Mortgage Approvals Slump: Strict standards for Mortgage Approvals

The mortgage lenders are tightening their standards and guidelines to offer loans to the mortgage borrowers in the ailing mortgage industry.
Since January, the number of loans has fallen by 34 percent, all due to strict lending criteria.

So if you are a mortgage borrower and your mortgage loan application has been disqualified, don’t blame your mortgage lending company. Because, the entire mortgage market is collapsing and hence it is becoming difficult for the mortgage lending companies to offer any easy loans or mortgages.
The data from the Council for Mortgage Lenders reveals that 50,300 loans were made for house purchases in January, which is a clear 20 per cent fall from December 2007. The total loan or mortgage value of £7.8bn stands at 31 per cent less.

Banks are also not taking any chances. They are asking for more and big deposits and offering only smaller loans which are in multiples of the salary received by the individuals.
First-time buyers took out average loans for 88 per cent of a property's value in January, down from 90 per cent in December. They typically borrowed 3.32 times their income.

Fortunately, these are good times for some. If you have that extra money with which you can invest in a falling real estate market, then you must go for it and forget your investments for 3 to 5 years.

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Thornburg Mortgage Defaults Bankruptcy: Shares down 51 pc

There is a very big mortgage lender in US, the Thornburg Mortgage Inc. (TMA.N).
Yesterday, it made a disclosure to SEC that it failed to meet a $28 million margin call from JPMorgan Chase & Co & that the bank may like exercise its rights under a $320 million loan. Margin calls force borrowers to pay back loans or post more collateral.

Unfortunately, the case for mortgage lenders is worst. Since they may or may not have reserve money for paying up for the mortgage calls, it become difficult for them to keep up the margin requirements. The result is that they end up raising their hands and declare foreclosures and bankruptcies.

The shares of Thornburg Mortgage yesterday tanked by more than 51 percent, all on the fears that Thornburg Mortgage may declare bankruptcy. Thornburg said the JPMorgan notification triggered defaults under its other reverse repurchase and secured loan agreements, and its obligations under those agreements were "material."

No official comment has been communicated from Thornburg Mortgage, but if you believe the rumors and the foreclosure that Thornburg has made to SEC, then this company may file for bankruptcy.

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Morgan Stanley job cut: lays off 1000 mortgage employees

In a first ever open move, the big financial institution, a Wall Street biggie, Morgan Stanley has declared that it is firing 1000 people from it mortgage jobs business segment. The move is done to cut down its US home lending business and will also fire some employees from a British Mortgage unit, an arm of Morgan Stanley.

The management has defended its decision by claiming that the job cut by Morgan Stanley was an effect of the deteriorated situation of the mortgage markets.

Who will be affected?
The Morgan Stanley Home loan or mortgage business employees who generate mortgage or home loan business from brokers or other parties as intermediaries, will be shown the door. Then there are some other bankers who would be involved in a kind of “securitization” or packaging these loans into bonds, will also face job cuts by Morgan Stanley. Including this one, Morgan Stanley has laid off a total of around 2,900 people in mortgages, wealth management, investment banking and capital markets since October 2007. This constitutes around 6% of the total Morgan Stanley employee strength.

After the job cuts, Morgan Stanley has now joined well over 100 mortgage lenders that have slashed jobs or gone out of business in the last year as the housing crisis deepened and credit conditions worsened. Last year, it was Lehman Brothers who had cut 1300 jobs in the mortgage division.

This is a clear sign that the major investment banks and financial institutions are not seeing a sooner end to the mortgage crisis in US and the other developed countries. Obviously the ripples will be felt by other emerging countries as well, on a global basis.

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Fed to Unveil Mortgage Help Plan with Six US Mortgage Lenders

The mortgage markets in US are on the verge of a complete collapse. Due to the subprime mortgage crisis, the home prices are falling, so even some people with good credit ratings are having tough times as they have been left behind on their mortgage payments. Similar to many subprime mortgage borrowers, these people with good credit ratings signed up for adjustable-rate mortgages that allowed them to make smaller initial payments for first few years and later a fluctuating interest rate. Unfortunately, the “later part” that has come in now, is having a HIGH and fluctuating interest rates, which are translating into a higher repayment each month for the mortgage.

Some other “smart” borrowers borrowed mortgage loans against their rising share holding - believing that they will be able to keep up with the mortgage repayments with the “ever rising” shares prices before the higher payments began. Even in the worst case, they had assumed that the prices of the house they have bought will be sufficient enough for repaying the mortgage. But as prices have plummeted, many homeowners now owe more than their home is worth, and banks have tightened their lending practices, leaving even people with good credit ratings struggling with higher payments.

This is what happens when we thing that the entire picture is looking very rosy and goody-goody, so let’s dive in. Everyone else is taking a loan, so should I. Everyone else is buying a house, so should I. My salary will continue forever, I work for MNC.

Highly costly assumptions – leading to tremendous debacles.

“You don’t mind making a $2,000 payment when the house is going up” in value, said Steve Walsh, a mortgage broker in Scottsdale, Arizona, who has seen several clients walk away from their homes because they couldn’t refinance or sell. “When it’s going down, it becomes a weight around your neck, it becomes an anchor.”

Fortunately, the government in US is working on this issue. Just yesterday, it had declared a Tax Rebate or Tax Refund. The Hope Now alliance, which includes lenders, investors and nonprofit groups, has helped around 8 percent of subprime borrowers in the last 2 quarters of 2007 — more than its original estimate. Bank of America, Citigroup, Countrywide Financial, JPMorgan Chase, Washington Mutual and Wells Fargo, which form the Hope New Alliance are expected to announce on Tuesday at the Treasury Department that they will offer both prime and subprime borrowers who are more than three months behind a chance to halt foreclosure proceedings for 30 days and work out new loan terms. The same is cited under the name “Project Lifeline”, where the above mentioned six US banks are willing to help possible mortgage defaulters.

I wonder if something similar collapses in India – what will happen?

Will the Left backed Indian government running on the support of so many parties come to the rescue of its citizens?

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Six US banks join hands to avoid mortgage defaults

It’s all happening in the US. The Subprime mortgage bug is not leaving the US easily. Six of the top mortgage lenders, which include big names like Bank of America, Citigroup and other four mortgage lenders have decided to come together and help chalk out certain steps to help the mortgage borrowers who face the bad situation of default on their mortgage repayment.
They are expected to work together on certain points, providing a guideline to mortgage borrowers, so that the borrowers may not have to vacate the house for want of repayments.

The plan is called “Project Lifeline” offering. The companies met with Treasury officials over the past week to discuss ways to encourage homeowners to get in touch with their mortgage servicers. The move is coming due to the mounting pressure from the US treasury. News is that JPMorgan Chase., Wells Fargo, Washington Mutual and Countrywide Financial may also participate in this offering. These all six are the group members of a strategic alliance called “Hope Now”, that was formed last year, to avoid a spring up of foreclosures in the mortgage lending markets of US.

The estimates are that around 2 million mortgage owners face the problems with the mortgage due to higher mortgage rates and inability to repay them. Prevention is better than cure – good to see that the debt ridden banks and lenders are taking proactive steps to curb the problem. Hope that this end up in a helpful way instead of again pushing the mortgage borrowers in trouble!

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