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Risky mortgages back 10 weeks after dramatic crash – Orange County Register

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It was all the rage before coronavirus.

Mortgage lenders were funding deals that allowed everything from just listing liquid assets on the mortgage application with employment information being left blank. Another was 12 months of bank statement deposits as income proof alternative to tax returns. And, yet another example was bank and stock accounts being aggressively reformulated as high monthly returns to claim as monthly qualifying income.

Ten weeks ago, with the full force of COVID-19 converging on America, non-QM institutional buyers of these funded loans lost their nerve. They panicked. No sale was the sound! Just like that, there was nothing but a graveyard of unfunded risky mortgages. Across the country, perhaps tens of thousands of purchases and refinances about to fund, all died before arrival.

The non-QM market froze in response to COVID-19 and all of the economic ripples from lost jobs to shuttered businesses to death all around us. “Lenders didn’t know how to deal with risk,” said Guy Cecala, CEO and publisher of Inside Mortgage Finance.

Non-QM mortgages accounted for just 2% of the $2.3 trillion mortgages funded in 2019, according to Cecala.

S&P analyzed 85 non-QM securitization pools from February 2017 through February 2020 indicating that 50% of those non-QM loans reside in California. Those loans were characterized by lower FICO scores, alternative income documentation and self-employed borrowers.

This week the Mortgage Bankers Association reported 8.46% of all mortgages in forbearance.

Through the end of February non-QM delinquency data (pre-COVID-19) was just 4%, according to Jack Kahan, senior managing director, Kroll Bond Rating Agency. Delinquency is defined as at least 30 days mortgage payment past due. “Through the end of April non-QM delinquencies are running 20%,” said Kahan. Wow!

No distinction is made about forbearance borrowers vs truly delinquent borrowers.

What lenders, investors and bond rating agencies don’t know is the level of struggling non-QM borrowers that can’t pay and which are able to pay but won’t pay since forbearance is an option without penalty of late charges or bad credit marks. Most all non-QM lenders have offered at 90-day mortgage payment forbearance even though they fall outside of the Cares Act in which Congress passed-mandating up to a 12-month mortgage payment forbearance for Fannie, Freddie, FHA and VA mortgage holders.

Few saw the non-QM comeback this quickly. Thirty-one of 33 secondary mortgage market executives concluded that the non-QM market was “largely dead for a year or more” in a May survey conducted by industry researcher Tom LaMalfa.

Citi research analyst Roger Ashworth thinks there is a plethora of reasons for the non-QM market to come back in addition to tighter non-QM lending standards. “We are past peak unemployment. Employment will improve,” said Ashworth.  “Home supply is low. Demand is increasing to pre-coronavirus levels. Pandemic is placing a premium on maintaining your shelter and space.”

Non-QM will help the Fannie Mae rejects. Several people I interviewed think Fannie’s current obsession with proving self-employed borrowers’ have six months cash reserves, ongoing business deposits that are consistent with pre-coronavirus deposits and current income levels are similar to previous levels will be credit denied.

Non-QM includes expanded prime which means the loan falls outside of the Fannie credit box but does not extend to alternative income sources like bank statements instead of tax returns. There are plenty of high-quality self-employed borrowers being turned down from Fannie Mae type mortgages because of their self-employment temporary income disruption or decrease.

Non-QM standards are much more conservative 10 weeks later.

A sampling of lenders finds mortgage rates up a good two points or more. Previously, you might find non-QM in the 4% range, and now it is in the 6% or even higher range. Down payments are now minimally 20% whereas it was 10% ten short weeks ago.

Required middle FICO credit scores have gone from a minimum of 580 to 680. Cash-out has gone from 80% maximum loan-to-value to 70% plus a haircut on the FICO score now needing to be 740 whereas it was 720.

That debt-service-coverage-ratio rental property formula that got you in with rents being just 80% of the total mortgage payment now requires the rents to be 115% of the mortgage payment. For example, if the payment was $3,000, the rents only had to be $2,400. Now, at 115% your rents have to be $3,450 to qualify.

Caution may still be in the wind. “Although there appears to be some non-QM ratings activities, we don’t necessarily think that marks the return of the non-QM market,” said Scott Anderson of DBRS Morningstar Credit Ratings.

Freddie Mac rate news: The 30-year fixed-rate averaged 3.18%, up 3 basis points from last week. The 15-year fixed-rate averaged 2.62%, unchanged from last week.

The Mortgage Bankers Association reported a 3.9% decrease in loan application volume from one week earlier.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $510,400 loan, last year’s payment was $182 more than this week’s payment of $2,202.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point cost: A 30-year FHA (up to $442,750 in the Inland Empire, up to $510,400 in Los Angeles and Orange counties) at 2.75%, a 15-year conventional at 2.5%, a 30-year conventional at 2.875%, a 30-year conventional high-balance ($510,401 to $765,600) at 3.25%, and a 30-year jumbo adjustable-rate mortgage that is locked for the first ten years at 3.5%.

