| New alarm: Option-ARM 'liar's loans'
The no-worries lending that inflated the housing bubble is resulting in a flood of soured option-ARM loans, adjustable-rate mortgages that allow borrowers to pay so little every month that their loan balances rise rather than fall, sometimes sharply.
Numbers from industry trackers suggest that these borrowers, most of whom boast respectable and often top-tier credit scores and appear to have substantial incomes and home equity, are starting to create a second tide of defaults for lenders swamped by the meltdown in subprime loans made to people with bad credit or overstretched finances.
Countrywide Financial Corp., the top option-ARM lender, will be hit hard. Already reeling from the subprime mess, Countrywide was rescued from possible bankruptcy this month by Bank of America Corp., which agreed to acquire it for about $4 billion.
Home equity loan avoids fees of refinancing mortgage
Q. I would like to refinance my adjustable-rate mortgage to lock in one of today's low rates. But I don't want to pay a lot of fees for a new mortgage that would actually make my monthly payments bigger over the next year. Refinancing would cost thousands, which seems like an awful lot for a loan of only about $80,000. What should I do? A. You might consider a home equity loan instead of an ordinary mortgage. Many home equity loans are unusually attractive now. Yours is a dilemma that confronts many homeowners with adjustable mortgages, or ARMs: They may be happy with the low interest rates they're paying today - in many cases only 4 percent or so - but they worry their rates will rise in the future. It would be nice to lock into a low fixed rate, but refinancing fees can total thousands.
Md. mortgage fee lawsuit reinstated
A ruling yesterday from the state's highest court over prepayment mortgage charges could make it more expensive for some to obtain home equity loans, the banking industry's trade association warned.
The Maryland Court of Appeals found that state-chartered Provident Bank assessed a "prepayment charge" that's not allowed under state law. The bank had waived $680 in closing costs on a $17,000 loan to Andrew Bednar in 2003 but collected the money after the loan was paid off early when he refinanced with another lender two years later.
The ruling overturns a decision by Baltimore Circuit Court to dismiss the lawsuit against Provident.
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