Home Loan Wholesale

The National Association of Mortgage Brokers took the RESPA fight to a new level.  It’s bad enough that the banks and lenders have gotten away with slandering brokers for predatory lending.  HUD should be comparing home loans to home loans…The fact that HUD thinks it’s ok for mortgage lenders and banks no to disclose the yield spread premium paid by the investors, yet mortgage brokers should have be required to disclose the YSP, is nothing short of astonishing! 

NAMB’s argument is that HUD has overlooked the rights of mortgage brokers and bankers in helping the consumer at the closing table. The lawsuit against HUD states that the Final Rule is “arbitrary and capricious,” contrary to the intent of Congress, and fails to offer any rational reasons for its rejection of alternative approaches. NAMB says the Final Rule discriminates against mortgage brokers with the required broker-only disclosure of yield spread premium (YSP), placing them at a permanent disadvantage in the marketplace.  Read the complete article > NAMB Sues HUD Over RESPA

A frequent question we get from homeowners is “When is the best time to take out a second mortgage?” Obviously we respond to that question by asking more questions like, What do you need the money for?  Cash out?  Debt Consolidation?  Home improvements?  What would your home be appraised at?  What is the outstanding mortgage amount on your existing home loan?  How is your credit?  How long do you plan to live in your home?  Depending on how the loan applicant answers those questions will dictate how we advise them. 

For example, If you have bad credit and no equity, the likelihood of qualifying for a home equity loan or equity line of credit is very minimal.  Typically to get approved for a bad credit second mortgage, the borrower will need to have 25% -30% home equity available to satify the lender’s underwriter.   Read the complete article > When is the Time Right for a Second Mortgage?

The Federal Reserve made more bold moves today when he announced key interest rates that reach historic levels.  Home loan lenders reported interest rates as low as 5% for mortgage refinancing and home financing. Many mortgage brokers believe the rumors are true that the government will induce lenders to offer mortgage rates in the 4.5% range.”

Demand for government bonds surged and the yield on the benchmark ten-year Treasury note, which moves opposite its price, dropped to 2.27 % from 2.53 % late Monday. The yield on the thirty year dropped to 2.78% from 2.99% late Monday.  The yield on the three-month Treasury-bill whose yield has at times gone below zero due to crazy buying — was at 0.02, flat with late Monday.  The dollar was mostly lower against other major currencies, particularly the euro. Gold prices rose.  Read the full article > Fed Makes History by Cutting Interest Rates to the Lowest Level

Reverse mortgages have long been a way for seniors to turn the equity in their homes into extra cash in their pockets. Now, a higher lending limit is making it possible for some seniors to get more money out of a reverse mortgage than before.  The new $417,000 lending limit for reverse mortgages insured by the Federal Housing Administration was rolled out nationwide (except for parts of Hawaii, which have higher home loan limits) on Nov. 6. To qualify for the lending limit, a home has to be appraised at $417,000 or higher. The actual amount of the reverse mortgage would be a percentage of the $417,000 lending limit or appraised value of the home, whichever is lower.

The higher limit made it possible for Oakland resident Michael Goldsmith to receive a reverse mortgage that was $50,000 larger than he would have under the old loan limit of $362,790 that applied in the Bay Area and other high-cost regions.  “It made a difference of about $50,000 … It’s pretty significant,” said Goldsmith, the 74-year-old owner of a transportation management business.  Goldsmith and his wife, Dorothy, took out a reverse mortgage with Bank of America so they would have funds available to remodel their Oakland condo.  The Goldsmiths were able to qualify for a reverse mortgage loan of about $275,000 on their $450,000 condo. After using most of the proceeds to pay off an existing $180,000 home equity line of credit, they were left with a $95,000 line of credit to draw from when they choose to use the money. “We’ll still have some money left over in case we need it sometime in the future,” Michael Goldsmith said. “I don’t have to use it all but it’s sitting there anytime I want it.”

Seniors who are 62 years or older and have a good portion of equity in their home or have paid off their mortgage can apply for a reverse mortgage, which amounts to a home loan made by a mortgage lender to the homeowner that has to be paid back eventually along with interest payments and other fees that are tacked on.   The homeowner retains title to the house while the loan is active. Interest rates on federally-insured reverse mortgages are adjustable and linked to an index based on one-year yields derived from a basket of various Treasuries. And while the adjustable-rate interest has a built-in cap, the product does not provide the certainty of a fixed-rate loan. The actual cost of repaying the loan will vary depending on whether the proceeds are taken out as monthly payments, a lump sum, or a line of credit. Also, the homeowner has to keep on paying homeowner’s insurance and property taxes.

Since the higher loan limit was announced in October, Bank of America has seen a 40 percent increase in reverse mortgage loan applications compared to October 2007, said Steve Boland, a Bank of America reverse mortgage executive based in Thousand Oaks.   “We really see this as an instant ability to help people who need the additional access to equity,” Boland said. “A number of people see their retirement assets declining and they are finding they are less prepared to meet their cost of living in retirement. A reverse mortgage can really play a big role in supplementing that.”  Even Seniors with homes appraised below the $417,000 mortgage limit can benefit from the reduced loan origination fees, he said. For example, a borrower with a $335,000 home would get $1,350 more in net proceeds due to being charged $1,350 less for the loan origination fee.

