Archive for mortgage
March 14, 2008 at 12:34 am · Filed under mortgage
What do you think it’s better? Fixed Rate Mortgages or variable rate ones?
Each of them has its own advantages and drawbacks, and surely there’s a risk to take when we decide for one type or mortgage or another.
Fixed rate mortgages are good if the rates have a growing trend: why not make a deal at the current rates, and pay less than some other people who make their deals in a year from now? The advantage is that you pretty much know all the variables: you know what your average income is, and you know how much the mortgage will cost you per year, so you can make some long term calculations and budgeting.
Variable rate mortgages can be good if the market becomes more and more crowded, thus more competitive, and all major players decrease the rates, in order to attract new clients. Then you won’t be happy to pay a fixed rate, when you see the rates dropping every year.
Anyway, before you decide, you’d better do your homework right and compare as many options as you can, to see what’s best for you. This can be done online, on websites like MoneyMagic, where you can apply online to get your free mortgage quotes.
November 19, 2007 at 4:11 am · Filed under guides, mortgage
mortgage
6 Ways to Generate 100 Free Mortgage Leads in 20 Days
Tip! If you are renting and are applying for a mortgage to purchase your home, you will need the names and address of your landlords for the past two years.
Could you use some free mortgage leads? If you’re new to the mortgage business or a veteran loan officer who is a little short on cash, you’ll be happy to know there are several ways to generate free mortgage leads.
That’s right. Even if you’re dead broke, you can still generate good, quality, pre-qualified mortgage leads at no cost. Just keep reading and I’ll share 6 powerful steps to generate free mortgage leads.
Tip! Compare offers from several home equity lenders or mortgage brokers to determine which second mortgage is the best choice.
1) Create a powerful unique selling proposition (USP)
If you don’t currently have a unique selling proposition – Find one. What makes you different from all the other mortgage lenders out there? What makes you better? Why should a prospect use you over a competitor? Answer these questions and you will have your unique selling proposition.
This is an important first step because you will need a strong USP to generate free mortgage leads using the tips below.
2) Find joint venture partners
Offer a referral fee of $100 to $1000 for any referral resulting in a funded loan. Offer this opportunity to all friends, family, neighbors, anyone and everyone.
Can you call the past clients of a co-worker to generate referrals? If so, you could split the commissions generated from your efforts.
3) Give free seminars
Arrange to present your USP to others to produce referrals. Here are some ideas:
1) Contact the sales manager at real estate offices to present your USP at a realtor sales meeting
2) Contact human resource managers. Give a free seminar to employees of a company.
3) Present your USP to CPA’s or financial planners to create referral relationships.
Tip! Don’t pay money to enter into a mortgage affiliate program. If a mortgage affiliate program asks for money in order for you to post their link on your web site, it could possibly be a Multi Level Marketing, or MLM, program, which are normally not successful in mortgage affiliate programs.
4) Contact divorce attorneys and offer your services to their clients.
5) Contact relocation companies
Do you need some ideas for how to successfully approach these professional? If so, visit the following web page and download three sample approach letters:
http://www.Mortgage-Leads-Generator.com/a/refiletter.htm
4) Write Articles
Write articles about mortgage products, rates, no closing cost loans or no money down financing. Then submit your articles to article directories with your contact information at the end of the article. Here are the article directories I recommend:
About: http://sbinformation.about.com/library/blsubmission.htm
ezinearticles.com
goarticles.com
articledashboard.com
searchwarp.com
contentdesk.com
isnare.com
buzzle.com
ideamarketers.com
businessknowhow.com
articlesphere.com
amazines.com
web-source.net/syndicator_submit.htm
Try to include the following elements in your articles:
Tip! ) Singles: The singles payment option requires the buyer to make a one-time single payment that is typically financed as part of the mortgage amount.
1) Useful information – a must!
2) A text link to your site.
3) A lead generating offer relating to the subject mater in your article. Provide a link to a web page on your site where the reader can get a complementary special report or something else of value.
If you submit just two articles a week to the sites listed above, after one year you would have 100 articles all over the internet. If you publish useful information, these 100 articles could easily generate hundreds if not thousands of free mortgage leads daily.
