Buying Mortgage Leads: Tips for Internet Mortgage Loan & Refinance Leads

Small mortgage companies must determine the most cost-effective way to market their services. There are different options to acquire mortgage leads. The options are direct source leads, internet leads from their own web site, newspaper advertising, and third party online leads or mortgage brokers.
Mortgage lenders may receive leads directly from Internet companies such as Lending Tree or mortgage companies who bundle and sell leads, such as leadpoint.com. Lending Tree markets their internet leads directly to mortgage institutions that must compete with 4 or 5 other mortgage institutions for the mortgage loans. Lending tree advertises that they represent 9 out of the top 10 financial institutions.
Leadingplanet.com sells their Internet leads to mortgage brokers. They advertise that they provide thousands of mortgage professionals with fresh leads each month and their primary goal is to provide cost effective leads that will increase borrower fundings.  According to Claudio Perida, "leads are the blood to our loans.  In order for me to be consistent and productive, I need a reliable source of mortgage leads."
Internet mortgage sites offer to sell bundles of mortgages by type to brokers or financial institutions directly. The loans are bundled into groups of 25 by type, purchase leads; refinance leads, debt consolidation leads, second mortgage leads, home equity leads, etc. One site listed 18 different type leads.
The cost of a bundle of 25 mortgage leads varied from $125 - $150. A single bundle at the lower price would cost $3,125 and all 18 bundles would run $56,250.
The same leads can be sold over and over again. The broker buying the leads must find a company willing to close on the mortgage.

Some lending institutions have set up web site to market leads directly. This is significant as more and more borrowers are turning to the Internet in their search for lenders. In order to get the most bang for their advertising buck, small companies must carefully research all of the options available and chose the one most suited for their needs.

Read More

Option ARM - The World's Most Dangerous Mortgage

Home prices have reached record levels, and in many parts of the country, homes have become nearly unaffordable.Real estate has replaced the tech stocks of the late 1990's as the hot investment, and everyone has sold their stocks and jumped into investment property.Real estate prices have increased at a far greater rate than salaries, and the lending industry has attempted to solve this problem by introducing a tremendous number of mortgage options for borrowers who barely capable of purchasing a home.Most of these loan types feature adjustable interest rates and minimum down payments. One of these, the option ARM, is the most dangerous type of loan ever introduced.Borrowers who are considering an option ARM should be aware that this loan could leave them with a loan that is worth far more than the home it's used to buy and with a loan that he or she cannot afford to pay.The option ARM is not for the squeamish.

So what, exactly, is an option ARM?An option ARM is a mortgage with an adjustable interest rate that typically gives the borrower four different payment choices each month. The first choice is based on a 30-year amortization table; the second on a 15-year amortization table.These would correspond to payments for adjustable-rate 30 and 15 year mortgages, respectively.The third choice is an interest-only payment, which pays the interest that accrues during the month but pays nothing towards reducing the loan amount.The fourth choice, the one that makes this loan so dangerous, is called the "minimum payment."The minimum payment is calculated upon the first month's interest rate, which is usually a very low "teaser" rate that can be as low as 1-2%.Most borrowers with an option ARM opt to pay the minimum payment each month, and that's where the trouble comes in.

The loan carries and adjustable interest rate, and this rate can adjust as often as every month.If the borrower is paying only the minimum payment, then he or she isn't even paying enough to cover that month's interest on the loan.What happens then?The unpaid interest that has accrued is added to the loan principal.The principal can actually grow larger, and as interest due is calculated on the loan principal, the interest due will increase, as well.Interest rates are currently near all-time lows and are sure to increase.A buyer who continues to make minimum payments on an option ARM will find that the principal on the loan is actually increasing over time!This is known as negative amortization.

In a negative amortization situation, only bad things can happen.The lender can require refinancing under certain conditions stated in the loan agreement.The buyer may find himself unable to pay the loan and may have to default.And the lender could find himself holding a note that is worth far more than the house that it represents.

The option ARM is a loan that is best suited to investors and homeowners who only intend to keep the home for a short time.It is not a good choice for anyone who may be using it to buy more home than he or she can afford.Unfortunately, that describes a lot of buyers who are taking out this type of loan.Anyone who is considering a home purchase should be very careful if this type of loan is offered, as it could leave you both bankrupt and homeless.

Read More

Has Your Adjustable Rate Mortgage Become a Gamble?

Three or four years ago, interest rates on home loans dropped to levels not seen since the 1960's.  Millions of Americans took advantage of the favorable rates, which bottomed out near 5% for fixed rate, 30-year loans.  For adjustable rate mortgages, they rates were even lower.  Many buyers passed on the opportunity to lock in at fixed rates and gambled on the lower payments afforded by adjustable rate loans in order to buy either larger or more expensive homes.  That worked out fine at the time, as the rates kept the monthly payments affordable.  Unfortunately, the sixteen increases in the Federal interest rates since 2004 are about to have a dramatic effect on those buyers, many of whom many find out that they can no longer afford to pay for the homes in which they live.

