As homeowners try to refinance their mortgages at lower rates, their home equity lenders are telling them, "Not so fast."
Home equity lenders are throwing roadblocks in front of their clients who want to refinance their primary mortgages. In some cases, they delay refinances for a month or more; in other cases, they block homeowners from refinancing altogether -- all because of something called "resubordination."
"It can completely blow a refi out of the water," says Christopher Cruise, senior loan officer for GOTeHomeLoans.com in Bethesda, Md.
Resubordination comes into play when a homeowner wants to refinance a primary mortgage and keep the second mortgage in place -- either a home equity loan or a home equity line of credit. Before the refi can happen, the home equity lender has to agree to let the second mortgage remain where it is -- in second position -- instead of moving up in line and becoming the primary mortgage. That agreement is a resubordination.
Think of the situation as a restroom queue at a concert. Your name is Primary, and you're at the front of the line. Behind you is someone named Equity. Then your friend Refi runs up and needs to go -- really bad. You ask Equity if it's OK if Refi takes your place. If Equity denies permission, or takes too long to grant it, there can be messy consequences.
A bank's refusal to resubordinate can be costly to the homeowner. Caleb Shaffer has two mortgages on his duplex in Oakland, Calif. Both loans are with SunTrust. A credit union offered to refinance the primary mortgage at a lower rate, saving roughly $250 to $300 a month. Shaffer says he couldn't go through with the refinance because SunTrust refused to resubordinate the second mortgage. (SunTrust has received $5 billion in TARP funds from the federal government, or $34.13 for every working American.)
Shaffer says he was told that he could refinance with SunTrust, but not with another lender. "They're saying their policy is they don't subordinate unless it's within the family of SunTrust," he says.
SunTrust offered to combine his two mortgages and refinance them into one loan. But if the loans were combined, he would end up with a higher-rate jumbo mortgage, with much higher monthly payments. The point of getting two mortgages (of $500,000 and $100,000) was to avoid getting a jumbo loan, with its higher rate.
A SunTrust spokesman denies that there's a policy requiring borrowers to refinance with SunTrust. "While I can't comment on specific individual relationships, in general, we do consider resubordinations of second liens on a case-by-case basis taking into account numerous factors," spokesman Hugh Suhr says.
Undoubtedly one of those factors is loan-to-value ratio. Shaffer paid $670,000 for the duplex in March 2008. He borrowed $600,000. Zillow estimates its value now at $644,000. The loan-to-value ratio was about 90 percent when Shaffer got the loan, and now the ratio is around 93 percent. Nowadays, lenders are reluctant to let people borrow more than 80 percent of a home's value, and 93 percent is really pushing it.
Pay off equity loan
You would think that a home equity lender would welcome a refinance of a primary mortgage if the refi results in a lower monthly payment. But from the equity lender's perspective, the optimal outcome would be for the borrower to pay off the equity loan and close the account. "They probably figure if they play hardball, they'll get paid off," says Matt Hackett, underwriting manager for Equity Now, a mortgage bank headquartered in Manhattan.
Jeff Lazerson, president of MortgageGrader.com, an online brokerage based in Southern California, says equity lenders want borrowers to close their accounts "because then they can get the cash back that was in the account, and their balance sheets look better."
If lenders are trying to pressure borrowers into paying off their home equity debt, they're not coming out and saying it. They expect borrowers to figure it out themselves. Anyway, in Shaffer's case, paying off the $100,000 home equity loan isn't an option.
Delays and fees
Loan officers and mortgage brokers say it's not unusual to wait for more than a month for a resubordination decision. One broker says it took more than six weeks -- from Dec. 26 to Feb. 10 -- for Wells Fargo to approve a resubordination request. (Wells Fargo has received $25 billion in TARP funds, or $175.93 for every working American.)
"So many lenders have been swamped by these -- and they're frankly not a priority," Cruise says. "Even those that are not being denied are taking 30 to 45 days, and can cost $50 to $250, depending on how much the lender wants to charge."
