Cash loans are short term loans of smaller amounts. There are three types of cash loans, they are cheque loans, deferred deposit cheque loan, and cash advance loan or the payday loans. These loans are offered to you at interest rates that starts from 6.1%APR for £1,000 to £25,000.
How to get cash loans?
In order to get cash loans you must submit your current bank account number with cheque and the proof of employment to the lender. These loans are offered even to bad credit holders, but having good credits may allow the borrower to get loans at lower interest rates. Cash loans are short term loans and are often offered at higher interest rates. Cash loans are paid on the next payday. Cash loans are unsecured loans offered without taking any property as collateral but can also can be availed keeping security.
Procedures involved in getting cash loans
In order to get cash loans you have to deposit post-dated cheques to the lender. The amount in the cheque includes total amount borrowed plus interest and it is automatically deducted from your account as the payday arrives. Before getting the cash loans you should agree to the amount of loans and interest rates. After it, the amount is directly deposited in your account and after the payday the amount is withdrawn automatically. Cash loans can also be renewed on the subsequent payday. These loans are provided at relatively higher interest rates and must be repaid within a shorter repayment period.
What are the other fast cash loans available?
Your emergency cash requirements can be met with other cash loans such as cash advance store and checks cashing services but these are given at a higher interest rate. There are other types of cash loans namely ‘little loans’ and ‘pawnshop’ where you are required to pledge your car and jewelry respectively as a security.
Online cash loans
If you are tired of the paper works and want instant cash loans then these online cash loans can help you a lot. It is the fastest way of getting cash loans and requires only your contact and bank account details. Once approved, the amount will be deposited in the account.
So meet your financial needs by availing these cash loans and get benefited
Article by Mathew Kenny
28.1.09
How Can I Find The Best Home Loan For Me?
Finding a home to buy is the easy part. It is finding a loan and getting financed that is often the hard part. What buyer hasn’t wondered- “how can I find the best home loan for me?” Unfortunately, home loans are not a one size fit all bargain. Novice home buyers can get stuck with a loan that sounds good to start, but soon morphs into something that they can no longer afford, or ever pay off.
Here are some tips to help you know the answer to that looming question- “how can I find the best home loan for me?”
First of all, you need to get your credit in check. If you are unsure what your credit is, everyone is entitled to a yearly free credit report- via three sources. Everything from getting a loan, to the terms of the loan… is largely based on credit. If you discover that your credit is not so good; try paying ALL bills on time, and pay more than the minimum payment, for twelve months. Do not open new or close old accounts for six months. This is an easy way to boost credit.
Make a budget. Figure what the total amount that you can finance is, and what monthly payment is affordable.
You should get pre-qualified for a home loan, if you really want to answer the question: “How can I find the best home loan for me?” Getting the loan prior to house hunting, can ensure that you are not trying to fit the loan to the amount….but rather the amount to the loan. Finding a home (first) creates pressure with contract obligations, and the buyer often makes a bad loan choice.
Many real estate offices will have their own mortgage lender. While this may be convenient, it is often not the most affordable route. Instead, you should do a comprehensive search for brokers and lenders. The internet is a great tool to compare offers, fees, points, terms, and what loans an institution or company has to offer.
There are all kinds of loans available. Most can be subdivided under three categories.
Fixed-Rate Mortgages
The interest rate will stay the same throughout the term of the loan.
A set monthly payment will be established, and it will never change.
This loan provides the homeowner with a sense of security against an interest rate going so high that they can no longer afford the note.
Adjustable Rate Mortgage (ARM)
The initial interest rate will be lower than the typical fixed rate mortgage. However, the initial rate is fixed for an introductory period. Then, the interest rate becomes adjustable to market conditions for the remainder of the loan. Good loan when rates are low.
Hybrid Mortgage Loans
This loan combines a fixed loan with an ARM loan . The initial term of the loan is at a fixed rate, but becomes an ARM.
Other options are: interest only loans, conforming loans, jumbo loans, FHA loans, VA loans, etc… Each of these loans have their benefits and drawbacks. Choosing a loan greatly depends on the individuals finances, credit, down payment money, and desired length of financing. Any reputable and competent broker can help you find out which of the available loans would be the best fiscal fit for you. This is a free service.
Most of the time interest rates are going to be pretty much compatible from one large lender to another. Where they get the buyer is with fees and points. Some lenders offer appealing loans, until you look at the fees due, or that will be added into the loan. So, pay careful attention to the details and ask plenty of questions!
Article sourse
Here are some tips to help you know the answer to that looming question- “how can I find the best home loan for me?”
