All major banks and credit unions in the United States. offer mortgage products and the mortgage market is well developed, but it operates in a slightly different way from the UK experience.
In the past, in the USA, fixed-rate mortgage loans guaranteed the same interest rate for the duration of the loan and until the subprime crisis it was quite normal to have a fixed rate for up to 30 years, unlike to here where such favorable conditions are usually only offered for a shorter period – perhaps up to 5 years. Nowadays, it is still possible to get a fixed long term interest rate in the United States. but only if the applicant can meet strict criteria.
Variable rate mortgages are called variable rate mortgages (ARMs) in the United States. Alternatives are also offered in the form of hybrid ARM products called ARM 3/1, ARM 5/1 or ARM 7/1 i.e. they have a fixed rate for three, five or seven years before switch to revisable rates.
Mortgage applicants in the United States. can apply directly to a bank or credit union, but the best deals are often with a mortgage broker. There are also two specialty lenders, Fannie Mae and Freddie Mac, who offer preferential mortgages in certain circumstances, especially for low-income borrowers or first-time buyers with deposit requirements as low as 3%.
These days mortgage applications in the United States are handled the same as here in the United Kingdom. with the applicant’s credit score verified and income verified to ensure the loan is affordable and the property appraisal is confirmed. However, this level of prudence has not been applied in the past and the subprime mortgage crisis between 2007 and 2010 arose as a result.
In the period prior to 2007, United States. mortgages had been largely funded by mortgage-backed securities (MBScs) and collateralized bonds (CDOs) which offered much better returns than government securities backed by overly optimistic risk ratings from rating agencies. The first signs of unrest appeared in 2007 and the crisis escalated to such an extent that several large financial institutions collapsed in September 2008, causing severe disruption in the flow of credit to businesses and consumers and the global recession. that resulted.
The pre-2007 housing bubble was fueled by reckless mortgage lending, including the rapid rise in subprime lending that sparked the crash. The proportion of subprime loans increased from around 8% to around 20% from 2004 to 2006. Subprime loans were made with little or no control over the ability of borrowers to repay the loan with interest accrued. initially low. attractive level at a much higher rate over time.
There was a lot of anecdotal evidence suggesting that anyone with a pulse could get a big mortgage and even when the pulse failed, some fraudulent claims were made using the names of people who were actually dead. In the absence of serious credit checks, great confidence was placed in overly optimistic property valuations during the housing boom.
When house prices in the United States fell sharply, after peaking in mid-2006 and variable rate mortgages began to readjust to higher interest rates, mortgage defaults have grown rapidly, and mortgage-backed securities held by investors have lost much of their value. This crisis, which began as a simple case of reckless mortgage lending during a housing bubble, has had serious and lasting consequences for the United States. and global economies.
United States. entered a deep recession with around 9 million jobs lost in 2008 and 2009 – around 6% of the labor force – and the number of jobs did not return to the pre-crisis peak of December 2007 until May 2014. United States. Household net worth declined by nearly $ 13 trillion (20%) from its pre-crisis peak in the second quarter of 2007, only recovering in the fourth quarter of 2012. United States. home prices fell about 30% and the stock market fell about 50% in early 2009.
Mortgage lender losses have likely been exacerbated by the way delinquent loans are handled in the United States. Here we call them foreclosures, but in the United States they are called foreclosures, which is basically the same. sold very quickly at auction with the sale often conducted on the front lawn of the house and buyers primarily from local property dealers. It is not uncommon for foreclosures to be sold very cheaply, sometimes for just a dollar if the home is in a very poor area or in disrepair.
In the wake of the subprime loan debacle, the federal government launched a comprehensive review of the mortgage market and how lenders were regulated. We are now seeing much more caution and the use of secured debt and other methods of packaging and selling low quality debt has largely ceased.
In this more regulated market, different banks and brokers offer a range of products, but not all potential borrowers can access the available loans and it depends a lot on the state in which they are located. Interest rates vary, as does the amount of paperwork needed to secure a mortgage.
Foreigners as well as the United States. citizens can legally buy property in the United States. and mortgages are available to expats although a valid green card or work visa is likely required in addition to proof of income. Preferred credit union mortgages with low deposit requirements are sometimes available for expatriates with permanent residence.
When you apply for a mortgage in the United States. applicants will be required to pay a fee consisting of an assessment (assessment) fee of approximately $ 500, application fee of approximately $ 50, settlement fee of approximately $ 300, registration fee of approximately 150 $ and mortgage guarantee fee of 2% to 3% of the loan. Fees are also charged for title verification and title insurance. All of this is rising although some fees are negotiable. Some brokers may increase costs by charging for additional services that may not be essential. Applicants should therefore be wary of these potential additions.
The property appraisal, which is prepared here in the UK. by a surveyor, is undertaken in the United States by an appraiser. As in the UK, appraisal is necessary to confirm that the property is suitable mortgage collateral and that the price is supported by comparable market evidence available. Methods of building houses in the United States. vary from state to state with much greater use of timber framing, so an appraiser with good local knowledge of the local housing and construction market is needed.
We should never underestimate the importance of mortgage financing, as a failure to regulate the system can have profound implications for the economy at large. The American experience of 2007 serves as a salutary reminder.
Peter Glover is a surveyor and author of Building Surveys and Buying a House or Flat