Not only do lenders charge fees to process resubordination requests, but borrowers incur even more fees when they have to extend rate locks in response to resubordination delays.
In many cases, lenders require rate locks of 45 days or more on refinance applications requiring resubordination.
But for homeowners in this situation, there aren't many options. They can pay off the home equity loan or consolidate the loan with the same mortgage lender. And if neither of those is feasible, there's no chance of refinancing.
воскресенье, 27 февраля 2011 г.
UK public sector finances see surplus in January
The Office for National Statistics (ONS) has today revealed UK public sector net borrowing switched to a surplus in January – boosted by a sharp increase in income tax receipts and corporation tax inflows.
According to the ONS, public sector net borrowing registered a surplus of £3.735 billion – representing the biggest surplus since July 2008.
For the year to date, borrowing stands at £113 billion – more than £14 billion lower on levels a year ago.
The figures suggest that the Government is on target to keep its borrowing under £148.5 billion by the end of the financial year to March 2011.
According to the ONS, public sector net borrowing registered a surplus of £3.735 billion – representing the biggest surplus since July 2008.
For the year to date, borrowing stands at £113 billion – more than £14 billion lower on levels a year ago.
The figures suggest that the Government is on target to keep its borrowing under £148.5 billion by the end of the financial year to March 2011.
More than 2m using plastic to pay mortgage/rent
A report from the homeless charity, Shelter, has revealed that in the last year, 2.6 million Britons have paid their mortgage or rent on their credit card.
The figure represents a rise of 50% on the previous year and reveals the extraordinary lengths some are going to in order to keep a roof over their head.
The charity has previously warned families about the dangers of using credit cards to make repayments on their mortgage or rent and is urging people struggling with their repayments to seek expert advice immediately.
Campbell Robb, Shelter‘s chief executive, said: “This research brings into sharp focus how keeping a roof over their head has become a daily struggle for millions across the country.
“It is one we fear could see thousands more pushed into the spiral of debt, eviction or repossession and ultimately homelessness” he added.
A report late last year, also by Shelter, revealed an increase in the number of mortgage holders who are struggling to meet their monthly repayments.
The survey showed that three million people are struggling each month with their mortgage repayments – a staggering increase of 80% compared with a year ago.
Finally, the Council of Mortgage Lenders is forecasting that 40,000 families will have their homes repossessed during the 2011 year.
The figure represents a rise of 50% on the previous year and reveals the extraordinary lengths some are going to in order to keep a roof over their head.
The charity has previously warned families about the dangers of using credit cards to make repayments on their mortgage or rent and is urging people struggling with their repayments to seek expert advice immediately.
Campbell Robb, Shelter‘s chief executive, said: “This research brings into sharp focus how keeping a roof over their head has become a daily struggle for millions across the country.
“It is one we fear could see thousands more pushed into the spiral of debt, eviction or repossession and ultimately homelessness” he added.
A report late last year, also by Shelter, revealed an increase in the number of mortgage holders who are struggling to meet their monthly repayments.
The survey showed that three million people are struggling each month with their mortgage repayments – a staggering increase of 80% compared with a year ago.
Finally, the Council of Mortgage Lenders is forecasting that 40,000 families will have their homes repossessed during the 2011 year.
OFT to launch investigation into card surcharges
Consumer group Which? is concerned about surcharges imposed on to consumers who pay by debit or credit cards.
It has therefore asked the Office of Fair Trading (OFT) to investigate the matter – which sees retailers, local authorities, estate agents and cinemas all impose the charges.
However, the “worst offenders” are said to be budget airlines including Ryanair, Flybe and easyJet.
According to the consumer group, these surcharges are actually higher than the cost of processing the payment.
Commenting, Which? said: “There is simply no justification for excessive card charges. Paying by card should cost the consumer the same amount that it costs the retailer.”
