Mortgage - Home Loan, Commercial Loan

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Mortgage broker Ed Smith Jr. has been arranging home loans for 24 years and it’s never been tougher for him to close a deal than during the past few weeks of turmoil.

As more lenders collapse, the skittish survivors are raising their rates and changing the rules for getting a loan every few hours as they scramble to stay alive.

The upheaval has made it virtually impossible to secure financing for scores of borrowers who would have easily qualified for mortgages just a few months ago, creating a lending drought likely to deepen the housing slump.

“You have a ripple effect in the marketplace that is devastating,” said Smith, who is based in San Diego.

The fallout figures to be especially hard on homeowners facing dramatically higher payments on exotic mortgages that they obtained two or three years ago. These mortgages began with bargain-basement, or “teaser,” interest rates that offered extremely low payments so borrowers could buy a home and refinance later.

But falling home prices and stricter lending criteria have chained these borrowers to their current mortgages, lumping them with higher payments that they can no longer afford.

“I have three borrowers who desperately need to refinance and they aren’t going to be able to do it. They are going to lose their homes,” said Patrick Schwerdtfeger, a Walnut Creek mortgage broker for Windsor Capital.

Orange County mortgage broker Jack Williams has seen nine mortgage deals unravel in the past 11 days. He has since been able to secure financing for two of the borrowers, but “it doesn’t look real promising” for the others as lenders hunker down. “You can have one rate sheet in the morning, then it will change at noon and then it will be completely different again at 5 p.m.”

Borrowers with blemished credit records and inadequate paperwork to verify their incomes are having the most trouble getting mortgages.

But the lending crackdown also is affecting more creditworthy borrowers who need to borrow more than $417,000 so they can buy or refinance homes. These so-called “jumbo” loans are common in expensive housing markets like California, where a mid-price home sold for $478,000 in July.

In the past few weeks, the jumbo rates have climbed 0.75 to 1.25 percentage points above the rates for mortgages below $417,000. That higher premium has put the financing out of reach for many borrowers.

The daunting conditions are shriveling the incomes of mortgage brokers, some of whom are making about half the money that they were raking in a year ago, said Thomas Kaiser of Empire Equity Group in San Jose. “Normally, this would be a busy time of the year, but it’s completely opposite.”

The lending slowdown is bound to drive some mortgage brokers out of the industry and prompt layoffs in other related businesses such as title insurers, predicted Wayne Repich, founding partner of Vanguard Mortgage & Title Inc. in Concord.

“This is the worst I have seen in my 19 years in the business,” Repich said. “I’m usually an optimist, but this downturn really has me concerned.”

The difficult market conditions could work to the advantage of prospective home buyers who can negotiate the current lending gauntlet and qualify for a mortgage. As home sellers find it more difficult to find qualified buyers, people with financing should be able to negotiate better deals, brokers said.

“There are good bargains for people with reasonably good credit and a little money in the bank,” said Ilene Cohen, a broker with First Call Mortgage Inc. in Andover, Mass.

To qualify for a loan, borrowers generally need a credit score of 700 to 720 (on a scale of 850) and enough money saved for a 10 percent down payment. They also need to be able to verify their incomes.

These criteria aren’t radically different from the demands that lenders made through most of the 1980s and the first half of the 1990s. But the standards loosened as Wall Street hedge funds and other investment vehicles became more willing to buy high-risk mortgages bundled into securities. That emboldened lenders to offer 100 percent financing to borrowers who could list just about any income they wanted without any corroboration.

“We are now going back to the old days of lending,” Williams said.

While the more conservative approach eventually may bring more stability to the market, some observers say the shift is happening too suddenly.

“It would be like a credit card lender suddenly telling you that if your credit rating isn’t ‘XYZ,’ you have to cut up the credit card and pay all the debt you owe on it,” said Jonathan Logan, a Portland, Ore., broker with BetterWorldMortgage.com

Even borrowers with solid credit are feeling anxious during these uncertain times.

Bridget Hughes, 30, is prepared to put 20 percent down for a town house in the Seattle area and appears to have a good enough credit record to secure a $280,000 mortgage. But she still frets that the financing might fall through if there are any unforeseen delays in her application.

