Tag: Mortgage Marketplace

ARRA 2009 – Important Details, Effective Date

ARRA Brings New Opportunity To Refinance or Modify

There has been an overwhelming amount of noise and confusion since the American Recovery and Reinvestment Act of 2009 (ARRA) was announced a few weeks ago. As a follow up to my message from 2/24, below is an summary of the recently released details, some resources to help you figure out if this will benefit you, and some instructions on what steps you should take next. If you think this information is useful, please pass it along. Feel free to forward this email to anyone you know that may be impacted.

The Making Home Affordable government program is divided into two parts:

· Modification Program

· Refinance Program

Despite all the fanfare surrounding this program, it remains 100% VOLUNTARY, and mortgage servicers (the companies that actually collect borrowers’ mortgage payments) are not obligated by law to follow these rules and guidelines…yet. Oddly enough, even if a financial institution has already received assistance with government funding, they are NOT obligated to participate. However, if a financial institution receives new or more government funding in the future, they WILL be obligated to participate.

In other words, the rules are still a bit unclear and nobody really knows who will participate and how it will all work from a practical perspective. Most of what you read and hear about in the media will most likely be speculation at this point. In a nutshell, the program has three elements:

· The government is offering financial incentives to mortgage servicers who modify loans for borrowers.

· The government is offering financial reimbursement to investors if they allow servicers to modify loans and then take a hit on the borrower’s re-default if the property declines in value after the loan modification

· The government is offering financial incentives to borrowers who modify their loans and make their new payments on time

Vacation homes and investment properties don’t qualify for the program. Only borrowers who have experienced some type of financial hardship can qualify. Click on this link if you want to see if you qualify for at least the minimum requirements.

Remember, even if you do qualify under these minimum requirements, your servicer (the company where you send your payments) might not be participating in the program just yet.

Part 2 – Refinance Program

Here’s how it works:

· You need to be current on your mortgage payments (no late payments in the last 12 months)

· Your mortgage balance cannot exceed 105% of the current value of your home

· Your mortgage needs to be owned or guaranteed by Fannie Mae or Freddie Mac

o This may include Alt-A or even sub-prime mortgages

Based on current market conditions, this might make sense for you if:

· You have an adjustable rate, interest only, or balloon mortgage that you want to convert into a fixed rate; or,

· You have a fixed rate mortgage where the interest rate is greater than 5.500%.

Important Dates

· This program becomes effective on APRIL 4. Prior to that date, you can, and should begin the process of gathering required documentation. Please contact me to get this process started.

To find out if your mortgage is owned/guaranteed by Fannie Mae, click here.

To find out if your mortgage is owned/guaranteed by Freddie Mac, click here.

Other Recent Developments

There have been many other recent developments in the markets, as well as new government legislation. Here are just a few recent items that may impact you or someone you know:

· Home improvement tax credit

· First-time home buyer tax credit (Federal)

· New construction home purchase tax credit ( California primary residences)

· Reverse mortgages for home purchase transactions (age 62 or older)

· Suspension of required minimum distributions for certain retirement accounts (age 70 ½ or older)

Let me know if you’d like to discuss any of these items in further detail by sending a quick email.

2009 Homeowner Affordability and Stability – early details

New Initiatives To Help Homeowners

President Obama recently unveiled his plan to help stabilize the housing market and keep millions of borrowers in their homes.

The Homeowner Affordability and Stability Plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. In adition, the plan includes a third initiative to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.

More details are to be released March 4.

What We Know Right Now:

Refinancing Initiative
Under current rules, those families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of the historically low interest rates. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.

Stability Initiative
This initiative is designed to provide help to families as well as entire neighborhoods by helping reduce foreclosures and stabilize home prices. It is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly.

The goal of this initiative is simple: “reduce the amount homeowners pay per month to sustainable levels.” To accomplish this, lenders are encouraged to lower homeowners’ payments to 31 percent of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing the costs.

