Mortgage Application Essay

Today I read an article on credit.com citing a New York Times story about Wells Fargo. It says that Wells has violated the Fair Housing Act by requiring applicants for their mortgage products to answer an essay question. Wells is in violation of the law because the question includes procuring about the applicants’ familial status.

Now, I am 100% for giving everyone an equal opportunity to get housing and loans, and I don’t think that one’s gender, age, family size, or other personal preferences/beliefs should be a determining whether or not to give them a loan, but I also don’t think that having an “essay” question is too bad of an idea.

I think that having applicants write an essay about what their intentions are with the home and why they feel like they are qualified for the loan can be a really good thing. Not only will it give lenders useful information about the applicants, but it also gives the applicants a chance to explain any previous derogatory credit information. Having this type of requirement will help make the loan application process more personal and, I think, it will reduce the number of defaults.

One issue with this, however, is that it will be difficult for non English native speakers to articulate their worthiness for loans. Therefore, the “essay” should be accepted in all languages and verbally, as well. I know this is a touchy subject, because it leaves room for there to be discrimination based on ones educational background, and that definitely needs to be considered. I do not have an answer for that at the moment, but I’m thinking about it.

What are your thoughts on the subject? Leave a comment and let me know.

Lending Regulations, Too Strict

Mortgage rates are still at record lows. But, what does this mean for all of us? Yes you can get a home or refinance your current mortgage at a phenomenal interest rate, but there is more to it. Why are interest rates so low right now?

Interest rates continue to fall because there are not enough people buying homes. With a lot of the “Bank Owned” inventory hitting the market, there just are not enough qualified buyers. There are not enough buyers because lending practices have become increasingly strict. I agree that the practices during the sub-prime mortgage boom were a major cause of the housing bust, but that doesn’t mean that all of the requirements were too lenient.

Yes, there needs to be good regulation in lending, but there are too many people, wanting to purchase homes, and in the past, would have been qualified to, that cannot. If our government really wants to get rid of all the inventory on the market and pull us out of this recession, homes have to be sold. For homes to get sold, there has to be qualified buyers, and with the lending standards the way they are right now, not many people, who do not already own one or two houses, can qualify.

Leave a comment and let me know what you think.

Will They Forgive Underwater Mortgages

This is a re-post of an article from Barron's.com by Randall W. Forsyth, which I thought was very interesting. I would love to hear your comments about it. http://online.barrons.com/article/SB50001424052970203667404575412951885388376.html?mod=googlenews_barrons

Buying Junior Liens

This article by by Colin Said of the San Francisco Chronicle tell the story of a couple who purchased a trustee's deed to a home in Santa Cruz at auction. Little did they know, they bought a second mortgage on a foreclosed house, that has no actual value.

The article states that Roberta and Randall Stand paid $97,606 for a house at a courthouse auction. They gave the home to their daughter and her fiancé, who in tern, spent over $13,000 fixing it up. Months later, a notice was posted on the door stating the home would sold at auction. After much litigation, Wells Fargo and the couple settled for an undisclosed amount.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/08/01/MNRU1EL529.DTL

This just goes to show that you really need to do all the research when you are buying anything from an auction as there are no guarantees to title or condition.

What do you think about this? Leave a comment and let us know.

Credit and Loans

In today’s economy and real estate market, the most important asset in securing a loan is good credit. But should it be? Does having good credit mean that you will make your payments on time and does having bad credit mean you won’t? Although one’s credit is definitely a good way of showing a person’s past actions, it may not be the best way of showing their future. I believe there needs to be less emphasis on credit ratings when it comes to loans. There are many items which can affect credit, and sometimes, they cannot be controlled. For instance, say you went to a medical institution for physical therapy. You paid your bill on time, every time. But, they say you owe them for a visit. They can attack your credit and you have no choice but to enter a dispute. This has a great negative effect on your credit rating. Furthermore, proving that you do not owe them any money can be extremely difficult. Now it might only be $200, but that can be the difference between a 10% and 7% loan rate.

Also, say you defaulted on a credit card 5 years and entered a rate reduction plan and have been paying your bill every month on time for the past 5 years. This still has an extremely detrimental effect on your rating. Personally, I think loan qualification should be based on more recent than past history and also, more on your income debt ratio. If you have $50,000 in the bank and you want a $20,000 loan, it shouldn’t matter what you did 5 years ago, as long as within the last 2 to 3 years you have been doing all the right things. I just think, as a society, we put too much emphasis on arbitrary numbers that are based on actions, which so nothing about how you carry yourself and your finances now.

Problems for Defaulters

I believe most of you know about the new Fannie Mae regulations for borrowers who purposely default on their mortgages. If you do not, one is quite simple. If you “strategically default” on your mortgage, you will have a seven year ban on new Fannie Mae loans. They are using this as a means of detouring borrowers who can afford to make their payments, but choose not to. This is becoming popular amongst borrowers who owe more on their home than it is worth. On top of the seven year ban, according to an article on seerpress.com, Fannie Mae might start attempting to recover some of their losses through the court system.

I don’t know how most of you feel about this topic, but I agree with Fannie Mae. I know these are hard times and it must be very difficult to be “upside-down” in your mortgage, but I don’t think that give one the right to walk away. We are all facing the same difficult times and why should we, as taxpayers, homeowners, and citizens, have to pay for one’s strategic default. When someone defaults, it is a cost to all of us. The value of the nearby houses goes down, which is a strain on the community and can cause further defaults. The huge numbers of defaults also make it harder for everybody to receive credit, as banks need to become more conservative. Personally, I think Fannie Mae is well within their rights to try and recoup their losses, however, there must be a thorough investigation to see if these cases are actually strategic defaults. Otherwise, they will be punishing those who are already in over their heads.

What do you think? Leave a comment and let us know.

Source: http://seerpress.com/fannie-mae-tightens-belt-on-borrowers-defaults/2697/

New Lead Paint Regulations

With unemployment rates still very high and the economy struggling, is now the best time to be adding to the cost of renovating one’s home?

According to an article by Inman News, the Environmental Protection Agency is removing a provision in their 2008 Lead Renovation, Repair and Painting rule. This stipulation allowed home owners and their contractors to disregard the rules of the act as a means of saving money, as long as they could prove there were no children under six years old or pregnant women living in the home. Now, whenever there is work done to a home built before 1978, the contractors must follow all aspects of the rule, regardless of the owners’ requests.

I know most of you are probably thinking this is a great thing. There will be less toxic substances in our homes and we will all be safe because of it. But I ask, is now the right time? With all the problems in the housing marking, is it a good idea to make the cost of renovation higher? These costs could deter many home owners from making key “efficiency improvements”, which can raise the value of the home and decrease energy use.

What do you all think? Would you prefer the added cost, or be able to your own decisions about what needs to be done with your house?