Government Refinance Assistance

With the increased loan limits on FHA and Fannie Mae/Freddie Mac loans set to expire at the end of 2009, congress passed a resolution extending the loan limit increase for another year. The loan limit increase is seen as crucial to keep the economic recovery on track and to bolster home sales and refinances throughout the country. President Obama is expected to sign the resolution next week.

There was an interesting article over at Business Week recently speculating on how soon mortgage interest rates will go up. The short answer is this author thinks we might have relatively low rates through the winter. Here are some excerpts:

When the economy—and the real estate market—tumbled in 2008, the Fed stepped in to lower interest rates. As we have seen throughout history, lower interest rates makes housing more affordable, increase the likelihood of transactions, and ultimately produce stabilization in the residential real estate market. A major clue to where the residential real estate market is headed lies in the question of where interest rates might be headed.

…

You and I aren’t the only ones doing the watching. If you see the 30-year mortgage rate start to climb relative to other interest rates, it’s a sure indication that your friendly neighborhood mortgage broker thinks a Fed rate hike is on its way—and that mortgages rates will climb.

So if you are thinking of buying or refinancing a home, this is a pretty good time to move, before rates begin to rise again.

There have been several changes to the FHA rules lately. One of those changes will make it harder for consumers to purchase condos with an FHA loan. Here is an excerpt from a recent Bankrate.com/Detroit News article on this subject:

The new rules were supposed to take effect Oct. 1. But the FHA has announced it would delay implementation of the new rules until Nov. 2, and says it might modify some of the policies.

Of the several new rules and requirements, there are four that most directly affect people who want to buy condos with FHA-insured mortgages:

• “Spot approvals” are eliminated, and now the entire condominium project has to meet FHA approval before a borrower can get an FHA-insured loan.

• A maximum of 30 percent of the units can have FHA-insured mortgages (there was no such limitation previously).

• Before the FHA will insure a mortgage on a condo, at least half the units must have already been sold (again, there was no such limitation previously).

• At least half of the project’s owners will have to occupy their units, down from 51 percent.

A recent article over at CNNmoney.com cited recently released data on the continuing drop of home prices in most markets in the US. If you are considering a refinance to a fixed rate or just a better rate now is the time to contact us in the sidebar to look into a refinance while you still have equity in your home. If you are considering a government-backed mortgage to purchase a home some time soon the price drops work in your favor so you can contact us about government-backed purchase loans as well.

Here are some excerpts from the article:

If you thought home prices were bottoming out, you may be wrong. They’re expected to head a lot lower.

Home values are predicted to drop in 342 out of 381 markets during the next year, according to a new forecast of real estate prices.

Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. For the following year, the firm anticipates some stabilization with prices rising 3.6%.

…

Hunter also sees a new wave of foreclosure problems coming from higher priced loans and prime mortgages. He expects a high failure rate for option ARM loans that were issued to prime customers so they could buy homes in bubble markets, such as California and Florida. In those areas, prices for even modest homes had skyrocketed.

We get this from a recent AP story on a joint press release from earlier today:

The Obama administration is unveiling a new program to provide support to state and local housing agencies to provide help to thousands of home buyers and renters.

The administration said the new program would help to support low mortgage rates and expand resources for low and middle income borrowers who want to buy or rent a home.

The program will feature two parts — a new bond purchase program to support new lending by housing finance agencies and a temporary credit and liquidity program to improve access by housing agencies to credit sources for their existing bonds.

…

The local and state housing finance agencies, which provide loans to people with low or moderate incomes, have had a hard time raising money to fund loans due to the housing crisis and credit crunch.

“This initiative is critical to helping working families maintain access to affordable rental housing and homeownership in tough economic times,” Treasury Secretary Timothy Geithner said. “Through this initiative, the administration aims to help (the housing finance agencies) jump-start new lending to borrowers who might not otherwise be served and to better support the financing costs of their current programs — key components in stabilizing the housing market overall.”

Legislation has been proposed in congress that among other things would increase the minimum down payment requirement for FHA-backed home purchase loans from 3.5% to 5%. The head of the FHA recently came out in opposition of this plan. Here are some bits from a WSJ blog on the subject:

The head of the Federal Housing Administration warned that raising down payment requirements or taking similar steps to limit the pool of eligible buyers for FHA-backed loans would hamstring a fragile housing recovery.