More Info

A question and answer document is available HERE courtesy of the National Institute of Financial Education. I’ll provide updates as I receive them, and if you want to learn more after March 4th, please send me a note.

Barney Frank on High Balance Conforming Loans

I caught a video piece of Barney Frank fielding questions the other day, in which it was painfully obvious to this mortgage planner that the legislation cannot force free markets to do as legislators intend or wish. I wish I had a link to the video, but I don’t, nor do I have the time to search for it. I am sure it is out there.

In 2008, the elected representatives on Capitol Hill decided to allow for Fannie Mae and Freddie Mac to purchase loans at a temporarily increased ceiling – ranging by county according to the median home values in these counties. The non-conforming loan breakpoint was 417k, we’ve talked about it here. Anything above 417 could not be touched by Fannie/Freddie.

The 2008 temporary limits were put into effect, and some areas were able to treat loans all the way up to 729,750 as conforming, per law. But the banks did not like the temporary nature, investors didn’t look at it the same way either, and rates and terms for anything between 417 and 729k left much to be desired, and many to be refinanced at some other time, or never.

For 2009, lawmakers made the “temporary” permanent, but revised the limits, bringing the max ceiling down to 625,500 in the highest cost areas. Investors and banks were a little better to adopt these. And in many ways, borrowers with 417-625k see many of the same underwriting rules. But some of the differences are significant.

Pricing these loans is not the same, bringing much disappointment to the borrowing and lending community. Lawmakers stipulated that banks could only package a small percentage (10%) of “high balance” loans with the traditional, sub-417k loans into their bond issues for the secondary market.

There was so much pent up demand from borrowers with high balance loans to refinance, that the banks all got inundated with demand for money under these terms. It put them way off balance, and they dont have 9x the traditional conforming investments to match every dollar worth of high balance loans. So what do they do? Raise rates. So now when you have a high balance loan, your rate is SIGNIFICANTLY higher than the traditional balance conforming loans.

This will ebb and flow as the banks process and liquidate their inventory. But watching Barney Frank scratch his head, saying something to the tune of “I don’t understand why anybody would be treated any differently if they were borrowing the higher balance, we changed the rules to make it the same” – which is not a quote, but is precisely what he was saying – you can see why so many of the governments attempts to help the market have not worked, or only partially helped, or helped one area and introduced a new problem…

One more complication in today’s market. Next to impossible to predict a given bank’s pipeline composition, and therefore next to impossible to know when they will spike their rates overnight, as we are seeing them do erratically.

There’s no inflation in our economy – unless you wholesale money

What happened to inflation? 5$ gas, 6$ milk, 7$ Pabst Blue Ribbon!!! ???

Today’s PPI (Producer Price Index) came in at a negative for the 5th straight month. It measures commodity prices, and other materials that producers of goods and services need to buy in order to produce their good or service. Tomorrow’s CPI (Consumer Price Index – which measures the cost of goods that consumers buy) is expected to indicate the same signal – no inflation to speak of.

Meanwhile, much is being said about the efforts by the government to push down mortgage rates. But the underlying fundamentals that determine interest rates are not correlating with the rates being offered to consumers,. Or they are correlating less than is usual, presenting challenges to consumers and brokers trying to execute on their behalf.

Yes, rates are quite a bit lower. But the challenges of our “new landscape” are also new in nature, and no matter where you turn, it just gets more and more interesting. After 6 quarters of downsizing, banks were slammed in recent weeks with record applications for new loans. There was an immediate logjam. Demand is exceeding capacity. Banks do not need to lower costs to attract business. Margins are fat, ‘because they can’.

Icing on the cake: Banks offer lower rates to deals on shorter term locks. But it takes twice as long for them to underwrite files today, so what’s the point? You have to lock long-term, which means higher rates. Or, you float. And if you float, you get jumped in line at underwriting by all the locked-in deals. These same banks offer 7 day locks at their absolutely lowest rates… but you can never get within 7 days of closing UNLESS YOU LOCK!

