Example research essay topic: Fixed Rate Wall Street - 1,696 words

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... flw's (2). Nt as much ver building as in the last cycle (though demand levels dropped much mre this time and) (2). Historically lw interest rates that have feed brewers the ability t refinance and lower debt service. (Consider that the average mortgage rate fr an insurance company fixed-rate lan in 1996 was 7. 83 percent versus 5. 68 percent in first-quarter 2003. ) (2) Keen investor interest in commercial real estate, due t lack f gd alternative nn-real estate investments, and the cheap and abundant capital available (2).

Mre institutional worship than in the last downturn (and deeper packets) (2). Better data and research monitoring market performance. But mortgage delinquency rates will rise. Delinquencies will continue t climb through 2003, reaching a peak at the end f the year r in early 2004 (2). However, the lowering f standards has als raised concerns that sme brewers may run int table making their payments, and that defaults could rise.

In May 2005, in response t concerns abut let underwriting standards, bank regular issued their first-ever guidelines fr credit-risk management fr hme-equity lending. (5) Regular are working n new guidelines fr mortgage lenders. In addition, bank examiners are line mre at hw banks ruminate first mrtgage's that than they were a year ag, says Ms. Grunkemeyer f the ffice f the Cmptrller f the Currency. The read they are ding it is because the mortgage products [lenders] are resinating are higher risk. (5) Washington Mutual Inc.

says it is listening its guidelines n sme products while tightening them n ther's. In June 2005, it began feeling hme-equity lines f credit t brewers wh buy condominium units as an investment r as a send hme. Anther recent change lets brewers wh buy a send hme r investment property finance as much as 90 % f the hme's value, up frm 75 %. Sales f investment properties have surged recently, adding fuel t the heated housing market. The Seattle-based lender says it has als me t then sme standards.

Earlier this year, Washington Mutual began setting stricter limits n the size and lan-t-value rates fr lans are $ 7 million. It is als reassessing its credit standards fr investment properties and send hme's, says Jim Vanasek, the company's chief enterprise risk-management fiber. (5) There's been a growing awareness ver the past six t nine mnth's that the risks are starting t increase with the very, very rapid price escalation we have seen, Mr. Vanasek says. I would be surprised if mortgage lenders dn't d sme degree f reining in r tightening ver the next several mnth's. (5) S far, evidence f tightening has been hard t detect. The trend toward relaxing standards is still relatively strong, says Gibran Nicholas, a mortgage baker in Ann Are, Mich. Mr.

Nicholas expects this pattern t continue as lng as foreclosure rates remain lw and demand remains high frm investors wh buy bnd's backed by pls f mrtgage's. (5) Sme lenders say they are being free t relax their standards t remain competitive. U. S. Bank Hme Mortgage, a unit f U. S. Bancrp, says interest-nly mrtgage's and lans with less-than-full documentation nw account fr abut 10 % f its business, up frm just 4 % a year ag.

We " re just feeling the product that a lt f ur competitors have feed, says U. S. Bank President Dan Arrigni. If anything, we have t think abut listening them if we want t complete. (5) However, he says, U.

S. Bank has resisted pressures t for increasingly popular pain adjustable-rate mrtgage's, which carry starting rates as lw as 1 % and give brewers multiple payment choices, because the bank consider them t risky. Lenders als say that advances in technology and data analysis enable them t d a better jb f determining wh is a gd credit risk. (3) ne f the things that is free missed is that lenders have become much better predicts f lan performance with automated underwriting systems and appraisal practices. First Hrizn Hme Lan Crp. , a unit f First Hrizn National Crp.

has recently reduced the credit scre's and based the lan-t-value rate allowed n limited and n-documentation lans that it sells t investors through Wall Street. The bank says such lans represent a tiny print f First Hrizn's volume. The listening f standards als shw's up as products that were initially geared toward the mst sophisticated brewers, such as pain ARMs and interest-nly lans, have become mre mainstream. A recent analysis by UBS AG shw's that the average credit scre's fr brewers with pain ARMs has declined ver the past three years. In addition, mre than 22 % f the brewers wh tk ut pain ARMs this year financed mre than 80 % f the purchase price, up frm 12 % f brewers in 2004 and less than 2 % in 2002, according t the UBS analysis, which like at lans sld t investors (4). The table be shw's hw much ne would pay in principal and interest fr a $ 300, 000 mortgage n a $ 375, 000 huse (r a $ 375, 000 mortgage in the n-do-payment example).

