The Truth About Refinancing
By now everybody knows that the US in in the middle of a
mortgage crisis. Because of this crisis, it is now more
difficult to refinance your home mortgage.
For a complete explanation of the truth behind the crisis,
see the rather lengthy expose at
subprime mortgage crisis.
Basically, in the past two decades the mortgage market has
changed dramatically. Whereas before then banks used to make
mortgage loans by lending from their deposits, the evolution of
the secondary mortgage market made it possible for banks to
package a group of mortgage loans and sell the package to large
investors such as mutual funds, large corporations, and other
such types.
But Wall Street got greedy and didn't want to settle for
just packaging loans for a small 1 to 2% fee. Wall Street wanted
more, much much more.
So instead of just packaging 100 loans and selling that
package of 100 loans, Wall Street firms mixed in very large
amounts of derivatives and sold the packages for fees often in
excess of 50%!
It is hard to believe, but true. Everything is detailed in
subprime mortgage crisis
and
derivatives abuse by Wall
Street.
When some subprime borrowers were unable to meet their
monthly payments and defaulted, some of the large investors
wanted to sell for fear of loss. Unfortunately, the packages
that they bought which included derivatives were extremely
overpriced, risky, and there were no buyers. They were stuck
holding the bag.
Which is the current situation. And now these large
investors no longer want to purchase any packages of mortgages.
The abuse of derivatives by Wall street has caused the secondary
mortgage market to stop functioning properly.
And that has resulted in banks having to lend money only
from their own deposits. This is a double problem. First, banks
don't have as much money available as when they could tap into
the secondary mortgage market. Second, they are much more
concerned about the quality of the borrower now that they are
lending their own money, and not just making a loan that would
be sold.
Qualifying is now much more difficult. The key is to find a
big bank that has ample funds, which has also not been hurt by
the derivatives crisis. The giant ING currently is the top of
that short list. If you are looking to refinance, ING DIRECT Orange Mortgage
offers great rates, an easy online application, and they are the
most able to approve loans in this environment.
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