5) Start your direct mail campaign
Borrow money from a friend or family member and start a mail campaign. Use a credit card or borrow a credit card to get started.
Tip! Choose a mortgage affiliate program that offers a variety of ways of reaching potential customers. Some mortgage affiliate programs require a banner link on your web site.
If you borrow money or a credit card, offer that person a split of the commissions generated from the project.
6) Cross sell
Once you get a client using one of the 5 tips above, impress them with your extraordinary customer service skills and generate a testimonial. Use that testimonial to create a referral relationship with:
* HR manager at their work
* Listing real estate agent and that agents entire office
* Selling real estate agents and that agents entire office
* CPA
* Financial planner
* Insurance agent
* The seller of the home on a purchase transaction
* Title Company
* Real estate appraiser
* Neighbors
There you have it. Use these 6 tips to help jump start your mortgage business. For more helpful mortgage lead generation tips and advice visit the Mortgage Marketing Blog at: http://Mortgage-Marketing.Mortgage-Leads-Generator.com
Tip! Choose a mortgage affiliate program that offers excellent affiliate support and communication. A good way to test the waters as to how good the mortgage broker or lender’s communication and support is with their affiliates is to simply email an inquiry.
Hartley Pinn has recently created the “Mortgage Leads Generator” Training Course to teach mortgage loan officers 10 proven strategies for generating more than 71 mortgage leads per day.
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November 16, 2007 at 8:52 am · Filed under mortgage
Did you know that internet can offer you many free solutions to your needs? From software to food recipes, from dating to financing advice, everything is there for you if you know how to look for it.
If you need free advice on UK Commercial Mortgages, you can find it on Money Magic, where you can find out everything you want to know about types of mortgages or mortgage guides, and where you can apply for free commercial financing advice. Their specialists will work for you, in order to deliver you the best advice, and to find for your the loans with lowest interest possible in your situation.
If you don’t like to write, you can call them (there is a phone number provided on the website) and get your free quotes with no obligation for you.
If you want to play around with the figures by yourself, you can use the free mortgage calculator and have fun while you also get familiar with the kind of money you may qualify to get.
November 6, 2007 at 4:12 am · Filed under mortgage
mortgage
A Career in Mortgage Banking
Tip! Choose a mortgage affiliate program that offers a variety of ways of reaching potential customers. Some mortgage affiliate programs require a banner link on your web site.
Do you want a rewarding career that will make some descent money? Are you good with numbers? Are you good with paperwork? Do you like anything that has to do with money? If you answered yes, you may be interested in a career in mortgage banking. The best place to get an education on mortgage banking is at The American School of Mortgage Banking. They guarantee success to all of there students.
The American School of Mortgage Banking can teach you all there is to know about mortgage banking. They have several courses that teach you all aspects of mortgage banking. The American School of Mortgage Banking offers a variety of courses at varying times. Some are as short as a few hours, and some are as long as a few days. Upon completion of their courses, The American School of Mortgage Banking also offers job placement and job assistance for as long as you need it. They will also write you a letter of recommendation for future possible employers. Lastly, you are offered free re-attendance to any courses you have completed, for those of you who would like a refresher to any courses you have completed
Tip! ) Singles: The singles payment option requires the buyer to make a one-time single payment that is typically financed as part of the mortgage amount.
One of the first mortgage banking courses you should take is in loan origination and loan processing. The first part of this course is an introduction to mortgage banking. It then moves to how to figure the total loan amount and loan payment. Next is buyer approval and qualifications. Finally, this course goes over the different types of loans available and how to do the paper work for them. At the end of the course you will receive a loan origination and loan processing certificate of completion.
Tip! Organize your current account statements for any loans you have. This includes student loans, car loans, and your present mortgage.
The next mortgage banking course you should take is conventional underwriting. This mortgage banking course will teach you the art of underwriting a conventional loan, appraisals, loan approval, liabilities, loan approval amount based on income, and the figuring of a down payment. Upon completion of this course you will receive a conventional underwriting certificate of completion.
