Home Loan Wholesale

Paulson yesterday asked Congress for unfettered authority to buy devalued mortgage-related securities from investment firms in an effort to keep the financial system from coming to a standstill. The proposal would prevent courts from reviewing the Treasury’s actions while raising the nation’s debt ceiling.

The U.S. Treasury late yesterday modified its proposal to allow for purchases from institutions outside of the U.S., a step Paulson today said was needed to mute the impact of the credit crisis in the U.S.

Bush said Saturday the White House is ready to work with Congress to quickly enact legislation to allow the government to purchase hundreds of billions of dollars worth of bad debt linked to the collapse of the housing market. This marks the biggest government intervention since the Great Depression.

Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, said that what Congress was being asked to approve was the “mother of all bailouts” which Shelby said would end up costing more like $1 trillion rather than $700 billion when the costs of the government taking over mortgage giants Fannie Mae and Freddie Mac and insurance giant American International Group Inc. were added. The credit markets are still very fragile right now and frozen,” Paulson said in an interview on NBC’s Meet the Press. “We need to deal with this and deal with it quickly.”

“I don’t want the American taxpayer to get this bad debt and then the guy (whose company once held the bad loans) gets millions of dollars on his way out the door,” said House Financial Services Chairman Barney Frank, D-Mass.  “This is not a position where I like to see the taxpayer, but it is far better than the alternative,” Paulson said on NBC’s “Meet the Press.”

 Two weeks ago, the government seized control of the nation’s two largest mortgage companies, Fannie Mae and Freddie Mac, and then last week, it took control of the country’s largest insurance company, American International Group Inc.  The legislation Congress passed this summer that gave the authority to rescue Fannie and Freddie boosted the limit on the national debt by $800 billion to $10.6 trillion. The legislation the administration is now seeking to authorize the financial system bailout, according to a draft obtained by The Associated Press, would boost that debt limit to $11.3 trillion, up another $700 billion.

The economists think the bailout is a good idea. “This could go a long way toward solving these problems,” said Mark Zandi, chief economist at Moody’s Economy.com, who has written a book on the mortgage meltdown.  No one knows for sure how much it’s going to end up costing, but Zandi said if the experience with cleaning up all the assets left over from the savings and loan mess is any guide, it should be less than the $700 billion that the administration is seeking.  Homeowners are looking for help with Foreclosure Prevention. “There is a risk that there will be bank failures to come,” said Vincent R. Reinhart, former director of the Federal Reserve’s monetary affairs division.

Another risk is that if the auctions set too low a price for mortgage-related assets, other institutions with bad debt may be forced to take the distressed valuation onto their books under mark-to-market accounting rules, Reinhart said. Mark-to-market rules involve adjusting the price of an asset to reflect its current market value. “If the auctions don’t go well, it will drag down everybody’s balance sheet who marks to market,” Reinhart said.  Right now, it looks like the ones benefiting are the investment banks that bought into these bad home loans. It appears that the taxpayers are left holding the bag on bad decisions made by greedy investment banks. But, it is being called a “necessary evil” to keep the economy from collapsing. Once the dust settles, it will be a matter of time to see exactly who benefits. Right now, credit is still frozen, making it very hard for anyone who wants to buy or refinance a home with a conventional loan. FHA, VA and other government-backed loans are still by far the best option for mortgage loans.

Fannie Mae and Freddie Mac own or guarantee about half of the nation’s home loans totaling around $5 trillion, have been ailing for months. The bailout plan, which calls for the government to inject up to $100 billion in each of the U.S.-sponsored mortgage financiers to keep them operating, was in response to the roughly $14 billion of combined losses over the past year.

“These companies are so big and so interwoven into the financial markets and our financial system, we had no choice,” Treasury Secretary Henry Paulson said Monday in a round of TV interviews. “A failure by either one of these companies would cause great havoc in the economic system.”

Fannie, Freddie and the Federal Housing Administration (FHA) now account for backing or issuing roughly three-quarters of the nation’s mortgages, with commercial banks playing a decreasing role since the start of the housing-credit crisis.

Unfortunately, the bailout announced last Sunday hasn’t done much for easing other credit concerns. There is growing worry about other credit problems leading to more big losses and write-downs at banks and other financial institutions in the months ahead.  The latest data on the job market shows that unemployment rate shot to a five-year high in August and payrolls are being cut at an alarming rate. Unemployed people can’t pay bills, which could possibly lead to a surge in defaults not only in mortgages, but also other bills like credit cards and auto loans.

