Home Loan Wholesale

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%.

The Housing and Economic Recovery Act of 2008 was signed into law by the President on July 30, 2008. It began on October 1, 2008 and sunset on September 30, 2011. It was designed primarily to address the subprime mortgage loan crisis. But, one of the features of this legislation is a tax credit that the government hopes will help stimulate the housing market. This tax credit is only available to first time homebuyers. A first time homebuyer loan is financing for a borrower that is defined as someone who has not owned a primary residence for 3 years prior to the home purchase.  FHA home loans have been helping new homebuyers for years, but their recent expansion for 1^st time home-buying should reach out to more consumers.

How to Qualify for the Tax Credit
First time home buyers who finance a home between April 9, 2008 and July 1, 2009 are eligible to take a tax credit equal to 10 percent of the purchase price of a principal residence, up to $7,500 on their 2008 tax returns. A qualifying home purchase is a single-family detached home, townhouse, condominium, manufactured home, or even a houseboat. Single taxpayers with modified gross incomes up to $75,000 and married taxpayers with a joint modified gross income of up to $150,000 are eligible for the full amount. Above those incomes, the tax credit begins to phase out.

Getting Started with the Tax Credit
All you have to do is claim the tax credit on your federal income tax return. No additional paperwork is required. If you don’t want to wait until you file your return to claim the credit, you can simply reduce your income tax withholding.

The NAHB reports, “Buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding.”

Important Notes about the Tax Credit
Here are some important things to not about this tax credit, so you know just what to expect if you decide to take it:

• This tax credit is basically an interest-free loan, which must be paid back over the course of 15 years.

• This is a tax credit, and not a tax deduction, meaning that it is a dollar for dollar reduction on taxes owed, as opposed to a tax deduction, which reduces the amount of your adjusted gross income that can be taxed.

• The credit is refundable, meaning if you owe $2,000 in taxes and take the $7,500 credit, you will receive at $5,500 refund.

• The credit must be repaid to the government over 15 years or when the house is sold. For those taking the tax credit in 2008, the first $500 payment would need to be made when the buyer files their 2010 tax return.

What if I sell the house?
If you sell your home within 15 years, and the gain on the home is less than the amount of the credit, then the remaining portion of the tax credit is forgiven.  If the gain is greater than the remaining portion of the tax credit, then the balance will be due for that year’s income taxes.

Pitbull Mortgage School reported recently that in most cases, “mortgage brokers spend 50% of their time trying to find a hard money lender to fund their loan scenarios.” This simple flaw with the traditional mortgage broker business model is that “you are only good as the last mortgage loan you worked on”. Wouldn’t it be nice to receive residual income in addition to your brokering fees? This can be accomplished through creating a hard money client base and private placement memorandum. You not only gain considerable control of your future but also gain control of the underwriting process. In addition, you earn service fees and management fees as the fund manager. Essentially you become a hard money portfolio manager. Consider upgrading from a mortgage broker to becoming the mortgage banker. We have created an entire program to show you how this can be done. The Mortgage Loan Outlet offers hard money refinancing for borrowers with bad credit.

For two years, an executive of a Countrywide Financial Corp. unit was successfully operating a mortgage leads business using data he stole from the company. He downloaded the records of 20,000 borrowers each week — until he was caught.

Rene Leonard Rebollo Jr. was a senior financial analyst at Full Spectrum Lending in Pasadena, California according to a criminal complaint against him. He earned $63,000 annually plus an annual bonus of around $2,000.  He was also the “main cat” in a scheme where borrower information was stolen from the company and sold to mortgage brokers and lead brokers, court records indicate. Quality real-time mortgage leads are hard to come by these days with so many unscrupulous lead brokers. Make sure that you are buying leads from a marketing company that generates their own leads. Buying leads from a lead broker is risky.

For two years, an executive of a Countrywide Financial Corp. unit was successfully operating a mortgage leads business using data he stole from the company. He downloaded the records of 20,000 borrowers each week — until he was caught.  Rene Leonard Rebollo Jr. was a senior financial analyst at Full Spectrum Lending in Pasadena, California according to a criminal complaint against him. He earned $63,000 annually plus an annual bonus of around $2,000.

He was also the “main cat” in a scheme where borrower information was stolen from the company and sold to mortgage brokers and lead brokers, court records indicate. Quality real-time mortgage leads are hard to come by these days with so many unscrupulous lead brokers. Make sure that you are buying leads from a marketing company that generates their own leads. Buying leads from a lead broker is risky.

The foreclosure phenomenon has changed the lending landscape for some time to come. With Countrywide almost going under before being bailed out by BOF, IndyMac going under, Freddie MAC and Fannie Mae being taken over by the government, Lehman Brothers going bankrupt and Washington Mutual being bought by Citigroup along with all the other continuing financial bad news, the confidence level in U.S. lending institutions is at an all-time low. The San Diego Union-Tribune reports that due to the fear of losing more money on faulty investments, banks have stopped lending to each other and have stopped the flow of so-called commercial paper (essentially corporate IOUs that fund short-term expenses).

The economic stimulus package didn’t have the desired effect, and it’s about to expire in December. Foreclosures are still on the rise, and housing prices are still dropping. The credit crunch hasn’t eased. Instead, it continues to dry up. A first time home buyer who lacks a 20% down payment pretty much can’t get a conventional home loan, especially if they have a credit score of less than 700. FHA remains the best choice for first time home buyers and for those with credit scores of less than 700. That’s not likely to change anytime before the end of next year. It could take longer if Congress continues to disagree on the bailout.  Home loan modifications have increased significantly, as more and more lenders are accepting requests to modify the mortgage note.

