The Mortgage Meltdown

I'm asked daily about what's happening in the mortgage mess we keep hearing about and how it happened. Here's the story; Most lenders do not keep the real estate loans they make and sell them to various secondary lenders or markets. It is common practice for companies to purchase and then sell $millions of home loans at a time, and sell them as mortgage backed securities on Wall Street.

Many of the loans produced by Sub-Prime lenders (lenders who require little or no financial or asset documentation or require no down-payment and lend to borrowers with poor credit histories) were beginning to adjust and consumers could not affort the new higher payments. At the same time, loans funded by Alt-A lenders (lenders who have higher credit standards but may not require income documentation) had a similar problems with mortgage defaults.

Over $2 trillion have been lost in global markets recently, some countries have their own sub-prime problems and others have invested in our mortgage backed securities. These loans accounted for somewhere between 40% to 70% of all mortgages made in the past few years. Hundred of mortgage companies have been forced out of business and thousands of people have already lost their jobs.

Many loan programs have been discontinued and underwriting standards have been stiffened. Sounds pretty bad, doesn't it?

Okay, enough of the gloom and doom, here is the good news:

*There is still no shortgage or money.

*Rates for Conforming 30 year fixed rate mortgages (those under $417,000) are currently

under 5.99% with 1 point (A.P.R. 6.25%)

*Rates for Jumbo 30 year fixed rate mortgages (those over $417,000) are currently at

6.50% with 1 point (A.P.R. 6.83%)

*O point loans, stated income programs and interest only loans still exist.

The bottom line is that lenders that are going to continue in business must make real estate mortgages to be profitable. If you are considering purchasing a home then you are in luck. Price have dropped more than 20% and more in some areas. An opportunity exists to purchase your next home and save some money in the process. When you include the fact that interest rates are still at record lows, you quickly see there is a silver lining.

If you are thinking about refinancing then take a look at the many programs that are still in play. If you have an adjustable rate mortage and it has increased lately see what your options are and if this is a good time to convert it to someother instrument.

As with anything, don't just jump in, do your due diligence, your homework and see what works best for you. Start collecting your paperwork, tax returns, bank statments and pay check stubs and have everything ready when you. Being organized and taking the initiative will help you get the best rate and terms possible when you are ready to move forward.