While a reverse mortgage loan may offer tax-free income for some seniors, it is not always the best solution. Reverse mortgage loans can be complicated and may not meet the needs of all seniors seeking cash out from their home equity.  There are substantial costs for home financing and mortgage insurance that can run into thousands of dollars that have to be paid on top of principal and interest. Also, the interest that’s due on the loan can erode the equity in a home. Taking out the loan while in your sixties can result in getting a reduced mortgage amount and owing more on the loan when it is repaid than if you waited until you’re in your seventies. Heirs who inherit the home can end up with a substantial home loan to pay off if they want to keep the property.  More than 90% of reverse mortgages are FHA-insured products known as Home Equity Conversion Mortgages (HECM) loans. That number is bound to get higher given that the market for so-called jumbo reverse mortgages, which are above the FHA loan limit of $417,000 and not insured, had dried up in response to the ongoing credit crunch.

The higher loan limit for federally insured reverse home loans was made possible by the passage in July of the Housing and Economic Recovery Act, which among other things included provisions to help struggling homeowners of all ages avoid foreclosure. The legislation also lowered lender origination fees for reverse mortgages while setting a $6,000 cap on origination fees.  The higher lending limit comes at a time when some seniors are using reverse mortgage loans to help avoid foreclosure in addition to the more traditional reasons such as tapping a home’s equity, said Ray Fry, an East Bay certified senior advisor and a specialist in reverse mortgages who goes by the name “Mr. Reverse.”

Some seniors who been caught up in negative amortization mortgage loans — which is when a loan’s outstanding balance gets bigger while monthly payments stay the same — are turning to reverse mortgages to pay off the balance, he said. (A reverse mortgage requires that it be the only home loan on a property so existing mortgages are automatically paid off from the proceeds).  “The key thing right now is that the (falling) value of the home is preventing people from refinancing existing mortgage loans,” said Fry, adding that some seniors then turn to reverse mortgages.

There are many factors that go into figuring out whether a reverse mortgage loan is the right move. How long a homeowner intends to stay in the home is a key factor as is the age of the borrower.  “You are really talking about individuals who want to age in place; they want to remain in their home. If someone was thinking of moving in a few years, a reverse mortgage is not the right product,” Boland said.  The borrower’s age, current interest rates and equity held in the home are used to determine the size of the loan.  “Age is the real determining factor. The older person qualifies for more than the younger person and the interest rate is the second factor. A lower rate means you qualify for more money,” Fry said.  “It is true you get more money when you are older and you have less of a period of time your loan is going up in value, that is in accrued interest,” said Judy Schwartz, a principal at San Carlos-based Reverse Mortgages Only.  Still, Fry and Schwartz point out that age should not be the only consideration.  “It’s really borrower specific,” she said. “You really have to look at the amount of money you are trying to get access to in exchange for the (reverse mortgage) costs.”

A consumer might also want to consider a reverse mortgage now instead of later since home values are falling and the proceeds available from a reverse mortgage would be lower, she said.   Another reason to consider taking out a reverse mortgage now is that mortgage rates are very low — starting in the 3% range when mortgage insurance is included — at a time when the stock market is falling, she said.  “It may make sense to tap the equity in your home rather than deplete an already decimated portfolio,” Schwartz said.  -Article written by Eve Mitchell

One in ten American homeowners fell delinquent on their mortgage loan payments or were in foreclosure during the 3rd quarter as the world’s largest economy shed jobs and real estate prices tumbled.  The share of home loans thirty days or more overdue rose to a seasonally adjusted 6.99 % while mortgage loans already in foreclosure rose to 2.97 %, both all-time highs in a survey that goes back 29 years, the Mortgage Bankers Association said in a report today. The increase in mortgage delinquencies was driven by an increase of home loans with payments 90 days or more overdue.   “Until we see a turnaround in the job situation, we’re not going to see these numbers improve,” said Jay Brinkmann, chief economist of the Washington-based bankers group, in an interview. “We’re seeing more home loans build up in the 90-days bucket as lenders move to offer loan modifications and states put in place programs that delay foreclosures.”   

The U.S. economy has lost 1.91 million jobs this year, while falling house prices have made it difficult for homeowners who are unable to pay their mortgage loans or sell their property without incurring a loss in a short sale. Payrolls declined in each month of 2008 through November, the Labor Department said today in Washington.  New home foreclosures dropped to 1.07 % from 1.08 % in the 2^nd quarter as some states enacted laws to temporarily stop home repossessions and mortgage lenders increased efforts to modify the terms of loans, Brinkmann said.

