Unless you've been on a vacation island for the last month, you've noticed something brewing with the mortgage industry. A CNNMoney.com article hears these questions asked recently by consumers, based on industry professional interviews:
Will I still be able to get a mortgage?
If you have an adjustable rate mortgage due to adjust in the next few months, this is a big worry. The consensus is: if you have decent credit, then you shouldn't be shut out of a mortgage.
The current problems appear to be with 'no documentation' and jumbo loans (over $417,000).
Another question on the public's mind:
Can I still get a no-down payment loan?
Short answer: yes, if you have good credit. Alex Stenbeck of the Behind the Mortgage blog, says that the problem is with subprime loans. He explains that this is where most folks get confused:
People tend to incorrectly group no-down payment mortgages together with subprime loans, Stenback said. But there are still programs that can get prime borrowers into mortgages with little or no money down to begin with...
Taking a look at Stenbecks blog, he quotes an article in the New York Times that has a great graphic to walk you through the mortgage mayhem we're currently experiencing. Stenbeck calls it: The Rube Goldberg Machine That is Our Mortgage Finance System. The NYT describes the mortgage perfect storm like this:
An unfortunate combination: more loans in default (many borrowers were never in a position to pay them off), risky bets worth billions made by some investors (deals now gone sour), and the reversal of the housing boom.
OK, repeat that in one breath and you deserve a cookie this afternoon! It really helps to take a look at the graphics to get clarify all the factors in play here.
I'm feeling adventurous, so I'll try and boil down their very colorful graphic in to less than 1000 words:
- The 1990's the mortgage industry relaxed their qualification methods, reduced down payment requirements (to 0 down in many cases), pushed lower rate introductory ARMs and this got many people out of their comfort loans into loans they probably should have been getting into
- The mortgage shellgame - loans are no longer being held by the original lender as they once were. Now, only about 1 in 5 are actually retained by original lender. Investment banks are buying up the mortgages and turning them into mortgage-backed-securities
- Feeding frenzy of mortgage investors - much of the cream of the crop is sold as AAA rates bonds and backed by the principal and interest payments of the underlying mortgages. The riskier BBB bonds backed by riskier mortgages are being reintegrated into higher rated securities CDO's (collaterized debt obligation) and re-rated as AAA (even though they contain large ratios of the riskier mortgage holdings).
- Several hedge funds heavily invested in these risky securities are becoming in jeopardy.
My head is spinning, but I do feel like I understand the mortgage meltdown a little better now.
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