“If it weren’t for this program, assuming that risk is being protected, this would forestall recovery of key metropolitan markets across the nation,” said David Stevens, the FHA commissioner, during a panel session at the Mortgage Bankers Association annual convention in San Diego on Monday.

Rep. Scott Garrett (R., N.J.) introduced a measure in Congress earlier this month that would require minimum down payments of 5%, up from 3.5%, on loans backed by the FHA. (See FHA Should’ve Done This Long Ago.)

The folks at the FHA insist the answer is no. The guy in the following interview over at Yahoo is skeptical of that claim.

Whatever the case, the FHA is the best program around for folks with less than 700 credit scores or less than 20% equity in their home.

There were some encouraging signals from the Fed recently. Here are some excerpt from a recent AP story on the subject:

Federal Reserve Chairman Ben Bernanke sent a fresh signal Thursday that he’s in no rush to reverse course and start boosting interest rates.

The Fed’s key bank lending rate is now at a record low near zero and will probably stay there for an “extended period,” Bernanke said in a speech to a Fed conference here.

That echoed the pledge he and his colleagues made at their meeting in late September. The goal: super-low rates will entice people and businesses to spend more, nurturing the budding recovery.

…

Still, Bernanke made clear on Thursday that when the time is right the Fed will have the tools and the political will to reel in the unprecedented amount of money it has pumped into the economy to avoid unleashing inflation.

“At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road,” Bernanke said.

There has been a lot of news lately on the recent dip in mortgage interest rates. In many cases rates are as low as 5% and FHA streamline loans are currently coming in between 5% and 5.5%. There is no telling how long this dip in rates will last but odds are that it won’t be very long so if your have a rate of 5.75% or higher contact us in the sidebar today.

See an interesting AP article on the subject here. With lending standards tightening even further it won’t be surprising in the the number of denied applications increases even further in 2009.

The great interest rates we are now enjoying are not going to last long. A Fed official indicated this week that when the Fed raises rates to stave off inflation it will happen sharply. We get this from a recent AP article:

To prevent inflation from taking off, the Federal Reserve will need to start boosting interest rates quickly and aggressively once the economy is back on firmer footing, Fed officials warned Tuesday.

“I expect that when it comes time to tighten monetary policy, my colleagues and I will move with an alacrity that, if needed, will be equal in speed and intensity” to when the Fed was slashing rates to battle the recession and the financial crisis, said Richard Fisher, president of the Federal Reserve Bank of Dallas.

Although Fisher has a reputation for being one of the Fed’s toughest inflation fighters, it marked the second such warning by a central bank official in recent days. Fed member Kevin Warsh on Friday said the central bank will need to move swiftly when the time comes to raise rates.

Charles Plosser, president of the Federal Reserve Bank of Philadelphia and also a hawk against inflation, waded into the debate in a speech Tuesday in Easton, Pa., saying the Fed may need to act “well before” unemployment — now at a 26-year high of 9.7 percent — returns to normal. The Fed, he said, will need to be on guard “to prevent the Second Great Inflation.”

If you have been thinking about a refinance contact us today in the sidebar. The sooner you lock your rate the better if you would like to refi before rates shoot back up. Rates for most loans this week have been hovering between 5 and 5.5%. We expect them to be much higher soon.

Housing Wire had a story recently saying that six more mortgage servicing companies have come on board with the Obama loan modification program. Here is an excerpt from the story:

Six more servicers joined the Home Affordable Modification Program (HAMP), pushing the total number of participants to 63, according to the most recent Troubled Asset Relief Program’s (TARP) transaction report.

AMS Servicing leads the new inductees with $4.3m in cap incentives. Bay Federal Credit Union receives a $410,000 cap; Schools Financial Credit Union receives a $390,000 cap; Yadkin Valley Bank gets a $240,000 cap; Glass City Federal Credit Union receives a $230,000 cap; and Central Jersey Federal Credit Union is allocated $30,000 in capped incentives.

