Small Banks are Lending

Smaller banks and credit unions by in large are lending and making loans at a much faster rate than thier national rivals. Here are some tips and facts about how to go about getting that loan.

According to an analysis by The Wall Street Journal, U.S. banks posted a 7.5% decline in 2009 in total loans outstanding, the steepest percentage drop since 1942 (the data is based on information from the Federal Deposit Insurance Corp.). Consumer lending fell by 3.8% as roughly 7,200 banks and credit unions pulled back on mortgages, credit cards and other loans.
 
Nationally, thousands of banks and credit unions are starting to lend again after a period of “just-say-no”. The contrast is evident in the numbers: the largest 10% of banks by asset size shrank their consumer lending by 4.7% last year, while many smaller banks and credit unions continued to lend. Consumer loans grew nearly 3% at financial institutions that fall in the bottom 50% of the industry in assets.
 
More than 90% of the decline in loans outstanding occurred at banking organizations with more than $100 billion in assets, according to the FDIC, which includes Bank of America (BAC), J.P. Morgan Chase (JPM) and Citigroup (C). The analysis includes mortgages, credit cards and auto loans held in their portfolios and excludes products they sell off, such as government-backed mortgages.
 
Companies' appetite for different types of loans can change over time, so it is important to ask a lender what types of loans it is most eager to make. The trick to getting a good deal is to compare costs. Have a look at BestCashCow.com’s rates tables for Mortgage Rates here, Home Equity rates here, Auto Loan Rates here, and Credit Card rates here.
 
Tips from the Wall Street Journal article mentioned above can come in very handy:
 
“More than nine out of every 10 mortgages now being originated carry government backing, giving lenders few incentives to do anything unconventional. But if you have good credit and otherwise fit government standards, there are plenty of lenders happy to give you a loan”.
 
“The options are likely to be more limited for other borrowers, such as those whose loans are too big for government backing (generally, $417,000 to $729,750, depending where you live). Smaller lenders and credit unions often can be more flexible because they know their customers and local market better or may have a prior relationship with the borrower”
 
“Most borrowers now wind up with 30-year fixed-rate mortgages, but many lenders that hold loans on their books prefer to offer adjustable-rate loans to protect the bank against rising interest rates, which can eat into profits. Typically, the mortgage amortizes over 30 years, but carries a "balloon payment," which means the loan must be repaid or refinanced after three to five years. The bank typically will finance up to 75% of a home's value, with a 60% limit for larger properties”.
 
“Some lenders offer better terms to borrowers whose loans they consider low-risk. Certain banks will lend up to 95% of a home's value (instead of its standard 85%) if a borrower has a credit score above 700 and total debt doesn't exceed 25% of income, including the new loan. Payments must be deducted from an account at the bank”.
 
“Amid record credit-card delinquencies and tighter federal regulations of card-issuer practices, many companies have curtailed card offerings, raised rates and reduced credit limits.  Credit unions often offer lower rates than big banks, although their rewards programs can be less generous”.
 
“Car loans are gearing up again, but borrowers should prepare to pay up unless their credit scores are pristine. Lenders typically want a down payment of at least 10% to 15% and a 60-month loan term, with tougher terms for subprime borrowers”.

Shrinking Home Loans in New Plans from Federal Government

The Obama administration is always trying to think of new plans to help the mortgage industry. Will shrinking the home loans be an effective measure to take?

Now that the mortgage rates are beginning to increase, the federal government is looking for other ways to help troubled homeowners stay afloat and avoid foreclosure. One of the latest plans includes details that will help shrink the value of homes so fewer homeowners will be “underwater” in their mortgages and the ones who are still underwater will have a mortgage that is closer to the actual value of their home.

The Obama administration is setting aside $14 billion from the recent $75 billion foreclosure prevention program to help homeowners in this predicament. According to Trevor Hahn, the branch manager of Allied Home Mortgage Capital Corporation, the new plan will “help homeowners more than it will hurt homeowners.” He added that there are many homeowners in mortgage contracts who could benefit from having lower balances on their homes. The way the program is going to work is this: The government plans to pay mortgage lenders in exchange for lowering the balance of mortgages for homeowners who have been paying their bills on time. The lenders will also receive government money for reducing balances on home equity loans and second mortgages. The plan is also designed to give up to six months of financial relief to homeowners who are currently unemployed or negatively affected by the recent economic problems.

While this may sound like a great plan, critics of the administration’s loan modification program are not excited about it. Thomas Smith, president of Amerihome Mortgage Corporation, said their hearts are in the right places, but they have already messed up when it comes to the paperwork and other requirements. Supporters, on the other hand, thing the plan could help millions of Americans who want to realize the dream of owning their own home within their lifetime.