First American CREDCO has replaced eCREDCO.com, the company’s dedicated e-commerce site, with an all new integrated online ordering and marketing website. The new site features expanded functionality that allows mortgage lenders and loan officers to order and track products more efficiently and the company to develop and deliver new products faster. The newly upgraded platform-http://www.CREDCO.com features a totally improved customer purchasing experience, supported by Direct-Connect customer support, simplified account administration and real-time product tracking. The new CREDCO.com features include streamlined ordering, direct-connect with customer support, access to multiple accounts with one sign-in, electronic document uploading, access to detailed pricing and transactions, search functions, free credit report reprints, real-time product tracking, simplified account administration and a credit card payment option.

In a recent Bryan Dornan published article, the state of mortgage industry was defined with great rhetoric.  Dornan continued, “FHA home loans were reborn in 2007 as HUD introduced revised guidelines with new cash out requirements that allowed borrowers to get cash out for refinance loans up to 95%.”  In an effort to curb foreclosures, HUD introduced the FHA Secure refinance that enabled borrowers who were paralyzed with a high rate adjustable mortgage to lock into a fixed rate loan that they could afford.  The homeowners that had enough equity began utilizing FHA home loans for debt consolidation and home improvement funding.  In 2008, Congress finally passed an economic bill that mandated FHA mortgage loan amounts to increase nationally.  

The main stream media has grabbed hold of the foreclosure crisis and the mortgage meltdown.  Unfortunately many media sources have only been reporting the shams of the loan modification brokers and not informing the public of the mortgage relief companies that have made a difference.  

Read the complete published article Loan modifications, FHA Refinancing and No Hope for Homeowners.

US authorities launched fresh efforts Tuesday to unfreeze credit and limit the economic downturn with programs to buy up to 800 billion dollars in mortgage loans and asset-backed securities.  The initiatives call for up to 600 billion dollars in Federal Reserve purchases of home loan securities, and a separate 200 billion dollars for asset-backed securities to assist consumers with more credit lines.  The Federal Reserve and Bush administration continue efforts to stimulate the economy with cash injections intended to jump-start American credit markets that have nearly been frozen shut since October.   The government has not made their intentions to increase liquidity while decreasing the home loans costs for borrowers looking to refinance or purchase a home.  Last month, HUD introduced FHA home loans for distressed homeowners who were 90 days or more delinquent on their mortgage, but after thousands of borrowers completing the applications for this Hope for Homeowners program, only a few actually were approved by FHA mortgage lenders. 

With the housing sales plummeting and the foreclosure crisis worsening, the government wants mortgage lenders to provide loan modification to prevent foreclosures.  According to mortgage marketing executive, Bryan Dornan, “Clearly, the sub-prime mortgage meltdown ignited sparks through the financial markets and has spread like wild fires burning our economy and many American’s home equity in the process.”  Dornan continued, “The lure of low mortgage rates has faded because the traditional refinance has completely disappeared because lenders continue to tighten credit guidelines beyond Main St. America.”

Economist Marie-Pierre Ripert noted in a recent article, “Both these measures are clearly a significant step in the action implemented by the Fed in trying to avoid a deeper recession and to prevent the economy to fall in a deflationary spiral.”  The US central bank said it planned to buy up to 100 billion dollars of bad mortgages and debt obligations of housing-related government-sponsored entities like Freddie Mac and Fannie Mae in the next week and purchase 500 billion more in a home loan modifications scheduled to roll out by the end of this year.  The 500 billion dollars in mortgage securities is said to be bought by asset managers selected in a competitive mortgage servicing process “with a goal of beginning these purchases before year-end,” the Federal Reserve said.  These purchases “are expected to take place over several quarters.”  Many real estate analysts believe that we have not seen the bottom of the housing market and this foreclosure crisis and lending drama may just be the beginning of a much more severe decline with no real solutions achieving any measurable success rectifying the lack of credit. 

The government’s program to refinance delinquent mortgages into affordable government-insured loans has been enhanced. Among the improvements are increased loan-to-values, extended loan terms and immediate compensation for second mortgage companies.  More than ever before FHA home loans have been the backbone supporting mortgage brokers and lenders with subprime and foreclosure prevention products. 

The maximum LTV on the HOPE for Homeowners program has been raised to 96.5%, the U.S. Department of Housing and Urban Development announced today. The LTV was previously limited to 90, an October mortgagee letter from HUD said.  Many FHA mortgage lenders had indicated that the Hope for Homeowners Programs simply did not connect with the average homeowner that need mortgage refinancing.

In La Jolla California home sales rose unseasonably last month from September as buyers shook off gloomy financial news and took advantage of often-steep discounts. The median sale price fell to $300,000 – a 67-month low – as foreclosures once again accounted for half of all resales, a real estate information service reported.  Last month’s record annual sales increase reflects two things: Very weak sales a year ago on the heels of the August credit crunch and earlier subprime meltdown, and this year’s big sales gains in inland markets where prices have fallen 30% or more. Depreciation in such areas has triggered record foreclosures, which tend to sell at a discount, attracting bargain hunters.