First of all, you need to get your credit in check. If you are unsure what your credit is, everyone is entitled to a yearly free credit report- via three sources. Everything from getting a loan, to the terms of the loan… is largely based on credit. If you discover that your credit is not so good; try paying ALL bills on time, and pay more than the minimum payment, for twelve months. Do not open new or close old accounts for six months. This is an easy way to boost credit.
Make a budget. Figure what the total amount that you can finance is, and what monthly payment is affordable.
You should get pre-qualified for a home loan, if you really want to answer the question: “How can I find the best home loan for me?” Getting the loan prior to house hunting, can ensure that you are not trying to fit the loan to the amount….but rather the amount to the loan. Finding a home (first) creates pressure with contract obligations, and the buyer often makes a bad loan choice.
Many real estate offices will have their own mortgage lender. While this may be convenient, it is often not the most affordable route. Instead, you should do a comprehensive search for brokers and lenders. The internet is a great tool to compare offers, fees, points, terms, and what loans an institution or company has to offer.
There are all kinds of loans available. Most can be subdivided under three categories.
Fixed-Rate Mortgages
The interest rate will stay the same throughout the term of the loan.
A set monthly payment will be established, and it will never change.
This loan provides the homeowner with a sense of security against an interest rate going so high that they can no longer afford the note.
Adjustable Rate Mortgage (ARM)
The initial interest rate will be lower than the typical fixed rate mortgage. However, the initial rate is fixed for an introductory period. Then, the interest rate becomes adjustable to market conditions for the remainder of the loan. Good loan when rates are low.
Hybrid Mortgage Loans
This loan combines a fixed loan with an ARM loan . The initial term of the loan is at a fixed rate, but becomes an ARM.
Other options are: interest only loans, conforming loans, jumbo loans, FHA loans, VA loans, etc… Each of these loans have their benefits and drawbacks. Choosing a loan greatly depends on the individuals finances, credit, down payment money, and desired length of financing. Any reputable and competent broker can help you find out which of the available loans would be the best fiscal fit for you. This is a free service.
Most of the time interest rates are going to be pretty much compatible from one large lender to another. Where they get the buyer is with fees and points. Some lenders offer appealing loans, until you look at the fees due, or that will be added into the loan. So, pay careful attention to the details and ask plenty of questions!
Article sourse
27.1.09
Interest Only Home Loans - How to Seize Their Benefits
When it comes to purchasing a real estate property there are many different options available for the first time home buyer or the person who already own a property and is looking into buying a second one. It is difficult sometimes to be up-to-date with the ever changing financial market as there are new products to choose from on a regular basis. If you want to obtain the best possible deal and the best possible home loan option, a thorough research on the available loan products is the first step. Rushed decisions tend to become bad decisions, that is why I always advice my clients to plan ahead and choose wisely.
This article focuses on a very interesting home loan alternative which carries both advantages and disadvantages worth taking into account. If you want to learn more about interest only home loans, read on!
What Is An Interest Only Home Loan?
This type of loan is a sub-group belonging to the mortgage loan group. But it has a major difference that makes it unique. When applying for this type of loan, the borrower will only pay the interest of the property for a specified period of time (usually lasting 5 to 10 years). In other words, during the first 5 to 10 years of the loan, the borrower will only be paying the interest rate on the loan and the principal will remain untouched. If the consumer wants, he will also be able to pay more than just interests, but it is up to each borrower. Another available option is for the borrower to pay interest only for the first years and then repay the loan in full when this period is due.
Here is an example: in a interest only loan of $100,000 at 7% lasting 30 years, the borrower would be able to pay $583 each month for the first 5 to 10 years. This payment consists only of interest. A borrower with the same deal on a regular mortgage would be making a monthly payment of $860.
Who Would Benefit From This Type Of Loan?
It is plain to see that this type for loan is not for everyone. The initial lower monthly payments might be attractive, but the true nature of interest only home loans goes beyond that. You should beware of lenders trying to force this type of loan on you because chances are, they are just trying to make a sale. Following is a list of the types of borrowers who might benefit from this very interesting option.
Case # 1: you have a job which pays wells, but this income is in the form of irregular commissions and infrequent bonuses.
Case # 2: if you are a consummated investor who is planning on investing the savings obtained during the first five years of the loan.
Case # 3: you have a decent income but you are sure you will be earning more in the years to come.
As you can see, this type of loan is not for everybody. If your objective is to purchase a property to live in, and you have a fairly good salary which would allow you to pay both the interest and the principal, chances are you will benefit more from a traditional mortgage loan.
Article by Lara Sawyer
Article Source
This article focuses on a very interesting home loan alternative which carries both advantages and disadvantages worth taking into account. If you want to learn more about interest only home loans, read on!
What Is An Interest Only Home Loan?