One story helps put this situation in perspective. Fred Peterson of Lynn, Massachusetts is underwater on his mortgage just like 15 million other American homeowners. He refinanced just three y ears ago and now owes more than $540,000 on a home that would only sell for about $350,000 these days. He says he just needs some “breathing room” so he can catch up on his payments. The administration’s new plan may just be that breathing room that Peterson and millions of others need in order to become current on their mortgage payments and pay off their home in a reasonable amount of time.

Do you think this new plan is worthwhile or is it set up for disaster? Let us know your thoughts below.

Don't Fall for These Home Equity Loan Scams

Home equity scams are abundant in the mortgage industry. Here are a few that you should watch out for.

It may be tempting to get a home equity loan to pay off some bills, do some remodeling or just to have some extra cash in your account. Many times, a home equity loan is the ideal way to fund these situations. However, you have to be careful because many people and companies are out to scam homeowners out of thousands of dollars. Here are some scams that have been going around for years that you should be aware of so you do not fall victim to them.

Balloon Payments
Balloon payments are not in themselves a scam, but the way a mortgage company charges you a balloon payment may be. There are several mortgage companies out there who claim they can "save you" from foreclosure. The way they do this is to refinance your home with lower payments each month that you can afford to pay. However, what they don't tell you (except in the very very fine print) is that you will be responsible for a balloon payment at the end of the loan term. This balloon payment will include all the money that you owe from paying the reduced payments over the years. If you cannot pay this payment, you will be facing foreclosure once again.

Stripping
Stripping is when a shady lender will tell you to "pad your income" when you are applying for a mortgage loan. These lenders are not concerned about you paying your mortgage. They couldn't care less about your ability to pay the monthly payments because they will just foreclose on your property. This goes for home equity loans, too. If you become a victim of this type of scam, your home equity can essentially be "stripped" and you will be left with nothing after years of trying to build it up.

Relinquishing the Deed to Your Home
If you are facing foreclosure and seeking help through mortgage lenders, some shady ones may tell you to simply sign the deed to your home over to them. This will be, according to them, just for a short period of time to help prevent having your home foreclosed upon. Unfortunately, once you sign the deed over, you may never get the home equity loan you were expecting from the company. What's even more is that the mortgage company may have borrowed against your home or sold it to somebody and you have no recourse because your name is no longer on the deed. You may be charged rent instead of mortgage payments and all of your equity is ruined. The company that now holds the deed may even have the legal right to kick you out of your own home.

In essence, keep these tips in mind to prevent yourself from falling prey to these scams: only agree to a loan if you have a stable income and you can afford the payments, read anything before signing your name to it and never cave to pressure from a company that wants your home's deed. Check with the Better Business Bureau and other resources before working with a home equity mortgage company to find out if they are reputable or if they have complaints filed against them.

Applications for Home Loans Continue Dropping

Subprime mortgages, the housing bubble and rising interest rates have plagued the industry. Now the number of loan applications is going down, too. How much more can the housing industry endure?

It’s no secret that the housing market has been in trouble for several months now. That manifests itself in several different ways. One of the ways is that there are fewer and fewer people applying for mortgages these days. According to a report in Reuters, the number of mortgage applications being submitted has declined for the third consecutive week. In fact, the demand for housing loans is at the lowest level it has been at in 13 years.

Analysts use the demand for housing loans as an early indicator of how the home sales are going to fare in the near future. If the decline in loan applications is dropping as much as it has been lately, analysts are concerned that the housing market may get even worse than it is now. The market is already vulnerable and it seems like there is setback after setback just making things worse. How much more can the current market take?

According to the Mortgage Bankers Association, there has been an 8.5 percent drop in the number of seasonally adjusted mortgage applications. This includes refinancing applications and purchase loan applications. These numbers show that the demand for housing is still fairly weak. Michael Fratantoni, the vice president of research and economics for the MBA, also said that the “abundant inventory” or homes causes potential buyers to think that there is no urgency in locking in their purchase price. They know there are enough available homes to go around and there will probably be one for the same great price or below if they decide to wait.

A main reason for the drop in application numbers is probably due to the increase in mortgage rates recently. The MBA announced that the costs for borrowing on a 30-year fixed-rate mortgage averaged about 5.03 percent in the week ending on February 19. That figure is nearly a tenth of a percentage point more than the average for the previous week for the same type of mortgage. The all-time low for mortgage rates was set nearly one year ago when they were 4.61 percent during the end of March. For a 15-year fixed-rate mortgage, the current rates are averaging about 4.35 percent for the week ending February 19. Those numbers are up by about 0.02 percent from the week before.

If you have been considering buying a home recently, have you been putting it off for any particular reason? If so, what are your reasons? Are the mortgage rates going too high? Are you taking time to make your decision because of the number of homes available on the market today? Let us know your reasons below.

