Q&A about today’s mortgage market
Helpful information and advice for borrowers looking for a home loan.

Q. Can you explain what is going on in today’s mortgage market?
LendingTree recently issued a letter to borrowers from CEO C.D. Davies that offers information about today’s mortgage market but let’s take a minute to dig deeper.

There are two distinctively different stories to tell in today’s mortgage market.

First – there are prime borrowers with great credit getting loans in a market with historically low interest rates. Lenders are literally chomping at the bit for this type of borrower. If you fall into this category, it’s important to shop your loan to ensure you get the best deal.

Second – we have borrowers with fair to poor credit, the inability to document their income or assets and little to no down payment. For these borrowers, it’s currently a difficult time to get a loan. Instead, borrowers in this category should try to improve each of these areas of their borrowing criteria. If you fall into this category, ask yourself if you can take the time to save more money for a down payment or if you can you improve your credit score. These are necessary changes for to make in order to get a loan in today’s market.

Q. When does LendingTree foresee the home loan market getting better?
The mortgage industry is certainly going through turbulent times right now. The market is undergoing a shakeout and this is likely to continue for some time. In September, we had Doug Duncan in town for our eighth annual LendingTree Partner Summit. He’s the Chief Economist of the Mortgage Banker’s Association and he shared the MBA’s belief that the mortgage market will likely start to rebound late next year.

Q. Is it still possible to get a loan in today’s market?
Despite the news, the fact is, tens of thousands of borrowers are getting good, competitive mortgage loans every day. Credit is still available and lenders are, of course, still making loans. With conditions as they are, being a prime borrower is quite advantageous in today’s mortgage market. That means if you have a credit score above 720, the willingness to document your income and assets and the ability to make a down payment of at least 10 percent, you should not be negatively affected by today’s market situation. In fact, you’re in the driver’s seat when it comes to getting a competitive loan with a great interest rate.

Also, keep in mind that now – more than ever – it is important for consumers to shop their borrowing needs. The market is extremely competitive so whether you go to LendingTree.com or you look for your loan on your own, make sure to visit at least three lenders so you can do an apples-to-apples comparison on mortgage products, rates and fees.

Q: Where can I get a copy of my credit report?
It’s vital to know both your credit score and what’s on your credit report before you shop for a loan. By visiting www.annualcreditreport.com you can easily get a free copy of your credit report from each of the three big credit reporting agencies. There is a small cost associated with getting a copy of your actual credit score but if you are ready to move forward on getting a new loan, it’s a good idea to pay the fee to get your score. You need to understand how lenders view your credit worthiness. If you have a lower credit score (below 660), think about how you can improve it before you apply for a loan. There are articles in the LendingTree Smart Borrower Center that will offer you advice in this area. The availability of loans for those with lower credit scores is shrinking, so taking the time to boost your score will increase your chances of finding a good loan at a competitive rate.

Q: Why is it important to shop my loan and what questions should I ask lenders?
Shopping your loan allows you to make an apples-to-apples comparison on your loan options, rates and fees. Make sure to visit at least three lenders and get copies of your Good Faith Estimate (GFE) from each of them so you can make a healthy comparison. Remember, prime borrowers are in a good position to get a great loan in today’s market so do whatever you can to become a prime borrower and make those lenders compete for your business.

If you’re ready to start loan shopping, make sure to print this list of the top questions to ask. This will help you during each of your conversations with lenders. Create a chart allowing you to jot down the answer of each question from each lender. When you’re done, you will have the information you need to compare all your loan options.

Q. What determines if you’re a prime borrower, a sub-prime borrower or an Alt-A borrower?
Lenders group borrowers into three main categories of borrower, and what defines these categories is the level of risk associated with that type of borrower.

1) A subprime borrower is a borrower with damaged credit, which means they have a credit score below 660.

2) A prime borrower is a borrower with a credit score above 720. This type of borrower often meets the three requirements of getting a loan at a great rate: a high credit score (above 720), the willingness to document their income and assets, and the ability to make a down payment of at least 10 percent.

3) An Alternative-A borrower – or what is called an Alt-A borrower – falls somewhere in the middle of a subprime and prime borrower. Generally a borrower who falls in this category is not able to meet one of the three important requirements that we discussed before – high credit score, willingness to document income and assets and the ability to make a down payment of at least 10 percent.

