By Catherine Brock
Auto financing just got easier for consumers with less-than-stellar credit scores.
Do you want a piece of the federal bailout action? Now may be your chance. GMAC, the financing unit of General Motors, is passing Troubled Asset Relief (TARP) funds onto its consumers, in the form of looser credit standards on auto loans. There's just one tiny catch-you must buy GM.
Auto industry secures bailout funding for car loans
The troubles of American automakers have been well documented. It's bad enough that they're coping with high labor costs, cars that don't appeal to consumers, and insufficient liquidity. But when you add in a tight credit environment that can't support consumer auto loans, it's a recipe for disaster.
The situation was so severe that the feds finally stepped in with two separate bailout deals. One of them provided much-needed cash to GM and Chrysler. The other bolstered GMAC, the primary provider of auto financing for GM dealers, with cash. The manufacturers will use their money to reposition their operations for future profitability, while GMAC will deploy its newfound capital to fund more car loans.
Lower standards for auto loans
To improve its car loan production, GMAC will lower its minimum credit score requirements. The move marks a return to GMAC's traditional underwriting standards. Two months ago, when the credit markets nearly grinded to a halt, GMAC was forced to increase its minimum approvable credit score from 621 to 700, because it didn't have access to the capital required to service those below-700 borrowers.
In late-December, however, GMAC secured a capital contribution from TARP. This money allows the company to reinstate the lower credit score minimum of 621.
In a public statement, GMAC President Bill Muir said, "We will continue to employ responsible credit standards, but will be able to relax the constraints we put in place a few months ago due to the credit crisis. We will immediately put our renewed access to capital to use to facilitate the purchase of cars and trucks in the U.S."
Aggressive auto financing promotions
GMAC also ran an aggressive 0 percent car loan promotion between December 30 and January 5. Inclusive of that promotion, GM's December sales were still down more than 31 percent. Full-year sales were down 22.9 percent.
TARP was established in early October when Congress passed the Emergency Economic Stabilization Act of 2008. To participate in the program, GMAC applied for bank holding company status in November; that application was approved by the Federal Reserve Board in the following month. GMAC subsequently received $6 billion in government bailout funds. Auto manufacturers GM and Chrysler received bailout financing under a separate arrangement by President Bush.
If your credit score is between 621 and 700, you can technically take a slice out of the bailout pie. Just head over to your nearest GM dealer, and finance an auto purchase.
What interest rate will you pay on your loan?
By Marcie Geffner
If you've decided to buy a home or refinance your mortgage, you may be puzzled by the different interest rates you've seen advertised for home loans. You're not alone: Many home buyers and homeowners are confused when they discover they don’t qualify for these rock-bottom interest rates.
The reality is that the interest rate you’ll pay on a loan is determined largely by your own personal situation. Even if you don’t meet the requirements for the best-of-the-best rates that you've seen advertised, that doesn't mean you won't be able to qualify for a loan or won't be offered an attractive interest rate that you'll be able to afford.
The interest rate you'll be offered will depend on:
● Credit score. Your credit history and credit score will have the greatest effect on the interest rate you'll be offered. The higher your score, the lower your interest rate likely will be. A credit score is a numerical representation of how well you've handled other loans and credit cards in the past.
● Type of property. The interest rate you'll be offered also depends on the type of property you want to purchase. You'll generally pay a higher interest rate to buy a second home or a property you want to rent out to tenants than you will to buy a home you intend to occupy yourself.
● Loan term. Interest rates tend to be higher on 15-year loans than they are on 30-year loans. That means you'll likely be offered a higher rate if you choose the shorter term.
● Loan amount. If you want to borrow more than $417,000, your mortgage may be considered a non-conventional or even "jumbo" loan, in which case, you'll pay a higher interest rate due to the larger loan amount.
● Loan-to-value (LTV) ratio. Your loan-to-value ratio is the total amount of your mortgage divided by the appraised value of your home or the home you want to buy. If you have only a small downpayment, or not much equity, you'll likely pay a higher interest rate. Taking out cash can raise your interest rate as well. Read more about LTV ratios.
● Location. Interest rates vary from lender to lender and state to state. Some states simply have lower borrowing costs on average.
