Originally posted on HomeFinancingNews.com.

Mortgage fraud is again stepping into the media limelight. NPR's Morning Edition reports on new FBI investigations which are being carried out in Las Vegas, Nevada: a city which is fast emerging as the mortgage fraud capital of America.

Current turmoil in the city's property market has led the FBI to uncover a number of schemes involving 14 financial institutions. Some very shady tactics have resulted in property prices being artificially inflated so that investors could pocket quick profits. That in turn has led some desperate buyers into adjustable rate mortgages which they couldn't really afford. And as their rates have adjusted and they've been foreclosed on, a cascade effect of foreclosures has been triggered in some Sin City neighborhoods.

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Originally posted on Home Financing News.

The House of Representatives and the White House today announced plans to issue tax rebates to most tax-paying American consumers. The scheme is designed to infuse the economy with additional money and reduce the impact of a recession.

Assuming the bill is not held up or killed in the Senate, the checks should arrive in mailboxes by May, and could help struggling homeowners who are looking to refinance into fixed rate mortgages.

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Originally posted on Home Financing News.

Home refinance applications are up sharply according to the latest numbers from the Mortgage Bankers Association. And some industry watchers think they mark the beginning of a new refinance boom in the months to come.

But applications aren't the same as completed mortgages. And sadly for too many homeowners, there might be several big gotchas standing between them and that cool new mortgage they badly want. As a result, a sizable number of borrowers will be left out in the cold, and the anticipated refinance boom will be little more than a cough.

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Originally posted on Home Financing News

USA Today has created buzz with a report about the rapid rise of mortgage scams. They cite FBI statistics, which show that almost three times as many mortgage fraud cases were started by the Bureau in 2007 as in 2003. Fraud convictions have also rocketed, up from 123 in 2006 to 260 in 2007.

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Originally posted on Home Financing News.

Various sources are reporting on new attempts by Merrill Lynch and Citigroup to obtain foreign investment in an attempt to shore up mortgage-related losses.

Merrill Lynch looks likely to obtain between $3 billion and $4 billion from Middle Eastern government funds. Meanwhile, Citigroup could get up to $10 billion from a variety of foreign sources, and is also expected to cut its dividend in half in an effort to save around $2.5 billion a year.

Both companies are keen to secure the investment funds before they release their earnings reports next week. Such investments will likely provoke political debate, especially during an election year. But many industry analysts are upbeat about the prospect of two of Wall Street's financial heavy hitters stabilizing.

From the mortgage industry's perspective, fresh market investment could help to calm the wider market, relax jittery lending institutions, and enable more loans to be funded.

Originally posted on Home Financing News.

Subprime: it's a word which has been flooding the media over the past few months, thanks to the credit crunch and the contracting mortgage market. And now, according to the American Dialect Society, it's the official word of 2007.

There are many groups competing to crown the word or buzzword of the year. And others, like the Global Language Monitor, failed to even place subprime in their shortlists. But the American Dialect Society's method of choosing their word is interesting because it involves human voting instead of algorithms. That means the term subprime was chosen because it struck an emotional chord with people; 71 percent of those voting to be precise.

Some observers remain unconvinced that subprime deserves the title, either because there are more viable competitors, or because it simply lacks excitement. But there's no doubting that subprime as a word has had a very busy year.

Originally posted on Home Financing News.

A new survey relating to credit scores has been released, and the results have worried some in the financing sector. The survey, commissioned by the Consumer Federation of America and Washington Mutual, focused on just over 1,000 adults in America, and determined that the public's understanding of credit scores is not good.

It asked the participants a variety of questions about how credit scores affect personal finances and loan applications. Just under 30 percent knew that credit scores were used to indicate the risk factor of a prospective borrower. And only 24 percent knew that people with credit scores below 700 would struggle to obtain a low-cost mortgage.

A silver lining came in the fact that more consumers are now obtaining their credit score. Almost 60 percent of the participants claim to have done just that, compared to 54 percent two years ago.

In September, Fair Isaac Corporation will make noticeable revisions to their FICO credit scoring model. Currently they divide consumers up into ten groups, based on credit history. But come the fall two more ‘poor credit’ groups will be added, and the existing groups rebalanced.

The changes are intended to make FICO scores more reliable, especially for those consumers deemed ‘high risk‘. The new model will particularly affect people who rely on authorized card accounts, and is intended to adjust the risk factor of young adults, but will also affect some married women. Consumers with thin credit histories may also see their FICO scores fall.

Last year Experian, TransUnion and Equifax launched the Vantage scoring model, a rival to the FICO score. While the new model did have some advantages, it also created confusion for consumers seeking to identify their credit scores. But just as importantly, the Vantage model has not made major inroads into the financial industry: forty of the top fifty American financial institutions still use the FICO model.

The latest FICO changes, while necessary, will complicate matters even more for many homeowners struggling with adjustable-rate mortgages. An estimated $515 billion worth of ARMs are set to reset this year, and another $680 billion will reset in 2008. With lender requirements getting stricter, it is critical that homeowners thinking about refinancing act preemptively to improve their credit scores, and be aware their FICO score might alter later this year.

A sharp decline in May home construction has caused mortgage interest rates to finally drop. Recent weeks have seen 30-year fixed rates roar up to 6.84% from 6.27% in late April. But this week saw that rate slip back down to 6.76%. ARMs and 15-year fixed mortgage rates also fell moderately in the latest reports.

The May construction decline was in turn a repercussion of the subprime mortgage slump. Rising foreclosures and stricter lending standards have exacerbated high inventory levels and low demand, and it seems unlikely that home construction will rebound for a while.

Those factors, combined with tame core inflation, have somewhat lessened broad inflationary fears. On the whole housing is likely to remain weak until 2008 at the earliest, and that means interest rates are not likely to resume a sustained period of marked increases in the immediate future.

According to the FTC, nine out of ten people reviewing the forms currently used couldn't identify the total upfront cost of their loan. Half of those questioned couldn't correctly tell the loan amount, and two thirds didn't know if there was a prepayment penalty attached to the mortgage.

While evaluating the current documents, the FTC also tested prototype documents designed to bring greater clarity. And while the revised forms faired better than those currently used, there was clearly still room for improvement.

The mortgage industry has taken a verbal beating in recent months. Legislatures and borrowers have criticized the lack of clarity in loan disclosure documents, and claimed it is the core cause of the current subprime mortgage downturn. The report authors concluded that changes must be made to help protect consumers and restore faith in the wider mortgage industry.

The introduction of new, clearer documents is inevitable. But regardless of which disclosure forms are used, borrowers should take their time while previewing their mortgage, and not be afraid to ask questions.