It's hard to avoid negative news about the mortgage lending business. Defaults are rising, subprime lenders are closing shop, and fortunes could be lost as mortgage-backed securities go up in smoke. Sounds ominous, but how will these trends impact someone who's trying to buy or sell a home?
The first thing to understand is that lenders are moving back to basics. No- and very low-down-payment mortgages are available only to buyers with high credit scores. This means no more 100 percent and 95 percent mortgages for subprime borrowers.
Lenders are also backing away from low-documentation and stated-income mortgages. Many lenders now require buyers to have a cash down payment, good credit and the ability to verify income.
For years, home buyers stretched the price they could pay by using adjustable-rate and interest-only mortgages. Not long ago, lenders qualified buyers for these loan products based on the lower initial rates and on interest-only payments. Now, borrowers must qualify based on the fully indexed rate and amortized payment. In other words, qualifying for a home mortgage is more difficult.
Appraisals are also being scrutinized more carefully. If home prices have dropped in your neighborhood, the lender's underwriter might knock the appraised value down 5 percent and require you to increase your down payment accordingly. Some lenders now require two appraisals. Before the credit crisis, this was required only for loan amounts above $1 million. If your contract includes a contingency for the property to appraise for the purchase price, make sure that you have underwriting approval before you remove the contingency.
Tuesday, September 4, 2007
Subprime lending crisis changes buying, selling plans
The School of Hard Work Or Habituated Hand-Outs?
After signing the ‘American Dream Downpayment Act of 2003’ Bush added, “We want people to be fully aware of what it means to buy a home and what it takes”. The contradiction, if otherwise unclear, was that the President was signing a law that gave free money to those who could not afford to buy a home, and then he planned to educate.about the hard work, savings, and planning that is required to buy a home.
With Wall Street packaging and selling mortgage reset time bombs, rating agencies dolling out A's first and asking questions never, and many homeowners essentially signing future default notices before their new home purchases were finalized.
Bush's efforts at expanding homeownership since 2003 have gone unnoticed as the subprime debacle widens. Unfortunately, so have the costs of funding Bush's homeownership initiatives.
What should not remain unnoticed is the irony of it all: near the height of the housing boom Bush wanted to do everything he could to boost already record high homeownership rates, but now, as the boom turns to bust, Bush is eying a plethora of emergency policy moves to simply try and keep ownership rates stable.
You can not help but wonder whether or not many Americans would have been better off if Bush simply left the mortgage market alone.
read more | digg story
Monday, September 3, 2007
Indian GDP growth seems to be intact
The consequent rise in losses in the US-based funds resulted in panic and increased redemption pressure on international funds. With the underlying assets (read subprime loans) having become illiquid, redemptions had to be funded via the sale of liquid assets. This led to a sell-off in emerging markets
A more significant long-term impact of this could be the possibility of a slowdown in US consumption and the economy. The housing slowdown has already caused a dent in the home equity of US consumers. With higher oil prices looking a distinct possibility and declining real wages in the US, fears of a recession in the US economy have become real.
The latest US economic data hints at falling consumption of durable goods, residential investment in free fall, inventories on the increase and declining sales in the retail sector. The focus of the Fed is, therefore, shifting towards growth rather than inflation. So, there is a high likelihood of cut in interest rates in the US.
Against this backdrop, the India Growth Story acquires a much deeper meaning since India is one of the few nations whose growth is largely shielded form global upheavals, including that of the US.
Despite the US being our largest trading partner, the total contribution of the US trade in demand for Indian goods is around 1.7% of the GDP.
This implies that the high-paced growth seen in India since the past decade was sustained by internal demand. India Inc, which can expect to see demand-driven growth in the future. In short, future GDP growth seems to be intact.