Another similar mortgage banking course you should take is FHA underwriting. This mortgage banking course teaches you how to get a HUD loan approval, appraisals, insurance requirements, and FHA loan closing procedures. At the end of the course, you will get an FHA underwriting certificate of completion.
Tip! Compare offers from several home equity lenders or mortgage brokers to determine which second mortgage is the best choice.
The American School of Mortgage Banking offers so much to its students. They guarantee that upon completion of there courses you will be ready to get out into the work force and join other mortgage bankers. You will leave knowing that you are going to be successful and you will also have a great deal of knowledge to take with you.
Jay Moncliff is the founder of http://www.1stonlinebanking.info a blog focusing on the Banking, resources and articles. This site provides detailed information on Banking. For more info visit his site: Banking
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November 1, 2007 at 4:11 am · Filed under guides, mortgage
mortgage
7 Cheap and Easy Ways to Generate Mortgage Leads
Tip! Consider a mortgage affiliate program only with a broker or lender that is honest. When you make your initial email contact with the company offering a mortgage affiliate program, don’t be afraid to ask for references of others currently involved in their mortgage affiliate program.
Need a few more loans but don’t have the cash to do some serious marketing? Have no fear. In this issue I am going to reveal 7 fantastic ways to generate leads almost for free. These methods are super cheap (most are free) and work like gangbusters.
How do I know? Because I shared them with my coaching clients and they had excellent results.
These 7 methods are just a few of the over 30 cheap marketing methods I share in one lesson of my 24 lesson Jump Start Your Mortgage Career E-Class. This new class is for any loan officer who is new and struggling or any verteran that just needs a little help with their marketing. It took me over 2 years to create the content for this 12 week, 24 lesson class, and I can honestly say there is nothing available out there that compares to this class.
Tip! Make sure you discuss with your loan officer what goals you are trying to accomplish with this equity loan. (Your answer will dictate which type od second mortgage makes sense, ie.
If you could use more loans, then do yourself a favor and check it out for yourself. http://www.mortgagebrokertraining.com/jumpstart.html
Here we go…
Cheap Mortgage Lead Generation Tip # 1. Join an Association
People join associations for one of three reasons:
Social – they want to build or maintain friendships and influences that may have taken years to build;
Promotional – they want to offer their own products or services to others in in a cost effective and positive way;
Educational – they want to see what their competition is up to, and find out about the latest developments within their industry
Grow your network and your database by joining groups of already established people. By socializing with people who have something in common with, it makes it easier to generate business. People like to do business with people they like and trust. Most people like others who have the same interests as they do.
Cheap Mortgage Lead Generation Tip #2: Use Book Stores
One of the questions I keep asking all my coaching clients is “How can you tell if someone is getting ready to need a mortgage? What do they do? How do they act?”
Tip! Choose a mortgage affiliate program that offers excellent affiliate support and communication. A good way to test the waters as to how good the mortgage broker or lender’s communication and support is with their affiliates is to simply email an inquiry.
This is the million dollar question. If you can answer this question, you can easily be rich in the mortgage business. By being able to identify that they want a mortgage before they start looking for one, you can get a jump on all the other loan companies. This is one area of our business that still annoys me. Most other businesses, have a way to identify when someone will need their service and can market to them accordingly. Like when someone buys a new home, they most likely will be buying furniture, blinds, home accessories, etc. So if we were selling any of these items, all we need is a list of new homeowners to market to. And that list is easily available. But how the heck do we figure out who is “thinking” of getting a mortgage?
The answer one of my coaching clients came up with was that they might go to the bookstore or library to read books on home buying, or mortgages, or real estate in general. And that’s true. Every bookstore has a real estate section. And most of the books are for consumers who are buying and selling real estate.
So my next question is, “Now that we have identified what they do, how do we get our message in front of them?”
Tip! Don’t pay money to enter into a mortgage affiliate program. If a mortgage affiliate program asks for money in order for you to post their link on your web site, it could possibly be a Multi Level Marketing, or MLM, program, which are normally not successful in mortgage affiliate programs.
And my client came up with this simple method: Go to the bookstores and libraries and insert a business card into each book.