This type of loan is a sub-group belonging to the mortgage loan group. But it has a major difference that makes it unique. When applying for this type of loan, the borrower will only pay the interest of the property for a specified period of time (usually lasting 5 to 10 years). In other words, during the first 5 to 10 years of the loan, the borrower will only be paying the interest rate on the loan and the principal will remain untouched. If the consumer wants, he will also be able to pay more than just interests, but it is up to each borrower. Another available option is for the borrower to pay interest only for the first years and then repay the loan in full when this period is due.
Here is an example: in a interest only loan of $100,000 at 7% lasting 30 years, the borrower would be able to pay $583 each month for the first 5 to 10 years. This payment consists only of interest. A borrower with the same deal on a regular mortgage would be making a monthly payment of $860.
Who Would Benefit From This Type Of Loan?
It is plain to see that this type for loan is not for everyone. The initial lower monthly payments might be attractive, but the true nature of interest only home loans goes beyond that. You should beware of lenders trying to force this type of loan on you because chances are, they are just trying to make a sale. Following is a list of the types of borrowers who might benefit from this very interesting option.
Case # 1: you have a job which pays wells, but this income is in the form of irregular commissions and infrequent bonuses.
Case # 2: if you are a consummated investor who is planning on investing the savings obtained during the first five years of the loan.
Case # 3: you have a decent income but you are sure you will be earning more in the years to come.
As you can see, this type of loan is not for everybody. If your objective is to purchase a property to live in, and you have a fairly good salary which would allow you to pay both the interest and the principal, chances are you will benefit more from a traditional mortgage loan.
Article by Lara Sawyer
Article Source
26.1.09
Unsecured Loan
An unsecured loan is a loan that is not backed by collateral. Also known as a signature loan or personal loan.
Unsecured loans are based solely upon the borrower's credit rating. As a result, they are often much more difficult to get than a secured loan, which also factors in the borrower's income. However, an unsecured loan is considered much cheaper and carries less risk to the borrower. However, when an unsecured loan that is not backed by collateral, AKA signature loan or personal loan is granted, it does not necessarily have to be based on a credit score. For example, if your friend loans you money without any collateral, meaning something of worth that can be repossessed if the loan isn't repaid, then your credit score has zero to do with it, but rather the value of your friendship is at stake. Therefore the real meaning of an unsecured loan is that it is not backed by any object of value and is loaned to you based on your good name.
For financial institutional purposes, they may want to look at your credit score because they are not your friend and it is strictly a business transaction, therefore your good name may be associated with your historical payment history on prior debt, reflecting in your credit score.
There are three types of unsecured loans. First there is a personal unsecured loan, meaning a loan that you individually are responsible for the repayment of, second is an unsecured business loan which leaves the business responsible for the repayment, and finally there is an unsecured business loan with a personal guarantee. With the latter, although the borrower is the business, you as an individual will be the payer of last resort if the business defaults on the loan.
Sourse: Wikipedia
Unsecured loans are based solely upon the borrower's credit rating. As a result, they are often much more difficult to get than a secured loan, which also factors in the borrower's income. However, an unsecured loan is considered much cheaper and carries less risk to the borrower. However, when an unsecured loan that is not backed by collateral, AKA signature loan or personal loan is granted, it does not necessarily have to be based on a credit score. For example, if your friend loans you money without any collateral, meaning something of worth that can be repossessed if the loan isn't repaid, then your credit score has zero to do with it, but rather the value of your friendship is at stake. Therefore the real meaning of an unsecured loan is that it is not backed by any object of value and is loaned to you based on your good name.
For financial institutional purposes, they may want to look at your credit score because they are not your friend and it is strictly a business transaction, therefore your good name may be associated with your historical payment history on prior debt, reflecting in your credit score.
There are three types of unsecured loans. First there is a personal unsecured loan, meaning a loan that you individually are responsible for the repayment of, second is an unsecured business loan which leaves the business responsible for the repayment, and finally there is an unsecured business loan with a personal guarantee. With the latter, although the borrower is the business, you as an individual will be the payer of last resort if the business defaults on the loan.
Sourse: Wikipedia
Secured Loan
Purpose
There are two purposes for a loan secured by debt. In the first purpose, by extending the loan through securing the debt, the creditor is relieved of most of the financial risks involved because it allows the creditor to take the property in the event that the debt is not properly repaid. In exchange, this permits the second purpose where the debtors may receive loans on more favorable terms than that available for unsecured debt, or to be extended credit under circumstances when credit under terms of unsecured debt would not be extended at all. The creditor may offer a loan with attractive interest rates and repayment periods for the secured debt.
