The Evolving Mortgage Market

A new era is dawning in the mortgage industry. First, the use of credit scores by lenders in determining whether or not to grant a loan to an applicant is now commonplace. It’s also used to structure the terms offered in the loan.

Up to this point, those scores were kept as a secret to most consumers – the persons and families affected by their score. That’s no longer the case. Anyone can learn from their lender what their score is, and why it was so determined.

The primary developer of the credit scoring system, Fair, Isaac & Co., recently joined online with the huge credit bureau, Equifax, to provide scores and other related information to consumers. Those score are based on statistical models that analyze, via computer programs, the credit files maintained on nearly all adults in this country and many others.

Generally, the scores range from the 300s to about 850. The higher the score, the less risk is incurred by the lender. Most lenders give their best terms to persons with scores over 700.

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The last interest rate reduction by the Federal Reserve isn’t having as much impact on mortgage interest rates as first anticipated. The reason, say industry leaders, is continuing inflation, and fear of more severe inflation in the near future. Many lenders are reluctant to pull down their mortgage interest rates in line with the Fed reduction.

Since the last announcement of an interest rate reduction by the Fed, mortgage rates have decreased only slightly.

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With mortgage interest rates continuing to decline and home values increasing, more homeowners are using home equity loans to generate funds for consolidating other debt, remodeling their home, paying for a child’s education or financing other major expenses.

While many homeowners are reluctant to risk losing their home if unable to keep their payments current, their growing equity and the lure of low interest rates is motivating an increasing number of owners to apply for a home equity loan or line of credit.

With today’s super-low interest, the dominant demand will probably swing to fixed-rate loans or lines of credit. This is about as low as interest rates can go. When you find a good and solid equity loan package, it can be an excellent way to finance major household expenses. And in most cases, the interest is tax deductible.

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Developing mortgage products that reduce borrowing constraints can boost homeownership rates significantly, according to a recent study by Syracuse University.

Eliminating borrowing constrains would increase the owner-occupancy rate of families generally by 4 percentage points, it was concluded. It would lift homeownership rates for low-income families by 10 percent. The current homeownership rate of families in the U.S. is 67.5 percent.
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If you’re moving from California to a southern state, you’re in for a pleasant surprise. You could probably buy four or five homes in your destination community with the price you receive from your California coastal home. And each of your new homes would be comparable to the one sold. And the amount of mortgage needed ties in directly with those wildly differing prices.

Of course, if you’re moving in the opposite direction, be prepared for major sticker shock.

A recent study determined that a typical 2,200 square foot, 8-room home in the San Jose, California, is now selling for about $860,000. The same home in San Antonio is selling for $125,600.

In most areas, home prices have continued to increase in recent years. But in a few locations they have decreased over the past six years. In San Antonio, for example, housing values dropped nearly 15 percent over that six-year period. In Honolulu, home prices dropped by 7.9 percent.

The biggest gain in home values was in San Jose – increasing by a whopping 101 percent over the past six years.

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Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends. It’s titled “Open House” in most newspapers, and carries his byline as James M. Woodard. He is also a professional storyteller with a pictorial Web site at:

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