After doing it for a couple months, he came up with some simple observations:
First, he learned that the best place to put the card was somewhere in the front. Try for the first chapter because not everyone reads the whole book.
Second, pick the books with the best covers and graphics inside- they sell the best.
Tip! Compare offers from several home equity lenders or mortgage brokers to determine which second mortgage is the best choice.
Third, not all books sell and some are sent back to the publishers.
Fourth, having a USP on the card helps boost response.
Fifth, it takes about 10 minutes per bookstore.
Sixth, he averages 3-4 calls a month, and one loan per month.
Seventh, he now has his assistant do it. And she goes once a week.
Eight, the people who call are in search of more information, so offering them unbiased advice and more resources really turns them on. If you have the time, and are brave enough to be seen doing it, try it and see what results you get. I wanted to test it in my market. So I went to three bookstores and put in about 120 cards. I got 2 calls, and one of them is a very serious prospect. If I do it more often, I have no doubt that it would work for me as well.
Tip! Organize your current account statements for any loans you have. This includes student loans, car loans, and your present mortgage.
Cheap Mortgage Lead Generation Tp #3: Orphan Files
When a loan officer leaves a company the clients he/she brought to the company are called orphans. These clients now belong to the company. Ask your manager to see if you can contact any orphan files in your office to see if they need any mortgage or real estate help. Be nice enough, and they will allow you to add them to your database.
Cheap Mortgage Lead Generation Tip #4: Tradeshows
Another coaching client of mine goes to tradeshows. But not the ones related to our business. He goes to unrelated trade shows: electronic shows, design shows, car shows, and his favorite: women’s trade shows.
Tip! ) Singles: The singles payment option requires the buyer to make a one-time single payment that is typically financed as part of the mortgage amount.
Most of the time, he is the only mortgage company there. And he is averaging 2-3 loan applications per show. The trick is to tie in your business with the show. If it is a car show, you can advertise that you can help anyone buy any car in the place.
If you can pre-approve someone at a car show for a cash out refinance, they can go and buy that hot car they have been salivating on for the last 2 hours. Instant gratification.
Cheap Mortgage Lead Generation Tip #5: Join A Local Real Estate Investment Group.
Every major city has one. And they are full of people buying and selling houses. They need money to buy houses, and they need money to help others buy their houses.
Tip! If you are renting and are applying for a mortgage to purchase your home, you will need the names and address of your landlords for the past two years.
Cheap Mortgage Lead Generation Tip #6: Realtor Open Houses
Stop by at realtor open houses on the weekends. Offer to leave some financing materials.
When you get to know a realtor, you can offer to do open houses for her where you sit in the house instead of her. It is not a fun way to spend an afternoon, but you might get some good leads out of it.
If you decide to go this route, make sure the house is in a well trafficed area and easy to get to. And make sure the agent does some advertising and lends you signs and balloons. You do not want to sit in a house, where no one shows up because it is hard to find or no one knew about the open house.
Tip! Fourth step is optional; you can apply for a mortgage after bankruptcy even with bankruptcy discharged yesterday and just about any time you want.
Another tip is to meet the neighbors of the home you are holding open. See if they know anyone wanting to move or buy. Chances are someone will know of a family wanting to move into the neighborhood.
Cheap Mortgage Lead Generation Tip #7: Realtor MLS
Want a source of thousands of people who will be getting a mortgage within the next couple months?
It’s sellers. And the Multiple Listing Service used by Realtors is full of them. Do a search of homes for sale, get the owners’ name from the tax records and you have yourself a good prospect list.
Mail them something about you or an offer for free information. Call them if you can get their phone number and they are not on the Do Not Call list, or just drop by their house if you have the guts.
Tip! Choose a mortgage affiliate program that offers a variety of ways of reaching potential customers. Some mortgage affiliate programs require a banner link on your web site.
This is exactly what one of my coaching clients does. He calls Realtors who have listings and asks them if he can market his services to the home sellers. Many Realtors say yes. When they do, he contacts the sellers, and tells them that their realtor said it was ok to call on them.
He tells me the majority of home sellers he talks to are willing to talk to him and he gets several loans a month using this trick.
