A no-cost mortgage (NCM) is one on which all lender fees are waived, and (subject to the possible exceptions described below) other fees are paid by the lender. The quid pro quo is a relatively high interest rate, which makes the NCM costly for borrowers who expect to have their mortgage a long time. But if the borrower has limited cash, avoiding an upfront cash drain may be much more compelling than the higher interest cost spread over many years.
No-cost mortgages have one feature that I like a lot. Because lenders offering NCMs pay for services obtained from third-parties, such as title companies and appraisers, they have an incentive to find the service providers offering the lowest price. When borrowers pay for these services, which is most of the time, lenders generally accept high prices that make the service providers beholden to them.
The relative simplicity of a mortgage with only one price dimension is also attractive. In principle, it should make price-shopping much easier. Unfortunately, ambiguity about which costs are covered and which aren’t can nullify this benefit.
via No-Cost Mortgages – Mortgage Professor.
“In an article in Freddie Mac’s Executive Perspectives blog Bowden writes that this is good news for taxpayers who are currently benefiting from Freddie Mac’s profits, however, some potential buyers may be worried about being priced out of the REO market. The brokers who handle HomeStep properties are getting more questions from those buyers about how multiple offers are handled and how buyers can best position themselves to submit a winning one.”
“Recently, mortgage giant Fannie Mae revised its forecast for the U.S. housing market, and the news is not too good. Basically, thanks to a weak first half of 2014, Fannie now thinks total home sales will actually be lower in 2014 than they were in 2013, and that 2015 won’t be much better.”
In his interview with HousingWire, Mel Watt, the director of Federal Housing Finance Agency urges the opening of the mortgage credit box to less-than-optimal borrowers.
“We are getting lenders to reduce some of the credit overlays,” he said inthe exclusive interview.
Furthermore, FICO scores will ignore debts that have been paid off or settled, and a lesser weight will be assigned to medical bill collections, which account for about half of all unpaid collections on consumers’ credit reports.
Nonetheless, the average FICOs have been going down steadily since 2006 and it’s not hard to see why, what with the housing crisis, the financial meltdown and the general recession and record unemployment and underemployment.
So what can those with a FICO that is under 620 do to get a mortgage?