Types
One popular type of secured loan that is normally only available at a bank or credit union is the savings secured loan. In this type of loan, the borrower must have a savings account with the creditor. A portion of the money in this account is used as collateral to secure a loan equal to the amount pledged. This money is then frozen in the account but continues to earn interest. As the loan is repaid the secured portion of the savings account is freed. This has advantages for both the creditor and the borrower. If the borrower defaults on the loan the collateral is already in the creditor's possession so it is a very low risk. As a result, the creditor usually offers a much lower interest rate. The disadvantage of this type of loan is that it is limited by the available fund in the savings account.
A mortgage loan is a secured loan in which the collateral is property, such as a home.
A nonrecourse loan is a secured loan where the collateral is the only security or claim the creditor has against the borrower, and the creditor has no further recourse against the borrower for any deficiency remaining after foreclosure against the property.
A foreclosure is a legal process in which mortgaged property is sold to pay the debt of the defaulting borrower.
A repossession is a process in which property, such as a car, is taken back by the creditor when the borrower does not make payments due on the property. Depending on the jurisdiction, it may or may not require a court order.
Sourse: Wikipedia
There are two purposes for a loan secured by debt. In the first purpose, by extending the loan through securing the debt, the creditor is relieved of most of the financial risks involved because it allows the creditor to take the property in the event that the debt is not properly repaid. In exchange, this permits the second purpose where the debtors may receive loans on more favorable terms than that available for unsecured debt, or to be extended credit under circumstances when credit under terms of unsecured debt would not be extended at all. The creditor may offer a loan with attractive interest rates and repayment periods for the secured debt.
Types
One popular type of secured loan that is normally only available at a bank or credit union is the savings secured loan. In this type of loan, the borrower must have a savings account with the creditor. A portion of the money in this account is used as collateral to secure a loan equal to the amount pledged. This money is then frozen in the account but continues to earn interest. As the loan is repaid the secured portion of the savings account is freed. This has advantages for both the creditor and the borrower. If the borrower defaults on the loan the collateral is already in the creditor's possession so it is a very low risk. As a result, the creditor usually offers a much lower interest rate. The disadvantage of this type of loan is that it is limited by the available fund in the savings account.
A mortgage loan is a secured loan in which the collateral is property, such as a home.
A nonrecourse loan is a secured loan where the collateral is the only security or claim the creditor has against the borrower, and the creditor has no further recourse against the borrower for any deficiency remaining after foreclosure against the property.
A foreclosure is a legal process in which mortgaged property is sold to pay the debt of the defaulting borrower.
A repossession is a process in which property, such as a car, is taken back by the creditor when the borrower does not make payments due on the property. Depending on the jurisdiction, it may or may not require a court order.
Sourse: Wikipedia
25.1.09
Type of Loan
Secured
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan.
A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.
In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.
A type of loan especially used in limited partnership agreements is the recourse note.
A stock hedge loan is a special type of securities lending whereby the stock of a borrower is hedged by the lender against loss, using options or other hedging strategies to reduce lender risk.
Unsecured
Unsecured loans are monetary loans that are not secured against the borrowers assets. These may be available from financial institutions under many different guises or marketing packages:
The interest rates applicable to these different forms may vary depending on the lender and the borrower.
Sourse: Wikipedia
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan.
A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.
In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.
A type of loan especially used in limited partnership agreements is the recourse note.
A stock hedge loan is a special type of securities lending whereby the stock of a borrower is hedged by the lender against loss, using options or other hedging strategies to reduce lender risk.
Unsecured
Unsecured loans are monetary loans that are not secured against the borrowers assets. These may be available from financial institutions under many different guises or marketing packages:
- credit card debt
- personal loans
- bank overdrafts
- credit facilities or lines of credit
- corporate bonds
The interest rates applicable to these different forms may vary depending on the lender and the borrower.
Sourse: Wikipedia
The Hows and Whys of the Sub-Prime Mortgage Meltdown
During this past month the nation learned of the collapse-in-progress of the sub-prime mortgage market, which it appears will be promoted as this season’s spectator sport. Each day we view another victim in this saga: a former sub-prime loan processor who lost her job, a condominium owner now six months behind in his mortgage payments and facing foreclosure, or a shareholder of Accredited Home Lenders whose stock value fell 65% in a single day. What are we to think? Who is to blame? What must be done?
These are loans to homeowners with a history of poor credit, usually persons with FICO scores below 620. Normal characteristics of these loans are low or no down payment together with an adjustable interest rate following an introductory period of two or three years during which an artificial rate as low as 3% (known as a teaser rate) is used in qualifying the borrower. It’s customary that in those early years, no principal is paid on the loan, and in some cases the principal balance actually increases (referred to as negative amortization). So, what’s the problem? Remarkably simple! People with a history of not paying bills received inducements over the past several years to acquire homes they could not afford, encumbered by mortgage loans they cannot pay. Currently 2.1 million such loans, representing 13.3% of all sub-prime mortgages, are delinquent. If a substantial number of these homes fall to foreclosure, the residential housing market, and to a certain degree the nation’s economy, will be adversely affected.