It is no surprise that the Fed will be winding down its efforts to compress mortgage interest rates over the next few months. The announcement this morning simply noted that they plan to spread the remaining fund out more thinly between now and the end of Q1 2010 instead of shutting the program down entirely by the end of this year. In any case, the end result will likely be that mortgage rates will be higher soon than they are now. If you have an ARM or need cash out or have a fixed rate above 5.75% contact us in the sidebar now before rates end up in the high 6’s again.

The FHA released the details on its policy changes regarding FHA streamlines (see mortgagee letter 09-32). The new policies go into effect November 18, 2009. Here are what we consider the most significant changes:

A. Seasoning

At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.

This means there is a minimum 7-9 month waiting period one must wait between FHA streamlines. It used to be that one could get an FHA streamline and if rates improved thereafter get another streamline immediately.

II. Revised Streamline Refinance Transactions WITHOUT an Appraisal

The maximum insurable mortgage cannot exceed:

• The outstanding principal balance minus the applicable refund of the UFMIP,

PLUS

• The new UFMIP that will be charged on the refinance.

This is the most major change. Right now, most FHA streamlines allow a borrower to roll closing costs into the new loan (thus bring no money to closing), skip one month of mortgage payments, and reduce interest rates. With this new rule closing costs will not be able to be rolled into the new loan so as a result it will be much more difficult to get a streamline with no money at closing. The requirement for money at closing will mean many families will not be able to streamline their FHA loan soon.

If you have an FHA loan at 5.75% or higher contact us in the sidebar today. Getting a streamline will be more expensive and difficult starting in November 2009.

As part of the steps the FHA is taking to bolster its cash reserves, it appears that FHA streamlines are about to get harder to qualify for. Right now people with FHA loans can refinance to a better FHA loan without needing an appraisal no matter what their current income is or how upside down they are on the home as long as they have not been 30+ days late on a mortgage payment and have a credit score above 620. According to this report over at Housing Wire the requirements for FHA streamlines will be tightening in significant ways soon:

The new policies revise current procedures to streamline refinance transactions. FHA will establish new requirements for seasoning, payment history, income verification and demonstrate a net tangible benefit to the borrower. The new changes provide for a collection of credit score information when available and caps the maximum loan-to-value (LTV) ratio at 125%.

Also, new guidelines will be provided on ordering appraisals for FHA-insured mortgages and supports the agency’s policy requiring appraiser independence. While FHA’s current policies continue to comply with the Home Valuation Code of Conduct (HVCC), FHA will adopt language from the Code to align with GSE standards.

These changes potentially do away with some major benefits of the FHA streamline process. If you have an FHA loan with a rate of 5.75% or higher contact us today about streamlining to a lower rate while the procedure is still relatively inexpensive and easy. Tell your friends and neighbors with FHA loans as well. FHA streamlines are about to become significantly less streamlined and significantly more expensive and difficult to come by.

Reports came out today that in the face of increasing foreclosures on homes insured by the Federal Housing Administration, the cash reserves for the FHA will soon be dipping below mandated levels. We get this from a recent AP story:

The Federal Housing Administration said Friday its cash cushion will dip below mandated levels for the first time, but officials insist it won’t need a taxpayer rescue.

The agency, a growing source of funds for first-time homebuyers, faces mounting concerns that it will soon need a taxpayer bailout. As of this summer, about 17 percent of FHA borrowers were at least one payment behind or in foreclosure, compared with 13 percent for all loans, according to the Mortgage Bankers Association.

Rising defaults mean the FHA’s reserves may sink below the 2 percent mark required by federal law. The FHA says a study being sent to Congress in November is expected to show that ratio dipping below required levels for the first time.

David Stevens, the agency’s commissioner, however, said in an e-mailed statement that FHA “will not require taxpayer assistance.”

Banks still have the final say on who they help and who they don’t help, but the FDIC is at least encouraging banks to help unemployed people. We get this from a recent CNNmoney.com article:

Some unemployed homeowners at risk for foreclosure could get a temporary break on their mortgage payments under a plan being pushed by the FDIC.

The Federal Deposit Insurance Corp. said on Friday it is encouraging certain banks to reduce mortgage payments for the unemployed or underemployed for at least six months.

Overall, relatively few of the unemployed will benefit from this recommendation because the effort would only apply to a handful of institutions. Specifically, it would affect those that bought failed banks and participate in loss-share agreements with the FDIC. In such deals, the agency covers some of the losses incurred on the assets of the failed banks. Some 53 institutions, mainly regional or community banks, have entered into such arrangements since January 2008.