Mortgage Refinance and Home Loans – Ameriquest Choose AmeriquestMortgage.com to find a great mortgage. Ameriquest provides home mortgage loans, mortgage refinancing, and debt consolidation services.
If you liked the above lead generation tips and would like more, check out my Jump Start Your Mortgage Career E-Class today. As I said these are just a few of the dozens of cheap lead generation techniques I share in one lesson of the course. The other lessons cover every aspect of mortgage marketing that you need to suceed in this business.
Ameen Kamadia, “The Millionaire Loan Officer” is a mortgage consultant, coach and trainer. He still does loans in his free time. To learn more visit http://www.mortgagebrokertraining.com
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October 30, 2007 at 3:53 am · Filed under bankruptcy, guides, mortgage
bankruptcy
Mortgage After Bankruptcy: These Steps Could Help
Tip! Get a referral. If you know someone who has filed bankruptcy, don’t be afraid to ask them whether they felt their lawyer handled their case well.
If you want to increase your chances of qualifying for a mortgage after bankruptcy, here are some steps you can take:
First, if you plan to apply for a mortgage after bankruptcy, you will want to have any inaccurate or obsolete negative information on your credit reports corrected or removed. This can help increase your credit score.
Also, you will want to establish some new accounts, and pay them in a timely manner over time. If you’ve paid the accounts on time for about 18-24 months since your bankruptcy, this should help rebuild your credit – which can be a plus when applying for a mortgage after bankruptcy.
Next, you will want to work with an experienced mortgage broker. Why? Because buying a home is probably going to be one of the biggest investments you’ll make. You will want to have an experienced professional guiding you through the lending process – especially when it comes to applying for a mortgage after bankruptcy.
A mortgage broker typically has access to dozens of lenders and will probably have a good idea of which ones will (and will not) approve you for a mortgage after bankruptcy. In addition, they will be able to tell you what to expect in terms of the financing process.
Tip! Have derogatory credit items removed from your credit report. For the items charged off in your bankruptcy, you will need to send a copy (not the original) of your bankruptcy discharge papers to all 3 of the credit bureaus asking them to remove these inaccuracies.
So how do you find a mortgage broker? One way is to to ask friends or real estate agents for a referral. Once you have a few names, set up an appointment to interview each mortgage broker.
Among other questions, you will want to know if they have successfully been able to get other individuals a mortgage after bankruptcy. You also want to make sure they are licensed.
Tip! Pay all of your bills on time. Bankruptcy is a means to financial recovery.
Another question you will want to ask is what type mortgage loan (A, B, C, or D) the mortgage broker thinks you can qualify for. Why? The lower the grade of the loan, the higher the interest rate. This is an important consideration when applying for a mortgage after bankruptcy.
In addition, there are other important questions you will want to ask a potential mortgage brokers – ones that could help you save money and/or increase your chances of qualifying for a mortgage after bankruptcy. While there isn’t enough room to cover them here, I go into detail on them in After Bankruptcy Credit Solutions.
Tip! Why doesn’t everyone just call bankruptcy when everything gets too hard. Put simply, your credit is ruined.
Also make a point to bring your financial information with you when you meet with a mortgage broker. For example, you should have your income and expenses available as this will help the broker determine the loan amount you may be able to qualify for when it comes to a mortgage after bankruptcy.
Generally speaking, most lenders will allow you to get a home loan with a payment of up to 28% of your gross income. So if you make $4,000 per month, that would be $1,120. But keep in mind that this just an example. Again, a good mortgage broker can explain the criteria that each lender has.
If you have copies of your credit reports from each of the major credit reporting agencies (Experian, Equifax, and Trans Union) this will help also. Your credit report will play a major role when it comes to qualifying for mortgage after bankruptcy.
On that note, if you want to increase your chances of qualifying for a mortgage after bankruptcy, make sure that any inaccurate or obsolete negative information is removed from your credit report. This is important for two reasons: (1) It can mean the difference between qualifying or not qualifying for a mortgage after bankruptcy, and (2) if you end up qualifying for mortgage after bankruptcy, any inaccurate or obsolete negative information on your credit report could cost you up to $1,000s or even $10,000s in additional interest.