Eye catcher loan of the week: A 29-year fixed-rate conventional mortgage at 2.515% with 2 points cost.

Jeff Lazerson is a mortgage broker and adjunct professor at Saddleback College. He can be reached at 949-334-2424 or [email protected] His website is www.mortgagegrader.com.

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How Do I Sell My Vehicle With Joint Ownership?

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A joint auto loan is when two borrowers have rights and responsibility to the same vehicle and loan. If you have a cosigner, then you, the primary borrower, have all the rights to the vehicle. Here’s what you need to know when you need to sell your car with two people responsible for the loan.

Selling a Joint-Owned Vehicle

Joint owners are typically spouses or life partners who combine their income to meet income requirements or get a larger loan amount. Both co-borrowers are responsible for paying the car loan and have 50/50 rights to the vehicle, so both their names are listed on the title.

Since your co-borrower has the same rights and obligations to the vehicle as you, you must get their permission to sell the car. In most cases, they also need to be present for the sale to sign the title. This may not always be the case, though, so it’s important to know how to read your car’s title.

If you have it, take a look at your vehicle’s title for the names listed on the back where you sign to transfer ownership. For example: let’s say your name is Jane and your co-borrower’s name is Joe. You’re likely to see either:

  • “Jane and Joe”
  • “Jane or Joe”
  • “Jane and/or Joe”

If you see “and/or” or the connector “or”, this typically means only one person needs to be present for the sale of the car. But if you see “and” this means both of you need to be present to transfer ownership – this is usually the case with joint ownership.

In all three cases, you still need the permission of the co-borrower to sell the vehicle even if they don’t have to be physically present to sign the title. If you sell it without the co-borrowers consent, it may be considered a crime because it’s their property, too. Moving forward, discuss the sale with your co-borrower to avoid potential legal trouble.

Selling a Car With a Cosigner

How Do I Sell My Car With Joint Ownership?If you have a cosigner on your car loan, then things become easier. A cosigner doesn’t have any rights to the vehicle and their name isn’t on the title. Their purpose is to help you get approved for the auto loan with their credit score, and by promising the lender to repay the loan if you’re unable to. A cosigner can’t take your vehicle, sell it, or stop you from selling it yourself.

However, it’s nice to let them know if you do decide to sell the car because the auto loan is listed on their credit reports. If you can, reach out to them about your plans to sell the vehicle. The car loan’s status impacts them and could affect their ability to take on new credit when it’s active.

If you sell the vehicle and the lien is successfully removed from the title, then you’re both in the clear.

Removing the Lien From a Vehicle’s Title

If you still have a loan on your car, then your number one priority is paying off your lender. Your lender is the lienholder, and you can’t sell a vehicle without removing them from the title – they own the car until you complete the loan. This typically means paying off the loan balance until naturally during the loan term, or getting enough cash to pay it all off at once from a sale.

When you’re selling a car with a loan, you want to get an offer for your vehicle that’s large enough to cover your loan balance and to remove the lien. If you don’t get a large enough offer, then you need to pay that difference out of pocket before you can sell the vehicle. Or, you may be able to roll over the remaining loan balance onto your next car loan if you’re trading it in for something else.

Looking to Upgrade Your Ride?

Many borrowers ask for help to get the car they need. If you need more income on your loan application to meet requirements, asking a spouse or life partner to chip in can do the trick. If you have a lower credit score, then a cosigner with good credit could help you meet credit score requirements.

But what if you want to go it alone on your next auto loan and your credit isn’t great? A subprime lender could be the answer. Here at Auto Credit Express, we’ve been connecting credit-challenged consumers to dealerships with bad credit resources for over two decades, and we want to help you too.

Fill out our free auto loan request form and we’ll look for a dealer in your local area that’s signed up with subprime lenders. These lenders assist borrowers with many unique credit circumstances to help them get the vehicle they need. Get started today!

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Fixed-rate student loan refinancing rates sink to new record low for the second straight week

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Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.

The latest trends in interest rates for student loan refinancing from the Credible marketplace, updated weekly. (iStock)

Rates for well-qualified borrowers using the Credible marketplace to refinance student loans into 10-year fixed-rate loans hit another new record low during the week of May 3, 2021.

