Reset Fears Last year, speculations about ARM resets began to circulate, causing homeowners to be in a state of fear and confusion. It has been estimated that more than $200B of home adjustable rate mortgages are expected to reset into more demanding interest rates. Even worse, this will be mostly felt by owners of subprime properties. And as for Fannie/Freddie backed loans, an estimated $50B of such debt are expected to suffer from the same fate.
Finally, ARM resets are especially difficult for those who have taken out loans in 2006. Introductory periods for these mortgages general last for two years and by this year 2008 these loans are scheduled to have their initial adjustment take place. As many is sure to be aware of, the first adjustment is always the hardest to manage as they tend to be unusually higher.
Mortgage Rates Today 2008 came and the ARM adjustment luckily turned out better than most people feared. This is mostly due to the credit-market lubrication and remarkable interest rate cuts that the Federal Reserve provided. As a result, adjustment rates for these mortgages, including Fannie/Freddie loans, resulted to smaller resets and even lower rates for some.
Ways to Manage Fannie/Freddie Resets Of course, the fact that the much-feared Fannie/Freddie resets weren't as terrible as they were portrayed doesn't spell an immediate end to homeowners' problems. Many of them had been struggling even before the reset was scheduled to take place. This could mean two things: they couldn't afford their homes right from the start or something happened to make them unable to afford it at present. Either way, any unwanted changes on their rates could lead to foreclosure.
Send a Friendly Newsletter. Being the caring mortgage broker that you are, you can strengthen your relations with past, present, and prospective customers by sending them a friendly little newsletter that can help them manage Fannie/Freddie resets effectively.
Work out a payment scheme. If you can send your newsletter early enough, then maybe you still have enough time to put this suggestion to effect. People who take out mortgages should always have a detailed plan as to how they can pay it off. It would be even better if they have a target date in mind as this gives their plan direction.
Review current mortgage condition. Advise your clients to take stock of their current plight. Is their existing mortgage still helpful to them? If not, should they have their mortgage changed into a fixed or completely variable loan then? Or should they pay it off with a second mortgage? Encourage your clients to contact you so you can discuss their options with them.
Stay within budget. With Fannie/Freddie resets, there is all the more reason for people to further tighten their belts. Now is the time to stay strictly within budget in order to save enough money for possibly higher rates on their mortgages.
Pay as much as they can. Finally, use today's scenario to warn prospective clients about what happens when they opt to pay only the minimum required for an adjustable rate mortgage. If they pay the largest possible amount for their ARM, Fannie/Freddie resets won't affect them as much.
With these tips, you're sure to impress your clients not just with your wisdom but the amount of concern you've exhibited towards them as well.
Have you ever heard anyone in the mortgage industry mention these names before? Did you ever wonder who these people were that had so much to say about whether or not you would qualify for a mortgage?
Well, Fannie, Freddie and Ginnie aren't people, they are institutions. They are the shortened names for Fannie Mae (FNMA-Federal National Mortgage Association), Freddie Mac (FHLMC -Federal Home Loan Mortgage Corporation) and Ginnie Mae (GNMA-Government National Mortgage Association). They are the big three, and they buy the majority of mortgages for all homes across the nation.
In the old days, if you wanted to buy a house, you met with a local banker who went to high school with your Daddy, and he assessed whether you were worth the risk to lend you the money. His decision was probably based on his personal assessment and some bank guidelines.
These days, you can talk to practically any mortgage lender, they verify your life history and you find yourself owning a home. But you rarely make your mortgage payment to that original lender after an interim period. That's because lenders make most of their money by selling your loan. And more often than not, whatever company you make your payment to doesn't own your loan. It is the ?servicer? of that loan. It is called your servicer because it is simply servicing your loan for the institution that actually owns it.
What happens is your loan gets sold to another company that sells it to one of the big three, or sometimes the company you got your loan from originally sells it directly to one of the big three. Freddie, Fannie and Ginnie buy ?pools? of loans. Loans quickly become ?pooled? into groups of loans of similar size, interest rate and type. The servicer gets a monthly fee from the institution for servicing your loan and processing your payments. This fee is small (about 3/8 of a percent), but if your pool gets big enough, it can create a tidy sum of income when sold to Fannie, Freddie or Ginnie. There are companies that service billions of dollars of loans. You might have heard lately in the news that some of these servicing portfolios didn't perform. That's created a little bit of a headache lately in the mortgage world.
The entire system of mortgages (originators, brokers, banks) is designed to create these pools because so much income can be generated from servicing. When enough loans are made to create a pool, the company sells the loans to Freddie, Fannie or Ginnie, generating more income. This action in turn allows the company to make more loans, and so on and so forth. The whole process begins again.
Freddie, Fannie and Ginnie set underwriting guidelines for lenders to follow that will allow for lower risk loans. The foreclosures of late have caused these guidelines to become less lenient, and in general, more documentation is required to close a loan. The loans in the pools serviced have been reviewed to make sure they are compliant with the guidelines set forth.
So, now you know who Freddie, Fannie and Ginnie are. Mystery solved.
Both Scott Tucker & Kristin Abouelata - Home Loans are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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