51% of existing homes that closed escrow in October were foreclosed on at some point in the prior 12 months. That’s up from a revised 50.0% in September and 16.0% in October 2007.  At the county level, these “foreclosure homes sold” ranged from 39.2% of October existing home sales in Orange County to 67.7% in Riverside County. In Los Angeles County homes sold from foreclosure were 40.3% of sales; in San Diego 48.6%; San Bernardino 65.2% and in Ventura County 47.0 %.

High foreclosure levels may explain the Southern California’s $300,000 median sale price in October, the lowest since it was $298,000 in April 2003. Last month’s median was 2.8% lower than $308,500 in September and 32.6% lower than $445,000 in October 2007. The October median stood 40.6% below the peak $505,000 median reached in spring and summer of last year.  Several factors explain the plunge in the median price, the point where half of the house sold for less and half for more: Regionally home price depreciation; much slower high-end sales; and the rising market share of foreclosure home sold, which tend to be located in mid-to lower-cost areas.

Many of the region’s relatively affordable neighborhoods saw October sales more than double from a year ago. Use of FHA-insured loans allowing a down payment of as little as 3% represented nearly one-third of all Southern California’s home loans last month, up from 2% a year earlier.

Meanwhile, use of larger mortgages known as “jumbo mortgage loans,” common in higher-cost coastal neighborhoods, is still far below normal. Before the credit crunch hit in August 2007, 40% of Southland sales were financed with jumbos, then defined as over $417,000. Last month just 13.1% of home purchase loans were over $417,000.

The typical monthly mortgage payment that Southern California home-buyers committed themselves to paying was $1,413 last month, down from $1,458 the previous month, and down from $2,115 a year ago. After inflation adjustments, current payments are 33.9 % below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 45.8% below the current cycle’s peak in June 2006.  Indicators of market distress continue to move in different directions. Foreclosure activity is at or near record levels, financing with adjustable-rate mortgages is near the all-time low, as is financing with multiple mortgages.

DataQuick also reported Down payment sizes and flipping rates are stable, non-owner occupied buying activity appears flat but might be emerging.  MBA reported this week that home loan activity has decreased, but the home loan modification inquiries continue to soar as the foreclosure crisis worsens.

Bank of America Corp.’s recent decision to provide $8.4 billion in home loan modifications to settle charges brought by state attorneys general against Countrywide Financial Corp. was hailed as a milestone when the deal was announced this fall. But apparently nobody talked to one group that will shoulder much of the settlement’s costs: investors who hold securities backed by Countrywide home loans.  Now, some of those investors are crying foul, adding to the confusion over what is becoming a central issue in efforts to resolve the wave of foreclosures that is at the root of the global financial crisis.

J.P. Morgan Chase & Co. and Citigroup Inc. recently announced foreclosure-prevention programs that aim to lower mortgage rates, extend repayment schedules and, in the case of Citigroup, reduce loan amounts, to help borrowers keep their homes. But the programs have focused primarily on home loans wholly owned by those companies because they feel they have more authority to provide loan work-outs.  Over $2 trillion in mortgage loans were packaged into mortgage-backed securities and sold to investors by Wall Street, according to Inside Mortgage Finance. But opinions vary regarding the degree to which these mortgages can be modified.  Bank of America settled charges this fall with attorneys general from 15 states. The settlement stemmed from charges that Countrywide engaged in predatory lending practices involving borrowers who took out subprime mortgages and option-ARM mortgage loans that featured a negative amortization. Under the settlement, Bank of America, which acquired Countrywide in July, agreed to modify the mortgages of as many as 400,000 borrowers by providing mortgage refinancing, lowering interest rates and reducing principal amounts. Bank of America neither admitted nor denied wrongdoing.

Background: This fall, Bank of America agreed to an $8.4 billion program to modify mortgages, to settle charges by state attorneys general against Countrywide, which it now owns.  The Concern: Many of the loans covered by the settlement were packaged into mortgage-backed securities. Some investors who own those securities say Bank of America is shifting much of the cost of the settlement to investors.  The Response: Bank of America says its contracts with investors provided it with “delegated authority” to modify many of the loans. It also is talking with investors about their concerns.

Bigger Picture: The dispute comes as mortgage companies are under pressure to do more to keep borrowers in their homes. It isn’t clear just how much authority the companies have to modify loans that were packaged into securities.  Bank of America said it owns about 12% of the roughly 400,000 loans at issue in the settlement and can modify another 75% based on the “delegated authority” provided in its contracts with investors. “We believe the program benefits both customers and investors,” a Bank of America spokesman said. Bank of America didn’t seek investor approval before agreeing to the settlement “because the design of the program was based in large part on the delegated authority” in the contracts, he added.

But some investors believe they should have been contacted first. “Our view is that Countrywide Financial Corp. made this determination without consulting with a representative group of investors,” said Ralph Daloisio, managing director at Natixis SA, which owns securities backed by Countrywide loans. He agreed, though, that if done right, loan modifications can benefit investors.  Other investors said Bank of America is moving much of the cost of the settlement to investors when it should be paying those costs itself. These investors said that they don’t oppose modifying mortgages when it will increase investor returns while keeping borrowers in their homes. But they said that many of these home loans violated representations and warranties made when the mortgages were packaged into securities. As a result, they said, Bank of America should repurchase the loans before modifying them.