When you compare the interest rates you’re offered with advertised interest rates, keep in mind that some advertised rates require payment of discount points, which makes those rates appear to be cheaper than they actually are. A point is an upfront fee that's equal to 1 percent of the loan amount. Points don't directly influence the interest rate you'll be offered, but you can pay points to reduce the interest rate on your loan. Use the LendingTree Discount Points calculator to figure out whether paying points up front will be worth the cost over the term of the loan.
Since the interest rate you'll pay on your loan will depend largely on your own situation, make sure you’re comparing apples to apples when you’re shopping for the best loan product and interest rate. It's a good idea to get loan offers that are customized to your needs and financial profile from multiple lenders. That way, you'll be able to make a smart decision about your mortgage options.
If you've decided to buy a home or refinance your mortgage, you may be puzzled by the different interest rates you've seen advertised for home loans. You're not alone: Many home buyers and homeowners are confused when they discover they don’t qualify for these rock-bottom interest rates.
The reality is that the interest rate you’ll pay on a loan is determined largely by your own personal situation. Even if you don’t meet the requirements for the best-of-the-best rates that you've seen advertised, that doesn't mean you won't be able to qualify for a loan or won't be offered an attractive interest rate that you'll be able to afford.
The interest rate you'll be offered will depend on:
● Credit score. Your credit history and credit score will have the greatest effect on the interest rate you'll be offered. The higher your score, the lower your interest rate likely will be. A credit score is a numerical representation of how well you've handled other loans and credit cards in the past.
● Type of property. The interest rate you'll be offered also depends on the type of property you want to purchase. You'll generally pay a higher interest rate to buy a second home or a property you want to rent out to tenants than you will to buy a home you intend to occupy yourself.
● Loan term. Interest rates tend to be higher on 15-year loans than they are on 30-year loans. That means you'll likely be offered a higher rate if you choose the shorter term.
● Loan amount. If you want to borrow more than $417,000, your mortgage may be considered a non-conventional or even "jumbo" loan, in which case, you'll pay a higher interest rate due to the larger loan amount.
● Loan-to-value (LTV) ratio. Your loan-to-value ratio is the total amount of your mortgage divided by the appraised value of your home or the home you want to buy. If you have only a small downpayment, or not much equity, you'll likely pay a higher interest rate. Taking out cash can raise your interest rate as well. Read more about LTV ratios.
● Location. Interest rates vary from lender to lender and state to state. Some states simply have lower borrowing costs on average.
When you compare the interest rates you’re offered with advertised interest rates, keep in mind that some advertised rates require payment of discount points, which makes those rates appear to be cheaper than they actually are. A point is an upfront fee that's equal to 1 percent of the loan amount. Points don't directly influence the interest rate you'll be offered, but you can pay points to reduce the interest rate on your loan. Use the LendingTree Discount Points calculator to figure out whether paying points up front will be worth the cost over the term of the loan.
Since the interest rate you'll pay on your loan will depend largely on your own situation, make sure you’re comparing apples to apples when you’re shopping for the best loan product and interest rate. It's a good idea to get loan offers that are customized to your needs and financial profile from multiple lenders. That way, you'll be able to make a smart decision about your mortgage options.
Mortgage Refinance Boom
By Catherine Brock
Mortgage rates are almost as low as they've ever been, and savvy, qualified homeowners are taking advantage of the trend to lower their monthly payments.
It's the sale of a lifetime and it's happening now. Better than the Macy's one-day sale, or the half-yearly sale at Nordstrom, this promotion could save you thousands of dollars over time. All you have to do is call up your mortgage lender and ask if you qualify.
On sale now: mortgage refinances
Remember back in 2004, when the financial media was harping on the "historically low" mortgage rates? At that time, average rates on 30-year fixed mortgages were floating around 5.50 percent. It was indeed significant: according to Freddie Mac's data (which only goes back to 1972), the annual average rate on 30-year fixed mortgages did not dip below 6.5 percent between 1972 and 2002. The highest annual average during that time was 16.63 percent, which happened in 1981.
