The latest on trigger leads, avoiding liar loans, home sales, the best interest rates and more
This has happened to many borrowers buying or refinancing a home: Within days of applying for a loan they're bombarded by phone calls from five or six other lenders wanting their business.
That's because the three major credit reporting agencies -- Experian, TransUnion and Equifax -- sell trigger leads.
When a bank or mortgage company pulls your credit history it shows you're in the market for a loan. The agencies immediately sell your personal information to other lenders eager to grab your business.
Your name and number only costs a few bucks, and selling such personal information is perfectly legal -- at least for now.
A few states have been discussing restrictions. Last month Minnesota's governor approved a block on most trigger leads. A ban is pending in Massachusetts.
In Washington, the House Financial Services Committee, chaired by Rep. Barney Frank, D-Mass., is also investigating the practice.
Interest.com's weekly survey of mortgage rates found the average rate for a:
- 30-year, fixed-rate loan rose to 6.47% from 6.42% last week. A year ago it was 6.72%.
- 15-year, fixed-rate loan rose to 6.21% from 6.15% last week. A year ago it was 6.32%.
- 30-year jumbo loan (for mortgages exceeding $417,000) rose to 6.68% from 6.64% last week. A year ago it was 6.91%.
- One-year, adjustable-rate loan rose to 6.09% from 6.08% last week. A year ago it was 5.89%.
- Five-year adjustable rate loan rose to 6.37% from 6.32%. A year ago it was 6.29%.
Use our extensive database of mortgage rates to find the best deals in your area, including many that are less costly than these national averages.
A "no-doc" or "stated income" loan can be a smart alternative for borrowers whose financial life doesn't fit the mold.
But these loans have also become a way for unscrupulous mortgage brokers to exaggerate a customer's income and push through loans that the borrower can't possibly repay.
A study of 100 stated loan applications by the Mortgage Asset Research Institute Inc. found almost 60% exaggerated incomes by at least half. Another study by BasePoint Analytics found that 70% of mortgage defaults were linked to "a significant misrepresentation on the original loan application."
"There's a huge amount of broker fraud out there," says Kerstin Arusha of the Fair Housing Law Project in San Jose, Calif., which represents low-income homeowners stuck in such loans.
"When you look at the applications of many of these borrowers, I see it reported that they make $10,000 or $12,000 a month, sometimes $20,000 a month. They always have $100,000 in personal assets ... You can see that these things are created by the broker."
Existing home sales fell 2.6% in April to the slowest sales pace in four years. The median sales price was down from this time last year and the number of homes on the market posted a significant increase. The National Association of Realtors reported that:
- Total sales -- including single-family, town homes, condominiums and co-ops -- fell to a seasonally adjusted selling rate of 5.99 million homes, down from 6.12 million in March and a 6.69 million rate in February.
- The median price for all housing types was $220,900. That was up from $217,800 in March and $212,800 in February, but down 0.8% from April 2006.
- There are now 4.20 million homes on the market. That's up from 3.75 million homes in March and February. It would take 8.4 months to sell that many homes at last month's rate, the longest in 15 years.
New home sales rose 16% from March to April, although sales for the first four months of the year are still down 20% from the first four months of 2006. The Commerce Department reports:
- Sales rose to a seasonally adjusted annual rate of 981,000 homes in April, up from 858,000 homes in March, 848,000 homes in February, and 937,000 in January, but lower than 1.12 million in December.
- The median sales price fell to $229,100 from $254,000 in March, $250,000 in February, $239,800 in January and $235,000 in December. Those numbers do not include the cost of incentives, such as subsidized mortgages and upgraded kitchens, which home builders have been offering. Such discounts are not subtracted from the sales price reported to the government.
- The number of unsold new homes fell to 538,000 in April from 545,000 in March. It would take nearly six-and-a-half months to sell that many at April's sales rate.
Builders trying to move a growing number of recently built homes are increasingly willing to help customers sell their existing home so that they can purchase a brand-new one.
Some are flat-out buying their customers homes. Others are hiring real estate agents or an investment company to expedite the sale to others.
That's great news for anyone shopping for a new home because it will almost certainly take longer to sell your old house now than it would have just a year or two ago. That makes it a bad time to be stuck with two mortgages.
Bank of America is getting lots of attention for eliminating closing costs and private mortgage insurance on its "No Fee Mortgage Plus" loans.
It began offering the simplified loans in Washington last September, rolled them out in eight additional states in February and across the entire nation a couple of weeks ago.
Bank of America deserves credit for making home buying easier and eliminating some of the costly surprises closing costs can bring.
But those loans might not be the best deal if you can qualify for a lower interest rate from another lender.
One example we created found Bank of Americaâs lowest rate on a 30-year fixed-rate loan was 6.625% -- higher than the national average of 6.2% and a point more than some lenders.
So before you sign on the dotted line use our mortgage payment calculator to make sure higher monthly payments don't offset the money you save on closing costs in just a few years.
Here's the sort of speculative buying that has backfired on so many investors who bought new homes intent on "flipping" them for a quick profit.
Jason Beaver, a California computer programmer, got caught up in the talk of the hot housing market from friends who bought multiple homes in Las Vegas and made a killing.
When he leapt in, so many buyers were clamoring for houses that he had to win a lottery for the right to even buy a house in an adult subdivision where he was too young to even live.