Many adjustable rate loans are set up in such a way that the interest rate is fixed for the first three years of the loan's repayment schedule.  After that, the interest rate adjusts regularly, based upon prevailing market rates.  For the millions of homeowners who gambled and took out these loans in 2003, the Big Adjustment is going to come soon, and it isn't going to be pretty.  As the rates adjust to current rates from the low rates of 2003, many homeowners are going to be shocked to see that their monthly payments rise by as much as 50%.  Some will be fine with that, having anticipated this increase for some time.  Others will suddenly find themselves unable to pay for a house that they have long thought they could afford.  This will undoubtedly lead to an increase in the foreclosure rate, which is already some 60% above the rate of last year.  In Michigan, the rate is up by 90% over last year, as hundreds of owners have walked away from their home loans.

What can you do if you have an adjustable rate loan that is about to become unaffordable and may yet become even more so?  Your best bet may be to refinance and take out a 15 or 30-year, fixed-rate loan.  The benefit of doing so is the security that comes with knowing that your payment will remain stable over a long period of time, no matter what happens to the interest rates in the marketplace.  If you cannot afford your loan now and refinancing with a fixed-rate loan will still leave the payments unaffordable, you may have no choice but to sell the property and move to something smaller and/or less expensive.  You will not be alone.

Read More

Mortgage Tips: Pros and Cons of Refinance Loans for People with Bad Credit

If you’re stuck under some high credit card bills and your credit rating is slipping, one of the best ways to immediately improve your credit is a home equity loan.  When the loan closes, home owners have cash-on-hand to pay off bills.  The result: their credit rating starts to improve immediately.

Banking executive Dan Ambrose refers to those as the “band-aid loan”, also known as the 2/28 in mortgage lingo.

“Most sub-time loans are short term loans, not A paper market, which means a fixed rate for two years then the loan adjusts.”

He’s talking about 30 year refinancing mortgages for people with less than stellar credit.  Lenders offer a home-equity loan at a set interest rate for two years, and then the loan converts to a variable rate loan, where the interest rate fluctuates with the prime rate at the time.

That’s the down-side to the “band-aid loan.”  Lenders usually charge higher interest rates for people with lower credit scores.  Dan warns consumers to prepare themselves for when the loan converts.  Home owners could face a higher interest rate than the original home loan, and their monthly payments could hit them harder.

If consumers take the cash from their equity loan and pay-off their bills in full, after 18 months of perfect mortgage payments, Dan says the consumer’s credit improves to the point that “now every bank will deal with them.”

If you think a home-equity loan could save you form your creditors, watch out for the current housing market in your area.  “Watching the marketplace, I saw the writing on the wall”, says Dan.  “The real estate values are going down.  They’re starting to slow down drastically.”

And there’s the other potential roadblock for homeowners in this situation.  Lower home values means less equity and possibly not enough equity to satisfy their payment needs.  If the equity isn’t enough to pay all of your bills, and after two years your payments are even higher than before, you could possibly put yourself in a worse situation.

“People with marginal credit or no equity do have some options such as the 125% loan to get ahead.”

A 125% loan offers you a loan for more than your home is actually worth.  Talk to a mortgage professional to make certain the credit risk is worth the return.  Dan says most importantly; use the equity cash to pay-off those bills before you splurge on your dream vacation.

Read More

Understanding Credit Scoring On Mortgage Refinancing or Second Mortgage Loans.

For years, lenders have utilized "credit scoring" to determine whether or not an individual is a good credit risk.  Credit scoring has recently become a hot topic, due in large part by the mortgage lending industry's willingness to use the process to evaluate one's likelihood of repaying home mortgage refinancing or second mortgage loans.  Even insurance companies use credit scoring as part of their underwriting procedure when writing automobile and home insurance coverage. 

Credit scoring is a system, based on a statistical program, which awards points for certain factors that help predict who is most likely to repay a debt, such as a mortgage refinancing or second mortgage loan.  The total number of points, or score, is what lenders use to determine an individual's creditworthiness.  A large random sample of customers is taken, and analyzed statistically to identify characteristics relating to credit risk.  These factors are then given a weight based upon how strong a predictor they are of who would be a good credit risk. 

Credit scoring models do vary from lender to lender, but most generally include the following factors:

1)    Your current amount of debt as compared to your potential total available credit.

2)    Payment history on current and previous accounts.

3)    The length of your credit history.

4)    The number of credit inquiries (each time a creditor pulls credit in response to your application).

5)    The number of separate open accounts.

6)    Collection actions including judgments, repossessions, foreclosures, and bankruptcies

Using the statistical program, lenders compare this information about you to the credit performance of other consumers with similar profiles.  Therefore, it is usually more reliable than a subjective or judgmental decision, because it is based on real data and statistics.  Although it may seem somewhat impersonal, when used properly, credit scoring can allow creditors to evaluate credit applications faster and more accurately than individuals, in an impartial and unbiased manner. 

In addition, the home mortgage refinancing and second mortgage loan process has been shortened as a result of the speed in which mortgage lenders can now make decisions utilizing the credit score model.

Read More