But a new era is here. "Historically low," in terms of mortgage rates, no longer means less than 6 percent-now it means less than 5 percent. Recent announcements and actions taken by the feds have pushed rates down to as low as 4.75 percent for the most creditworthy borrowers. For the week ending January 8, 2009, the national average rate was 5.01 percent.
Saving money always fashionable
Homeowners are clearly dialed into the rate trend. Mortgage refinance applications picked up substantially in December, as homeowners jumped at the opportunity to save some money. According to the Mortgage Bankers Association (MBA), mortgage refinance activity increased by more than 60 percent during the week ending December 19, 2008. This increase is measured by changes in MBA's Refinance Index, which tracks refinance loan applications. Not all of those refinance loan applications will become funded mortgages.
Taking advantage of the trend
A refinance loan is generally appropriate when the available rate is at least 1 percent lower than the homeowner's existing mortgage rate. A smaller differential may still result in savings, but it probably won't be enough to justify the upfront closing costs associated with the refinance.
Homeowners also have to consider whether they can qualify for a refinance mortgage right now. Lenders are favoring good credit borrowers who have 20 percent equity in the mortgaged property. Those with less than 20 percent equity will be required to carry private mortgage insurance, the cost of which will offset savings generated by the lower rate.
With unemployment on the rise, job history may be a hot button, as well. Mortgage lenders want stability, and they're likely to shy away from loan applications that carry even hints of risk.
Experts say the sale on mortgage rates could continue through most of 2009. If that prediction holds true, some homeowners will have the opportunity to get their finances in order before they put in their refinance application. Mortgage borrowers are advised to talk with their lender about the requirements so they can plan accordingly.
Mortgage rates are almost as low as they've ever been, and savvy, qualified homeowners are taking advantage of the trend to lower their monthly payments.
It's the sale of a lifetime and it's happening now. Better than the Macy's one-day sale, or the half-yearly sale at Nordstrom, this promotion could save you thousands of dollars over time. All you have to do is call up your mortgage lender and ask if you qualify.
On sale now: mortgage refinances
Remember back in 2004, when the financial media was harping on the "historically low" mortgage rates? At that time, average rates on 30-year fixed mortgages were floating around 5.50 percent. It was indeed significant: according to Freddie Mac's data (which only goes back to 1972), the annual average rate on 30-year fixed mortgages did not dip below 6.5 percent between 1972 and 2002. The highest annual average during that time was 16.63 percent, which happened in 1981.
But a new era is here. "Historically low," in terms of mortgage rates, no longer means less than 6 percent-now it means less than 5 percent. Recent announcements and actions taken by the feds have pushed rates down to as low as 4.75 percent for the most creditworthy borrowers. For the week ending January 8, 2009, the national average rate was 5.01 percent.
Saving money always fashionable
Homeowners are clearly dialed into the rate trend. Mortgage refinance applications picked up substantially in December, as homeowners jumped at the opportunity to save some money. According to the Mortgage Bankers Association (MBA), mortgage refinance activity increased by more than 60 percent during the week ending December 19, 2008. This increase is measured by changes in MBA's Refinance Index, which tracks refinance loan applications. Not all of those refinance loan applications will become funded mortgages.
Taking advantage of the trend
A refinance loan is generally appropriate when the available rate is at least 1 percent lower than the homeowner's existing mortgage rate. A smaller differential may still result in savings, but it probably won't be enough to justify the upfront closing costs associated with the refinance.
Homeowners also have to consider whether they can qualify for a refinance mortgage right now. Lenders are favoring good credit borrowers who have 20 percent equity in the mortgaged property. Those with less than 20 percent equity will be required to carry private mortgage insurance, the cost of which will offset savings generated by the lower rate.
With unemployment on the rise, job history may be a hot button, as well. Mortgage lenders want stability, and they're likely to shy away from loan applications that carry even hints of risk.
Experts say the sale on mortgage rates could continue through most of 2009. If that prediction holds true, some homeowners will have the opportunity to get their finances in order before they put in their refinance application. Mortgage borrowers are advised to talk with their lender about the requirements so they can plan accordingly.
House prices could fall 40% without rise in lending
by Gill Montia
The desperate need for increased mortgage lending has been highlighted by a report from the Centre for Economics and Business Research (CEBR), which is predicting that UK house prices could fall by a further 25% in 2009.
