Record low interest rates on mortgage refinance loans have been drawing more buyers to the stalled housing market, new figures suggest. Data from the Mortgage Bankers Association reveals that total home financing applications that includes refinancing and new home purchase loans jumped by nearly 33 % last week.
Existing homeowners looking for a better mortgage payment with a home loan revision made up the most significant proportion of the mortgage applications, at 79 %. With the average mortgage rate on a fixed interest rate 30-year home loanhovering near 4.6 %, it is not difficult to see why people may be looking for a change. However, not everyone who applies for a mortgage these days can expect to be successful as mortgage lenders are seeking higher fico scores and theyr are charging more loan fees on those who do not measure up. Meanwhile, there are also signs that first-time buyers could be coming out of the woodwork as well.
In other mortgage news from the U.S. Census Bureau indicate new home sales increased by 4.7 % in February. That was the first rise in housing sales since July 2008. FHA mortgage applications continued to rise as brokers and wholesale lenders expressed more confidence with 2009 FHA refinance guidelines in underwriting and closings.
Reuters reported a widening stress in the U.S. housing market, Moody’s Investors Service said on Thursday it may downgrade $240.7 billion of securities backed by prime-quality “jumbo” U.S. residential mortgages because defaults will be higher than expected.Jumbo mortgage loans are typically larger than $417,000, and go to borrowers with good credit. But Moody’s said in the last six months, there have been “substantial increases in serious delinquencies and decreases in prepayment rates, levels that are unprecedented in this asset class.”The securities under review are backed by U.S. home loans issued between 2005 and 2008. Moody’s had late last year downgraded $110 billion of securities issued in 2006 and 2007, almost all of which had originally been rated “Aaa.”
Moody’s on Thursday said it may downgrade 4,988 classes of jumbo residential mortgage loan securities with a current outstanding balance of $173.3 billion, and the original $240.7 billion balance.It said it now expects cumulative losses of 1.7 % for 2005 securitizations, 3.55 % for 2006, 5.05 % for 2007 and 6.20 % for 2008.Downgrades can force some investors to sell the debt, and can increase capital strains on banks and insurance companies that own it.Bad credit mortgages have already been downgraded when the subprime mortgage market crashed a few years back.
The top fifty U.S. banks added $109 billion of mortgage-backed debt in the fourth quarter, although most was not jumbo home loans, Barclays Capital said. Falling mortgage interest rates could spur an increased supply of jumbo mortgage securities, it said.
Washington Post reporters studied federal data and discovered that FHA home mortgage loans defaults are increasing rapidly. The home loan default research shows that the number of borrowers who failed to make more than one payment before defaulting nearby tripled over the past year.
According to the article by Dina ElBoghdady and Dan Keating, “Many mortgage industry experts attribute the jump in these instant defaults to factors that include the weak economy, lax scrutiny of prospective borrowers, and most notably, foul play among unscrupulous lenders looking to make a quick buck.”
If someone defaults on their home loan because they have suddenly lost their job or face a health crisis, that’s understandable these days. But, after everything our country has faced since the subprime mortgage lending debacle began a few years ago, it is criminal to think that lenders are once again committing fraud and failing to do the work to make sure the people they are lending to can actual repay their loans. Do we have to learn this lesson again?
Even scarier is the fact these mortgages are government-backed. So, guess who pays when these borrowers default? Not the FHA lenders who wrote the paper for the bad mortgages. The FHA has make good on those home mortgages from government reserves. If the FHA reserves run out, Congress will be expected to bail out the FHA, with more taxpayer dollars.
A new report from First American Core Logic suggested that more than 8.3 million U.S. home mortgages had negative equity as of year-end, compared with 7.6 million just a few months prior.Another 2.2 million owner-occupied properties have homes worth only about 5% more than their debt, so they are approaching negative equity as home values slide. More than 20% of all properties carrying a mortgage nationwide have negative equity, with more owed on their home loans than the homes are worth, according to a report being released today.Borrowers are having a difficult time qualifying for a refinance loans or cash refinancing for debt consolidation.
Over 30% of homes nationally are owned outright, and they were not included in the statistics. The near-negative equity homes, combined with the underwater homes, account for a full quarter of all U.S. mortgaged properties, the research company said. The numbers are ominous because negative equity is half of the formula that usually leads to foreclosure.“Being underwater is a necessary but not sufficient condition for home loan default and foreclosure,” said Mark Fleming, chief economist for First American in Washington, D.C. “The other necessary but insufficient condition is inability to make your mortgage payment due to job loss, divorce, a significant change in the payment because of an adjustable interest rate mortgage. The new loan modification plans are more aggressive with incentives for lenders to renegotiate the principal amount owed on the property.
Over the past year, the total value of U.S. homes has fallen $2.4 trillion, going from $21.5 trillion in December 2007 to $19.1 trillion at the end of 2008. California, where more than $1.2 trillion of housing value evaporated last year, accounted for half that decline. That’s vastly disproportionate to California’s share of the mortgage market, estimated to be 16% to 20%, Fleming said.However, despite the steep declines, California overall is in better shape than some neighboring states because it still has a stock of mortgages taken out over two decades ago on homes that now have accumulated significant equity. On average, Californians with mortgage loans have 30% equity in their homes. By comparison, the average equity for all homes that still have mortgages in Nevada is just 3% – the worst in the nation. “Las Vegas is a city that exploded over the past 10 years,” Fleming said. Now that values have tumbled, “the last 10 years is a do-over.”