“This is literally an attempt to settle a dispute with state attorneys general on predatory lending claims with someone else’s money,” said one money manager. “In 10-plus years in the market, I’ve never seen anything as outrageous as this.”  The Bank of America spokesman said that “no court has made … findings” that the Countrywide loans were “either predatory or unlawfully originated.” He said Bank of America has been “responding to investor questions regarding this program. We believe that these have been positive interactions.” Bank of America believes “the program benefits both customers and investors,” he said.  Under terms of contracts with investors, mortgage companies generally have the authority to rework loans when it is likely to benefit investors. But just how much authority the mortgage companies have is open to debate.  Mortgage loan modifications also can benefit some bondholders at the expense of others. Reducing a borrower’s loan balance, for instance, may hurt holders of the riskiest piece of a mortgage securitization more than investors who bought securities that had higher credit ratings.

Citigroup Inc. announced Tuesday that it will preemptively contact 500,000 mortgage holders to restructure their mortgage terms on as much as $20 billion in home loans for borrowers who are current on their home loan payments but in danger of falling behind. Under its new program, the Citi Homeowner Assistance Program, Citi is focusing on borrowers who live in areas that are likely to face “extreme economic distress.”

“Under our new program we will preemptively reach out to help homeowners before they become delinquent, which is critical to avoiding the loss of a home and protecting their credit score and future borrowing potential,” said Sanjiv Das, chief executive officer of CitiMortgage.

Citi extended its moratorium on foreclosures, saying it won’t begin or complete a foreclosure sale on a home on which it owns the home mortgage if the borrower wants to stay in the home, which is his or her principal residence. And, Citi said it is also working with investors to expand the Citi Homeowner Assistance program to include mortgages Citi services but does not own.

It added that it recently streamlined its loan modification program to rework delinquent loans. This revamped program uses a simplified formula to figure out an affordable payment as a percentage of the borrower’s gross income. It then reduces the monthly payment to that amount by either reducing interest rates on the loan, extending the loan’s term or forgiveness of principal.  You do not have to work with foreclosure lawyers if you would rather deal with a foreclosure prevention company or the lender directly.

“We believe at-risk borrowers should not have to wait until they are facing potential foreclosure before they become eligible for a loan modification or a foreclosure pause,” said Eric Eve, senior vice president at Citi.  Since 2007, they have helped nearly 370,000 families, representing more than $35 billion in underlying loans, avoid foreclosure. Even if you’ve been turned down previously, call CitiMortgage. You may qualify under its newly announced program.

On Friday, JPMorgan Chase became the latest big bank to pledge to cut monthly payments, by lowering interest rates and temporarily reducing loan balances for as many as 400,000 homeowners. Early in October, Bank of America, which acquired the large mortgage lender Countrywide, announced a similar effort aimed at 400,000 borrowers as part of a settlement with state officials. Wachovia initiated a home loan refinancing program before agreeing to its pending takeover by Wells Fargo & Co. The loan modification effort targets the option-ARM portfolio.

“The banks are doing the cost-benefit analysis,” said Gerard S. Cassidy, a banking analyst with RBC Capital Markets. “The banks don’t want these customers going into foreclosure because it is a costly and punitive way of trying to collect your money.”

Roughly 1.5 million homes were in foreclosure at the end of June, and economists expect several million more borrowers may default in the coming year as housing prices erode and job losses rise. Nearly 1 in 10 mortgages is either delinquent or in foreclosure.

By renegotiating mortgage rates loans with borrowers, Chase is hoping to reduce the losses that it incurs in the foreclosure process and when it sells repossessed homes. Chase said it has already modified 250,000 loans since the start of 2007.

“What we are doing is a process that just makes a lot of sense,” said Charlie Scharf, chief executive of retail financial services at Chase. “If the government can come in and help us find ways to modify more people that would be wonderful.”  Like other banks, Chase is largely aiming at loans that the bank owns and not the mortgages that it services on behalf of bond investors who own mortgage-backed securities. Banks have less leeway in changing the terms of loans packaged into securities, because contracts that govern them can be very restrictive.

Chase is following the example set by Sheila C. Bair, the Chairman of the Federal Deposit Insurance Corporation (FDIC). They are lowering interest rates on existing mortgages and temporarily reducing the principal owned on loans. The goal is to lower a borrower’s mortgage payments to 31 to 41% of disposable income—income after monthly debts are paid.

“A clear consensus is emerging that broad-based and systematic loan modifications are the best way to maximize the value of mortgages while preserving homeownership — which will ultimately help stabilize home prices and the broader economy,” Ms. Bair said in a statement that applauded the announcement by Chase.

“A clear consensus is emerging that broad-based and systematic home loan modifications are the best way to maximize the value of mortgages while preserving homeownership — which will ultimately help stabilize home prices and the broader economy,” Ms. Bair said in a statement that applauded the announcement by Chase.