But after Beaver put $35,300 down on a $353,000 house other investors flooded the market with resale homes. The subdivision's builder responded by slashing the cost of new homes by as much as $80,000.
Beaver anxiously put his house up for sale as soon as it was finished for a break-even price. He got no offers. Now he's renting the home for about $1,000 a month less than his expenses.
"The fast-growth, make-a-quick-buck real estate investment, I don't think I'll try again," he tells the Associated Press.
Black and Hispanic borrowers helped fuel a multiyear housing boom, accounting for 49% of the increase in homeowners from 1995 to 2005, according to Harvard's Joint Center for Housing Studies.
But Hispanics and African-Americans were far more likely to finance their homes with high-cost and often risky subprime loans.
Federal Reserve data reported by USA Today says 46% of Hispanics and 55% of blacks who took out purchase mortgages in 2005 got higher-cost loans, compared with about 17% of whites and Asians.
Chicago's south side, with a large concentration of minority borrowers, has a high concentration of subprime loans and the state's highest foreclosure rate. In Boston, where defaults are rising -- especially in minority areas -- 73% of high-income black buyers (those making $92,000 to $152,000) and 70% of high-income Hispanics had subprime loans in 2005, compared with 17% of whites.
As a result, those borrowers are suffering from an alarming number of foreclosures, leading to abandoned and often vandalized homes that threaten to destabilize entire minority neighborhoods. That's why the NAACP, National Council of La Raza and other civil rights groups recently called for a six-month moratorium on subprime home foreclosures.
Do home builders saddle buyers with costly loans they don't understand and can't afford just to close a sale?
A criminal justice professor at the University of Texas, San Antonio, thinks they do after studying a relatively new subdivision where 27% of the 313 homes are in foreclosure.
Olivia Yu says one in six of the subs' houses were financed with adjustable, high-rate mortgages, often after the builder steered first-time buyers to its own mortgage company.
Now more than half of those homes are in foreclosure.
"It seems to be a problem in new housing developments," Yu told the San Antonio Express-News. "The salespeople are working for the builder, and the process is very streamlined. It becomes easy for a first-time buyer to be talked into a loan they don't understand."
Anyone buying a home should realize that the big, decade-long run-up in prices has definitely ended.
The National Association of Realtors recently revised its projections for existing home prices. The Realtors first predicted the median sales price would rise about 1% this year. But now the association says it will fall 0.7% from $221,900 in 2006 to $220,300.
This would be the first time home values post a year-over-year decline since the Realtors began keeping those stats in 1968.
But are the Realtors still being too conservative? Economist Edward Leamer, the director of the University of California, Los Angeles' Anderson Forecast thinks so.
He predicts the price of existing homes will decline between 2% and 3% this year, and expects that trend to continue for two to three more years.
With high-cost subprime mortgages harder for people with poor credit to obtain, Leamer says, "you're eliminating 20 to 30 percent of the demand for homes."
There's a lot of talk in Washington about how to stop unscrupulous lenders from luring unsophisticated borrowers into high-cost mortgages they'll never be able to afford.
Conservatives and pro-business groups argue that such regulations are difficult to write without lots of unintended consequences.
If Congress were to tighten lending rules, "who would be the losers in all of this?" asked Ron Utt, a research fellow at the Heritage Foundation, asked in the Atlanta Journal and Constitution, a conservative research center in Washington. "I suspect it would be the marginal, well-meaning borrower... who may have had some credit problems" but still deserves a chance to buy a house, he said.
But John Taylor, president of the National Community Reinvestment Coalition, which advocates for fair housing, told the Journal that Congress must prevent lenders from luring unsophisticated buyers into complicated mortgages that involve lots of fees but little security.
Many lenders fool people into "thinking they have enough income to become homeowners, but really, they are just being put into expensive rental properties" for a short time before getting kicked out, Taylor said.
The current wave of foreclosures is "what happens when Congress sits back and fails to act in the best interests of consumers," Taylor said. He says a new federal law is needed because 24 states have no laws against predatory lending, while the other 26 "have a hodgepodge of different rules."
The Wall Street Journal reports there's a growing number of "lifestyle communities" being built or planned that allow residents to indulge a growing number of specialized interests.
Homes in these communities typically cost $500,000 or more and cater to baby boomers with the time and money to pursue a singular passion such as car racing, horseback riding or flying.
Here are some the examples the paper cited:
- Racers Ranch 40 miles east of Dallas is planning to build a private track where owners can stretch their sports car to the limit or watch the action from an 8,000-square-foot clubhouse.
- The Crofts in Shepherdstown, W. Va., features stables, riding trails and lots of up to 11 acres.
- Jumbolair Aviation Estates near Ocala, Fla., is built around the country's largest private airstrip.
- Cooper Life at Craig Ranch, 30 miles north of Dallas, calls itself a "fitness village" with an Olympic-size pool and 75,000-square-foot fitness center staffed with personal trainers, doctors and dieticians.
A growing number of New Yorkers with six-figure salaries and reasonably good credit are finding mortgages harder to get as lenders try to stem losses from loans to subprime, borrowers.
"You're going to pay the piper for any little mistake," Melissa Cohn, president of The Manhattan Mortgage Co. told the New York Times.
Buyers with red flags on their applications, from big credit card balances to suspiciously high salaries for their job, are facing delays and higher fees.
Cohn says her brokers are spending twice as much time on each application as they did a month ago because of new lending requirements, and she expects the situation to get worse.
Follow Interest.com on Twitter.