How to Choose a Mortgage Lender

When choosing a mortgage lender, the first thing one usually thinks of is getting the lowest interest rate available. While interest rates are important, there are other notable considerations, such as choosing a lender you can trust and with whom you can work. Take time to research area lenders.

As you will see in this brief out­line, obtaining a mortgage can be a lengthy and complex process. Along the way, there are many opportuni­ties for problems and misunder­standings.
Select a lender in whom you can have confidence and trust - one you can depend on to help you make decisions for your long term benefit. Taking time to research the lenders in your area just may prove to be the most valuable investment you will make toward the purchase of a new home.

The Best Mortgage

All lenders offer a variety of home financing options. A good lender will work with you to find what best suits your individual circumstances.

Most loan rates will not differ widely. However, differences in loan structure can result in large savings of costs to you. Loans may differ in such items as: Term (length of the loan), prepayment options or penal­ties, processing fees, no credit fees, etc.

While most mortgages are offered for terms of 15 and 30 years, other terms may be available. Keep in mind that the shorter the term, the less you will pay for your house over the life of the loan. However, the shorter the term, the higher your monthly payment will be. Your lender can help you decide which loan arrangements are best for you.

Finding A Lender

• Build a list of lenders. Talk to people you know who have bought or refinanced a home recently.
• professionals. Or simply look in the yellow pages under "Mortgages."
• Talk to a loan officer. Call or visit the lenders on your list. Get a feel for what it will be like to work with them and how they approach your needs. If you're still uncertain, ask for references from recent home buyers like yourself. Ask about their experience with a particular lender.
• Compare rates for similar loans. Among the things you'll want to discuss with prospective lenders are the rates they offer on mortgages. But when comparing rates between lenders, be sure the rates are for comparable loans, and remember to include fees and other costs so you're really comparing apples to apples.

It is important to verify that you lender is a member of a state as­sociation for mortgage lenders. This is a trade association made up of members engaged, either directly or indirectly, in the mortgage lending business. Each member is bound by a strict code of ethics to encourage the highest standards of conduct in dealing with the public and other members. The purposes of the as­sociation can be summed up as follows:

• Encourage among its members sound and ethical business practices in making, marketing and servicing of real estate loans.
• Inform the members of changes in government laws affecting real estate.
• Provide education to the membership and the public on real estate matters.

In a continued effort to provide consumer education and assure compliance by all members to the canon of ethics, an ethics committee is in place to provide assistance to you. If you have a complaint or need general information, contact your state's mortgage lenders association.

Pre-Qualification

Before you start house hunting, it is wise to determine your price range. This can be done through the simple process ofpre-qualifi­cation. To become pre-qualified, a lender or real estate agent will use financial information you provide to estimate the maximum mortgage you should be able to obtain. The process doesn't guarantee that your mortgage application will be accept­ed, but it does help you narrow your search to homes you can afford.

Interest Rate Protection

When applying for a loan, you will be given an option to "lock in" a rate, thereby guaranteeing your interest rate during the processing and underwriting of your loan. It is wise to obtain a written, rather than verbal, interest rate agreement if you choose this option. The other option is to let the rate "float," allowing the final rate and fees to be set nearer the settlement date. This means your rate would be subject to market conditions at the time and date that your rate is locked in prior to the closing.

Loan Application Process

A loan officer will complete the application form and collect all information necessary to begin pro­cessing the loan. Discuss the loan program and terms best suited to your financial needs with the loan officer. Then a loan processor will verify your loan application infor­mation. The loan processor assembles your documentation for submission and final risk approval to the underwrit­er, who then forwards your package to a closer to prepare the closing documents. If denied, a letter outlin­ing the reasons for denial is issued to you.

Loan Closing

When the lender approves your loan, it is time to close. Closing the loan and transferring the title to the property are the legal procedures that are handled by a real estate attorney.

How to Shake Off the Mortgage Mess

Where are the hosannas for Congress's handiwork on housing? Nobody expected it to solve anything, but it's worth understanding why.

By CNBC's count, the federal government has already made roughly $1.4 trillion available to refinance mortgage debt since the housing meltdown began. That makes this week's bill, which adds another $300 billion to the pot, seem a mite anticlimactic. The key word is refinance. Even if this money helps prevent foreclosures, it's aimed at houses that people want and that would likely resell even if foreclosed. Hardly touched is the real problem of tens of thousands of houses financed during the subprime boom that are unoccupied, unwanted, falling apart, built on spec, mortgaged on spec and abandoned on spec.

Washington has practically monopolized the business of financing and refinancing home sales for willing buyers and sellers, but it does nothing about the homes going rancid on the shelf, souring the value of the nation's entire housing stock and mortgage debt.

Maybe that explains why we're finally getting some takers for a demolition strategy as the least-cost route out of the subprime mortgage aftermath. The Economist, in its July 10 edition, endorsed a "wrecking-ball response." Bill Gross, the Pimco bond king, says in an ideal world Washington would "buy one million new/unoccupied homes, blow them up, and then start all over again." Even Larry Lindsey, the former Reagan economist, concludes that a larger bailout is nearly inevitable -- though his fanciful solution is to recruit 100,000 immigrants who would agree to buy $10 million worth of housing each.