The mortgages affected by J.P. Morgan’s program represent 4.7% of the home loans it owns or that are serviced by one of the bank’s units, EMC Mortgage Corp. While the program to give these mortgages easier terms is likely to cost J.P. Morgan billions of dollars in interest payments and loan fees, it is also likely to save the bank from the costly and lengthy process of foreclosing homes and selling them.

Up to this point, the Bush Administration has taken a top-down approach to trying to stimulate the economy. But, it hasn’t been successful because the problem that still remains untouched is the mortgage meltdown that started this financial crisis. Because of the big bank losses as a result of their investments investment of trillions of dollars in securities backed by risky mortgages, a wider credit crunch spawned, crippling the financial industry even further. Until now, mortgage holders have been reluctant to renegotiate loans or have been doing so one-by-one, a time-consuming process.

The announcement by J.P. Morgan steps up pressure on other mortgage companies to respond with relief programs for stressed borrowers, said Stuart Feldstein, president and co-founder of SMR Research Corp., a Hackettstown N.J., firm that specializes in consumer lending.  Sources: New York Times and Wall Street Journal

The federal government may start guaranteeing mortgage loans to persuade mortgage lenders to ease the monthly financial burden on struggling homeowners, Federal Deposit Insurance Corp. (FDIC) Chairman Sheila C. Bair said yesterday.

The proposal, presented to the Senate Banking Committee, represents the most detailed idea yet on how the $700 billion federal rescue package might directly address the blight of foreclosures sweeping the nation.  In the month of August, over 9,800 homes entered foreclosure every day,” Sen. Robert Menendez (D-N.J.) said. “If this statistic was that there were over 9,800 Wall Street executives that lost their jobs every day in August, we would have ended this a long time ago.”

The predicament facing borrowers is underscored by increasingly bleak foreclosure statistics. The firm RealtyTrac reported yesterday that there were 765,558 foreclosure filings in the third quarter, up 71 percent from the third quarter of 2007.  Sen. Christopher J. Dodd (D-Conn.), who chairs the Banking Committee, said he was encouraged after he spoke with Treasury Secretary Henry M. Paulson Jr. yesterday morning that Paulson wanted to provide some form of homeowner assistance.

Bair’s loan guarantee plan is still being discussed by Treasury Department officials. Treasury officials who are leading the rescue effort have declined to say whether they would move forward with it, how much it would cost or even when they would make a decision

Under the program proposed by Bair, a FHA mortgage lender would get a government guarantee that troubled loans would be repaid. In exchange, the lender would be required to significantly drop the interest rate, reduce the principal or extend the life of the affected loans.

Banks would apply to the FDIC to participate. A loan would be eligible for new terms if the borrower’s income is high enough to meet the revised schedule of payments.  Source: Washington Post

The National Association of Realtors said Friday that sales of existing homes rose by 5.5 percent in September compared to August, the best showing since a 5.6 percent increase in July 2003, during the five-year housing boom.

By region of the country, sales soared by 16.8 percent in the West and rose a more moderate 4.4 percent in the Midwest and 2.2 percent in the South. The only region of the country which saw a decline was the Northeast, where sales fell by 1.1 percent. New home sales have increased by 2.7%. And, while median home prices have dropped to the lowest level in four years, investors are pleased that the market is beginning to chip away at an inventory glut.

More Good News
The government will begin doling out $125 billion to nine major banks this week as part of its effort to contain a growing financial crisis, a top Treasury official said Monday. This will mark the first deployment of resources from the government’s $700 billion financial rescue package passed by Congress on Oct. 3.  Home mortgage rates continue to decline, but many mortgage executives are concerned that it’s too little too late.  FHA home loans have been the most popular mortgage for first time homebuyers.

Assistant Treasury Secretary David Nason said the deals with the nine banks were signed Sunday night and the government will make the stock purchases this week. The deals are designed to bolster the banks’ balance sheets so they will begin more normal lending.

Signs of Limited Credit Thaw Emerge in Money Markets
Banks cut the rates they charge each other for overnight loans in U.S. dollars and Euros on Friday, and the rate on one-day corporate IOUs eased from Thursday, providing tentative signs that some corners of the credit market are thawing. But, it will take some time for credit to thaw enough to where consumers can get loans.

The economy didn’t falter overnight, “and it’s going to take a while for the credit system to thaw,” Bush said just before the markets opened, speaking across a park from the White House at the U.S. Chamber of Commerce building, a symbolic headquarters of American business.

While the credit freeze affects conventional mortgage loans, FHA, VA and other government-backed loans still have reasonable credit underwriting. Homes are starting to sell. Prices are low, and sellers are willing to accept offers from buyers who are approved for government-backed loans. Take advantage of the market. Fill out the free loan quote form on this site to see what you may qualify for.

Home prices across much of the country are likely to fall through late 2009, economists say, and in some markets the trend could last even longer depending on the severity of the anticipated recession. More and more homes are going up for sale, but fewer and fewer people are willing or able to buy them.  Borrowers are having great difficulty qualify for conventional mortgages and FHA home loans.