It has therefore asked the Office of Fair Trading (OFT) to investigate the matter – which sees retailers, local authorities, estate agents and cinemas all impose the charges.
However, the “worst offenders” are said to be budget airlines including Ryanair, Flybe and easyJet.
According to the consumer group, these surcharges are actually higher than the cost of processing the payment.
Commenting, Which? said: “There is simply no justification for excessive card charges. Paying by card should cost the consumer the same amount that it costs the retailer.”
CML: Mortgage lending down 13% in December
The Council of Mortgage Lenders (CML) has today reported mortgage lending remained weak in January.
Mortgage lending fell by 13% in January compared with December to £9.2 billion – the lowest level for a year, according to the CML.
However, it was a 5% rise on January 2010 levels – the first year-on-year increase since August 2010, said the Council.
The CML has previously said the housing market will remain subdued in 2011, due to uncertainty surrounding the economy and the ongoing mortgage rationing by lenders.
Mortgage lending fell by 13% in January compared with December to £9.2 billion – the lowest level for a year, according to the CML.
However, it was a 5% rise on January 2010 levels – the first year-on-year increase since August 2010, said the Council.
The CML has previously said the housing market will remain subdued in 2011, due to uncertainty surrounding the economy and the ongoing mortgage rationing by lenders.
BBA: Mortgage approvals down 29% on year in January
The British Bankers’ Association (BBA) has today revealed a further fall in the number of new mortgages approved by the major banks in January.
According to the BBA, the number of new mortgages approved in the month stood at 28,932 – marginally better than December’s levels but 29% lower compared with January 2010.
The figures suggest mortgage lending will remain subdued this year after the Council of Mortgage Lenders (CML) also reported mortgage lending remained weak in January.
Mortgage lending fell by 13% in January compared with December – the lowest level for a year, according to the CML.
In the meantime, the BBA said 28,907 remortgage loans were approved during January – a 28% rise on levels a year ago.
Commenting on today’s figures, BBA’s statistics director, David Dooks, said: “We are seeing little change in the borrowing environment for households or businesses at the start of 2011.”
The figures come shortly after HM Revenue & Customs (HMRC) revealed a slump in the number of homes sold in January in the UK.
According to HMRC, just 54,000 homes worth at least £40,000 or more were sold in the month – the lowest number since January 2010.
Earlier this week, property website Rightmove said most of the UK property market faced “paralysis” this year.
According to the BBA, the number of new mortgages approved in the month stood at 28,932 – marginally better than December’s levels but 29% lower compared with January 2010.
The figures suggest mortgage lending will remain subdued this year after the Council of Mortgage Lenders (CML) also reported mortgage lending remained weak in January.
Mortgage lending fell by 13% in January compared with December – the lowest level for a year, according to the CML.
In the meantime, the BBA said 28,907 remortgage loans were approved during January – a 28% rise on levels a year ago.
Commenting on today’s figures, BBA’s statistics director, David Dooks, said: “We are seeing little change in the borrowing environment for households or businesses at the start of 2011.”
The figures come shortly after HM Revenue & Customs (HMRC) revealed a slump in the number of homes sold in January in the UK.
According to HMRC, just 54,000 homes worth at least £40,000 or more were sold in the month – the lowest number since January 2010.
Earlier this week, property website Rightmove said most of the UK property market faced “paralysis” this year.
Lloyds sees rise in complaints
Lloyds Banking Group, which is 43% owned by the taxpayer, has revealed a rise in customer complaints in the second half of 2010.
The banking giant, which runs the Halifax and Bank of Scotland, received 329,761 complaints in the six month period – a 14% rise compared with the same period a year earlier.
According to the bank, the rise in complaints was attributed to the sale of payment protection insurance policies – which the bank ceased selling in July 2010.
Commenting, Martin Dodd, the group’s director of customer services, said 40,000 branch and call-centre staff had been retrained to handle the complaints.
