The past five years has witnessed the institutionalization of sub-prime lending, with the locus of sub-prime loans shifting from small, independent lenders to large mortgage subsidiaries of banks (particularly national banks). Investment banks and their affiliates increasingly are not only underwriting sub-prime securitizations but originating loans in sub-prime loan pools as well.
Because sub-prime loans are generally more expensive than traditional prime loans, advocacy organizations nationwide are urging tighter restrictions on these types of loans. However, sub-prime loans are intended for borrowers who pose a greater risk to lenders, typically because of the lack of credit or previous credit problems. And, without the sub-prime segment, an increasing number of borrowers wouldn’t be able to secure purchase loans or cash out on their home equity with a mortgage refinance or home equity loan (second mortgage).
Like California, the state of Maryland is imposing excessively strict predatory lending laws including the imposition of a max 7.99% annual percentage rate (APR) limit which is lower than that of other states. Maryland also has a finder’s fee law that limits the fee a mortgage broker’s finder’s fee to 8% of the total loan amount brokered, and limits the fee on subsequent loans on the same property in a twenty-four month period to 8% of the amount by which the subsequent loan exceeds the initial loan.
Now, Maryland’s Montgomery County is in the news for its new predatory lending law that has at least 50 national and local lenders making a mass exodus out of that county due to the law’s vague language and exorbitant fines. Weighing the unknowns of the law, many financial companies have preferred to exit the market, meaning it could become increasingly difficult for consumers to find a lender for mortgage loans. Financial officials have said the law could make it difficult to find fixed-rate loans for many of the median-priced to more expensive homes in the county, since many of the lenders that bought such loans on the secondary market decided to stop doing business in the county. “The fixed rate conduit market has basically dried up because of this law,” said Kathleen M. Murphy, president of the Maryland Bankers Association.
This new Montgomery County law is on hold until November, which is a welcome relief to lenders and mortgage brokers as well as consumers seeking purchase loans, mortgage refinancing and second mortgages.
By: Maria Ny
Posts Tagged ‘Annual Percentage Rate’
Second Mortgage Fee Restrictions in Maryland
January 15th, 2010Fixed Rate Home Equity Loan Versus Adjustable HELOC: Comparing 2nd Mortgage Loans
January 5th, 2010
Many people think of a second mortgage as a fixed interest, lump sum loan. However, that is only one form of a second mortgage. A second mortgage is actually ANY secondary lien on your home–secured loan with your home pledged as collateral. Second mortgages are typically categorized as fixed mortgage rate home equity installment loans (HELs), also known as home equity loans, and home equity lines of credit (HELOCs) which are adjustable rate mortgages.
The Federal Reserve states that the home equity line of credit annual percentage rate (APR) is a variable rate loan based solely on a publicly available index (such as the prime rate published in the Wall Street Journal or a U.S. Treasury bill rate). The APR does not include points or other finance charges. The monthly payment amount will adjust as your loan balance and interest rate changes. Loan terms can be anywhere from 15 to 30 years.
HELOCs have a draw period, typically occurring in the first 10-15 years, with the remaining term on the loan referred to as the repayment period. During the draw period, you can draw out money on a revolving basis similar to a credit card without applying for a new loan, as long as the amount does not exceed the total amount of the original HELOC. During the repayment period you may be allowed to renew the credit line. If your plan does not allow renewals, you will not be able to borrow additional money once the draw period ends. Interest is paid only on the amount of equity you use.
A Home Equity Installment Loan (HEL) is a fixed mortgage rate loan, which means the annual percentage rate (APR) and monthly payment will stay the same for the life of your loan. The APR for a HEL takes into account the interest rate charged plus points and other finance charges. Loan terms can be anywhere from 5 to 30 years, but are typically 15 to 20 years. Unlike a HELOC, you get a lump sum for which you immediately start paying principal and interest. If you decide later that you need additional funds, mortgage refinancing or getting an additional loan with additional closing costs are your only options.
Which type of loan you choose depends on your financial needs. A HELOC may be best if you have a recurring need for money (e.g., home improvements or a home repair project that has anticipated additional expenses). The security of a fixed-rate 2nd mortgage will probably provide much-needed relief for a large one-time expense (e.g., debt consolidation).
By: Maria Ny
2nd Mortgage Home Equity Loans
January 1st, 2010
If you are trying to get the best possible rate on 2nd mortgage home equity loans, it’s a good idea to learn as much as you can about the process. You have probably seen countless websites that promise to provide you with a list of lenders that offer the best rates in your area. Many of these sites do nothing more than provide a listing of interest rates for national lenders.
A quality mortgage referral website will make it a priority to inform and educate a customer whenever and wherever possible. In the end, these quality websites want you to find the best possible terms for your 2nd mortgage home equity loans. Cultivating relationships with the top lenders, in the business of providing customers with the ideal combination of low rates and ethical business practices, allow consumers to find a good rate at the lowest cost possible in a more time efficient manner.
What to Look for in 2nd Mortgage Home Equity Loans
If you are not sure how 2nd mortgage loans work, they are designed to allow you to borrow against the equity in your home. The equity in your home is the difference between the fair market value of your home and the amount you still owe on the mortgage. Since homes typically appreciate in value over the years, you may have more equity in your home than you realized.
When evaluating 2nd mortgage home equity loans, it’s important to consider more than just the interest rate. You will also want to find out what the APR is for your loan. APR, or annual percentage rate, is a measure of the costs associated with the credit, including interest rate, points, and finance charges.
By: Kevin Benner