The Capitalization Rate (also known as “Cap Rate”) is used to compare an income property with other similar income properties. It can also be used to place a value on a property based on the income it generates.
The Cap Rate merely represents the projected return for one year as if the property was bought with all cash. But since we don't normally buy property using all cash we would use other measures, such as the cash-on-cash return, to evaluate a property's financial performance.
Reports of suspected mortgage fraud rose 42 percent last year as banks became more leery of lies on loan applications.
The Treasury Department's Financial Crimes Enforcement Network said Thursday that there were 52,868 reports for mortgage fraud in 2007, up from 37,313 a year earlier. Mortgage fraud reports were the third-most common type of suspicious activity.
The most common type of mortgage fraud was misrepresentation of income or assets, followed by forged documents, misrepresentation of a borrowers' intent to occupy a property as a primary residence occupancy fraud and inflated appraisals.
The Mortgage Bankers Association has called for more than $31 million over the next five years in new funding for the FBI and Justice Department to fight mortgage fraud, money that would go to new investigators and prosecutors.
This is just one of the reasons why most lenders today have pulled their stated-income loan programs, while others have raised the credit requirements to qualify for such loans.
Subprime loans were initially aimed at people with weak credit. But by 2005 and 2006, lenders encouraged many types of better-off borrowers to take such loans, including people with large incomes who chose to speculate on the real estate market.
But many subprime loans were made to refinance lower income borrowers who already owned homes, which often loaded them up with more mortgage debt than they realistically could manage and creating a risk of foreclosure.
Today there are very few lenders with loan products aimed at the subprime borrower, but they do exist and the lending criteria required by those lenders are far stricter than in years past. I’m sure we’ll see the day over the next few years where many lenders announce subprime loan products, but for now we’ll have to wait for the market dust to settle and confidence to rise once again.