Escalating mortgage rates are pricing out interested buyers.
On Wednesday, the average rate for 30-year fixed rate mortgage loans was 6.75 percent, up from 6.06 percent last week. While banks are moving aggressively to sell foreclosed properties, the number of empty homes is hovering near its highest level in more than half a century. Higher interest rates result in bigger monthly payments, pricing some potential buyers out of the market.

While the national average rate for a 30-year fixed-rate mortgage is now 6.75 percent, according to HSH Associates, mortgage brokers say the mortgage rates for many borrowers in the Southwest or Florida can be as high as 8 percent, especially for so-called jumbo loans that are too big to be sold to Fannie Mae and Freddie Mac. (Those loan limits vary by area from $417,000 to roughly $650,000.)

Job loss and declining incomes contribute to declining housing values.
At the same time, the number of people who are losing jobs or seeing their incomes decline is rising. The unemployment rate has climbed to 6.1 percent, from 4.4 percent at the end of 2007, and wages for those who still have a job have barely kept up with inflation.

“The No. 1 thing that drives housing values is incomes,” said Todd Sinai, an associate professor of real estate at the Wharton School at the University of Pennsylvania. “When incomes fall, demand for housing falls.”  The current housing downturn is much more national in scope and severe than any other in the postwar period, partly because of the proliferation of risky mortgage lending practices. Today, foreclosures are running ahead of the downturn in the economy, a reversal of previous housing slumps.

“We are in uncharted waters,” said Brian A. Bethune, an economist at Global Insight, a research firm.

Mortgage financing and increasing Fannie Mae and Freddie Mac fees discourage would-be buyers.

More and more interested buyers are having to give up on homes they’ve been trying to buy even after they secure pre-approval from lenders because the mortgage lenders are changing their minds. On top of that, Fannie Mae and Freddie Mac, the government sponsored entities (GSEs) that the government took over in September, have increased fees on mortgage loans made to borrowers who have good but not excellent credit scores, even those who are making down payments as big as 30%.

This month, Fannie and Freddie canceled a fee increase that would have applied to markets where home prices are falling, but the companies still have many other fees in place.

Is there an end in sight?
Mark Zandi, chief economist at Moody’s Economy.com, said that he believed that home prices, which have already fallen by 20 percent, will fall by another 10 percent and will not stabilize until the middle of next year.

Last Tuesday, the Treasury Department announced it would inject up to $250 billion in U.S. banks in return for partial ownership stakes, in a program similar to one launched in 1932 by President Herbert Hoover. The government hopes banks will use the capital infusions to rebuild their reserves and bolster lending to customers. Hopefully, this injection of capital will help turn the housing market around.

Good News on the Money Markets
Yahoo News reported that world stocks increased Monday ahead of expected gains on Wall Street. It appears that confidence is returning to money markets. The global credit markets are thawing, as well. Interbank lending rates are dropping as a result of the flurry of government efforts to put money into banks over the past couple of weeks and interest rate reductions. The interbank lending rate for the three-month dollar loans fell for the sixth day running Monday and by its biggest daily amount since January. It dropped 0.36% to 4.06%, while the three-month Euro Interbank offered rate (Euribor) fell almost 0.05% to 5.00%.

“It’s crucial for the stability of financial system that money market rates, effectively the lifeblood for markets, are coming down,” said Neil Mackinnon, chief economist at ECU Group.  “We’ve moved away from outright meltdown on the back of measures taken by governments and central banks and there is some semblance of stability returning to the markets,” he added.  It will take a while for all the government assistance to settle in, but there are signs that the recent infusions into the financial markets are helping.

McCain, R-Ariz., rolled out his homeowner bailout proposal (also known as the American Homeownership Resurgence Plan and McCain Resurgence Plan) during Tuesday’s debate with Sen. Barack Obama, D-Ill. According to a summary of the plan posted on the McCain campaign’s Web site, it would wipe out homeowners’ negative equity by buying the mortgage on their principal residence and replacing it with an affordable FHA-guaranteed fixed-rate mortgage. Only borrowers who could prove they were creditworthy when they took out their original loan and provided a down payment would be eligible, the McCain campaign said. Anyone who falsified documents would be disqualified.

The plan does not call for new spending.
The program would be funded from the $700 billion debt authorization Congress approved to allow the Treasury Department to buy up toxic assets from banks and other accounts, the McCain campaign said, and could be implemented quickly.

The FHA HOPE for Homeowners program that just started on October 1st requires FHA mortgage lenders to pay for the difference between the original loan and the new cheaper FHA loan. But, the McCain Resurgence Plan wouldn’t require lenders to write down the principal of loans it refinanced. Additionally, McCain’s plan does not require homeowners to share any of the profit they might make off the program if their home value increases beyond their cheaper, government mortgage.