If you do lock, and the period does not wind up being adequate, for ANY reason whatsoever, you can pay to extend it. But banks are doubling and tripling their extension fees as their queue grows longer and longer. Oh, and they are charging some brokers additional fees for not delivering on a loan once it is locked – even if they are too busy to underwrite it!

So lets review:
-banks have been taking it on the chin for ~6 quarters, so…

-rates are down, but not as much as they should be given the government intervention, and economic datapoints
-extension fees are skyrocketing
-processing times are skyrocketing
-lock periods are skyrocketing
-penalty for cancelling is skyrocketing

As far as I know, mortgage rate lock extension fees are not included in the PPI or CPI. Yet another area of the economy overlooked by the economic reporting data. Outrageous! Somebody call David Horowitz!

Great perspective to a timely question

Ric Edelman fields a question from one of his radio show listeners:

Q: Do you and your wife make extra principal payments to your
interest-only loan? Or do you not want to own your home someday?

Many in the investment business suggest investing it in the stock market
– you don’t keep up with inflation by putting the money into your home
or keeping the money in cash. Well, over the past decade or so, with all
of the ups and downs of the stock market, I bet the folks who kept their
money in cash or paid down their mortgages fared better than those in
the stock market. I know, I know, the market goes up and down, and over
the “long term” the stock market is supposed to outperform the other
things, but I question this advice sometimes and just wonder if you are
going to own your home someday? If not, why?

Ric: No, we don’t make extra payments. We personally handle our money
the same way we advise our clients and consumers.

Why would we want to add extra money to our payment? If you believe that
real estate values rise over long periods, the home’s equity will grow
all by itself, and it will do so at such a rate that any extra payments
we’d make would be pointless.

Here’s an example: Say you own a $500,000 house with a $400,000
mortgage. You thus have only $100,000 in equity. If you send in an extra
$100 per month for five years, you’ll have an extra $6,000 in equity.
But if the house grows just 1% per year, it will produce $25,505 in new
equity, or four times more than your effort from making extra payments!
And if the house grows 2% per year, your new equity will be more than
$50,000!

This is one reason – there are nine others in my DVD on the topic – why
making extra payments is a waste of time and effort.

Of course, I began by asking if you believe that real estate values will
rise over long periods. If you don’t believe that, then you shouldn’t be
a real estate owner in the first place. You should rent instead.

Also, I note that you referred to those who recommend placing into the
stock market all the money that you’d otherwise use to make extra
payments. I do not agree with that advice. Instead, you should invest
the money in a highly diversified manner. That’s because, as you’ve
noted, it’s possible to see stock prices falter for extended periods. By
owning a wide variety of assets, and not just stocks, you reduce the
risk of such underperformance.

But even if you invest solely in stocks, you’re highly likely to do
fine. Remember that we’re comparing the interest rate on your mortgage
to the performance of the stock market. Since your mortgage will last
for 30 years, we need to evaluate stock prices over that same period.
And in every 30-year period since 1926, according to Ibbotson
Associates, stocks have handily outperformed mortgage rates.

I realize that you’re questioning the strategy because of the stock
market’s recent performance, but it’s precisely at such times that we
need to remind ourselves of the long-term nature of the markets.
Otherwise, you’ll be tempted to do the wrong thing at the wrong time for
the wrong reason.

Find out more about Home Ownership here:
http://www.ricedelman.com/cs/education/home_ownership

Is The Loan Modification Trend Working?

New reports on CNBC today that the re-default rate on modified mortgage loans is greater than 50% after 6 months.

That’s a pretty disappointing and discouraging statistic. A lot of money is being spent on the modification efforts, and with that kind of performance, lenders are going to be less likely to continue the effort.

This gives good fuel to the debate over whether market intervention can soften the blows of a natural market correction….

Is the ‘Bailout’ Working?