“There is no silver bullet here. This is certainly a positive step, but is not the absolute answer,” said Mark Zandi, chief economist at Moody’s Economy.com. “They’ve made progress in residential mortgage assets but have yet to deal with other problematic loans.”

New data released Monday by the Federal Reserve show that consumer borrowing on credit cards grew at an annual rate of 4.8 percent in July, up from a growth rate of 3.5 percent in June. But, payments on those cards have fallen despite the $106.7 billion Americans received from the economic stimulus package. Card payment rates fell 6.2 percent on a year-over-year basis in July, the ninth consecutive monthly decline.

More and more, economists are talking about an emerging “negative feedback loop,” whereby a slowing economy generates higher credit losses at banks, which leads to more restrictive lending, weakening the economy even further, and round and round. “It’s already happening,” says New York University Prof. Nouriel Roubini. For an economy already struggling to grow, the result could be the nastiest recession in a generation.

“Credit availability is needed before housing can recover,” says Vince Farrell, chief investment officer of the Soleil Group in New York. But, credit isn’t going to be available unless these credit concerns can be addressed.

How the Mortgage Market has Changed Lenders and Brokers

The current mortgage market mess is a direct result of the subprime mortgage meltdown and foreclosure phenomenon. It all began with the bursting of the U.S. housing bubble, which launched the high default rates on subprime adjustable rate mortgages (ARMs) and spread to the exotic hybrid ARM (negative amortization and interest-only loans). Now, even the prime mortgage market is experiencing high default rates.

Loan incentives, such as easy initial terms, in conjunction with an acceleration in rising housing prices encouraged borrowers to assume difficult mortgages on the belief they would be able to quickly refinance at more favorable terms. But, when housing prices started dropping in 2006, refinancing these loans became difficult. The default and foreclosure rate started rising dramatically upon expiration of the initial teaser rates and upon ARM interest rates adjusting higher as home prices failed to appreciate. Foreclosures accelerated in the United States in late 2006 and triggered a global financial crisis through 2007 and 2008. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity, up 79% from 2006.

Subprime mortgage lenders were the first to be affected by the borrowers unable or unwilling to make their payments. Major banks and other financial institutions around the world have reported losses of approximately U.S. $435 billion as of July 17, 2008. But, as the securitized loans sold in the form of mortgage-backed securities (MBS) and collateralized debt obligations (CDO) declined in value, Corporate, individual and institutional investors holding MBS or CDO started getting hit with heavy losses, and stock markets in many countries declined.

Countrywide almost going under before being bailed out by BOFA (Bank of America) and IndyMac going under seemed to spark off a trend of mortgage companies going bankrupt that seems to be continuing. As a result of the significantly increased credit risk and decreased confidence in the financial market, lending activity decreased, credit standards tightened down and the spread on higher interest rates widened–the current “credit crunch”.

Now, in order to get a conventional mortgage loan, whether you’re looking to buy or refinance, you now have to have excellent credit. Down payment and equity requirements are now tighter, as well. And, while the interest rates have now dropped below 6%, the lending standards haven’t loosened up at all. To purchase a home with a conforming Fannie Mae or Freddie Mac loan, you need a credit score of at least 660 if you’re putting 20% down and a score of at least 700 if you’re starting with less than 20% equity. Refinancing has similar standards–you need an excellent credit score and low loan to value (LTV), typically around 75% to 80%.

As a result of the conventional loan tightened lending standards, and the new increased lending limits under the Economic Stimulus package passed earlier this year, FHA loans have been making a serious comeback. The lower interest rates that resulted from Freddie Mac and Fannie Mae being taken over by the government has also benefitted FHA because FHA rates have also decreased. But, the advantage that a home buyer has with FHA loans is that the credit standards are nowhere near as stringent for FHA loans as they are for conventional loans. You’re eligible if you have a score of around 580 and a good 12-month payment history on your bills. Plus, if you don’t have credit, FHA accepts non-traditional forms of credit like a positive rent paying history and positive payment histories with your utilities and cell phone.

For those looking to refinance, FHA allows you to refinance up to 95%, which is a lot better than the 75-80% LTV on conventional loans. Credit standards are reasonable for refinance loans, as well. As long as you have a positive 12-month payment history (particularly on your mortgage) and you are current on your mortgage, you’re eligible.

Federal Reserve extended lending aid for Bear Stearns & Co, a large publicly held home mortgage company who has been in financial trouble in recent years.  The sub-prime home loans took their toll onn Bear Stearns, but they got a nice boost with the recent Fed moves.  In conjunction with the move by the SEC, the Federal Reserve said Wednesday morning that it would extend additional emergency lending aid to non-bank financial institutions through the end of January. The primary dealer credit facility gives investment banks access to the Fed’s discount window, and was thrown open during the March blowup at Bear Stearns & Co.