Q: How much home can I afford and what other costs should I be aware of when owning a home?
Owning a home costs more than just the mortgage payment. When you think about what you can afford, you must consider your property taxes, homeowner’s insurance and maintenance costs. Be realistic about your budget before you begin house or mortgage shopping. Our home affordability calculator can help you decide how much home you can purchase. Also keep in mind, today’s market conditions will require a down payment and documentation of your income and assets. The days of 100% financing (buying a home with no down payment) are basically gone.

Q: How do you refinance an adjustable rate mortgage (ARM)?
If you have an adjustable rate mortgage and are considering refinancing, first thing you need to do is understand the loan you currently have. Ask yourself the following questions:

• When will my loan adjust?
• How much will it adjust by?
• What will my new monthly payment be?

These questions will help you evaluate your loan and get a better idea of what’s coming down the pike as far as rate and payment adjustments go. If your loan is going to reset in the near future – say in the next month or two – you may want to consider refinancing. But, if your loan is not set to adjust for a year or longer, now may not be the best time to refinance.

Next you need to understand the situation you are in:

• Discover your credit score. A borrower with a credit score of 720 or above is a prime borrower in the eyes of lenders and will be eligible for the best rate and terms on a new home loan.
• Can you document your income and assets? Lenders are looking for borrowers who have the ability to document at least two years worth of income and assets so make sure you are prepared and have your hands on some of this historical information. You can likely contact your employer and your bank to get older paychecks and statements that you can’t seem to locate.
• Discover the equity you have in your home. Contact a local REALTOR® and ask that they prepare what is called a Comparative Market Analysis or a CMA. This is a full report detailing the value of your home based on market conditions in your area and what comparable neighboring homes are selling for. This is a great tool that will be prepared for you free of charge by a local REALTOR®.

Each of these actions will help you plot a path towards borrowing better. If you discover you’re not in a good place to refinance and are worried about your situation, consider contacting NeighborWorks® America Homeowner’s HOPE Hotline at 1-888-995-HOPE. Here you will receive experienced counseling and be connected, as appropriate, with a lender or local NeighborWorks organization. NeighborWorks America is an organization created by Congress to provide financial support, technical assistance, and training for community-based revitalization efforts.

Q: What’s happening to the jumbo loan market?
Typically with jumbo loans (loans greater than $417,000), borrowers see an interest rate increase of about 25 basis points – or ¼ of one percent – over a typical conforming loan rate. For example, if today’s average 30-year fixed rate conforming loan (less than $417,000) was around 6.5%, an average jumbo loan rate would be typically .25% higher or around 6.75%. Right now, the jumbo loan rate spread has increased by a full percentage point pushing these rates to over 7.50%. This seems to be an irrational market reaction to today’s current situation and should normalize relatively quickly.

Q. How does a Fed rate cut or hike affect interest rates for borrowing?
When the Federal Reserve cuts or raises their Federal funds fate this has an indirect affect on interest rates for some home loans. When the Fed makes a change to its Fed Funds rate (the interest rate that banks charge each other), we often see a mirror image adjustment to what is called the prime rate. The prime rate is the rate it costs banks to borrower money over night and is currently at 7.75%. When the prime rate changes, this triggers a rate adjustment with indices, which are the financial products that determine interest rates for shorter term loans such as 3-year, 5-year or even 7-year ARMs. These short-term loans have interest rate adjustments periodically based on Treasury averages or specific indices like the London Interbank Offered Rate indexes (LIBOR). Knowing what Treasury average or index your ARM is tied too will help you keep an eye on any fluctuations. Check your loan documents to find this information.

For longer-term home loans – such as 30 or 15 year fixed rate loans – these are typically influenced by the 10-year Treasury note and are not as easily or quickly affected by a Fed move. When interest rates are rising, many homeowners opt for a fixed rate loan but when rates are lower, adjustable rate mortgages may be more attractive to borrowers. The choice you make should be based on your current budget and your risk tolerance. If you’d rather have the certainty of a fixed monthly payment, a fixed rate loan will be the best bet for you. In today’s market, fixed rate loans are at historically low rates.

While the Fed does not directly control mortgage rates, it does have an indirect impact on borrowing rates, particularly with shorter term loans. If the Fed cuts rates, credit card interest rates will dip slightly, as will auto loans and, even some home loans.