Some evidence of the US Government’s activity affecting our markets in positive ways:

Yesterday, a statement from FHFA Director James B. Lockhart:

“The Federal Reserve Board’s announcement that it will purchase debt of the Federal Home Loan Banks, Fannie Mae and Freddie Mac as well as the mortgage-backed securities (MBS) issued by Fannie Mae, Freddie Mac and Ginnie Mae is a very positive step. This $600 billion program should be a major boost to the mortgage and housing markets. By providing more liquidity to the market FHFA expects these actions to help reduce the large interest rate spreads between mortgages and Treasuries, resulting in lower mortgage rates over time, assisting homeowners and home purchasers.”

And then, a press release:

FHFA URGES SERVICERS TO TAKE PROMPT ACTION ON LOAN MODIFICATIONS

And then, the announcement of a new report: “Monthly Foreclosure Prevention Report” which promises to detail the efforts to slow down the flood of foreclosure activity.

STRONG moves are being made to stop foreclosures from happening in such large quantities, as the downward spiraling momentum they bring is causing rot within our nation’s housing stock. Property inventory declined this month for the first time in months, quarters, over a year? Let’s hope it is the beginning of a trend… There was a 39% decrease in foreclosures in California, month over month, largely due to the cancellations and the moratorium imposed by the government, which is being followed by most major lenders and loan servicers.

Decreasing inventory causes a shift in supply/demand equilibrium. Are we nearing a bottom? Is it time to be thinking about investing in real estate?

2009 Conforming Loan Limits

The Federal Housing Finance Agency (FHFA) expects to announce 2009 conforming loan limits for Fannie Mae and Freddie Mac by November 7.

The limits define the maximum loan size of mortgages that can be purchased by the Enterprises. You may recall that under the Housing and Economic Recovery Act of 2008, FHFA was directed to set conforming loan limits each year for the nation as a whole as well as for high-cost areas. The rules governing how the loan limits are established differ from the rules set forth in the Economic Stimulus Act of 2008 (ESA), which applies to loans originated in 2008.

For example, under ESA, loan limits for high-cost areas were set at 125% of local house price medians and the maximum high-cost limit was 175% of the national conforming limit ($729,750 in the continental U.S.)

Under HERA, the high-cost area loan limits are 115% of local price medians up to a maximum of 150% of the national limit. In 2009, if the national limit remains at $417,000 for one-unit properties, the maximum limit in high-cost areas would be $625,500 for the continental U.S.

To determine high-cost area limits under HERA for 2009, FHFA will use median home values estimated by the Federal Housing Administration (FHA) of the Department of Housing and Urban Development (HUD). The FHA median prices will be calculated in the coming weeks by FHA for the purpose of determining its 2009 loan limits. The latest release from FHFA can be found here.

Why do Mortgage Rates Seem So High in This Market?

A few factors are contributing:

· In order to fund the rescue and the new government guarantees, our Treasury must sell more new Treasury securities to raise money. And the Treasury has to offer higher interest rates to sell them.

· Mortgage related bonds always trade at a slightly higher yield due to the prepayment and delinquency risk.

· The cost of financing mortgages has increased for Freddie and Fannie due to the plan for the FDIC to back the newly issued, unsecured debt of some banks. By guaranteeing bank debt, the government is making that debt more attractive for investors, and consequently creating more competition for Fannie and Freddie when they look to sell their own securities. To compete for buyers, the mortgage giants will have to raise their own yields – and to pay for that they’ll have to charge borrowers higher interest.

· And in case anybody forgot, we had ‘the panic of 08’ the week before last. A massive liquidation of assets occurred, as people and institutions converted stocks, bonds, and everything else into cash. Mortgage bonds plummeted in value like everything else, causing the rates to spike. We saw the average 30 year fixed go from 5.9% to 7.05% in one week. Nobody is rushing back into this market… mortgages are tied to housing, and housing is at the epicenter of this entire financial crisis.

We are in seldom-explored territory, if not uncharted waters altogether. The risk of waiting for the market to come your way exceeds the risk of inking a deal at a rate that ‘just has to come back down. If you have a deal on the table, close it. If you want to see what I mean in numbers, email me.