A surplus of homes is the key liability dragging down much of the collateral underlying the financial system. Any Lindsey whimsies aside, have no doubt where many of these losses ultimately will land.

Take Fannie Mae and Freddie Mac, which owned 62,000 homes in the first quarter and were acquiring houses twice as fast as they could sell them. Fannie and Freddie now are statutorily backed by taxpayers, so taxpayers now are the real owners of nearly as many foreclosed houses as the rest of the country's 8,500 banks and thrifts combined.

And that's just the beginning. In seizing IndyMac, a California lender in subprime heartburn country, the FDIC put its fingers in its ears and simply declared a moratorium on new foreclosures. Taxpayers will end up owning a lot of derelict homes through FDIC too.

None of this is reason to disregard glimmers of a bottom in housing. Housing markets are local. Even with an unprecedented 19 million empty single-family homes, apartments and condos hanging overhead, some 500,000 new houses a year continue to be built and sold -- because people want houses where they want them. *If you are building a new home, be sure to get a home warranty. Home warranty coverage is often of great value to a house, whether or not it is being sold.

The problem is the other places.

In California's Central Valley around Stockton, one household in 25 received a foreclosure filing last quarter. In the Inland Empire, one in 32 did. In greater Las Vegas, one in 35 households received a notice. We use household advisedly since nobody lives in many of these homes or collects the mail. Close to the ground, a growing suspicion is that the numbers even understate the troubles because banks see no point in foreclosing on empty, unsellable homes. Local governments complain of not being able to find anyone to dun for upkeep because the owner has absconded and yet no bank has filed foreclosure papers.

To be sure, the disaster is not entirely confined to vast tracts of exurban no-man's lands in the Southwest. The Star Ledger of Newark, where home prices once were rising 50% a year, describes 66 Norwood Street, financed by Countrywide for a speculative buyer who rented it out while never making a payment on her $325,000 mortgage. Fannie now owns the house, which burned twice between a final order evicting the tenant and Fannie's crew arriving to board the place up.

Multiply that by entire neighborhoods of brand new, large homes, built on cheap land far from town or amenities in the subprime ground zero of California, Arizona and Nevada. Failing an improvement on God's damp squib of an earthquake in subprime country yesterday, some sort of strategy is going be priority one for the next president.

So far, Washington has put its political capital into trying to refinance salvageable homes for unsalvageable homeowners, when a relevant policy would consist of judiciously buying unsalvageable houses and demolishing them. Fannie and Freddie's strength is housing market software: They could be put to work devising a least-cost, maximum-bang strategy for demolishing unoccupied homes to preserve as much value as possible for the homeowners and mortgage creditors who remain.

Of course, right now their overriding imperative is to avoid recognizing losses rather than rushing toward them -- which is why Fannie and Freddie should be nationalized (and later privatized). One way or the other, taxpayers will end up owning thousands of unwanted houses. It's not too soon to begin limiting our costs.

By: Holman Jenkins, Jr.
Wall Street Journal; July 30, 2008

GMAC's Other Headache

The one bright spot for GMAC used to be its auto-loan business. Now, that, too, is dimming.

Declining values of gasoline-guzzling pickup trucks and sport utility vehicles are looming over the lender, adding to its existing problems with souring mortgages through its ailing home-loan unit. This leaves GMAC in worse shape than rival Ford Motor Credit.

And it is unlikely GMAC can look to General Motors Corp. for help. The auto maker, struggling to cope with a steep decline in sales of pickups and SUVs, announced production cuts Monday. The company has a 49% stake in GMAC after a consortium led by private-equity group Cerberus Capital Management LP, parent of Chrysler LLC, bought 51% of GMAC in 2006 for about $14 billion.

GMAC, set up in 1919 to provide financing to buyers of GM vehicles, made $50.8 billion in loans for new and used vehicles last year. The lender, which once propped up GM with steady profit during economic downturns, has been weakened by the billions of dollars it pumped into its struggling mortgage subsidiary, Residential Capital LLC. GMAC posted a net loss of $589 million in the first quarter, compared with a loss of $305 million a year earlier.

In addition, falling demand for pickup trucks and SUVs, which make up a sizable chunk of GM's production mix, amid $4-a-gallon gasoline, should further hurt GMAC. The value of gas guzzlers has dropped sharply in the used-car market. GMAC is saddled with inventories of thousands of these vehicles as they come off leases or are repossessed from owners unable to keep up with payments.

Typically, GMAC takes back vehicles at the end of leases and sells them to dealers at discounted prices based on estimated values. On average, auction prices on trucks and SUVs fell by more than 20% in May compared with year-earlier prices, according to data from Manheim, a wholesale auction company for used cars.

"GMAC is monitoring the market conditions closely," a GMAC spokeswoman says.

A representative of Cerberus said GMAC's management is "working hard to strengthen the balance sheet and emerge from this unprecedented economic environment better positioned for the future."