“I am nervous,” she said Friday. “When I made an offer on a home, I felt like coming into my office and shouting, ‘Look what I am doing!’ but decided not to. I am trying not to fall head-over-heels in love with this home in case something goes wrong.”

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NEW YORK (Reuters) — Luminent Mortgage Capital (LUM), which has struggled with liquidity problems because of investments in mortgages, Monday announced a bailout in which it would sell a majority stake in itself at a deep discount.

Arco Capital, a San Juan-based holding company, would be issued five-year warrants to buy up to a 51% economic interest in Luminent at 18 cents a share, about 74% below where the shares traded on Friday. The investment would give Arco a 49% voting stake.

In addition, Luminent said Arco would inject up to $60 million of new capital, buy $65 million of mortgage securities, and may buy other company assets. Four new directors will join Luminent’s board.

Luminent, a San Francisco-based real estate investment trust, this month suspended its quarterly dividend and said it received default notices for about $2.3 billion of debt as the secondary market for mortgage securities “seized up.”

The eal estate investment trust said it decided not to get shareholder approval for the warrants, saying any delay may “seriously further jeopardize” its financial viability.

“Even with the possibility of sizable dilution to existing Luminent stockholders, the transactions … create the best path both to attempt to protect current value and grow potential value,” Luminent Chief Executive Trez Moore said in a statement.

Luminent said it plans in the future to be a manager for asset-backed securities. It said the transactions require completion of final agreements and other conditions, and may not address its liquidity shortfalls.

The investment trust said it ended June with $9.5 billion of assets and $9.06 billion of liabilities.

Luminent shares traded Friday at about 70 cents in electronic trading. They traded as high as $10.84 last Oct. 9

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US mortgage lender Thornburg has sold $20.5bn (£10.3bn) of assets and reduced its borrowings amid a tough market for home loans.

The firm said the move would enable it to meet its financing obligations and continue mortgage lending operations.

Thornburg’s shares fell as much as 11.9% as the firm said it had written down the value of some home loans.

The US mortgage sector has been hit by defaults on sub-prime loans as higher interest rates have hit consumers.

The problems from the US sub-prime sector have rippled through the world’s stock markets in the past few weeks, leading to big share sell-offs.

“Investors’ confidence in the mortgage financing space is not doing well,” said Larry Goldstone, Thornburg’s chief operating officer, in an interview with CNBC television.

Last week, Countrywide, the largest mortgage lender in the US, said it had borrowed $11.5bn to continue making home loans, and a report in the Wall Street Journal on Monday said the firm had begun laying off staff.

Other mortgage lenders in the US, especially those in the sub-prime market, have been forced to refinance their debts.

On Monday Luminent Capital, a West Coast-based real estate investment trust, said it was facing losses of $2.3bn on defaulted mortgage obligations, and that the market in secondary mortgage debt had “seized up.”

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The recent turmoil in the financial markets has many readers a little nervous these days. Just reading the headlines can make you a dizzy. And with much of the bad news centered on the manic mortgage market, some homeowners are wondering: What happens if my mortgage lender goes broke?

With so many lenders in financial trouble, I’m starting to wonder what will happen to my current loan if my lender declares bankruptcy. I’ve been assuming that the lender would have creditors and that they would acquire the lender’s assets, including its outstanding loans. Is there a scenario where I would have to renegotiate my loan with a new lender? Should I start looking into other lenders now and, if so, how can I know how solvent they are?
– Kerri, Calif.

When a lender gets in financial trouble, it has a few choices. It can look for investors to put up more capital. If that doesn’t work, it can declare bankruptcy or sell itself another lender. Since the subprime lending mess began to spread late last year, dozens of lenders have been forced to chose one of these alternatives.

But it’s your solvency — not the lenders — that matter most to you. If you’re a good borrower, with a good credit and payment history, your mortgage is the most valuable asset a financially troubled lender has. In some ways, they need you more than you need them.

In any case, the terms of your original mortgage, like many such contracts, are almost always fixed and valid no matter who holds the loan. (If you want double check this and see what happens if your mortgage changes hands, dig out the original document and read the paragraphs on “sale or assignment” of your loan.)