McCain’s plan would likely help more homeowners keep their homes than Congress’s plan. Since Congress’s plan requires all parties involved (mortgage lender, homeowner, government) to reach a compromise agreement, it has been estimated that it will only help about 500,000 people. But, McCain’s plan may attract more participants, since it’s a full-price government buyout that requires no write-downs.  Stan Humphries, vice president of data and analytics for Zillow.com, estimates that at the end of June, about 11.7 million single-family homes were “underwater,” with negative equity totaling about $676 billion.

McCain’s Plan Draws Fire
The McCain campaign tweaked the document overnight Tuesday in a slight but very significant way, removing a single sentence that indicated the government would buy mortgages from lenders at a discounted rate. The McCain campaign said the plan did not change and they merely edited out “language [that] was mistakenly included in the initial draft.” But, with that sentence gone, the plan morphed into a shifting of $300 billion worth of losses to the taxpayers, which is why it’s now drawing criticism.

Some critics of the Hope for Homeowners plan have said that it will help only a fraction of the borrowers envisioned by Congress. Others said it might provide an incentive for some borrowers to default on their loans in order to unload their negative equity on the government.  The Wall Street Journal’s editorial on October 9, The Next $300 Billion, despite overly praising McCain for getting “the diagnosis right” by recognizing that “the economy won’t recover until home prices find a bottom,” criticized the proposal for offering “no upside for taxpayers.”

They take all the losses up front and don’t participate in any rebound in house prices, so borrowers who overextended and lenders who made reckless refinance loans are made whole, and taxpayers get the bill. At least the $300 billion FHA program imposes at least a 10% haircut on lenders.  The FHA refinance program refers to a $300 billion Federal Housing Administration mortgage program (HOPE for Homeowners) that started on October 1st. Further, the $700 billion bailout plan signed by President Bush last week already gives the Treasury secretary the power to buy up bad mortgages, although it’s yet to be seen how the Treasury will exercise its authority in that regard.

Obama Campaign Economic Policy Director Jason Furman said in the campaign statement opposing McCain’s plan: “John McCain wants the government to massively overpay for mortgages in a plan that would guarantee taxpayers lose money and put them at risk of losing even more if home values don’t recover. The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud.”

Will the plan work?
McCain believes his plan will offset the need for the complete bailout sum.  McCain is also hopeful that this will alleviate the burden on taxpayers over the long run. But, the problem is that the average taxpayer will be responsible for the difference in the value of millions of loans instead of the lenders that took the reckless risks. I liked the plan before the tweaks too place. Now, I’m not so sure. 

Are you a borrower facing mortgage foreclosure? If your mortgage lender was Countrywide Financial, you may be able to save your home.  The New York Times reports that Countrywide Financial has agreed to the largest program ever to modify home loans as part of a settlement with officials in 11 states, including California.

“Countrywide’s greed turned the American dream into a nightmare for thousands of Californians who now face foreclosure,” said Attorney General Jerry Brown, who led the negotiations for the sates with Lisa Madigan, the Illinois attorney general.  Brown expects loans worth $3.4 billion to be modified in California. This new loan modification program is mandatory and will be monitored by state officials. A foreclosure relief fund will be created with $150 million from Countrywide to help borrowers who are four months or more behind on their payments or whose homes have already foreclosed. The company will provide $70 million to help troubled borrowers relocate to rental housing. In all, Countrywide is setting aside $8.7 billion to help borrowers prevent a foreclosure and stay in their home.

Under the terms of the settlement, Countrywide will reduce principal balances in some cases and cut interest rates in others. Mortgage rates could decline to 2.5%, depending upon the borrower’s ability to pay, and remain at that level for 5 years. Then, it will adjust to prevailing Fannie Mae fixed-rate mortgage rates.

Recently HUD modified the FHASecure loans. See FHA Mortgagee Letter 08-13 and the detailed discussion regarding the expansion of FHASecure:

·            To include applicants delinquent on their non-FHA ARMs due to a rate reset or the occurrence of an extenuating circumstance but experienced no more than two 30-day or one 60-day late payment in the 12 months prior to the rate reset or extenuating circumstance that caused the delinquency; or

·            To include homeowners delinquent on their non-FHA ARMs due to a rate reset or the occurrence of an extenuating circumstance but experienced no more than one 90-day late payment or no more than three 30-day late payments prior to the rate reset or extenuating circumstance that caused the delinquency provided the loan-to-value on the FHA insured 1st mortgage loans that do not exceed 90%.

·            Borrowers delinquent on their interest-only and/or payment option ARMs are not eligible for this expansion: borrowers with these types of mortgages must demonstrate that a rate reset caused the delinquency and that they were making the monthly mortgage payments within the month due during the 6 months prior to the rate reset.

·            FHA Secure refinance loans allow borrowers refinancing opportunities with delinquent non-FHA ARMs the Up-front mortgage insurance premium (UFMIP) is set at 2.25% of the base loan amount (loan amount excluding UFMIP) regardless of the loan-to-value (LTV) ratio. For LTV ratios greater than 95% (excluding UFMIP) the Annual premium (collected monthly) is set at .55%.