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Americans rush to judgment on 'bailout'

By Jack Guttentag, Monday, October 6, 2008.

Whenever government is involved in a program to assist a private firm in trouble, much of the press reports it as a "bailout." Back in the 1980s when the savings and loan industry was in trouble, the operations of the Resolution Trust Corporation (RTC), which the federal government chartered to manage and liquidate the assets of failed associations, were frequently, yet erroneously, described in this way, and they still are.

For readers who don't bother absorbing the details, the term "bailout" suggests that everybody connected to the troubled enterprise is being rescued, including those who were responsible for its plight. more...

Some borrowers get more aid than others

By Jack Guttentag, Monday, September 29, 2008.

"Is it true that mortgage servicers will not help borrowers in trouble until they stop making their payments? I am a home retention counselor and I keep hearing from people referred to me that they have received no response from their servicer because they have not yet missed a payment. I would hate to advise people that they have to stop paying if they expect to get any help if it is not true." more...

Federal plan 'a disaster in the making'

By Jack Guttentag, Wednesday, September 24, 2008.

The Treasury and Federal Reserve to date have doused financial fires at Bear Stearns, Fannie Mae, Freddie Mac and AIG, taking a tough line in every case to protect taxpayers. In the case of AIG, for example, the government has the right to acquire a major equity interest in the firm as a quid pro quo for a loan of $80 billion, and the CEO was forced out. more...

Falling prices can be bad for buyers

By Jack Guttentag, Monday, September 22, 2008.

The home mortgage market is devilishly difficult to navigate in normal times. During a period in which home prices are declining, the difficulties are compounded. Problems I had never thought about before now pop up regularly in my mailbox. Here are a few of them.

Constructing a Home Becomes More Hazardous: Constructing a home to one's own specifications is enormously appealing to many people. It is also a time-consuming process with many pitfalls that can cause delay, cost extra or both. more...

Don't be too quick to co-sign mortgage

By Jack Guttentag, Monday, September 15, 2008.

The economic distress of the last year has battered the credit scores of many potential borrowers, while causing lenders to increase the scores they are willing to accept. The result is a growing number of co-signing requests. Co-signing arises when one party with good credit agrees to be liable for the debt of another party with no or poor credit.

Some co-signers have had their lives severely disrupted when the borrower for whom they co-signed stopped paying, leaving it up to the co-signer to make the loan good. Most of the mail I get on the subject is from co-signers in this situation. more...

When shopping for mortgage, know how to bargain

By Jack Guttentag, Monday, September 8, 2008.

A consumer negotiating the terms of a mortgage with a lender or mortgage broker (henceforth "loan provider") is in what economists term a "bilateral bargaining process." Only two parties are involved, and the terms arrived at depend in part on their respective bargaining power. more...

Credit pinch forces buyers to save

By Jack Guttentag, Tuesday, September 2, 2008.

Over the last 18 months, the mortgage market has changed more rapidly than in any comparable period since the Great Depression of the 1930s. From the standpoint of borrowers, two changes are of paramount importance. The first is an increase in day-to-day price volatility, which I wrote about a few weeks ago. The second is a tightening of underwriting requirements, with higher down-payment requirements the centerpiece. That is the subject of this article.

Underwriting requirements are the rules lenders impose to assure that loans will be paid off, and the down payment has always been the most important of them. more...

Why do most lenders sell their mortgages?

By Jack Guttentag, Monday, August 25, 2008.

"Why do most home mortgage lenders sell their mortgages instead of keeping them? I have a problem with negotiating my mortgage deal with one firm over a week, then having my loan sold to another firm that I did not select, and with whom I am obliged to deal for as long as 30 years. Is it possible for me to find a lender who will promise not to sell my loan?" more...

When mortgage is sold, strange things can happen

By Jack Guttentag, Monday, August 18, 2008.

"I bought my house in June. In October, I made my mortgage payment to XYZ Mortgage as usual. A few weeks later, the payment was returned with a note saying that my mortgage had been sold to ABC Mortgage. However, when I contacted ABC, they said they had no record of my mortgage. I have not made my payment for October or November, and my December payment will shortly be due. I have an escrow account for the payment of taxes and insurance, but I just received an overdue notice from the tax department ... What should I do?" more...

Best options for borrowers facing payment problems

By Jack Guttentag, Monday, August 11, 2008.

An uncomfortably large proportion of my mail these days is from borrowers with serious payment problems. In most cases, I can't help them for reasons discussed below. In a few common cases, I try.

In one common case, the borrower has two mortgages, which add to an amount well in excess of the value of the property, and can no longer afford both payments. If the same lender holds both mortgages, and if the borrower can afford a reduced payment, his objective should be to persuade the mortgage lender to modify the notes to lower the payments. more...

Mortgage crisis drives home value of PMI

By Jack Guttentag, Monday, August 4, 2008.

The blame game for the development of the current mortgage crisis is now in full swing, and, with one exception, no major participant escapes unscathed:

Lenders and investment bankers drastically relaxed their underwriting standards in response to the euphoria associated with rapidly rising home prices during 2000-2006. They approved loans that could not possibly be repaid without an indefinite continuation of house-price inflation. more...

Kill mortgage broker deception

By Jack Guttentag, Monday, July 28, 2008.

(This is Part 3 of a three-part series. Read Part 1, "Why good faith estimate needs overhaul" and Part 2, "HUD aims to crack down on loan overcharges.")

This series of articles explains recent proposals by HUD to make the good faith estimate of fees and charges (GFE) more useful to borrowers. The first two articles explain how the revamped GFE would make it easier for borrowers to shop alternative loan providers (LPs), and would eliminate critical weaknesses of the current GFE that encourage opportunistic pricing. This article looks at proposed revisions in the GFE to make mortgage broker pricing more transparent. more...

HUD aims to crack down on loan overcharges

By Jack Guttentag, Monday, July 21, 2008.

(This is Part 2 of a three-part series. Read Part 1, "Why good faith estimate needs overhaul.")

Last week I reported favorably on one part of HUD's current reform proposals. A new and substantially improved good faith estimate (GFE) would make it easier for borrowers to shop alternative loan providers (LPs). The proposed GFE along with new rules as to how it must be used will also eliminate critical weaknesses of the current GFE that encourage opportunistic pricing -- the practice of charging as much as you can get away with.

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Why good faith estimate needs overhaul

By Jack Guttentag, Monday, July 14, 2008.

(This is Part 1 of a three-part series.)

Since its last effort to reform market practices was defeated by the industry in 2002, HUD has been promising to come back with some less ambitious, but hopefully more acceptable, proposals. They finally did, in March of this year. more...

Zillow Mortgage's major flaws

By Jack Guttentag, Tuesday, July 8, 2008.

Zillow, the popular real estate site, now has a complementary mortgage site. It is also complimentary (with an "i") because neither participating lenders nor borrowers pay for the service. more...

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