In case you believe the problems we are witnessing come as a surprise to the financial world, you are mistaken. The principles of sound lending are well established, and those of us who participate in the world of legitimate mortgage brokerage and banking know a good loan from a bad one. Even officials of the federal government, not renowned for business acumen, foresaw the coming events. Several agencies, including the Federal Reserve and the Treasury Department, jointly issued a warning as early as 2005, cautioning lenders to refrain from granting loans to unworthy borrowers. Nonetheless, the unsound practices continued, and this deserves an explanation. The blunt fact is that an enterprise which will be generally unprofitable may be selectively profitable. For every dollar that one person loses, someone else will be a dollar richer. This is what the sub-prime mortgage business is really all about, with fortunes generated before the unraveling you now observe. Consider who are included among the co-conspirators. A fair income flowed to property appraisers, real estate brokers, mortgage loan processors, escrow officers and a host of others involved in the actual loan creation process. Persons who speculated in properties relied upon questionable financing to turn a quick profit.
I’ll provide details on a single transaction to give you a feel for how it works. In late November 2005 an investor purchased a 3-bedroom, 2 and a half bath condominium in Santa Ana, California, for $420,000. Following a little renovation, it sold in mid-April 2006 for $490,000. How a loan appraiser justified the selling price is a matter to be discussed at some other time. Terms of the sale: nothing down, $392,000 first mortgage @ 3.75% for two years, adjusting to market interest thereafter; $98,000 second mortgage @ 7%; seller crediting buyer $10,000 at close of escrow. Now that you know the terms, does the transaction seem unfavorable in any way? Actually it’s a win-win for everyone. The Realtor made a profit; the loan processor made a profit; the appraiser made a profit; the investor made a profit; the purchasers acquired a home without putting out a dime (actually they pocketed a few dollars) with occupancy for two years at a monthly payment less than rental value.
There are also a few other winners you might not even think about. The sub-prime lender, who made points and fees on the first mortgage loan, then packaged it with hundreds more and sold it to one of the Wall Street financial organizations such as Bear Stearns or Morgan Stanley for inclusion in a pension fund, mutual fund, or hedge fund, and all of them took a piece of the action. Until the loan goes bad—which it may never do—there are no losers. It’s true, of course, that when the foreclosures begin there will be persons who suffer. Most certainly, the buyers stand to lose their homes, though with nothing down and cheap payments for two years, perhaps it’s not all that bad. In addition, as we’re now witnessing, employees of the sub-prime mortgage lenders are out of a job. And the one group we mustn’t forget are the millions of Americans whose IRA and 401(k) accounts are invested in the various funds holding these mortgage-backed securities. Many of them will take a hit, even if most of them will never really know what hit them.
Now that we’ve determined what went wrong, and why, it’s traditional that we select a culprit to hold responsible for the calamity so he—on rare occasions, she—can be made an example of. In short, we must identify the snowflake on which to blame the blizzard. Perhaps we might pick out a single CEO of a major sub-prime lending company. Although Kenneth Lay, the late one-time CEO of Enron is no longer available, we’ll surely find someone we can sentence to 150 years in prison, thereby demonstrating our dedication to sound business practices.
A final word is in order: To conclude this episode, a new set of laws must be enacted. Already Chairman of the House Financial Services Committee Barney Frank and Senate Banking Committee Chairman Christopher Dodd are revving up “…to pass a bill that will diminish the likelihood of people being given loans they should not be given.” Whatever transpires will achieve the same result as the Sarbanes-Oxley act enacted in 2002 to deal with the financial scandals in the securities market several years ago—no meaningful effect whatever.
Article by Al Jacobs
Woopidoo Business Directory
These are loans to homeowners with a history of poor credit, usually persons with FICO scores below 620. Normal characteristics of these loans are low or no down payment together with an adjustable interest rate following an introductory period of two or three years during which an artificial rate as low as 3% (known as a teaser rate) is used in qualifying the borrower. It’s customary that in those early years, no principal is paid on the loan, and in some cases the principal balance actually increases (referred to as negative amortization). So, what’s the problem? Remarkably simple! People with a history of not paying bills received inducements over the past several years to acquire homes they could not afford, encumbered by mortgage loans they cannot pay. Currently 2.1 million such loans, representing 13.3% of all sub-prime mortgages, are delinquent. If a substantial number of these homes fall to foreclosure, the residential housing market, and to a certain degree the nation’s economy, will be adversely affected.
