President Bush is promising to veto the current housing relief bill being considered by Congress right now. The bill is in the House of Representatives, and is unlikely to make it further, even if it does pass. The New York Times reports the details of the housing relief bill:

The House is expected to vote on the Frank bill, which would expand access to federally insured mortgages to help troubled homeowners refinance their loans, on Wednesday or Thursday. Under the bill, lenders would be required to reduce the principal balances for borrowers at risk of default. The troubled loans, typically with high, adjustable interest rates, would then be refinanced into more affordable 30-year fix-rate loans insured by the Federal Housing Administration. The new loans would be limited to 90 percent of a property’s value, based on an updated appraisal, and the government would retain a stake in any future sale of the property.

It doesn’t seem that onerous, really. Sure, it does put the taxpayers on the hook, but we’re already on the hook for the JP Morgan and Bear Stearns deal, and that doesn’t help any of the “regular folks.” Besides, I like the idea of limiting the amount of the loans, as well as having the government retain a stake in the property if it sells in the future.

One would hope, thought, that mortgage lenders would take a look at the situation and realize that it is in their best interests (for the most part) to avoid foreclosures and work with borrowers to re-do some of the loan terms. What would be really nice, though, is if mortgage lenders would get together and decide to offer some incentives for homeowners that made wise decisions and didn’t get into trouble…

Tags: mortgage loan blog, housing relief, home mortgage loan, housing relief bill,
second mortgages, mortgage lenders, President Bush

President Bush is promising to veto the current housing relief bill being considered by Congress right now. The bill is in the House of Representatives, and is unlikely to make it further, even if it does pass. The New York Times reports the details of the housing relief bill:

The House is expected to vote on the Frank bill, which would expand access to federally insured mortgages to help troubled homeowners refinance their loans, on Wednesday or Thursday. Under the bill, lenders would be required to reduce the principal balances for borrowers at risk of default. The troubled loans, typically with high, adjustable interest rates, would then be refinanced into more affordable 30-year fix-rate loans insured by the Federal Housing Administration. The new loans would be limited to 90 percent of a property’s value, based on an updated appraisal, and the government would retain a stake in any future sale of the property.

It doesn’t seem that onerous, really. Sure, it does put the taxpayers on the hook, but we’re already on the hook for the JP Morgan and Bear Stearns deal, and that doesn’t help any of the “regular folks.” Besides, I like the idea of limiting the amount of the loans, as well as having the government retain a stake in the property if it sells in the future.

One would hope, thought, that mortgage lenders would take a look at the situation and realize that it is in their best interests (for the most part) to avoid foreclosures and work with borrowers to re-do some of the loan terms. What would be really nice, though, is if mortgage lenders would get together and decide to offer some incentives for homeowners that made wise decisions and didn’t get into trouble…

Tags: mortgage loan blog, housing relief, home mortgage loan, housing relief bill,
second mortgages, mortgage lenders, President Bush

Among the problems that some home sellers are having right now is the issue of potential buyers being unable to qualify for a home mortgage. Indeed, since the subprime lending crash, mortgage lenders have been tightening their standards, both in terms of required credit score and in terms of debt to income ratio. I’d like to focus on debt to income ratio today.

What is your debt to income ratio?

The debt to income ratio is a number that mortgage lenders use to determine whether you have enough room in your income to take on the debt associated with a home mortgage loan. To figure this number, your total debt payments are divided by your monthly income. Consider:

You make $54,000 a year. This means that you make $4,500 per month. If you make debt payments (credit cards, loans, etc.) of $1,200 a month, you end up with 0.2667. Multiply that by 100 to get a percentage, and your debt to income ratio is 26.67 percent. A little more than a quarter of your income each month goes to debt.

28/36 qualifying ratio

There is another measure that is used to determine whether you qualify for a home mortgage loan. It is called the 28/36 qualifying ratio. This means that your housing costs (mortgage payment and interest plus insurance and taxes) should not exceed 28 percent of your monthly income. The 36 comes in when you add your housing costs to your debt obligations. That total should not exceed 36 percent of your monthly income.

For our example above, the housing costs should not be more than $1,260 a month. And when you add those costs to debt, the total should not be more than $1,620. (You can figure these numbers yourself by taking .28 and .36 and multiplying them by your monthly income.) You can see that using a 28/36 qualifying ratio, the example above would exceed the acceptable 36 percent limit. Adding the $1,200 to the $1,260 would be $2,460, or 54.67 percent.

Mortgage lenders, in some cases, decided not to go with the 28/36 qualifying ratio and allowed up to 50 percent of monthly income in some cases. Additionally, others got around the ratio with low teaser rate ARMs and interest only loans. In our example, in order to keep the total debt plus housing to under $1,620, the “creative” solutions would result in an initial monthly mortgage payment of between $300 and $400.

Of course, the fact that borrowers couldn’t afford the big increase in payments after the initial period ended is why we have the mess we’re in.

Tags: mortgage lenders, mortgage loan blog, home mortgage loan, subprime lending,
debt to income ratio, qualify mortgage loan, credit score