Taking into account last year’s 16% decline, the forecast gives a peak-to-trough fall of 40%.
The independent consultancy is a little more optimistic about the slide in values if government measures can increase new mortgage lending volumes to 50,000 a month, up from the 31,000 recorded in December by the Bank of England.
In this case the CEBR expects the average property to see 32% of its value wiped out from the peak of the market in summer 2007 through to the first quarter of 2010.
According to the body’s economist, Benjamin Williamson, current price and interest rate levels could lead to substantially increased activity in the housing market, if lending can be freed-up.
However, if new mortgage approvals remain close to today’s levels Mr Williamson warns that the fall in prices could accelerate.
Earlier this month the Royal Institution of Chartered Surveyors (Rics) reported that buyer interest is increasing but warned that without mortgage finance prices will continue their downward trend.
The Rics, Council of Mortgage Lenders and others continue to call on the Government to implement the recommendations of the Crosby Review and provide guarantees for the mortgage-backed securities that can help generate funds for new lending.
The desperate need for increased mortgage lending has been highlighted by a report from the Centre for Economics and Business Research (CEBR), which is predicting that UK house prices could fall by a further 25% in 2009.
Taking into account last year’s 16% decline, the forecast gives a peak-to-trough fall of 40%.
The independent consultancy is a little more optimistic about the slide in values if government measures can increase new mortgage lending volumes to 50,000 a month, up from the 31,000 recorded in December by the Bank of England.
In this case the CEBR expects the average property to see 32% of its value wiped out from the peak of the market in summer 2007 through to the first quarter of 2010.
According to the body’s economist, Benjamin Williamson, current price and interest rate levels could lead to substantially increased activity in the housing market, if lending can be freed-up.
However, if new mortgage approvals remain close to today’s levels Mr Williamson warns that the fall in prices could accelerate.
Earlier this month the Royal Institution of Chartered Surveyors (Rics) reported that buyer interest is increasing but warned that without mortgage finance prices will continue their downward trend.
The Rics, Council of Mortgage Lenders and others continue to call on the Government to implement the recommendations of the Crosby Review and provide guarantees for the mortgage-backed securities that can help generate funds for new lending.
New mortgage approvals down 58%
by Gill Montia
The Bank of England has reported a slight rise in new mortgage approvals.
During December, 31,000 home loans were approved for new purchases, up from 27,000 a month earlier.
However, the figure is the second-lowest on record, having edged ahead from the nadir of November.
According to the Bank, new mortgage approvals fell by 58% during 2008 with a total of 519,000 approvals during the year.
The figures sit alongside those published by the British Bankers’ Association, which recently reported that its members sanctioned 22,000 new home loans in December, up from 17,000 in November.
Year-on-year, the association’s figures show a 52% decline in new mortgage lending during 2008.
The outlook for 2009 is bleak; the recession is set to deepen and unemployment to rise.
Confidence in the UK housing market is at an all-time low, with analysts predicting price falls of up to 15% this year and a peak to trough fall of around 30%.
Meanwhile, Nationwide Building Society estimates that 1.2 million households are already in negative equity, compared to less than 100,000 a year ago.
The only good news on the housing market for this week came from mform.co.uk, the mortgage search engine, which reported that first-time buyer mortgage applications have increased in response to a small rise in the number of lenders offering deals with loan-to-value ratios of 90%.
There are now 21 such providers, up from 18, according to mform.
The Bank of England has reported a slight rise in new mortgage approvals.
During December, 31,000 home loans were approved for new purchases, up from 27,000 a month earlier.
However, the figure is the second-lowest on record, having edged ahead from the nadir of November.
According to the Bank, new mortgage approvals fell by 58% during 2008 with a total of 519,000 approvals during the year.
The figures sit alongside those published by the British Bankers’ Association, which recently reported that its members sanctioned 22,000 new home loans in December, up from 17,000 in November.
Year-on-year, the association’s figures show a 52% decline in new mortgage lending during 2008.
The outlook for 2009 is bleak; the recession is set to deepen and unemployment to rise.