Q: If my questions weren’t answered here, where else can I find information about getting a loan in today’s market?
If you have additional questions, please visit the LendingTree Smart Borrower Center located at www.lendingtree.com/smartborrower. This Web site is an online education resource that will arm you with the information, tools and advice you need to help navigate the sometimes-confusing world of credit, debt and loans. Here you’ll find hundreds of objective articles, helpful and easy-to-use calculators, as well as printable loan guides that together, will help you make smart borrowing decisions. Remember, knowledge is power, so if you are in the market for a new home loan make sure to get the facts and get yourself a great loan at a great rate!

News Alert: Fed cuts key interest rate by .50%
By Nicole Hall – LendingTree.com

The Federal Reserve lowered interest rates half a percent on Tuesday, in what was the first cut to the federal funds rate since June 2003.

The move lowered the target on a key short-term interest rate from 5.25% to 4.75% – double the quarter-point cut many economists were predicting. This aggressive cut was seen as an attempt to prevent troubles in the housing and mortgage markets from negatively impacting the economy.

“Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time,” the Federal Open Market Committee said in a statement issued Tuesday, September 18.

What does the rate cut mean to borrowers?
The rate cut sent stocks soaring following the announcement, but the average borrower may be wondering how the news will affect them. In essence, the Fed’s action means that short term interest rates will fall. The federal funds rate, the rate that was lowered, influences the prime rate, which in turn can influence variable-rate short term loans (such as home equity lines of credit); adjustable rate mortgages (although more indirectly); auto loans and even credit card interest rates. Fixed-rate loans, on the other hand, are tied to long-term interest rates like the 10-year Treasury note yield.

In summary, while the Fed does not directly control mortgage rates, it does have an indirect impact on borrowing rates, particularly with shorter term loans. If the Fed cuts rates, credit card interest rates will dip slightly, as will auto loans and, even, some home loans.

To find out if the interest rate cut could lower your loan payment, call 1 800 555-Tree. 

5 steps for smart borrowing in today’s market
Confused about getting a loan in today’s chaotic mortgage market? Here’s help.

The credit markets have tightened. For some it will be difficult to get a loan. But for others, it’s a fine time to borrow. If you’re considering a loan, these 5 simple steps will help you evaluate your options and make the right choices.

1) Review your current loan
If you have an adjustable rate mortgage, now may be a good time to refinance into a fixed-rate option before rates go up. First, review the details of your current loan. When is your rate due to adjust? What kind of increase should you expect? Does your loan carry a prepayment penalty?

2) Check your credit score
It’s vital to know both your credit score and what’s on your credit report before you shop for a loan. The three main credit bureaus have set up www.annualcreditreport.com where you can order your credit report once each year for free. If you’re serious about getting a mortgage loan right now, it’s worth the small charge to get your actual credit score as well.

3) Shop your loan
Shopping rates from multiple lenders will help you secure the best rates and terms. Whether you use Lendingtree.com to obtain multiple offers with one simple form, or shop the loan yourself, make sure you engage multiple lenders to understand your options.

4) Make sure you can afford it
The costs of owning a home extend far beyond the mortgage payment. Be sure to consider property taxes, homeowner’s insurance, maintenance and other costs. Our free ”Home Affordability Calculator” can help you figure out what price home you can afford.

5) Do your research
Now more than ever, you need to research your mortgage options. The LendingTree Smart Borrower Center offers calculators, tools, videos and lots of expert advice to help you decide what’s right for you.

LendingTree is committed to helping you make smart borrowing decisions, even if the smartest decision for you right now is not to borrow.

5 steps for smart borrowing in today’s chaotic mortgage market
Confused about getting a loan in today’s market? Here’s help.

The credit markets have tightened. For some it will be difficult to get a loan. But for others, it’s a fine time to borrow. If you’re considering a loan, these 5 simple steps will help you evaluate your options and make the right choices.

1) Review your current loan
If you have an adjustable rate mortgage, now may be a good time to refinance into a fixed-rate option before rates go up. First, review the details of your current loan. When is your rate due to adjust? What kind of increase should you expect? Does your loan carry a prepayment penalty?

2) Check your credit score
It’s vital to know both your credit score and what’s on your credit report before you shop for a loan. The three main credit bureaus have set up www.annualcreditreport.com where you can order your credit report once each year for free. If you’re serious about getting a mortgage loan right now, it’s worth the small charge to get your actual credit score as well.

3) Shop your loan
Shopping rates from multiple lenders will help you secure the best rates and terms. Whether you use Lendingtree.com to obtain multiple offers with one simple form, or shop the loan yourself, make sure you engage multiple lenders to understand your options.