Even lenders in good financial shape routinely sell off the mortgages they write soon after you’ve signed on the dotted lines. The reason is that, in some cases, there’s more money to be made in upfront fees than there is in collecting monthly interest payments. By selling off your loan, the mortgage “originator” gets fresh capital to lend to the next borrower — and then collect another round of upfront fees.

One of the biggest buyers of mortgages is Fannie Mae (the Federal National Mortgage Association) which was set up by the government to create a market for mortgages, thus freeing up more capital to lend to new borrowers. In some cases, when the loan conforms to established terms and conditions, mortgages bought and sold in the so-called “secondary market” are guaranteed by the federal government.

So your mortgage is like any other bond issued by any other borrower — whether from General Motors or the U.S. Treasury. The value of the bond may change based on the risk that the borrower may not pay it back. That’s why some of the riskiest subprime mortgages are selling for much less that the face amount.

But the terms of your mortgage — like those of other bonds — are fixed in the original agreement. That’s also why — even if your lender goes broke — you’re still on the hook to pay it back to who ever buys it.

There is one way the mortgage mess could create headaches for borrowers in good standing. Back in the days when lenders held onto the mortgages they wrote, you could be fairly sure the lender you borrowed from would be the lender you would deal with over the life of the loan. With mortgages now routinely changing hands, that’s no longer the case.

So you may not get the same level of customer service from the buyer of your loan that you know and expect from the good folks at Main Street Bank and Trust that wrote the original loan. In some cases, the company “servicing” your mortgage — collecting your checks, managing your escrow account — may not even be the same company that owns your loan. If the company providing this service gets into trouble, the quality of that service could be affected: monthly payments not applied properly, escrow payments on your behalf like taxes and insurance not made promptly, etc.

Unfortunately, you can’t choose who owns or services your loan. If your loan servicing company mismanages your payments, you may be able to get help from the consumer affairs department of your state banking department or attorney general’s office. Chances are, if you’re having trouble, so are other customers.

Reading through the Retirement Planning article, I am reminded of an online retiree medical cost exercise I recently completed at a well known investment Co. web site. In summary, the calculator for total out of pocket medical cost outlay (husband/wife age 60, retiring at 63 and living to 89) came to $550,000. Even bare bones retirement will be out of reach for many. I think the boomers will be wearing the Home Depot orange aprons until they literally drop.
– R. M. Wheaton, Ill.

We’re going to revisit this topic at msnbc.com in another retirement series later this fall, but one thing to keep in mind is the source of that $550,000 estimate. “Well-known investment companies” make their money by encouraging you to save and invest with them. We’re not saying it’s a bad idea to save and invest. And there no doubt about the huge medical costs retirees face in the last few decades of their lives. But the savings targets that some of these Web tools come up with are extremely conservative – to the point of overstating the problem.

First, you have to look carefully at the assumptions used in these Web-generated forecasts. The greatest single assumption — how long you’ll live — will have the biggest impact of any of the variables you enter into these savings calculators. But it’s also the variable that is impossible to predict. Many retirement calculators, for example, use an optimal life span as opposed to the more likely numbers found in the insurance industry’s actuarial tables.

It’s also worth considering that medical costs generally are almost impossible to predict. We may one day be able to analyze your genome and come up with a list of potential illnesses you may face in old age. But even then, the lifestyle choices you make will continue to have a big impact on your longevity and quality of life. Even if you somehow could magically predict how long you can expect to live, it’s tougher still to make an accurate forecast of the medical treatments you’ll need along the way.

There’s another alternative to saving up a half a million dollars to cover your health care costs: it’s called insurance. While it’s impossible to know what will happen to public health care insurance in the next 30 years, at the moment it looks like some form of public/private combination will prevail. So-called “Medigap” plans cover out-of-pocket costs not covered by Medicare. “Long-term” plans cover nursing home care.

By saving your own fund to cover health care costs, you’re in effect “self-insuring” your future expenses. It may be a lot cheaper to buy insurance coverage instead.