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December 23, 2008

National Association of Mortgage Brokers Sues HUD Over RESPA

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



November 29, 2008

FHA Home Loans with Little Hope

Category: Editorial,Published Articles – admin – 1:50 am

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.


November 2, 2008

Banks Modify Home Loans to Stem the Tide of Foreclosures

Category: Editorial,Home Loan News,Loan Programs – admin – 10:41 am

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


October 29, 2008

Government May Guarantee Mortgage Loans

Category: Editorial,Home Loan News – admin – 9:59 am

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. Most financing analysts recommend fixed rate FHA mortgages for new house buyers.

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


October 20, 2008

Home Prices Decline with Mortgage Woes

Category: Editorial,Home Loan News,Uncategorized – admin – 8:00 am

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 house 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.


October 12, 2008

McCain Proposes New Mortgage Resurgence Plan to Help Troubled Homeowners

Category: Editorial,FHA,Home Loan News – admin – 7:27 pm

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. 


October 7, 2008

Mortgage Meltdown Fueled Foreclosure Epidemic

Category: Editorial – admin – 10:23 am

A few years ago mortgage brokers took all the heat for bad performing sub-prime loans.  After New Century collapsed in 2006, it seemed that everyone wanted the heads of mortgage brokers.  Congressman and Senators condemned brokers for unscrupulous originating and predatory lending practices.  Wall Street called for stricter oversight with tighter lending guidelines.  This was the beginning of the “Mortgage Meltdown”, as the “blame game” was just getting started. 

Mortgage lenders got nervous and tighten guidelines beyond belief.  Stated income programs were eliminated almost immediately and credit score requirements rose dramatically.  Loan to value requirements rose significantly as well. Suddenly, no one could qualify to refinance their mortgage.  Property value began declining dramatically and lending guidelines got tighter and tighter. 

Mortgage company after mortgage company began closing their doors.  Interest rates rose slightly and guidelines got even tighter.  Meanwhile, home values slid even further.  The Bush Administration propels FHA home loans to rescue the mortgage industry and minimize the foreclosures.  The FHASecure was created to bridge the gap for homeowners who were trapped in an adjustable rate mortgage beyond their budget.

Now there was a new problem…Now when a homeowner called their lender or broker to refinance, they were turned down because suddenly their mortgage was greater than their home value.  This was happening to good credit borrowers who could document their income.  These prime borrowers were stuck in an ARM that had variable rates that continuously were raising their monthly payments beyond affordability.  Foreclosure rates began breaking records each month as this bad mortgage debt issue became a foreclosure epidemic.

Mortgage servicing giants, Fannie Mae and Freddie Mac were on the brink of collapsing when the Fed took over their operations.  Then four giant banks were bought for pennies on the dollars as they too were on the verge of breaking financially.  Too many foreclosures and not enough liquidity were the two major factors in these banking institutions failing. 

Fast forward to Congress passing the 850 Billion Financial Bail-Out Bill.  Will that be enough to rescue the housing market while eliminating the disasters on Wall Street?  I don’t think so America.  Borrowing money to buy bad debts to keep failing banks alive will only prolong the inevitable.  


October 1, 2008

How the Mortgage Market has Changed Lenders and Brokers

Category: Conventional,Editorial,FHA – admin – 10:08 am

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. As a result, the popularity of FHA purchase loans has surged.

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 home-buyer or someone with a credit score of less than 700, FHA is your best bet until things ease up.


Why the Financial Bailout Failed

Category: Editorial,Home Loan News – admin – 7:53 am



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.