While the bailout is not a popular choice, watching the market fall by more than 700 points is a clear indicator of what happens when no action is taken. Also seeing the market rebound on the news that the bailout is being worked on and stands a better chance of passing this time around indicates that action is needed now. It’s time for politicians to stop playing the blame game and get the bailout fixed and passed. Today, there are reports that the bailout has more tax breaks for businesses and alternative energy along with higher government insurance for bank deposits. Democratic opponents of the bill said they would be willing to back an increase of bank deposits of $250,000. Currently, bank deposits of up to $100,000 are insured by the Federal Deposit Insurance Corporation (FDIC). Few details on the revised bailout plan are available, but hopefully the revisions are enough to get it passed.

“The credit markets are in shambles,” says Mark Goldman, finance professor at San Diego State University. “Now we’re seeing it in homes, autos and other big-ticket items. Soon I think we’ll be seeing it in retail, as credit cards dry up. How bad will it get? I don’t think anybody realizes the true depth of the problem.”  Marty Gold, the managing mortgage broker who recently worked with FHA Home Loan Services recently said, “Credit scores are like liquidity to homeowners.” The higher credit scores homeowners have the more opportunities they will have in the future to refinance.

People with credit scores of 620 used to be able to get a car loan without any trouble. Now, scores need to be at least 650, and some places want FICO scores of at least 700. For a home purchase loan conventional home lenders now expect a credit score of at least 680 for someone with a 20% down payment and at least 700 for those with less than 20% startup equity. FHA mortgages still provide lenient credit standards. At this point, lenders require a score of typically around 580. You can still buy a home with a 3% down payment, although that will be increasing to 3.5% in January. If you’re a cash-strapped first time homebuyer or someone with a credit score of less than 700, FHA is your best bet until things ease up.

The worst single-day sell-off in U.S. stocks since 1987 sent shock waves across Asia, with major stock markets falling more than 3% Tuesday morning after the U.S. House of Representatives rejected the $700 billion rescue bill proposed by the Bush administration. The bailout — the largest in U.S. history — was designed to keep the worst financial crisis since the Great Depression of the 1930s from spreading throughout the economy.

Republican Mike Pence is one of the congressmen who said he could not vote for the bill.  “It must be said that Republicans in this Congress improved this bill, but it remains in my judgment the largest corporate bailout in the American history,” he said.  “It forever changes the relationship between government and the financial sector and passes the cost along to the American people. And I cannot support it.”  Mortgage loans should flourish on the free market and the government going beyond the level of involvement of FHA lending would be a mistake.

On the House floor today, voting members raised a host of concerns about the bailout package – from the burden it would leave on future taxpayers to fears that it “could permanently and fundamentally change the role of government in the American free enterprise system,” in the words of Rep. Jeb Hensarling (R-Texas), a leader of dissenting Republicans.

Virginia’s Eric Cantor, deputy whip for the House Republicans was quick to blame the bailout defeat on House Speaker Nancy Pelosi’s “failure to listen” and her charged partisan rhetoric in condemning President George Bush’s “budgetary recklessness” and “anything-goes mentality.” If this were the case, it wouldn’t say much for the republicans as politicians. As Rep. Barney Frank (D-Mass.) mockingly characterized the GOP’s argument: “Somebody hurt my feelings, so I’m going to punish the country.”

The real issue is that Americans feel that they will end up footing the bill for others’ recklessness. Voters are leery of spending such vast sums of taxpayer money to prop up the failing U.S. financial industry. Seeing Henry Paulson seemingly throwing money at Wall Street, Americans have been reluctant to come around to the idea that their economic fate is connected to that of the bailed-out fat cats, and calls for executive pay caps reflect broad unease with the plan. Newt Gingrich describes the popular perception as “big guys bailing out their friends.”

The average CEO compensation has also drawn the attention of the public and politicians. According to the Economic Research Institute, CEO compensation in 2007 increased 20.5%, to an average $18.8 million in February, while corporate revenues increased less than 3%. Newt Gingrich’s survey found that 84% of the public blames CEOs for the financial crisis.  “According to California mortgage banker Bryan Dornan, “There is no safeguard for our economy if our government uses the taxpayers’ money to buy bad mortgages that continue to not perform.”

The bailout plan had many problems. It sought too much power without enough oversight, and Americans still have that $700 billion price tag stuck in their heads. There wasn’t enough emphasis that it could cost less than that amount. Many voters view this unpopular measure as a massive expenditure of taxpayer funds and intervention in the free market, combined with tough new regulations. This legislation is also largely seen as a corporate “bailout” without enough measures to help struggling homeowners with their mortgages. But, if Congress doesn’t ultimately approve some sort of bailout plan, analysts say the economy could fall into a deeper recession than already expected. Treasury Secretary Paulson said he would continue to work with congressional leaders to draft a new plan that will be passed.

The House of Representatives is to reconvene on Thursday over the issue, but Republican and Democratic leaders have much to do if they are to persuade their dissenting colleagues to support the bailout plan. Even if the bailout eventually passes, it is seen as the beginning of a long process at cleaning up the bad debt mess. Conventional loan credit probably won’t loosen up for some time to come, but some kind of action needs to be taken now to halt the financial industry’s slide.