset? Ask the lenders that made the loans. Oh yeah, they all took their money and ran.
The 80-20 – that was basically 103%+ because so many borrowers rolled their closing costs, pre-paids into the loans – and avoided PMI so there was nothing securing the loans.
The Hybrid ARMs – where “marginal” borrowers (at best) were qualified based on the lower “teaser rate” for new “lower end” houses. And, in the case of new homes here (Austin, TX), property tax appraisals based on “lot” value before the home was built. So even though the ARM interest rate hadn’t adjusted (yet), the monthly payment went up $ 300 or more after the property taxes were assessed on the value AFTER the home was built.
How about homeowners in areas of rapid appreciation like CA & NV who bought for $ 40,000 and homes now appraised for $ 400,000+ (like a friend of mine who owns a little condo in LA) who took out HELOCs and bought “investment” properties in lower priced places?
No PMI to secure these loans. And there were lots of other ways to become a homeowner with no money out of pocket and over-valued property prices.
Then there was the bundling of these very risky assets into mortgage backed securities that were sold to investors all over the world.
Yeah, some nasty business here.
I think it started with de-regulation of lending practices and was aided along after the Tech Bust (which started in 2000).
Yes, it really WAS that easy to borrow money. sigh.
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LikeDislikeI heard an interview with someone verifying loans for one of the biggies that went under. They were *required* to verify at least 30 applications per day. That is an absolute maximum of 15 minutes to verify the income, credit rating and property. Can’t be done.
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LikeDislikeThat is very typical of how banks work, they of course will offer new customers lower rates to attract them. But banks take a loss refinancing existing loans. Shop around and go with another bank.
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LikeDislikeHello,
I’m trying to understand one particular comment…
“Refinancing into one fixed mortgage at that amount would save us a significant amount of money each month. ”
Are you implying that you have 2 mortgages? Maybe you did an 80/10 type of loan where 80% is your first, 10% is on a higher rate second? and the balance of 10% was your down payment?? Many loans are structured this way to avoid PMI. It works, but you’re stuck with a higher interest rate on the 2nd (usually in the 8-9% range).
it is likely that at 6.6%, they are figuring PMI into the interest rate if they end up refinancing at less than 80% loan to value.
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LikeDislikeYou should take your loan to another lender and look at getting an FHA loan @ 5% because the mi is cheaper than a conventional loan.
It sounds like B of A offered you a lender paid pmi loan which is why the rate was higher.
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