Confidence in the UK housing market is at an all-time low, with analysts predicting price falls of up to 15% this year and a peak to trough fall of around 30%.
Meanwhile, Nationwide Building Society estimates that 1.2 million households are already in negative equity, compared to less than 100,000 a year ago.
The only good news on the housing market for this week came from mform.co.uk, the mortgage search engine, which reported that first-time buyer mortgage applications have increased in response to a small rise in the number of lenders offering deals with loan-to-value ratios of 90%.
There are now 21 such providers, up from 18, according to mform.
Bad Bank Out, Limiting Executive Pay and Expanding Mortgage Lending In?
From MortgageLoan.com: Bad Bank Out, Limiting Executive Pay and Expanding Mortgage Lending In?
Wall Street reveilled briefly in the prospect of "bad banks," aggregating toxic mortgage loans into a government controlled bank. Likewise, they reacted aggressively on the hint that the plan is shoved to the back burner.
The same questions that plagued the original plan to buy up troubled mortgages, hits this new plan. Pricing of these illiquid assets clogging bank balance sheets and restricting lending is problematic. Pricing too low hits banks with massive writedowns, potentially weakening more banks. However, pricing too high leaves taxpayers with generations of debt.
In exchange President Obama tells Matt Lauer, during an NBC Super Bowl pre-game interview, he was focused on getting lenders receiving TARP and other government assistance to lend. President Obama also scolded Wall Street for paying out over $8 billion in executive bonuses in 2008. This and similar remarks coming from the White House and House Democrats indicate a goal to place more accountability on firms receiving taxpayer money.
Speaking on Sunday's This Week political talk show, House Financial Services Committee Chairman Barney Frank said, "You're going to see the Obama administration push for much more lending...There are going to be some real rules in there." What will this mean for implementation of these programs? Many banks may be reticent about participating with significant bureaucratic overhead being proposed.
Newly appointed Treasury Secretary Timothy Geithner is headed to a Democratic congressional retreat this week as he works on a TARP overhaul that is expected to have much stricter rules. Tops on that list of new rules is executive pay restrictions.
Geithner, during his confirmation hearing, told the Senate Finance Committe that participating banks would have to lend in exchange for additional TARP funding. "As a condition of federal assistance, healthy banks without major capital shortfalls will increase lending," said Geithner.
Although there is a lot of motion in Washington, lawmakers are heading down all the same paths reviewed during the original October 2008 crisis. Will these actions emerge with different results?
Wall Street reveilled briefly in the prospect of "bad banks," aggregating toxic mortgage loans into a government controlled bank. Likewise, they reacted aggressively on the hint that the plan is shoved to the back burner.
The same questions that plagued the original plan to buy up troubled mortgages, hits this new plan. Pricing of these illiquid assets clogging bank balance sheets and restricting lending is problematic. Pricing too low hits banks with massive writedowns, potentially weakening more banks. However, pricing too high leaves taxpayers with generations of debt.
In exchange President Obama tells Matt Lauer, during an NBC Super Bowl pre-game interview, he was focused on getting lenders receiving TARP and other government assistance to lend. President Obama also scolded Wall Street for paying out over $8 billion in executive bonuses in 2008. This and similar remarks coming from the White House and House Democrats indicate a goal to place more accountability on firms receiving taxpayer money.
Speaking on Sunday's This Week political talk show, House Financial Services Committee Chairman Barney Frank said, "You're going to see the Obama administration push for much more lending...There are going to be some real rules in there." What will this mean for implementation of these programs? Many banks may be reticent about participating with significant bureaucratic overhead being proposed.
Newly appointed Treasury Secretary Timothy Geithner is headed to a Democratic congressional retreat this week as he works on a TARP overhaul that is expected to have much stricter rules. Tops on that list of new rules is executive pay restrictions.
Geithner, during his confirmation hearing, told the Senate Finance Committe that participating banks would have to lend in exchange for additional TARP funding. "As a condition of federal assistance, healthy banks without major capital shortfalls will increase lending," said Geithner.
Although there is a lot of motion in Washington, lawmakers are heading down all the same paths reviewed during the original October 2008 crisis. Will these actions emerge with different results?
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