In case you believe the problems we are witnessing come as a surprise to the financial world, you are mistaken. The principles of sound lending are well established, and those of us who participate in the world of legitimate mortgage brokerage and banking know a good loan from a bad one. Even officials of the federal government, not renowned for business acumen, foresaw the coming events. Several agencies, including the Federal Reserve and the Treasury Department, jointly issued a warning as early as 2005, cautioning lenders to refrain from granting loans to unworthy borrowers. Nonetheless, the unsound practices continued, and this deserves an explanation. The blunt fact is that an enterprise which will be generally unprofitable may be selectively profitable. For every dollar that one person loses, someone else will be a dollar richer. This is what the sub-prime mortgage business is really all about, with fortunes generated before the unraveling you now observe. Consider who are included among the co-conspirators. A fair income flowed to property appraisers, real estate brokers, mortgage loan processors, escrow officers and a host of others involved in the actual loan creation process. Persons who speculated in properties relied upon questionable financing to turn a quick profit.
I’ll provide details on a single transaction to give you a feel for how it works. In late November 2005 an investor purchased a 3-bedroom, 2 and a half bath condominium in Santa Ana, California, for $420,000. Following a little renovation, it sold in mid-April 2006 for $490,000. How a loan appraiser justified the selling price is a matter to be discussed at some other time. Terms of the sale: nothing down, $392,000 first mortgage @ 3.75% for two years, adjusting to market interest thereafter; $98,000 second mortgage @ 7%; seller crediting buyer $10,000 at close of escrow. Now that you know the terms, does the transaction seem unfavorable in any way? Actually it’s a win-win for everyone. The Realtor made a profit; the loan processor made a profit; the appraiser made a profit; the investor made a profit; the purchasers acquired a home without putting out a dime (actually they pocketed a few dollars) with occupancy for two years at a monthly payment less than rental value.
There are also a few other winners you might not even think about. The sub-prime lender, who made points and fees on the first mortgage loan, then packaged it with hundreds more and sold it to one of the Wall Street financial organizations such as Bear Stearns or Morgan Stanley for inclusion in a pension fund, mutual fund, or hedge fund, and all of them took a piece of the action. Until the loan goes bad—which it may never do—there are no losers. It’s true, of course, that when the foreclosures begin there will be persons who suffer. Most certainly, the buyers stand to lose their homes, though with nothing down and cheap payments for two years, perhaps it’s not all that bad. In addition, as we’re now witnessing, employees of the sub-prime mortgage lenders are out of a job. And the one group we mustn’t forget are the millions of Americans whose IRA and 401(k) accounts are invested in the various funds holding these mortgage-backed securities. Many of them will take a hit, even if most of them will never really know what hit them.
Now that we’ve determined what went wrong, and why, it’s traditional that we select a culprit to hold responsible for the calamity so he—on rare occasions, she—can be made an example of. In short, we must identify the snowflake on which to blame the blizzard. Perhaps we might pick out a single CEO of a major sub-prime lending company. Although Kenneth Lay, the late one-time CEO of Enron is no longer available, we’ll surely find someone we can sentence to 150 years in prison, thereby demonstrating our dedication to sound business practices.
A final word is in order: To conclude this episode, a new set of laws must be enacted. Already Chairman of the House Financial Services Committee Barney Frank and Senate Banking Committee Chairman Christopher Dodd are revving up “…to pass a bill that will diminish the likelihood of people being given loans they should not be given.” Whatever transpires will achieve the same result as the Sarbanes-Oxley act enacted in 2002 to deal with the financial scandals in the securities market several years ago—no meaningful effect whatever.
Article by Al Jacobs
Woopidoo Business Directory
23.1.09
Top 10 Ways to Avoid Loan Fraud
Every year, misinformed homebuyers, often first-time purchasers or seniors, become victims of predatory lending or loan fraud. Below you'll find the top ten ways to avoid becoming a victim yourself.
1. Take your time and shop around. You should be able to compare prices and houses. If a lender or broker tells you they are your only chance to get a loan or owning a home, don't do business with them.
2. Do not sign a sales contract or loan documents that are blank or that contain information which is not true.
3. Be certain that the costs and loan terms at closing are what you originally agreed to.
4. Do not be talked into lying about (or choose to lie) about your income, expenses, or cash available for downpayments in order to get a loan.
5. Watch out for higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.
6. Be careful about disclosing things like your need of cash due to medical, unemployment or debt problems. You are very vulnerable in these cases.
7. Don't strip your home's equity by refinancing again and again when there is no benefit to you.
8. Beware of false appraisals.
9. Do not let anyone convince you to borrow more money than you know you can afford to repay. If you get behind on your payments, you risk losing your house and all of the money you put into your property.