The Fed said it was taking these steps “in light of continued fragile circumstances in financial markets.”  GiAccording to Paul Jackson, investors  are welcoming the finance news, however the extension  opens up an ongoing debate over the Federal Reserve’s role in regulating investment mortgage banks. Commercial bankers have remarked for months now that the Fed should have regulatory authority over investment banks if they will be lending cash for any duration.

A story in the Wall Street Journal went so far as to suggest that the Fed’s move had less to do with the state of the investment banks, than it does with ensuring that the Fed itself remains in the driver’s seat with respect to the tone of the capital markets.

Freddie Mac, a government-chartered company, will also increase the time it gives servicers to negotiate with delinquent borrowers in Washington, D.C., and 20 states to 300 days from a range of 120 to 299 days, a spokeswoman said. The states are those with relatively fast foreclosure processes, Freddie Mac said.

Freddie Mac continues to struggle to contain billions of dollars in losses sustained since mid-2007 as the housing slump and home lending erodes more than expected. Speculation that losses will severely pinch capital positions at the company and rival Fannie Mae , the top U.S. mortgage funding company, led to sharp drops in their share prices since May and legislation this week to provide emergency financial backstops from the U.S. Treasury.  Delinquencies on home loans guaranteed by Freddie Mac more than doubled in the year through May to 0.86%.  According to Freddie Mac, the recent national delinquency rate calculated by the Mortgage Bankers Association is 6.35%.

HUD has helped fill the gap of loan purchasing from Freddie Mac and Fannie Mae with their government insured FHA home loans.  Thje FHA home loan programs have expanded to help borrowers with adjustable rate mortgages refinance into a fixed rate mortgage.  In addition, FHA announced a plan to roll out new down-payment assistance loans to help first time homebuyers get into the real estate marketplace.

Compensation to loan servicing companies that negotiate new payment plans and home loan contracts will double to $500 and $800, respectively, Freddie Mac said. For a mortgage servicer that completes a so-called short-sale, in which Freddie Mac accepts a sale price on a home below the balance of the mortgage, payments also double, to $2,200. Accepting short sales can result in less losses for mortgage lenders by ending the delinquency period and preventing ownership of the property through foreclosure.

Among new incentives, Freddie Mac said it will reimburse servicers for the cost of door-to-door programs in which lending services seek out troubled borrowers in person to discuss renegotiating their loans if that results in the borrower contacting the servicer.  Loan servicing companies have also been stung because they must advance payments to home loan investors even if the mortgage is in arrears, and as they hire more skilled workers to negotiate with borrowers and underwrite the mortgage loans again.  Loan servicing companies, often units of major mortgage lenders, this week said they increased the number of mortgages they have modified to more affordable terms last quarter.

VA home loans have proven to be a safe play for homeowners over the years.  The recent increase for VA loan limits have helped many homeowners attain the full 100% financing in areas that were not once available to the full $417,000. As a mortgage broker, it is important that you ask your clients if they were ever in the military, because having that benefit can and will save them more money a month, with less of a down payment then going conventional through fannie mae or freddie mac, and even better then FHA.  Continue reading the full article at http://ezinearticles.com/?VA-Home-Loans-Prove-Safest-Play-For-Home-Owners&id=1145127

Being underwater in the existing market means owning more on a mortgage than the underlying security - that would be the home is worth. Some borrowers actually took out a loan that was near 100% home loan to value, others have watched their equity disappear as housing prices plummeted. Were the borrower to sell the house or refinance under today’s economic conditions he would have to bring cash to the closing table to make up the difference between the loan or sale proceeds and what is actually needed to retire the old debt.

It is expected to be announced today that a former LendingTree employee was caught in a elaborate lead selling scheme. This has not yet been verified by LendingTree, but was brought to my attention by a number strong and reliable sources. An ex-lendingtree employee, possibly partnered with a current LendingTree employee, accessed LendingTree’s database of live consumer data and sold the data to a mortgage companies.

Apparently, because social security numbers were included in the stolen data the FBI has been very closely involved. This is a major breach of security for the trusted lead generator.

How many times did this ex-employee sell the data? How many current employees were involved on the inside? How many mortgage companies knowingly or unknowingly bought this data? These are all unknown questions but hopefully be answered today.  - From the Mortgage Wire