Tip! Everyone will know I’ve filed for bankruptcy. Unless you’re a prominent person or a major corporation and the filing is picked up by the media, the chances are very good that the only people who will know about a filing are your creditors.
How do remove any inaccurate or negative information from your credit report, so you can improve your chances of qualifying for a mortgage after bankruptcy? There are specific steps you need to take. While I cover them in After Bankruptcy Credit Solutions, there is not enough room to go into detail here. Just remember that ideally you want rebuild your credit history before applying for a mortgage after bankruptcy.
By the way if you think that removing inaccurate or negative information from your credit reports takes a long time, I have good news. There is a way to have it removed in as little as 72 hours – the service is typically not available directly to consumers. In After Bankruptcy Credit Solutions I show you how to find this type service if you are trying to qualify for a mortgage after bankruptcy.
In this article we touched on two important steps you can take if you plan on applying for a mortgage after bankruptcy: Correcting or removing any inaccurate or obsolete negative information from your credit reports, and finding a mortgage broker to guide you through the lending process.
Tip! I’ll lose everything I have. This is the misconception that keeps people who really should file for bankruptcy from doing it, says Chris Viale, chief operating officer of Massachusetts-based Cambridge Credit Counselling Corp.
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Copyright © 2006 Innovative Solutions Publishing, Inc. All rights reserved.
The company and product/service names referenced in this article are the trademarks, registered trademarks or service marks of their respective owners. None of the owners have sponsored or endorsed this article.
DISCLAIMER:
This information is designed to provide only a general overview of the subject matter herein.
This information is provided with the understanding that neither the publisher nor author is engaged in rendering legal, accounting or other professional advice. If legal or other expert assistance is required, the services of a professional should be sought.
Neither the publisher nor author shall be liable for any loss or damages, including but not limited to special, consequential, incidental or other damages, caused by the information contained herein.
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About the Author: R. Lawrence Anderson is author of After Bankruptcy Credit Solutions, which shows individuals how to qualify for credit and loans after bankruptcy – including how to qualify for a mortgage after bankruptcy.
October 28, 2007 at 2:40 pm · Filed under mortgage
All businesses run on information. Now more than ever, information is crucial for a successful business. Banks and mortgage companies are not an exception to this rule: in order to be able to offer people loans tailored for their needs, a solid marketing background is required, as well as thorough market research and in-depth analysis of the customer profile.
Because of the personal nature of loans and mortgages, an excellent and permanently updated direct marketing mailing list is a must for every respectable player in this market. Such a list would save the bank a lot of money and time, by avoiding undesirable returns of mailings and by allowing a direct contact with their customers and prospects.
The use of mortgage intelligence is beneficial for homeowners, who can choose from a broad range of loans, suitable for practically every need. But this knowledge does not come by itself, therefore it is very important that banks work with very accurate data, to avoid the GI-GO effect (“Garbage In – Grabage Out” is a marketing principle which emphasizes the importance of working with high quality data, for getting high quality results). Bad information in this domain leads to poor loans, thus decreasing credibility and leading to crisis.
The best solution for banks and mortgage companies is to hire specialists teams, like Red Clay Media, who offer full direct marketing services, from creative design, to consumer data and state-of-the-art marketing programs meant to optimize their clients’ results. Such teams would do the work efficiently, with less costs than a team of permament employees.
This is what specialists are for, isn’t it?
October 22, 2007 at 9:25 am · Filed under mortgage
Most people think of a mortgage when they buy a new home. This is fully understandable, if we think how expensive houses are, and how much cash we are going to block by paying the whole amount in advance.
What some people don’t know, is that they can appeal to the FHA (Federal Housing Administration) to get a FHA loan for buying their desired house. The FHA also allows homeowners to obtain a FHA loan refinancing, thus making it possible to lower their interest rate and their monthly payments.
Advantages of taking a FHA mortgage:
- Usually, FHA mortgages do not require more than a 3-5 percent down payment. This amount does not need to be secured as the homebuyer’s own money.
