Your Questions About Mortgage

Sandra asks…

If mortgage bonds are secured corporate bonds then how did the subprime bubble happen?

I am trying to understand secure bonds and I know mortgage bonds are secured bonds,if that is the case,even if they default ,the investor should get the prinicipal back.Can someone give an explanation of this works.

admin answers:

I’ll try to explain this clearly, because it can be confusing:

Person Z buys a house using a mortgage from Bank Z. Bank Z takes Person Z’s mortgage and packages it up with many other mortgages. Bank Z then sells the mortgages to Company R.

Company R issues bonds using the mortgages as collateral. In effect, they are saying “Even if our corporate credit isn’t enough to convince you to buy our bonds, we’re backing them up with these mortgages for extra protection.” Because the bond is secured, they can offer a lower coupon rate (the bond is less risky). Person A, seeing this great secured bond, buys a lot of them.

Now, interest rates rise and Person Z’s adjustable-rate, interest-only jumbo loan goes from $800/month to $3500/month. Person Z can’t pay and defaults on the loan.

The bonds that Person A bought have had their security defaulted on by Person Z. They are still backed by the homes themselves, but since EVERYONE is defaulting property values are plummeting. Even worse, the mortgage company is incurring huge costs to buy the house at auction and carry it on their books until they can sell it and get their money back. The bonds issued by Company R are much more risky now.

In order to compensate for the extra risk, investors refuse to buy Company R’s bonds until they can get them at a very steep discount. This means that Company R won’t raise as much money as they need. If Company R doesn’t raise much money, they likely won’t buy mortgages from Person Z’s lender any more. If the lender can’t sell it’s mortgages in the secondary market, it won’t have as much money to lend. Without much money to lend, the price of money goes up. If money is more expensive, other people have difficulty borrowing money. If everyone has trouble borrowing money, none can afford to buy the foreclosed homes and the downward spiral continues.

Laura asks…

What is the best mortgage company to get a loan modification through?

What is the best mortgage company to get a loan modification through? Easiest mortgage company? I would like to know!


admin answers:

Are you thinking about mortgage refinance, second mortgage or loan modification? USLoanz offers the lowest rates refinancing mortgage loans with affordable repayment plans online. Want to breathe easier and have less financial hardships, especially in today’s unstable economy? Those with home mortgage loans that need refinancing or who are looking for a mortgage modification have come to the right place! Our low mortgage refinance loan rates and low monthly payments are just what you are looking for. Take the first step; apply with us NOW at USLoanz. We help make your house a home.

Steven asks…

What is the best mortgage to go for in London banks?

I am a first time house buyer and need to find a mortgage wihtin the next 16 weeks. I would like to know what banks are doing the best mortgage deals at the moment, can anyone help?

admin answers:

The woolwich life time tracker is a good one but go on and they will give you the best deals on the market

Richard asks…

How does making your mortgage payment bi-weekly save you money?

I got a letter in the mail from the bank that says paying our mortgage payment bi-weekly instead of monthly could save us $40,000 to $100,000 in interest and reduce our mortgage term by 7 to 9 years without refinancing. How does this work?

admin answers:

The “interest on 15 days instead of 30” isn’t always true. Many mortgage companies who offer this program just hold the first half till the second half arrives. The mortgage company might make some interest, holding all those half payments for 15 days, but you don’t.

The real benefit is that paying every 2 weeks make for 13 months. You make an extra payment which goes right to the principal.

You don’t need to pay the mortgage company the $300 or $3000 (whatever the current fee) to set this up. You can pay extra on your principal anytime you want. Even paying as little as $10 every month will shorten your loan.

Carol asks…

What determines if the mortgage company will come after you if you walk away from a 80/20 mortgage?

We have an 80/20 mortgage and have tried to refinance with no avail. We did get a 3-yr loan modification, however, after that the price will jump back up again. And if they come after my husband, what do we do then?

admin answers:

It depends if you live in a recourse state or a non-recourse state. Recourse means that they can sue you in civil court. 2nd mortgages are pretty much ALWAYS recourse loans…even in non-recourse states. Even if you live in a non-recourse state, the amount of money that you stiffed the bank for is considered income and the bank will issue you a 1099 for that. Some people are hundreds of thousands of dollars underwater. How would you like to pay the taxes on that? Next time, buy a house you can actually afford. Rates are at all time lows and you STILL cannot afford your house payments.

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