The bank also highlighted that progress has been made and the number of complaints about its banking services declined 12% to 154,555 in the six month period.
The announcement comes shortly before the bank reveals its 2010 profits.
The banking giant, which runs the Halifax and Bank of Scotland, received 329,761 complaints in the six month period – a 14% rise compared with the same period a year earlier.
According to the bank, the rise in complaints was attributed to the sale of payment protection insurance policies – which the bank ceased selling in July 2010.
Commenting, Martin Dodd, the group’s director of customer services, said 40,000 branch and call-centre staff had been retrained to handle the complaints.
The bank also highlighted that progress has been made and the number of complaints about its banking services declined 12% to 154,555 in the six month period.
The announcement comes shortly before the bank reveals its 2010 profits.
Lloyds reports first annual profit since bailout
Banking giant Lloyds has today reported it has returned to profit – its first since the bank had to be rescued by the Government at the height of the financial crisis in autumn 2008.
Lloyds Banking Group, which is 41% owned by the taxpayer, posted pre-tax profits of £2.2 billion, compared with a £6.3 billion loss in 2009.
The results beat expectations and come just a day after the Royal Bank of Scotland (RBS), which is 84% owned by the taxpayer, reported a net attributable loss of £1.13 billion for the 2010 year.
While RBS’ loss was down from the £3.6 billion reported for 2009, it was higher than analysts had expected.
Last week, Barclays reported profits of £6.1 billion for the 2010 year.
Returning to Lloyds, bad debt losses fell to £13 billion in 2010, from £23 billion in the 2009 year.
Outgoing chief executive Eric Daniels comments: “2010 was an important year for Lloyds Banking Group, marking our return to profitability, and a further reduction in risk in our business.
“Our significant progress in the year has positioned the group well to become the best bank in the UK for all our stakeholders, including our customers, shareholders and employees.”
In related news, yesterday Lloyds revealed a rise in customer complaints in the second half of 2010.
The bank, which runs the Halifax and Bank of Scotland, received 329,761 complaints in the six month period – a 14% rise compared with the same period a year earlier.
According to the bank, the rise in complaints was attributed to the sale of payment protection insurance policies – which the bank ceased selling in July 2010.
Lloyds Banking Group, which is 41% owned by the taxpayer, posted pre-tax profits of £2.2 billion, compared with a £6.3 billion loss in 2009.
The results beat expectations and come just a day after the Royal Bank of Scotland (RBS), which is 84% owned by the taxpayer, reported a net attributable loss of £1.13 billion for the 2010 year.
While RBS’ loss was down from the £3.6 billion reported for 2009, it was higher than analysts had expected.
Last week, Barclays reported profits of £6.1 billion for the 2010 year.
Returning to Lloyds, bad debt losses fell to £13 billion in 2010, from £23 billion in the 2009 year.
Outgoing chief executive Eric Daniels comments: “2010 was an important year for Lloyds Banking Group, marking our return to profitability, and a further reduction in risk in our business.
“Our significant progress in the year has positioned the group well to become the best bank in the UK for all our stakeholders, including our customers, shareholders and employees.”
In related news, yesterday Lloyds revealed a rise in customer complaints in the second half of 2010.
The bank, which runs the Halifax and Bank of Scotland, received 329,761 complaints in the six month period – a 14% rise compared with the same period a year earlier.
According to the bank, the rise in complaints was attributed to the sale of payment protection insurance policies – which the bank ceased selling in July 2010.
For those unable to secure a loan
The coalition Government has introduced a new scheme aimed at borrowers with a poor credit history or those on a low income.
My Home Finance has been set up by the Government and the National Housing Federation (NHF), with 10 branches opening across the West Midlands by the end of next month.
If successful, the scheme will expand throughout the UK from April 2011. The branches will be situated in busy high streets and shopping centres.
It is also hoped that the scheme will discourage people from borrowing from loan sharks.