“With more Americans suffering through unemployment or cuts in their paychecks, we believe it is crucial to offer a helping hand to avoid unnecessary and costly foreclosures,” said Sheila Bair, FDIC chairman, who has led the efforts to have loan modifications be based on income.

It appears we are not out of the woods with the housing crisis just yet. The Treasury expects there to be millions more foreclosures coming in the coming months and years. Here is an excerpt from the recent Reuters story on the subject:

Only 12 percent of U.S. homeowners eligible for loan modifications under the Obama administration’s housing rescue plan have had their mortgages reworked, and millions more foreclosures are coming, the Treasury Department said on Wednesday.

A Treasury report showed 360,165 people had their monthly payments reduced through August, up from 235,247 through July, but a senior Treasury official conceded much more must be done to soften the impact of a severe and prolonged housing crisis.

…

Treasury has begun releasing monthly reports on the loan modification program, called the Home Affordable Modification Program, or HAMP, that it launched in February. At the time, it was suggested that millions of Americans might be able to get some relief through negotiations with their mortgage lenders.

But the program is off to a relatively slow start.

…

Barr said that “even if HAMP is a total success, we should still expect millions of foreclosures” as administration and industry efforts continue to stabilize a crisis-stricken housing sector.

Treasury said that 47 loan servicers have signed up for the loan modification program initiated by Treasury. But the Treasury report showed 21 had modified less than 5 percent of eligible troubled loans and several had not modified any.

Barr said a strong housing market was “crucial” to a sustained U.S. economic recovery and noted that analysts say more than six million Americans are at risk of foreclosure in the next three years.

“Much more remains to be done and we will continue to work with other agencies, regulators and the private sector to reach as many families as possible,” Barr said.

FHA loans have some wonderful benefits. They also have some unique costs. The costs are related to the mortgage insurance that that funds the FHA program so if a borrower has great credit, plenty of cash on hand, or plenty of equity in a house an FHA loan is not needed. For everyone else FHA can be a tremendous way to reduce interest rates and get into a stable 30-year fixed loan.

I was reading about another benefit of FHA loans at Steve Lines’ excellent blog bestfhalender.com recently. He points out that in addition to giving access to low rates to folks with little cash, little equity, and lower credit scores, FHA loans also are assumable. Here is an excerpt:

What is an Assumable Loan?

Investopedia.com defines an assumable loan as follows:

“A type of financing arrangement in which the outstanding mortgage and its terms can be transfered from the current owner to a buyer. By assuming the previous owner’s remaining debt, the buyer can avoid having to obtain his or her own mortgage.”

The result of a home purchased through a loan assumption is that the person assuming the loan will simply begin to make the payments as they come due when the title is transferred.

FHA Mortgages Are Assumable.

All FHA loans are assumable when processed using HUD’s guidelines. However, mortgages closed on or after December 15, 1989 require credit qualification of those borrowers wishing to assume the mortgage. See FHA Handbook 4155.1 REV 5, Sections 4-1 and 4-4 and Handbook 4330.1 REV 5, Section 6-6.

What Is the Benefit of an Assumable Loan?

The main benefit of an assumable FHA loan is that the interest rate is transferable upon assumption of the loan. If you are financing your home today, this may not seem like a big deal to you. But if you plan to sell the house you are currently financing in a few years from now (or later), it could be. Consider the competitive advantage that you will have as a seller if your house is on the market with at 5.5% fixed assumable interest rate at a time when the market rates are at 9 or 10%. Because your house is much more affordable to a prospective buyer, it will have a higher likelihood of selling.

So if you plan to sell your home in the next few years and currently are in an ARM or an interest rate above 6% you may want to contact us about refinancing into an low rate FHA loan. The fact that a buyer could assume your FHA loan at a low interest rate may be a major selling advantage in the years to come as interest rates go way up to stave off inflation.