For borrowers with credit scores of 720 or higher who used the Credible marketplace to select a lender, during the week of May 3:

  • Rates on 10-year fixed-rate loans averaged 3.60%, down from 3.69% the week before and 4.32% a year ago. This marks another record low for 10-year fixed rate loans, besting the previous record of 3.69%, set last week.
  • Rates on 5-year variable-rate loans averaged 3.19%, down from 3.23% the week before and up from 3.04% a year ago. Variable-rate loans recorded a record low of 2.63% during the week of June 29, 2020.

Student loan refinancing weekly rate trends

If you’re curious about what kind of student loan refinance rates you may qualify for, you can use an online tool like Credible to compare options from different private lenders. Checking your rates won’t affect your credit score.

Current student loan refinancing rates by FICO score

To provide relief from the economic impacts of the COVID-19 pandemic, interest and payments on federal student loans have been suspended through at least Sept. 30, 2021. As long as that relief is in place, there’s little incentive to refinance federal student loans. But many borrowers with private student loans are taking advantage of the low interest rate environment to refinance their education debt at lower rates.

If you qualify to refinance your student loans, the interest rate you may be offered can depend on factors like your FICO score, the type of loan you’re seeking (fixed or variable rate), and the loan repayment term. 

The chart above shows that good credit can help you get a lower rate, and that rates tend to be higher on loans with fixed interest rates and longer repayment terms. Because each lender has its own method of evaluating borrowers, it’s a good idea to request rates from multiple lenders so you can compare your options. A student loan refinancing calculator can help you estimate how much you might save. 

If you want to refinance with bad credit, you may need to apply with a cosigner. Or, you can work on improving your credit before applying. Many lenders will allow children to refinance parent PLUS loans in their own name after graduation.

You can use Credible to compare rates from multiple private lenders at once without affecting your credit score.

How rates for student loan refinancing are determined

The rates private lenders charge to refinance student loans depend in part on the economy and interest rate environment, but also the loan term, the type of loan (fixed- or variable-rate), the borrower’s credit worthiness, and the lender’s operating costs and profit margin. 

About Credible

Credible is a multi-lender marketplace that empowers consumers to discover financial products that are the best fit for their unique circumstances. Credible’s integrations with leading lenders and credit bureaus allow consumers to quickly compare accurate, personalized loan options ― without putting their personal information at risk or affecting their credit score. The Credible marketplace provides an unrivaled customer experience, as reflected by over 4,300 positive Trustpilot reviews and a TrustScore of 4.7/5.

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Provident Financial calls time on doorstep lending business

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Provident Financial has confirmed plans to shut its 141-year-old doorstep lending arm, as its full-year results highlighted the strain the coronavirus pandemic and growing customer complaints have put on subprime lenders.

The Bradford-based company reported a pre-tax loss of £113.5m for 2020, compared with a £119m profit the previous year. The biggest drag was a £75m loss in its consumer credit division, which includes home credit.

Malcolm Le May, Provident chief executive, said: “In light of the changing industry and regulatory dynamics in the home credit sector, as well as shifting customer preferences, it is with deepest regret that we have decided to withdraw from the home credit market.”

Jason Wassell, chief executive of the Consumer Credit Trade Association, which represents alternative and high-cost lenders, said the decision showed that “the current regulatory framework does not work for the market, or its customers”.

“The result in this case is that access to credit will be reduced for hundreds of thousands of people.”

Provident built its name as a provider of home credit, or doorstep lending, which involves a team of local agents who regularly visit borrowers to collect repayments and discuss their products.

Proponents believed agents’ local expertise and personal relationships with borrowers allowed them to achieve better results than traditional bank lending to people with bad credit scores, but the approach has increasingly been superseded by digital models in recent years.

Provident’s business has also been affected by a series of self-inflicted and external difficulties. Its consumer credit division has been lossmaking since a botched effort to modernise the unit in 2017, which led to a pair of profit warnings and an emergency rights issue. More recently, its recovery has been hampered by an increase in customer complaints that prompted an investigation by the Financial Conduct Authority.

The complaints rise has been driven by professional claims management companies, echoing a broader trend across the subprime lending industry which has also affected companies such as Amigo, the guarantor lender. Executives also accuse the Financial Ombudsman Service, which adjudicates on customer complaints, of overstepping its mandate and encouraging huge volumes of complaints.

Provident said it would wind down or sell the consumer credit division, with either option expected to cost it about £100m. 

The move will see Provident exit the most controversial areas of high-cost credit to focus on what it describes as “mid-cost” lending through its Vanquis credit card business and Moneybarn vehicle finance arm. Vanquis and Moneybarn both remained profitable during 2020, despite more than a quarter of Moneybarn customers requesting payment holidays at the height of the pandemic.

The results were slightly better than average analyst forecasts, and the company said Vanquis and Moneybarn had both reported “improving trends” during the first quarter of 2021. Shares in Provident nonetheless dropped more than 10 per cent in early trading.

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