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Showing posts from February 6, 2008

Occupancy Fraud and the Sub-Prime Melt Down

Alot of the media coverage of the subprime mortgage crisis has suggested that the "victims" have been poor and unsophisticated borrowers who did not understand the terms of loans that predatory lenders sold them. In truth, a large segment of these problem loans may have been made to more affluent, sophisticated (greedy?) borrowers.

When a borrower signs a loan application and closes on a mortgage loan, the borrower must swear that information provided to the lender has been truthful. To lie on a mortgage loan application in order to get a loan (or better terms on a loan) is FRAUD. It really doesn't matter what the loan officer tells the customer. It is dishonest and illegal.

One such fraud perpetrated on lender relates to occupancy. An investment loan almost always comes at a higher cost, with a higher interest rate, and requires a larger down payment than a loan for an owner-occupied residence.

These sorts of misrepresentations seem to occur most frequently with regard t…

More on HELOCS

Never mind that the lender might send a letter telling you that the size of your line of credit is going to be lowered, if you are even remotely considering a sale of your home and purchase of another, NOW might be the time that WANT/NEED to get that HELOC anyway.

With a slow market, there is just no guaranty that you are going to be able to sell your home in time to buy the next one. You might be able to offer to buy the next house contingent on the sale of yours, but there is no guaranty that the seller will agree, or that you will find a buyer who can fulfill the contract to buy yours. Mortgage markets are tightening for everyone.

You may need to tap into that built-up equity in your current home before you sell it, in order to buy the new one.

THE PROBLEM: Most mortgage lenders will not want to remortgage your house for you once you have listing on the MLS. As suggested by Dan Green at Mobium Mortgage, "If there's even a remote chance that you'll need your home's eq…

A Warning to those with Home Equity Lines of Credit

A new warning to anyone who has mortgaged property with a Home Equity Line of Credit.

Borrowers with Home Equity Lines of Credit (HELOC) loan on their property pay interest to their lender based on the average daily loan balance outstanding at an interest rate that varies from month to month, typically tied in some fashion to prime lending rates. Typically, all that is required in the way of minimum payment is the interest only. As interest rates rise, so do the monthly interest payments. We are all sensitive to the effects of interest rate changes on our monthly payments as we get billing statements every month and can see the changes every four weeks.

With property values declining in many locations nationwide (including some parts of Chicagland), a stealthier, and perhaps scarier problem is looming:

STANDARD HELOC loan agreements allow lenders to DECREASE the lines of credit available to homeowners if the value of the property declines. Borrowers do not get a say in the lender's …