4) Make sure you can afford it
The costs of owning a home extend far beyond the mortgage payment. Be sure to consider property taxes, homeowner’s insurance, maintenance and other costs. Our free ”Home Affordability Calculator” can help you figure out what price home you can afford.

5) Do your research
Now more than ever, you need to research your mortgage options. The LendingTree Smart Borrower Center offers calculators, tools, videos and lots of expert advice to help you decide what’s right for you.

LendingTree is committed to helping you make smart borrowing decisions, even if the smartest decision for you right now is not to borrow.

LendingTree chief economist predicts first rate change in over a year

The next Federal Open Market Committee (FOMC) meeting will take place on Tuesday, September 18. LendingTree Loans Chief Economist Jim Svinth forecasts a rate decrease of at least 25 basis points.

Svinth states, “With continuing deflation in the housing market, the current credit freeze, and the recent employment data, the Fed will be looking to prevent any broad economic downtown by reducing the target Fed Funds rate by .25% to .50% tomorrow.”

Svinth adds, “The market has already priced in at least a .50% reduction over the next two Fed meetings. Anything less than this will give the impression the Fed is out of touch with how the housing and mortgage markets are truly hitting Main Street.”

A rate cut tomorrow will break a year long pause campaign that has been in effect since August 8, 2006.

Housing market: Riskiest regions
By Brenda Spiering – LendingTree.com

It’s a fact. Today’s housing market isn’t what it used to be. In most markets, you can no longer buy a home and bank on its value appreciating in the short-term.

But what does this mean for the average homeowner or home buyer? Well, first of all, national statistics can be misleading. In recognition of this, PMI Mortgage Insurance has come out with a new U.S. Market Risk Index that ranks 50 of the nation’s largest metropolitan areas in terms of how likely they are to have lower housing prices in two years time.

The PMI index is different from more traditional real estate market indices in that it takes into account price volatility as well as price movements. It therefore identifies areas that have experienced the sharpest boom in housing prices and the greatest decline in affordability — as the ones most likely to experience a price “correction.”

For example, much of the central and southern U.S. – that has had a fairly low rate of appreciation and housing prices that have remained relatively affordable – is considered less likely to experience a significant price deceleration.

According to the index:

The riskiest markets (with an over 60 percent likelihood of decline) are:
Riverside-San Bernardino-Ontario, California (65.2%)
Phoenix-Mesa-Scottsdale, Arizona (64.6%)
Las Vegas-Paradise, Nevada (61.4%)
West Palm Beach-Boca Raton-Boynton Beach, Florida (60.7%)

The least risky markets (with a less than 10 percent likelihood of decline) are:
Cincinnati-Middletown, Ohio-Kentucky-Indiana (9.7%)
Columbus, Ohio (9.3%)
Indianapolis-Carmel, Indiana (8.4%)
Houston-Sugar Land-Baytown, Texas (7.9%)
Dallas-Plano-Irving, Texas (7.5%)
Fort Worth-Arlington, Texas (7.4%)
Pittsburgh, Pennsylvania (6.4%)

So what does this expected decline in the housing market mean to potential home buyers and sellers? Based on an analysis of its findings, PMI suggests the following:

1. Home ownership should be viewed as a long-term investment. While we may be currently experiencing a dip in the market, historically, houses owned for 10 years or longer usually appreciate in value.

2. The days of quick and easy home-flipping may be over. Buying a handyman’s special, fixing it up and selling it for a quick profit can work well when prices are escalating. It may not pay off so easily, however, in a declining market.

3. Be careful to choose a mortgage that you’ll be comfortable with for the long-term. If you choose an adjustable rate mortgage (ARM) and your monthly payment increases to a level you can’t afford, it may not be so easy to refinance and arrange a lower payment if your home has gone down in value.

4. If you already have an ARM and are concerned about the possibility that rising rates may cause your monthly payment to become unmanageable, talk to your lender as soon as possible. You may want to consider refinancing for the security of a fixed-rate loan. Or you may be able to work out a new payment plan for your existing loan.

5. Don’t think now’s a bad time to buy a home. Today’s declining prices may have made homeownership in your region more affordable than it’s been in recent years. And owning a home continues to be one of the more effective long-term strategies for building wealth.

Today’s changing home market should be viewed as part of a much larger economic cycle – just as your decision to buy a home should be viewed as part of your much larger, lifelong financial plan. Before you take action, be sure to take a good look at your financial picture and consider all of your options carefully.