Christmas Eve Closing

Topics: Mortgage, Mortgage loan, Subprime mortgage crisis Pages: 4 (1291 words) Published: April 20, 2013
As your financial advising team, we recommend that you act on your three day right of recession and rescind the mortgage you entered into with Mr. Sullivan at Ameriquest on December 24, 2002. We feel that the option recommended by Tim Sullivan is not in your best interest. Our analysis shows that your current mortgage is more financially stable and includes lower risk. You currently have a 30 year fixed mortgage of 7.25%, which is below current par 30 year fixed rates for subprime borrowers (currently estimated at 8.08%). Below is our analysis on your situation supporting the reasons for our recommendation. We understand that the surface savings with the Ameriquest loan are appealing, but we believe you are not benefiting financially with the new mortgage.

Home Value:
Per Tim Sullivan the home is now worth $230K. However, there is no evidence of an appraisal. We would advise that you have a certified appraiser appraise the home to find the true market value. Based on the information in Exhibit 1, the median home prices increased by 20% from 2001 to 2002 in Lawrence. Given that you purchased the home in 2001 for $157,900 including a 20% increase, the home value would be $189,584. Unless significant improvements have been to the property, it would be highly unlikely that the value increased 46% to $230,000. Without an appraisal, I would take the conservative approach that the home value is no more than $189,584. Furthermore, looking at historical home prices from 1988, home prices have increased by about 3% per year, with fluctuations in individual years. We believe that you should not believe that the home values would continue to increase at 20% per year. Therefore, continuing to borrow against the equity to pay down other debt is not advisable.

Underwriting Criteria:
Historically, loan officers have used the Five C’s to determine the type of loan the borrower could qualify for. These are items that determine if a borrower will qualify, and...
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