Do You Understand the Mortgage Market?
How Mortgages Work and What the Consumer Should Do Now in Today’s Mortgage Market?
The Mortgage industry is more complex than most people think, the basic practice sound simple. </strong
A consumer applies for a loan from a lender or bank. The lender or bank bundles that loan with other mortgage loans and sells them at a discount to an investment bank or banks.
The investment bank then packages those loans, which they sell to investors.
The system seems to be a win, win for everybody.
Consumers get access to money to purchase property or refinance their loan.
Banks and lenders pass off their loan risks to investment banks, and make their profit, allowing them to move on to making more loans.
Investment banks charge a fee to the lenders and banks to take their loans, and charge investors to buy those loans.
The investor gets a higher return on their investment, and the investment is backed by real estate.
Yes, the system in its basic form works fine, but then you ask what happened?
If the system has worked fine over the years, What when wrong?
Ask this question and you get an answer such as; it was the fault of the subprime market.
A subprime loan is a higher risk loan, banks and lenders fund these loans and charge a higher fee or rate to do the loan.
There are a number of reasons the subprime market collapsed, but let’s not get into that here. What you want to know is what do you do now?
First, you need to understand that the loans for new borrowers and borrowers who want to refinance must face the fact that it going to be an uphill battle to get a loan.
Loans that the borrower could have qualified for just a few months ago, they cannot get today.
The mortgage loan will largely depend on the borrower’s credit profile and the percentage of down payment the borrower will be putting toward the property, this is important so the borrower can apply for the right loan.
In today’s mortgage market, the loan standard are continuously changing.
So when a consumer applies for a loan and the bank or lender say that they are going to give them the loan, the bank or lender can change the standards of what they want from the consumer (borrower) to qualify for that loan as well as the interest rate.
The consumer needs to keep a constant track of the process and make sure they, the consumer, continue to meet the lender needs.
There’s also FHA, Government back loans, which can offer the borrower a loan with a lower credit score and lower down payment. These loans are sold to the secondary mortgage market.
The secondary mortgage is a variety of investment oriented institutions, which includes Fannie Mae (Federal National Mortgage Association or FNMA) and Freddie Mac (federal Home Loan Corporation or FHLMC)
At the closing of the transaction, the mortgage lender must tell you who will be servicing or administering the loan. This will be where the borrower will be sending the mortgage payment and who to contact with questions.
Keep good records, because mortgage loans may be sold to another mortgage servicer or another designated third party to administer the loan at any time.
At the start of each year, the mortgage lender must let the borrower know what portion of their mortgage payments for the previous year were applied to principal, interest, taxes and insurance.
If the mortgage was set up with an impound or escrow account to pay for taxes and insurance, the lender will, at the same time, let the borrower know if any adjustments in payments are needed to cover increases or decreases in insurance and taxes for the next year.
Do You Understand the Mortgage Market?
If your mortgage servicer has changed, take a careful look at your (consumer) mortgage statement. Watch for any mistakes.
Make sure taxes and insurance have been paid on time.
Keep any letters, canceled checks or documents relating to the mortgage and payments?
You (the consumer), if for any reason, has to dispute the mortgage statement, this paperwork will help back you up.
In Conclusion, today’s mortgage market has the lowest rates I have ever seen.
But getting a mortgage loan will not be that easy to get.
Just understand that it’s going to be work and a lot of follow up to make sure you get the loan that you applied for, and the lender had agreed to give you.
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