Suicide Loans?: Piggyback Mortgages Default by up to 50%PR

Consumer Advocate and International Mortgage Reduction Expert, Harj Gill cautions,
"This is precisely what I have been warning the public about. It's the first sign of the tsunami of defaults and foreclosures that are coming," Gill, who is also the Founder, President and CEO of American Mortgage Educators, Inc., has been on a one-man crusade warning homeowners of the risks associated with exotic mortgages and urging them to take immediate action to avoid going into default.
According to Gill, piggyback mortgages, which are a combination of two loans packaged together and closed simultaneously, represent just one of many non-traditional mortgages that have put homeowners at risk of losing their homes.
Typically for people with little or no down payment, the amount for the first mortgage is set so it does not exceed 80% of the homes value. This allows the borrower to avoid paying Mortgage Insurance (MI). The remaining loan amount is financed as a second mortgage by way of a Home Equity Loan or a Home Equity Line of Credit (HELOC) and "piggybacked" onto the first.
"I have always said this is a good solution to avoid MI, but a terrible long term strategy," said Gill.
Gill's assertion is supported by the latest analysis by Standard & Poor's, an influential Wall Street ratings agency, which analyzed nearly 640,000 piggyback first-lien mortgages in bond pools. S&P discovered that first-lien mortgages connected with piggyback loans are 43% more likely to go into default than stand-alone first mortgages of comparable size. The default rate increases to a whopping 50% for borrowers with a FICO credit score of 660 or less.
According to SMR Research, lenders and mortgage brokers whose commissions are based on loan size, have aggressively promoted these loans because the first-lien portion of piggybacks tends to be larger than standard first mortgages.
Gill warns that borrowers with these loans should be ultra concerned because they are concentrated in metropolitan areas with the greatest risk of experiencing a fall in housing prices.
"If borrowers start to go into default in a declining property market, they will be committing financial suicide by having their credit destroyed and still being burdened with a debt well after they lose their homes," said Gill.
A 2005 SMR Research study confirmed that many of the largest U.S. counties in population and mortgage market size have huge portions of home loans as piggybacks, some by as much as 62%. These include California, Washington, Colorado, Virginia, Arizona, Nevada, Oregon, Illinois, Georgia, Massachusetts, North Carolina, Utah, Florida, Texas, and Missouri.
The danger, according to Gill, is that unlike standard mortgages with fixed-interest rates, borrowers with adjustable rate piggybacks are not prepared for rate hikes that increase their payments.
Gill's recommendation is for borrowers to immediately reduce their interest payments and get a forecasting tool to determine the critical interest rate at which they are likely to go into default.
He says those with HELOCs can use a little known Banking Principle to reduce their interest payments.
"Interest on your HELOC is calculated on the Daily Balance. So instead of having your income sitting in a checking account earning no interest, borrowers should 'park' those funds in their HELOC to immediately reduce the daily balance and thereby reduce the amount of interest they pay," advised Gill.
Of course borrowers need to ensure they have a HELOC with the right features and proper setup to take advantage of this strategy. For those without a HELOC, Gill recommends refinancing the second mortgage into one with features that enables this.
"By asking the right questions, you should be able to refinance the second mortgage at almost no cost," advises Gill.
To assist borrowers, he has prepared a Critical Report explaining how to apply this strategy and refinance the second mortgage on his Consumer Information Center http://www.mortgagefreeusa.com/
"I expect every mortgage broker, loan officer, lender and real estate agent that knowingly put a client into a piggyback mortgage to contact them and tell them to read this Critical Report," said Gill.
"Not doing this truly shows that you were only in it for the money and not to help your clients."
American Mortgage Educators, Inc. CONTACT: American Mortgage Educators, Inc., 800-605-4718

Late mortgage repayments not widespread

Mortgage rates are rising, home prices are stalling in parts of the country, lots of people are taking out alternative home loans that barely existed five years ago and inflation seems to be picking up.

Guess which of the following scenarios is happening to homeowners:

A. They are falling behind in their mortgage payments. The delinquency rate -- in other words, the proportion of homeowners who are at least 30 days past due on their house payments -- is skyrocketing. Foreclosures are going up, too, but not as rapidly.

B. Homeowners actually are making fewer late payments than they were at the end of 2005. They're making more late payments than a year ago, but only because of Hurricane Katrina.

The correct answer is B, according to the Mortgage Bankers Association. The proportion of homeowners making late payments fell in the first three months of this year, compared to the last three months of 2005. The foreclosure rate dropped a teensy bit.

Welcome to Housing Market, U.S.A.
To visualize what's happening, imagine a town that represents the U.S. housing market. The town has exactly 10,000 owner-occupied homes with mortgages. In the first three months of this year, 441 of those homeowners were at least 30 days past due on their house payments, compared to 470 homeowners in the last three months of 2005. In other words, the delinquency rate fell to 4.41 percent from 4.7 percent.

In the same town, 98 homes were somewhere in the foreclosure process in the first three months of 2006, compared to 99 homes in similar straits in the final quarter of 2005. The foreclosure inventory fell to 0.98 percent from 0.99 percent.

In the unlikely event that you had been pondering delinquencies and foreclosures, you probably didn't think they were declining in number. A lot of news coverage has speculated that the combination of rising interest rates, alternative loans and falling home prices could force homeowners into foreclosure. But spikes in delinquencies and foreclosures haven't happened. Don't congratulate yourselves too much, America -- this isn't a sign that you've suddenly become more responsible.

Factors behind the drop in late payments include:

• Job growth.
• The recent vintage of many mortgages.
• The run-up in home prices over the last five years.
Source: BankRate.com

One in ten have an investment property

Australian Investors still prefer property over other assets such as shares.

Property investment may be in the low ebb right now, and may spell a good time for new investors to enter the market that mortgage brokers need to take avantage of.

In May 2004, the Reserve Bank said that 10.3 per cent of Australian households had an investment property. Some believe that is now around 12 percent [one in eight households.]

So why do people buy property as opposed to shares or other investment prospects?

The simple answer is leverage. By using mortgage finance with tax incentives investors can leverage a bigger investment and manage to hold that for longer. And its time that makes any investment work. Mortgage brokers should be more active in this area.

As an example, $400,000 is a common price to pay for property. If it appreciates at 5%pa that $20,000 a year, compounding.

If people bought shares then a $30,000 investment would seem large, and with a 5% capital growth it would only deliver $1,500 yield.

Also a lot happens to a share price, and this volatility can make people nervous and leave the market at the wrong time. Property on the other hand is largely a sleeper; noone knows what its worth till its sold, and growth happens gradually, and then in spurts in boom years.

When this happens the investor can make a lot of money in a short time if you are holding a few properties.

Mortgage brokers need to realise that property investors can become repeat customers as they accumulate their portfolios and as they tend to hold one to the property for a long time, upfront commissions are secure and trail commissions continue longer.
Prime candidates for purchasing investment properties these days tend to fall into two groups. Not surprisingly, the first is the baby boomers, who have considerable equity in their homes, tend to have their finances sorted and have five to 15 working years left. Many are conscious they need to do something outside of superannuation to boost their retirement income.

An emerging group are single females aged between 20 and 30. Many female "generation Ys" are getting the saving habit and getting into the market early.

A recent Citibank survey showed that 21 per cent of people who have a mortgage see it as something that will supplement their retirement income.

This presents another opportunity for mortgage brokers to satisfy this market with reverse mortgages and other similar products.