- FHA mortgages have no mortgage value cap. It means that the only restriction when you get the money is the credit applicability.
- FHA closing costs can be financed into the total amount of the mortgage and paid off accordingly, so you won’t have to pay any additional amount at closure.
For the conditions to qualify for a FHA loan, or for other FHA mortgage questions, you are welcome to get in touch with the specialists from FHA Research Center, who will make it clear for you if and how you can get your FHA loan.
September 11, 2007 at 8:34 pm · Filed under insurance, mortgage
The private mortgage insurance (PMI) industry can trace its origin to the early years of this century and the activities of title insurance companies in New York State.(1) The state legislature authorized the issuance of mortgage guarantee insurance in 1904, but the law permitted insurers to guarantee the payments only on mortgages owned by the institution that originated the loan. In 1911, New York amended the law to permit mortgage insurers to purchase and resell mortgages. To enhance their ability to sell mortgages to investors, insurers guaranteed the property title as well as the loan.(2)
Until the Depression, rising real estate values made it possible for most mortgaged properties that were in default to be sold without a loss. This experience reinforced a widely held perception that insuring mortgages was a low-risk business. But the sharp decline in real estate values in the early years of the Depression–together with the low capitalization, questionable business practices, and weak regulation of the PMI industry–resulted in the collapse of the industry.
Government efforts to revive the housing industry during the Depression led to the establishment by the Federal Housing Administration (FHA) of the Mutual Mortgage Insurance Fund to provide mortgage insurance on FHA loans.(3) After World War II, the federal government’s role in providing insurance on mortgages expanded with the creation in the Veterans Administration (VA) of a mortgage insurance program for veterans.(4)
FHA and VA home loan insurance programs apply to a wide range of prospective homebuyers, but both programs have significant limitations. The FHA, for example, limits the size of the mortgages it will insure. The VA programs guarantee only a portion of the loan amount up to a congressionally established ceiling and are available only to veterans. In addition, the property and credit underwriting standards of both the FHA and VA exclude some prospective borrowers.
Among the steps lenders can take to mitigate credit risk is the requirement that borrowers whose mortgages have high loan-to-value ratios obtain private mortgage insurance.(8) PMI reduces credit risk by insuring against losses associated with default up to a contractually established percentage of the claim amount (see box, “Claims under Private Mortgage Insurance”). Defaults on these loans may result in a loss to the insurer; therefore PMI companies address credit risk in many ways in pursuing their business strategies:
* First, a PMI company may simply not insure a particular type of mortgage contract or a mortgage secured by a specific type of property, ceding that business to competitors.
* Second, in determining whether to insure a particular loan in a chosen line of business, PMI companies act as a review underwriter, evaluating both the creditworthiness of the prospective borrower and the adequacy of the collateral offered as security on the loan. They will deny insurance to prospective borrowers judged to impose undue credit risk on the insurer and lender; lenders, of course, are free to extend credit to such borrowers, but they must do so without the protection of PMI.
* Third, insurers may underwrite some mortgages more strictly than others and thus limit their exposure to losses.
* Fourth, they may charge a higher premium to insure riskier mortgages, although state regulation can limit or set the premiums charged for different types of mortgage insurance.
* Fifth, the PMI companies can limit the extent of their coverage of losses, either directly (by limiting the proportion of the mortgage insured) or by using reinsurance or pooling arrangements.
* Sixth, PMI companies can mitigate credit risk through credit counseling and early intervention once a borrower falls behind on payments.
In assessing the risk of the borrower, PMI companies evaluate both the ability and the willingness of the borrower to repay the mortgage loan. In determining the borrower’s ability to repay, insurers examine sources of income, debt-to-income ratios, asset holdings, employment history, and prospects for income growth. Insurers gauge willingness to repay primarily by reviewing the borrower’s credit history, including rent and utility payment records in some cases.
PMI companies also evaluate the characteristics of the property securing the mortgage. For example, because insurers generally perceive condominiums, manufactured homes, and properties with two, three, or four units as riskier sources of collateral than single-family detached dwellings, they usually treat them more stringently.
