Buying a home with Mortgage Lending

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Buying a home with Mortgage Lending

A mortgage is a long-term loan on real property secured by a borrower in order to buy that property. A mortgage transfers the rights to that piece of property from the borrower to the lender until the loan is fully paid back. Predatory lending has harmful implications for borrowers due to excessive rates of fees, fraudulent terms or lender behaviour, or other practices that have a negative impact on borrowers.

 According to the Council of Mortgage Lenders (CML) mortgage lending rose to an all-time record level in November of 2006. The latest figures from them show that a further £33,1 billion was lent to homebuyers in November, £100 million higher than the previous record high set in the month of August. This was 9% more than in October and 19% higher than in November of the previous year.

Record lending has been fuelled by a buoyant property market reflecting a lack of housing and the growing number of households. The CML added that the housing market was in robust shape as we move into 2007. The director of the group also said “mortgage lending looks set to remain seasonally strong… reflecting a continuing high level of transactions and house price growth”. He also predicted that 2007 will be another record breaking year for mortgage lending.

Meanwhile, the British Banker’s Association (BBA) said its members had seen record mortgage lending during November 2006. However, the BBA noted that demand for credit cards and personal loans was weak.

Effectively managing the risk associated with mortgage lending involves much more than prudent underwriting. Experienced risk managers should understand the need to carefully consider the risks should the housing market slow, interest rates change, or unemployment rise. These include the risks that borrowers will not have sufficient income in the future to manage substantial payment increases and that continued home price appreciation may not provide a sufficient equity cushion to minimise losses in foreclosure. In addition, an accumulation of portfolio concentrations could leave an institution exposed in downturn. Lenders specialising in sub prime loans, for example, have endured a string of bad news recently, including increasing loan delinquency and foreclosure rates and the shutdown of some lenders that could not operate profitably in a slower origination environment.

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