10. Get several quotes from multiple brokers or lenders so you know you're being charged a fair interest rate based on your credit history, not your race or national origin.
Article by David E. Brumbaugh
Woopidoo Business Directory
1. Take your time and shop around. You should be able to compare prices and houses. If a lender or broker tells you they are your only chance to get a loan or owning a home, don't do business with them.
2. Do not sign a sales contract or loan documents that are blank or that contain information which is not true.
3. Be certain that the costs and loan terms at closing are what you originally agreed to.
4. Do not be talked into lying about (or choose to lie) about your income, expenses, or cash available for downpayments in order to get a loan.
5. Watch out for higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.
6. Be careful about disclosing things like your need of cash due to medical, unemployment or debt problems. You are very vulnerable in these cases.
7. Don't strip your home's equity by refinancing again and again when there is no benefit to you.
8. Beware of false appraisals.
9. Do not let anyone convince you to borrow more money than you know you can afford to repay. If you get behind on your payments, you risk losing your house and all of the money you put into your property.
10. Get several quotes from multiple brokers or lenders so you know you're being charged a fair interest rate based on your credit history, not your race or national origin.
Article by David E. Brumbaugh
Woopidoo Business Directory
21.1.09
The Subprime Aftermath: Lessons Learned
Though not quite as contemptible as an obscene four-letter word, the term “subprime loan” comes close. Those two words acquired a stigma over the past year as the real estate market essentially collapsed. It’s the rare financial analyst that fails to remind us how subprime lending resulted in nationwide misery. Unfortunately, after uttering that accusation, many counselors are remarkably imprecise as to exactly what constitutes a subprime loan. Does a home bought with no down payment and a loan equal to 100% of the purchase price qualify? You’d certainly think so from the articles I read. And what about loans where little or no principal payments are made during the early years? The suggestion normally conjures up predictions of impending disaster.
At the risk of sounding indifferent to living dangerously, I’m not averse to either of these two borrowing techniques. Actually, the harshly criticized zero-down purchase doesn’t necessarily mean high risk. For over half a century the widely used GI loan, created by the Servicemen’s Readjustment Act of 1944, provided military veterans with home loans on a nothing down basis. Countless ex-servicemen profited handsomely from this program.
As for failure to make principal payments during the early years of a loan, this became, in essence, the normal method of home financing following the Great Depression of the 1930s. Consider the typical FHA loan, by which millions of Americans acquired their residences. The standard 30-year fully amortized fixed-rate loan provides that at the completion of the first five years of scheduled payments, about 95% of the original balance remains unpaid. Even after ten years, 85% is still owed. This is because most of the payments in the early years go toward interest. Technically this may not equate to no payments of principal, but it comes pretty close.
This, then, conjures up the question: Exactly what differentiates current subprime lending abuses from earlier-day practices perceived as creative. As an example of this latter practice, consider a device I used extensively in the high interest rate period of the 1970s and 1980s, known as an all-inclusive mortgage (also called a “wrap-around”). In this circumstance, a property is sold subject to a seller’s carryback mortgage loan, junior to and inclusive within an existing first mortgage that remains on title. Providing the underlying loan carries no due-on-sale provision, which many at the time did not, it’s a permissible technique. This contrivance, though unconventional, provides benefits to both buyer and seller when properly structured.
This gets us down to the crux of matter, which is abuse in home financing. It’s a subject that easily fills volumes. However, at its heart is a basic discord: home acquisition beyond a purchaser’s ability. It is this that made subprime lending an insidious perversion. The entire loan industry joined together, incorporating various devices in its quest to finance houses. Certain practices now under scrutiny by legislators and regulatory agencies included minimal initial interest rates scheduled to adjust upward at a later date, buyer qualification based upon unrealistic low initial monthly payments, and loan approval of buyers whose credit history indicated unreliability. Although these factors all contributed to the final calamity, they were not the cause, but merely the effect.
Fundamental to it all is creation of loans by entities whose funds are not at risk. When loan authorization is granted to processors who profit on creation, but who are unaffected by later payment failure, unsafe lending is guaranteed. It is not by accident that loan approval rested largely with mortgage lending firms that merely complied with established institutional criteria, often nonsensical. All participants profited handsomely by the fees generated through loan creation, despite easily predictable default at some later date. In reality, sound practices are attainable with no special prohibitions or regulatory oversight. Though I’m actively engaged in mortgage lending, I’ve yet to experience a single foreclosure so far this century. The reason is fundamental. I don’t loan other people’s money—I risk my own. My personal self-interest insures that loans go only to borrowers who I feel confident will honor their obligations or, that if unexpected misfortune strikes, the loans are amply backed by the securing properties. That’s what the secured loan business is all about. What must exist are circumstances by which the maker of the loan only profits from good loans, not bad ones. Enacting a mass of rules to thwart bad intentions is not the answer, for no law will ever obstruct the human capacity for connivance.
