Southeast American Financial Group Inc.'s Blog

Subprime Changes the Lending Landscape

The effects of the subprime crisis are becoming clearer with each passing day. According to the Wall Street Journal, tightening guidelines and fewer available products are creating challenges for borrowers with credit issues. If you're thinking about taking on or refinancing a mortgage, your credit score will be crucial when it comes to obtaining the best loan program available.

For homeowners with ARMs that are scheduled to reset anytime within the next 2 to 24 months, the challenges are even greater. With higher credit standards and tightening guidelines, you may not even qualify for a refinance if you wait too long. At this stage, a fixed-rate product may be your best chance at creating real financial stability before your loan resets and your payment adjusts. Even if your mortgage has a pre-payment penalty, in some cases, not all, it may be less expensive to absorb the penalty now and refinance into a more stable mortgage.

In the event that you now owe more on your home than it's currently worth, or if you don't have enough equity to sell your home and cover expenses, help could still be available – but you have to act now. Meet with a mortgage professional right away and see what options you have.

By Janette Davis, MBA, CPA
President/Certified Mortgage Planner
Southeast American Financial Group, Inc.
Office: 954-967-0584
Fax: 954-967-0585
E-Mail: jdavis@southeastamerican.com
Website: www.southeastamerican.com

The purpose of this communication is not to alarm you but to alert you to drastic and irreversible changes currently taking place in the mortgage market. If you or anyone else you know will need mortgage financing in the next 18 months, you need to read this!

Within the past month, American Home Mortgage and its wholesale counterpart, American Brokers Conduit, became the latest casualties of the credit crisis. Last year, this company closed over $58 billion in home loans. Despite being, by all accounts, a well-run business, market conditions forced them to file for bankruptcy, leaving billions of dollars in loans in their pipeline unable to close. Tens of thousands of borrowers have now been left without financing as a result of companies like this going under.

With over 130 national lenders closing their business in the last eight months, this is no longer simply a subprime lending issue. The credit market is experiencing unprecedented turmoil. According to Federal Reserve Chairman, Ben Bernanke, "Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing."

What does this mean to consumers?

Potential borrowers cannot wait any longer. For those who are considering buying a home, be aware that the volatile credit market can change overnight, leaving fewer options available to borrowers attempting to qualify for a mortgage. This is even more true for those looking to refinance. With decreases in home values and fewer available mortgage instruments, delaying any longer could get significantly more expensive.

Borrowers with applications in process must not delay. Applicants should work with their mortgage professional to complete all paperwork quickly, especially on non-conforming, stated-income, and stated-asset loans. Even minor delays can result in funds being yanked at the closing table!

Sellers can no longer be reluctant to accept offers or reduce prices. Tightening credit and diminishing mortgage products will continue to reduce the pool of qualified buyers. This, along with the increase in national housing inventories, means now is not the time to hold out for the "best" price possible.

Buyers with credit issues or who have difficulty providing required documentation can no longer sit on the fence. If market conditions change, buyers who qualify for a loan today may not qualify a few weeks from now for the same exact loan. Just this week, many lenders have stopped offering No-Doc loans, and some lenders have even pulled back on all forms of stated loans. As market conditions continue to change, a buyer's pre-approval status can disappear even more quickly, delaying or spoiling the deal.

Subprime and Alt-A refi candidates, especially those with ARMs scheduled to reset over the next 12 months, need to act now - even those with a pre-payment penalty. ARMs borrowers struggling with monthly payments now might be shocked to know that monthly payments can double in some cases once an ARM resets.

What does this mean to you?

If you or someone you know has an ongoing real estate transaction, I would be glad to help. Please call me right away. As an educated mortgage professional, I will utilize my experience and resources to help you and your loved ones to navigate through these turbulent times. Don't leave your future in the hands of some random mortgage provider. I'm local, accountable, and you can trust that I'll do everything in my power to help you succeed. I can be reached at 954-967-0584 X307

In theory, finding the right mortgage should be a fairly simple process. After all, there are literally hundreds of options to choose from, including Fixed Rate, Adjustable Rate, Hybrids, and Interest Only loans, to name just a few. Mortgages are available with interest rates ranging from an introductory rate of 1.00% to well over 10.00%. Borrowers, in some cases, can even finance up to 100% of their home's value and, in some cases, their closing costs as well.

In reality, however, this vast selection of mortgage products has made choosing the right one a challenging endeavor, to say the least. Without sound advice from an experienced mortgage professional, consumers are at the mercy of a complex financial decision that could impact their lives for years to come. At a minimum, home buyers should consider the following questions before putting any mortgage into place:

· How long do you anticipate living in your new home?

· Do you foresee any changes in a few years, such as expanding your family or having children go off to college?

· Do you anticipate any adjustments in income due to  promotions, relocations, retirement, inheritance, or pensions?

· Are you expecting a change with regard to your investments?

· When it comes to investment strategies, are you conservative, aggressive, or somewhere in between?

As a mortgage professional, it's my job to match clients with the mortgage product that best serves their changing goals and needs. I take pride in helping each and every client succeed in managing in most cases their largest financial asset.

Will you lose your home?

Absolutely not. You remain the homeowner and you can stay in your home for as long as you desire. In effect, you are being paid to live at home. The program is regulated and insured by the Federal Housing Administration. By law, you can't be forced to sell or

move, and no payments are due on the Reverse Mortgage until you no longer live in your home.

If no monthly payments are required, how is the Reverse Mortgage paid back?

This isn't a home equity loan. The loan is paid back when you move out of the home, sell it or all the people on the title have passed away.

What if you want to leave the home to your kids?

It's your home. You can still leave it to your children or to anyone you choose. Your heirs can pay off the loan any number of ways, such as selling the home, refinancing the debt or using other funds to pay off the Reverse Mortgage.

How much cash can you get?

The amount depends on your date of birth, value of your home and lending limits in your area.

What are the costs?

As with any loan, there are closing and other costs, all of which can be paid with the money generated by the Reverse Mortgage but there are NO out-of-pocket costs to the homeowner.

Will this loan affect your Social Security or Medicare benefits?

HECM payments do not affect Social Security or Medicare benefits because those benefits are not based on the assets of the recipient. However, the federal Supplemental Security Income program, requires beneficiaries to keep their liquid resources under certain limits.

This is only just the beginning. If you want to find out more, you should schedule a consultation with knowledgeable and experienced Reverse Mortgage advisor. You are encouraged to consult with family or a financial advisor too. If you have further questions, you are welcome to contact me at 954-967-0584.