Intro to Texas Lending Equity Laws

While this article is geared for people residing in Texas, others may be interested in the very different lending laws found in that state. By and large, the loan process, rules and regulations vary very little from state to state and if you can make a loan in Florida you can make one in California. Hawaiians also have a few laws that lenders need to be well versed in, but for this article we are going to just focus on Texas.
Texas equity laws are just convoluted enough that most homeowners themselves are not aware of them, or if they were at one time well versed in the laws, they usually forget by the next time they refinance.
I also know that there are a number of lenders who will not make loans in Texas due to those very laws, or if they will do the loans it has to be originated by a specially trained loan officer living in Texas. Although I live in California and worked in California while I was a Mortgage Consultant I worked for one of the few companies that allowed its loan officers to do business in Texas. Now, having said that, most loan officers will do one loan there and swear never to do another, leaving it up to more experienced loan officers.
For awhile I specialized in lending in Texas so I am going to try to give you a run- down of some of the differences in lending practices for the state. Most of the confusion has to do with current equity laws that are fairly new and many homeowners have had no reason to familiarize themselves with those laws. Prior to 1997 Texas homeowners were not allowed to take equity out of their house. Home equity loans were not possible there so that means you cannot take out a second loan to help with the purchase of the home. It all has to be done with a single loan and cannot be used to have any cash out or pay off any debt. That was pre-1997. Post-1997 is a different story altogether.
Now that 1997 has come and gone homeowners are allowed to do some of the very basic things that people in every other state has been doing for decades. People in Texas can do a cash-out loan. They can pay off debt with their refinance. If they need a second to buy the home it is now possible. There are some tight restrictions though.
Part two on Texas Equity
Now I will get into the specifics of the laws governing borrowing in Texas. Let me say first off I am not a lawyer but I do know through trial and error how to borrow in Texas. When you do decide to borrow keep these laws in mind and speak to a lender physically in Texas and they will have a lawyer who really knows the law.
First of all, if one is doing a cash out refinance, one can only borrow up to 80% of the value of the home, and no more. That restriction right there will derail a good many loans, especially non prime deals. And the term for that kind of loan is Texas Equity. Borrowers in Texas are able to borrow more than 80% of the home’s value within certain guidelines. Let’s say it is 2009 and you are doing a refinance and need to borrow 85% in order to make the deal work. That is all well and good as long as you have never, in the past, taken any cash out for any reason.
If you did a refinance in 2006 and took out $3000 to remodel your bathroom, you cannot exceed 80% in your new loan, nor can you ever exceed it in the future. If you bought the home in 2000 and had to have a second to get into the home, you can never go above the 80% ceiling to refinance again. So, even though Texas Equity is allowed, it’s restrictions make it tough going. When you are doing a refinance it is a good idea to provide you lender with past closing statements to show that cash was never taken out of the home. If your docs show that four years ago you did a refi and you wound up with $287 in cash out, you now fall into the new rules governing Texas Equity.
These laws were put into place to protect borrowers, but many of them feel that they are too restrictive, inhibit borrowing and can lead to disasterous consequences. Shouldn’t Texas catch up with the 49 other states that allow them to use equity built up in their home? Of course you hear in other states of the nightmares created by equity stripping, and that is part of what Texas is trying to prevent. But what about the family that needs to refi out of an ARM before it resets to a level they cannot afford? They may need to go o 87% to make the loan, but Texas says you can’t. Laws put in place to help borrowers are now a thorn in people’s sides as they try to salvage their lives amidst our disasterous economy.
The company I worked with had their own guidelines for lending in Texas. One had to do with having a lawyer review any loan to check for violations of Texas Equity laws. There is also a 12-day quiet period (Texas laws) that begin when the lender mails out disclosures, and no one can contact the borrower in any way during those 12 days.
There are also some other laws governing home equity loans, like the one that restricts borrowers to one home equity loan a year, or one that says borrows can only have one home equity loan open at a time. So much for the people who would need a first a second and a third to get into a house , like many Californains.
Lenders are prohibited to charge more than three percent of the principal amount of the loan. At first look this sounds great. It sounds like the law is protecting borrowers from predatory lending practices. In reality it prevents lenders with inexpensive homes to get a loan. There are a number of expences involved in closing a loan and can seem insignificant when the loan is a half a million dollar loan. However, if you have a $25 thousand dollar home those expenses easily can add up to more than 3% of the loan amount and you cannot make the loan, even if the borrower wants to. I have had this problem before and you get the lender to slash expenses, you get the title company to cut its fees and you even hit up the appraiser to cut his fee, and when it’s all said and done you still can get below 3%.
There are other laws we won’t get into, those will be handled by the lender and the lawyers who are doing the deal. The ones I have covered I learned by experience, took my lumps, took notes and jumped back in the fray. I soon became the authority on lending in Texas and all the states loans came to me. 
If you are a homeowner in Texas make sure you talk to a lender in Texas, and I don’t mean a national lender that can lend in the state, but actually talking to someone in Texas, that way you know you are talking to someone who knows the laws.
Good luck and happy financing.