Mortgage is a loan where you are using your house as collateral. The difference between this and a
normal loan is that your house becomes your backup just in case something happens and you are unable to continue payments.

Mortgage uses fixed rate and floating rate. These differ in how the payments are set up and whether or
not each payment will be influenced by current interest rates across the country.

Before you decide to buy a home, it’s very beneficial to do as much research as possible. You should try to learn about each different type of mortgage and what the payments actually consist of. How much do they change each month, and how much you should put money down before setting up payments.

Tags: collateral, fixed rate, floating rate, house, loan, Mortgage

A credit score is a numerical expression based on a statistical analysis of a person’s credit files that shows the creditworthiness of that person. So it is important to have a good credit score so you can have lower rate, smaller monthly payment, and speed up credit approval. So it is very essensial to increase your credit score. To know how to increase your score, you need to know how it is calculated. Many lenders use third party credit scoring system such as FICO to evaluate the credit worthiness of a borrower.

If you are using FICO (the most widely used in the mortgage industry). You should understand how FICO calculate your score. They will look into:

1. Payment history (35%). The better you have good payment history, the higher your score. So tips #1: Do pay your bills in time.
2. Amounts owed (30%). The more amounts you owe, the lower your score. Tips#2: Keep your credit card balance low, and pay your debt.
3. Length of credit history (15%). Longer credit history will have higher score. Tips#3: Don’t open a lot of new accounts.
4. New credit (10%). The more you have new credit, the lower your score. Tips#4: Don’t open accounts that you don’t need.
5. Type of credit used (10%). If you have a mix of credit types like credit cards, mortgage, or auto loan, you will have a slight higher score. Tips#5: If you need it you can apply for other credit types. Don’t apply just to raise your score. Remember it only counts for 10% having mix of credit types.

Another thing you have to know is FICO allows “rate shopping” / applying to many lenders for the same loan to obtain a better rate of interest and other terms like repayment schedule. If you use rate shopping, multiple lenders will request your credit report, even though you’re only looking for one loan. FICO® scores distinguish between a search for a single loan and a search for many new credit lines. You can avoid lowering your FICO® score by doing your rate shopping within a short period of time, such as 14 days.

Tags: credit score, FICO, increase credit score, rate shopping

The global market is having serious problem because of mortgage crisis. Watch your investment carefully. There are many bad news in the US market and around the world:

• On March 14 2008, JPMorgan Chase, in conjunction with the Federal Reserve Bank of New York, provided a 28-day emergency loan to Bear Stearns in order to prevent the potential market crash that would result from Bear Stearns becoming insolvent. Two days later, Bear Stearns signed a merger agreement with JP Morgan Chase in a stock swap worth $2 a share or less than 10 percent of Bear Stearns’ market value.
• The federal takeover of Fannie Mae and Freddie Mac refers to the placing into conservatorship of government sponsored enterprises Fannie Mae and Freddie Mac by the US Treasury in September 2008.
• Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. Lehman was forced into bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks yesterday.
• Bank of America Corp., the biggest U.S. consumer bank, agreed to acquire Merrill Lynch & Co. for about $50 billion as the credit crisis claimed another of America’s oldest financial companies. This news is good for the market. But this also tells us that current subprime mortgage crisis is far from over.
• On the evening of September 16, 2008, the Federal Reserve Bank’s Board of Governors announced that the Federal Reserve Bank of New York had been authorized to create a 24-month credit-liquidity facility from which AIG may draw up to $85 billion. The loan is collateralized by the assets of AIG.
• Washington Mutual Inc. became the nation’s biggest bank to collapse after U.S. government regulators seized the Seattle- based bank on Sept. 25. JPMorgan Chase & Co. agreed to acquire WaMu’s deposits and branches for $1.9 billion.
• Fortis, the largest Belgian financial-services firm, received an 11.2 billion-euro ($16.3 billion) rescue from Belgium, the Netherlands and Luxembourg after investor confidence in the bank evaporated.
• Citigroup Inc., the biggest U.S. bank by assets, will acquire the banking operations of Wachovia Corp., rescuing the Charlotte, North Carolina-based lender beset by mortgage losses for more than $2 billion in stock.

Stocks tumbled worldwide, the dollar fell and U.S. Treasuries surged after the bankruptcy of Lehman Brothers Holdings Inc. drove investors to the safety of government debt.

Tags: AIG, Bear Stearns, Fannie Mae, Fortis, freddie mac, lehman brothers, Merrill Lynch, Wachovia, Washington Mutual

FICO score is a credit score developed by Fair Isaac Corporation. It is used by many mortgage lenders that use a risk-based system to determine the possibility that the borrower may default on financial obligations like payment to the mortgage lender.

Fair Isaac Corporation’s uses different scoring methods to rate a borrower’s suitability for three types of credit —mortgages, automobile loans, and consumer credit. It is not unusual for these scores to differ for the same borrower. The FICO credit score range formerly ranged between 300 and 850. A new scoring system now ranges ffrom 501-990. Borrowers can buy consumer credit score from Fair Isaac, and they can choose which agency the data is obtained from.

The higher your FICO credit score, you will have lower monthly payments. So in order to have low monthly payments, you have to increase your credit score. Credit score is calculated by five data categories:

• Payment history (35%).
• Amounts owed (30%).
• Length of credit history (15%).
• New credit (10%)
• Type of credit used (10%)

Tags: automobile loans, consumer credit, FICO score, mortgages

It starts with mortgage. Many Americans borrowed money to buy their own house. After the crash of the dotcom bubble in 2000s many countries including US were facing economic recession. To spur growth, they lowered interest rates. Everybody were lending much money to buy house because it is cheap (low interest rate), making real estate property sky rocketed during this period.

The lenders (example: Washington Mutual) did not have to worry very much about the risk of default, because they created a bond from bundling these mortgages called Mortgage-Backed Securities (MBS), which they then sold to hedge fund, pension funds, and other financial institution (example: Fannie Mae, Freddie Mac, Lehman Brothers). This is a called securitization – conversion of mortgages or loans into bonds. The idea was to reduce risk exposure and raising new fund. The man behind securitization was an Investment Banker of ‘Salomon Brothers’ - Lewis S. Ranieri. In 1980s Salomon launched MBS.

It is hard to sell MBS because of it’s high risk. So they slice the MBS into smaller bond called ‘tranches’ with various risk level from high risk, middle risk, and low risk. Of course higher risk will have higher returns, but if something went wrong, it will be lost first. Salomon used a special purpose vehicle known as Collateralized Mortgage Obligation (CMO). Legally, a CMO is a special purpose entity that is wholly separate from the institution(s) that create it. Monthly instalment from mortgage was used to pay the interest on these bonds. Lender can also minimize risk by insuring the mortgage to other companies like AIG.

When the Fed raise it’s rate until 5.25% in June 2006, people will pay more for monthly instalment. The rate stays there for a long time, making many people unable to pay the instalment. When these people fail, they will also drag financial institution into trouble. That’s why we have seen many troubled institution like Washington Mutual, Fannie Mae, Freddie Mac, and Lehman Brothers. Every institution buying these MBS and it’s derivative around the world will get into trouble.

Tags: CMO, Collateralized Mortgage Obligation, Fannie Mae, freddie mac, lehman brothers, Lewis S. Ranieri, MBS, Mortgage, mortgage crisis, Mortgage-Backed Securities, Salomon Brothers, securitization, Washington Mutual