In addition, insurers consider the use of the property securing the mortgage. Dwellings to be used as vacation homes, second homes, or investment properties are generally underwritten to standards that are more strict than those for owner-occupied, primary residences. For example, the maximum loan-to-value ratio allowed for second homes is often lower than that for primary residences. In the extreme, some PMI companies have chosen not to offer insurance for particular uses of property, such as investment.
Furthermore, insurers examine the characteristics of the mortgage itself and adjust the price of insurance coverage accordingly. The loan-to-value ratio on the mortgage is a primary indicator of default risk; hence, the higher the ratio, the higher the premium.(9) Insurers also generally assess higher premiums on adjustable rate mortgages because these mortgages can potentially impose larger payment burdens on borrowers and because they have historically exhibited an inferior payment record.(10) Finally, insurers assess lower premiums on shorter-term mortgages because such mortgages result in a more rapid accumulation of equity by the borrower and therefore impose less risk of loss.
The PMI companies often use the credit underwriting guidelines of the two large government-sponsored mortgage agencies, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), when deciding whether to approve an application. Many lenders desire to sell their mortgages to these agencies, and both Fannie Mae and Freddie Mac require PMI before they will consider purchasing a low-down-payment mortgage. Thus, PMI companies have a strong motivation to assure lenders that mortgages insured by PMI companies conform to the standards set by these organizations.
When examining the risks described above, many PMI companies rely heavily on automated underwriting systems to identify and quickly approve applications that are acceptable for insurance. PMI employees further evaluate applications that fail the automated review. Computer automation of underwriting thus allows PMI companies to focus their efforts on applicants with marginal or unusual credit histories and other special circumstances and is generally perceived to have widened the availability of PMI.
A fundamental strategy of insurance underwriting is to diversify risk.(11) In the case of PMI companies, risk diversification means limiting geographic concentrations of insurance, dealing with numerous lenders, and restricting the insurance written for any one particular project. The importance of these tactics is illustrated by the large losses in the 1980s of PMI companies that had significant concentrations of insurance in “oil patch” states.
An integral part of the PMI business is the management of problem mortgages. Foreclosing on properties is both time-consuming and costly, and insurers attempt to avoid it. Insurers try to work with delinquent borrowers, mostly through lenders, but sometimes directly with borrowers. Insurers often stress counseling as a way of helping borrowers overcome payment difficulties. Insurers will try to determine the prospects for bringing the mortgage back to scheduled payments and may work out a plan with the borrower to do so. In some cases, however, encouraging borrowers to sell their properties may be the least costly method, for both insurer and borrower, of resolving problems.
September 7, 2007 at 2:55 pm · Filed under mortgage
With low interest rates beckoning and household income rising faster than inflation, the rate of homeownership in the U.S. is shattering records. But Fannie Mae, the nation’s largest mortgage investor, aims to put a set of house keys in the pockets of even more people.
For borrowers with good credit, Fannie Mae has lowered mortgage-insurance costs to levels not seen since 1994. As a result, borrowers can put down as little as 5% on a home and purchase only enough mortgage insurance to cover 25% of the loan (down from 30%). That’s a savings of$110 a year on a $100,000 mortgage. If you make a larger down payment, accept a slightly higher interest rate or pay several hundred dollars more in closing costs, you can save even more money on mortgage insurance over the life of the loan.
Paying a slightly higher interest rate to lower the cost of insurance has an extra advantage. Although your monthly payment is usually the same, “you’re paying more in interest, which is tax deductible, whereas mortgage insurance is not,” says Michael Licamele, editor of Mortgage Almanac, an online publication.
But it’s probably not worth refinancing to take advantage of the lower premiums, says Gene Eisman of Fannie Mae, because refinancing costs would be higher than premium savings. “You would refinance for the usual reasons and get this as an added benefit,” says Eisman. Fannie Mae’s program is limited to home buyers whose mortgages are approved by the company’s automated loan-underwriting system. You can find a participating lender by calling 800-732-6643. So far, at least one mortgage-insurance provider has lowered its charges, and others are likely to follow.
COPYRIGHT 1999 The Kiplinger Washington Editors, Inc.
COPYRIGHT 2000 Gale Group
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