n ARMs, the amounts assume a that increase f tw percentage pints in interest rates ver the first five years f the lan. LAN INITIAL RATE INITIAL MNTHLY PAYMENT MRTGAGE BALANCE AT THE END F 5 YEARS PAYMENT STARTING IN YEAR 6 30 -year fixed, 0 % do 6. 5 % $ 2, 370 $ 351, 041 $ 2, 370 30 -year fixed, 20 % do 5. 84 1, 768 278, 605 1, 768 5 / 1 ARM, 20 % do 5. 2 1, 647 276, 258 2, 000 5 / 1 ARM, interest-nly payment 5. 2 1, 300 300, 000 2, 172 5 / 1 pain ARM, interest-nly 1 % first month; adjusts t 7. 3 % after five years 965 300, 905 2, 179 5 / 1 pain ARM, minimum payment 1 % first month; adjusts t 7. 3 % after five years 965 330, 273 2, 392 Similarly, interest-nly mrtgage's, which were first aimed at wealthy brewers, are increasingly being feed t people with pr credit. Interest-nly mrtgage's accepted fr 30 % f the subprime lans rigi nated in April, according t UBS, up frm 14 % in all f 2004. Average credit scre's and ther measures f credit quality have als been declining, according t UBS (3). The fixed-rate mortgage is still the navy-blue business suit f the mortgage world, feeling lw risk at a bargain price. At less than 6 %, 30 -year rates are still near historic lws; 15 -year lans are even cheaper, by abut a half-percentage pint.

However, despite affordable fixed-rate lans, rapidly appreciating hme prices have pushed mortgage payments ut f reach fr many buyers. Lenders are feeling variable-rate mrtgage's, as well as lan features that help buyers slash their up-from cash and initial monthly payments. Lenders are even trying t brand their products by giving the lans catchy names and introducing them seasonally. Sme f the newer mrtgage's keep monthly payments lw by deferring repayment f the entire principal. Such lans pse a greater risk f default than traditional, fully amortized mrtgage's, and that has regular worried. If rates rise (and usually even if they d nt), payments eventually g up, free dramatically.

If huse's d nt keep appreciating handsomely, their were could find themselves upside do n a lan - wing mre than the huse is wrth when it is time t sell. Summary: Here is hw mortgage lenders are listening their standards: Reducing the minimum credit site brewers need t qualify fr certain lans. Allowing brewers t finance mre f a hme's value r carry a higher debt lad. Introducing new products designed t lower brewers' monthly payments fr an initial period. Letting brewers take ut lans with little, if any, documentation f income and assets.

Here are sme f the new lan products that lenders have been using t entice brewers and that are helping t fuel the housing bm: Interest-nly mrtgage's - These all brewers t pay interest and n principal in the lan's early years, which keeps payments lw fr a time. pain adjustable-mrtgage's - These lans carry introductory rates f as lw as 1 % and give brewers multiple payment choices. But brewers wh elect the minimum payment can see their lan balance rise. Piggyback lans - These combine a mortgage with a hme-equity lan r line f credit, allowing brewers t finance mre than 80 % f the hme's value with paying fr private mortgage insurance. N-documentation and lw-documentation lans - Under these programs, brewers can take ut a lan while providing little if any documentation f their income r assets.

Nothing do. Brewers can take ut this type f a lan if their income and credit are gd but they can cme up with the traditional 20 % do payment (e. g. $ 75, 000 n a $ 375, 000 property) r if their assets are tied up in ther investments. They may even be able t bar up t 107 % f the purchase price t cover closing cst's. However, ne pays a higher interest rate and als have t buy mortgage insurance, which cst's abuse lan value and is added t yur payment. Brewers can usually drp the insurance when equity rises t 20 %.

Sources: Deborah Dan: Mixed Signals Ecn mist Predicts Hme Sales Will Taper ff, but Prices Will Continue t Increase, Daily Herald. Publication Date: August 13, 2004. Page Number: 1 Jeanette I Rice: Reading the tea leaves, Mortgage Banking. Washington: Jul 2003. Vl. 63, Iss. 10; pg. 22 Jan M Robbins Jr. : Putting the Affordable Back int Hmewnership, Mortgage Banking. Washington: Apr 2004.

Vl. 64, Iss. 7; pg. 19, 2 pgs Ii A. J. Catalog: A Case against Financed Hme worship. , Journal f Accountancy. Volume: 177. Issue: 6.

Publication Year: 1994. Page Number: 61 + Ruth Sign: Mortgage Lenders Let Standards; Despite Growing Concerns, Banks Keep Relaxing Credit-Site, Income and Debt-Lad Rules, Wall Street Journal. (Eastern edition). New You, N. Y. : Jul 26, 2005. pg. D. 1

Research essay sample on Fixed Rate Wall Street