GMAC also faces rising delinquencies in loan payments and increasing numbers of repossessions as owners of pickups and SUVs owe more on the vehicles than they are worth.

Another worry is GMAC's high level of borrowings compared with its equity cushion. One measure of GMAC's leverage ratio, as calculated by Moody's Investors Service, shows that the company has 23 times its net worth in borrowings. Ford Credit has 11 times its net worth.

GMAC's leverage "is an aggressive measure and has negatively impacted GMAC's credit standing," says Mark Wasden, a debt analyst at Moody's.

GMAC has a hefty cash balance of $14.84 billion on hand, but steeper-than-expected declines in residual values mean GMAC won't ride to GM's rescue during this downturn.

By: Aparaijita Saha-Buena
Wall Street Journal; June 26, 2008

Many Worry About Mortgage Payments

WASHINGTON(AP) -- One in seven mortgage holders worry they may soon fail to make their monthly payments and even more fret that their home's value is shrinking, according to a poll showing widespread stress from the nation's housing crisis.

In an ominous snapshot of how the sagging real estate market and sour economy are intersecting, the Associated Press-AOL Money & Finance poll also found that 60 percent said they definitely won't a buy a home in the next two years.

That was up from 53 percent who said so in an AP-AOL poll in September 2006. Only 11 percent are certain or very likely to buy soon, down from 15 percent two years ago.

In today's economic climate, even holding onto what they already have is a challenge and source of distress for significant numbers of homeowners. Nearly three in 10 said they are concerned their home's value will decline over the next two years, while 14 percent of mortgage holders expressed worry that they might miss payments in the next six months.

One nervous homeowner is Daniel Gallego, a warehouse worker in Stockton, Calif., who said in a followup interview that he may have to sell his house at a big loss.

"We may have to move in with my wife's parents or my parents," said Gallego, 30, who has two young children. "I could pay off some debt, then we could rent, and maybe buy another house in a few years."

He said the rising cost of gasoline and other expenses have made his adjustable rate mortgage unaffordable. Because he doesn't expect his home's value to recover soon, he said he may be better off moving now before his rates rise.

One in 10 have adjustable rate mortgages, half the number who said so two years ago. These mortgages generally start at a low interest rate and are later adjusted to market conditions - which has often meant steep, unaffordable boosts that have forced many to refinance or even lose their homes.

The growing reluctance to dip into the housing market seems to stem partly from worry that housing prices will continue falling - good if you're buying a house but bad if you have to sell one.

The number envisioning falling prices in their area has grown to one in four, while four in 10 think prices will rise, a decrease from two years ago. Expectations for rising prices are highest in the South, with Westerners likeliest to predict they will drop.

"This is a great time to buy, but not necessarily to sell," said Robert Jackson, who lives in a two-bedroom house in Ferguson, Mo., with his wife and four young children. He said he would love to purchase a larger home, but can't because even if he found a buyer, he would probably lose thousands on his house, which he bought less than two years ago.

"We're just going to have to slap a Band-Aid on it and stay here until the market gets a little bit better," said Jackson, 30.

Underscoring the public's unsettled feelings, the number saying local housing prices are about right has fallen to 35 percent. Half say homes are overpriced - especially in the Northeast - while those saying housing is underpriced have doubled to one in 10. Midwesterners were likelier than those in other regions to feel this way.

Some areas of the country buck regional trends. Laurie Jensen, a single mother of three, struggles to make payments on her home in Whitehall, Mont., by working as a seasonal road construction flagger and at times collecting unemployment. She said she'd like to move outside of town, but the area is popular and prices have surged.

"Things are pretty crazy," she said. "Places I don't consider that great are really expensive."

The public anxiety is in reaction to an economy that is veering toward recession and losing jobs even as the housing market sputters badly. Foreclosures have soared to record highs, mortgage rates have increased, sales of existing and new homes have fallen and home values have dropped.

Gus Faucher, director of macroeconomics for Moody's Economy.com, a consulting firm, estimated that 9 million homeowners owe more on their home than its worth. He said his company believes home sales are at or near bottom and home values will continue to fall until early next year.

Even so, he said, many people bought their homes before the run-up in values that started around 2001 and remain in good shape.

"So the value of your house goes down temporarily," he said. Unless the homeowner must sell now or can't afford the payments, "that doesn't have that much of an impact."

The poll also found:
The biggest worriers are those expecting to buy soon. Of that group 43 percent frets that their home's value will drop in the next two years, compared with 25 percent of those not expecting to buy soon.

Fifty-nine percent think now is a good time to buy.

Half think this is a very tough time for first-time buyers, an increase from two years ago. Nearly two-thirds think it's harder for first-home buyers than it was five years ago.

The AP-AOL Money & Finance poll was conducted from March 24-April 3 by Abt SRBI Inc. It involved telephone interviews with 1,002 adults nationwide, for whom the margin of sampling error is plus or minus 3.1 percentage points.

Included were interviews with 769 homeowners, for whom the sampling margin of error is plus or minus 3.5 points. The margin of sampling error for other subgroups was larger.