I’ll briefly summarize with my admonition to the typical homebuyer. I advocate that you not commit to obligations that strain your limits. It’s more sensible to restrict yourself to less than you can handle. Simply put: Choose a cheaper home than you can afford. And while we’re on the subject, you might apply that same formula to other aspects of your life. You’re far better off if your vehicle, your home furnishings, and your vacations are well within your means. More specifically, these three products should be obtained with no borrowing of any sort. Maintaining a standard of living that requires you to stretch regularly to meet payments is not really much fun. Cash on the barrelhead may seem old-fashioned, but it makes for a more enjoyable way to live.
Article by Al Jacobs
Woopidoo Business Directory
At the risk of sounding indifferent to living dangerously, I’m not averse to either of these two borrowing techniques. Actually, the harshly criticized zero-down purchase doesn’t necessarily mean high risk. For over half a century the widely used GI loan, created by the Servicemen’s Readjustment Act of 1944, provided military veterans with home loans on a nothing down basis. Countless ex-servicemen profited handsomely from this program.
As for failure to make principal payments during the early years of a loan, this became, in essence, the normal method of home financing following the Great Depression of the 1930s. Consider the typical FHA loan, by which millions of Americans acquired their residences. The standard 30-year fully amortized fixed-rate loan provides that at the completion of the first five years of scheduled payments, about 95% of the original balance remains unpaid. Even after ten years, 85% is still owed. This is because most of the payments in the early years go toward interest. Technically this may not equate to no payments of principal, but it comes pretty close.
This, then, conjures up the question: Exactly what differentiates current subprime lending abuses from earlier-day practices perceived as creative. As an example of this latter practice, consider a device I used extensively in the high interest rate period of the 1970s and 1980s, known as an all-inclusive mortgage (also called a “wrap-around”). In this circumstance, a property is sold subject to a seller’s carryback mortgage loan, junior to and inclusive within an existing first mortgage that remains on title. Providing the underlying loan carries no due-on-sale provision, which many at the time did not, it’s a permissible technique. This contrivance, though unconventional, provides benefits to both buyer and seller when properly structured.
This gets us down to the crux of matter, which is abuse in home financing. It’s a subject that easily fills volumes. However, at its heart is a basic discord: home acquisition beyond a purchaser’s ability. It is this that made subprime lending an insidious perversion. The entire loan industry joined together, incorporating various devices in its quest to finance houses. Certain practices now under scrutiny by legislators and regulatory agencies included minimal initial interest rates scheduled to adjust upward at a later date, buyer qualification based upon unrealistic low initial monthly payments, and loan approval of buyers whose credit history indicated unreliability. Although these factors all contributed to the final calamity, they were not the cause, but merely the effect.
Fundamental to it all is creation of loans by entities whose funds are not at risk. When loan authorization is granted to processors who profit on creation, but who are unaffected by later payment failure, unsafe lending is guaranteed. It is not by accident that loan approval rested largely with mortgage lending firms that merely complied with established institutional criteria, often nonsensical. All participants profited handsomely by the fees generated through loan creation, despite easily predictable default at some later date. In reality, sound practices are attainable with no special prohibitions or regulatory oversight. Though I’m actively engaged in mortgage lending, I’ve yet to experience a single foreclosure so far this century. The reason is fundamental. I don’t loan other people’s money—I risk my own. My personal self-interest insures that loans go only to borrowers who I feel confident will honor their obligations or, that if unexpected misfortune strikes, the loans are amply backed by the securing properties. That’s what the secured loan business is all about. What must exist are circumstances by which the maker of the loan only profits from good loans, not bad ones. Enacting a mass of rules to thwart bad intentions is not the answer, for no law will ever obstruct the human capacity for connivance.
I’ll briefly summarize with my admonition to the typical homebuyer. I advocate that you not commit to obligations that strain your limits. It’s more sensible to restrict yourself to less than you can handle. Simply put: Choose a cheaper home than you can afford. And while we’re on the subject, you might apply that same formula to other aspects of your life. You’re far better off if your vehicle, your home furnishings, and your vacations are well within your means. More specifically, these three products should be obtained with no borrowing of any sort. Maintaining a standard of living that requires you to stretch regularly to meet payments is not really much fun. Cash on the barrelhead may seem old-fashioned, but it makes for a more enjoyable way to live.
Article by Al Jacobs
Woopidoo Business Directory
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