The scheme, operated in collaboration with the Royal Bank of Scotland, will charge a typical APR of 29.9%.
However, when the scheme is rolled out across England, the interest will increase to 49.9% to cover costs.
Doorstep and pay-day lenders charge anything between 200% to 2,000%.
Meanwhile, commenting on the launch, NHF chief executive David Orr, said: “By offering fair loans at fair prices, we hope to offer an alternative to both loan sharks, who cynically prey on hard up families, and doorstep lenders, who are all too willing to lend cash to the desperate at hugely inflated rates of interest.”
However, Mick McAteer, of the Financial Inclusion Centre, said: “While this is a welcome step, it should be put in context. We estimate there are four million people in the UK without access to mainstream affordable credit. More needs to be done to give consumers a real choice.”
My Home Finance has been set up by the Government and the National Housing Federation (NHF), with 10 branches opening across the West Midlands by the end of next month.
If successful, the scheme will expand throughout the UK from April 2011. The branches will be situated in busy high streets and shopping centres.
It is also hoped that the scheme will discourage people from borrowing from loan sharks.
The scheme, operated in collaboration with the Royal Bank of Scotland, will charge a typical APR of 29.9%.
However, when the scheme is rolled out across England, the interest will increase to 49.9% to cover costs.
Doorstep and pay-day lenders charge anything between 200% to 2,000%.
Meanwhile, commenting on the launch, NHF chief executive David Orr, said: “By offering fair loans at fair prices, we hope to offer an alternative to both loan sharks, who cynically prey on hard up families, and doorstep lenders, who are all too willing to lend cash to the desperate at hugely inflated rates of interest.”
However, Mick McAteer, of the Financial Inclusion Centre, said: “While this is a welcome step, it should be put in context. We estimate there are four million people in the UK without access to mainstream affordable credit. More needs to be done to give consumers a real choice.”
Ministers consider higher interest rate on student loans
A higher education funding review is likely to see a shake-up in the way interest is charged on student loans.
The review, by Lord Browne, suggested a variable interest rate on student loans was a favoured option.
Currently, students pay back their loans when they earn over £15,000 a year, at a low interest rate.
The review is expected to recommend removing the tuition fee cap, currently set at £3,290, and allowing the market to decide the cost of a degree.
Ministers have been considering a system of tiered interest rates – linked to graduates’ earnings.
However, the Liberal Democrat MPs within the Coalition Government are against the rise in fees and a deal has therefore yet to be reached.
In their election manifesto earlier this year, the Liberal Democrats campaigned to scrap tuition fees.
The National Union of Students, meanwhile, said yesterday: “ It would be a complete betrayal of the electorate to abandon this flagship promise.”
In related news, the Russell Group, which represents 20 elite, research-intensive universities, recently suggested that graduates may have to start paying back their student loans earlier and at a higher rate of interest, in order to prevent a major funding crisis.
The group warned in May that the financial sustainability of the UK’s top universities was “severely at risk” under the current system.
The review, by Lord Browne, suggested a variable interest rate on student loans was a favoured option.
Currently, students pay back their loans when they earn over £15,000 a year, at a low interest rate.
The review is expected to recommend removing the tuition fee cap, currently set at £3,290, and allowing the market to decide the cost of a degree.
Ministers have been considering a system of tiered interest rates – linked to graduates’ earnings.
However, the Liberal Democrat MPs within the Coalition Government are against the rise in fees and a deal has therefore yet to be reached.
In their election manifesto earlier this year, the Liberal Democrats campaigned to scrap tuition fees.
The National Union of Students, meanwhile, said yesterday: “ It would be a complete betrayal of the electorate to abandon this flagship promise.”
In related news, the Russell Group, which represents 20 elite, research-intensive universities, recently suggested that graduates may have to start paying back their student loans earlier and at a higher rate of interest, in order to prevent a major funding crisis.
The group warned in May that the financial sustainability of the UK’s top universities was “severely at risk” under the current system.
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