Comments earlier this week from some folks at the Fed made it sound like the Fed was planning to get out of the business of compressing mortgage interest rates in the next few months. That would possible result in mortgage rates moving toward 7% next year. Well today a Fed official essentially said “Not so fast”. See this from a MarketWatch report:

It is too early to contemplate an end to the Federal Reserve’s unconventional easing strategy, said William Dudley, president of the New York Federal Reserve Bank, in a television interview Monday. “My own personal view is, I think it’s a little premature to be so confident that you want to pull all these things back right now,” Dudley said in a CNBC interview. Julia Coronado, an analyst with BNP Paribas, said Dudley appeared to be trying to throw cold water on comments from two other regional Fed presidents last week that the central bank may not purchase as many mortgage bonds as planned because the economy is leveling out. Dudley said he was not worried about the Fed’s monetary policy strategy causing inflation.

The Fed has been spending money in two ways to compress mortgage interest rates in 2009. The first way is to buy U.S. Treasury Bonds. By purchasing these bonds the yield on the bonds stays low. This is important because mortgage interest rates have traditionally tracked to about 2% higher than the yield on the the 10 year treasury bond. The second way the Fed is compressing mortgage rates is by purchasing large amounts of Mortgage-Backed Securities (MBS). These securities are basically mortgages that have been bundled together and sold as investments. When the Fed purchases these securities in large numbers the banks have more money to lend for new mortgages and the easier it is for banks to sell the MBS the lower the interest rates they can charge to compete for mortgage business (while still turning a profit). The purchases of the MBS are partially what is keeping the interest rates on mortgages just 2% or so above the yield on the 10-year treasury bond. (Last year the spread grew significantly greater than 2% until the Fed started buying MBS.)

Well a few weeks ago the Fed announced that it will stop buying treasury bonds by October 2009. That could mean that the yield on the 10-year note could go up to 4-5%+ again. If the spread remains at about 2% that would mean we would be looking at mortgages between 6-7% again. Then this week the Fed hinted that it may be soon slowing down on the MBS purchases as well. That could also push interest rates back toward that 7% range.

The takeaway should be this: If you need a refinance get it soon. The signs are pointing to the end of the sub 6% mortgage rate sooner rather than later. Right now a 5.5% rate without points is not difficult. But next week? Nobody knows.

There was an interesting article over at Forbes.com recently outlining some of the painful realities associated with trying to get mortgage loan modifications with banks. Despite the pressure the Obama administration is trying to apply getting a decent loan mod is often difficult or even impossible. Here are some excerpts:

The mortgage industry claims it has provided relief over the last two years to 4 million homeowners who were having trouble paying their mortgages. But all help is not created equal.

Take Brooklyn resident Marcia Brown, an emergency room nurse who has received two loan modifications from her Santa Ana, Calif.-based mortgage servicer, Carrington Mortgage Services. With her husband disabled from a stroke, Brown couldn’t make the payments on her adjustable-rate mortgage (ARM) after the monthly payment more than doubled to $4,000 in 2006.

So when Carrington offered her a second ARM that would temporarily lower her payments, she took it. “We had no choice but to accept the modification terms that left us with payments too high and an interest rate that is adjustable,” she says. When her payment jumped up again earlier this year, Carrington offered another ARM. In June, Brown reluctantly accepted. “It has been a very difficult process with very few options,” she says.

According to counselors at ACORN Housing, a nonprofit that tries to prevent foreclosures, if Carrington had given Brown a modification under the Obama administration’s Home Affordable Modification program, she would be paying a fixed rate of $1,600 a month for 30 years. Instead, Carrington gave her a modification with an initial monthly payment of $2,800. “Under the Obama plan, our payments would have been much lower. This doesn’t seem fair,” Brown says.

Here is a video of the interview with Karen Weaver of Deutsche Bank from the guys over at Yahoo News:

The number of Americans falling more than 30 days behind on their home mortgages is ever-increasing and reached record levels in the second quarter of 2009 according to recently released report. We get this from a Washington Post article on the subject:

Record levels of homeowners were behind on their mortgage or in the foreclosure process during the second quarter, according to industry data released Thursday that illustrate the challenges facing government efforts to stem the housing crisis.

The problem has continued to shift from the subprime loans that helped spark the foreclosure crisis to prime borrowers that are struggling under the impact of the declining economy, including rising unemployment, according to the Mortgage Bankers Association. Foreclosure rates are likely to continue to rise until late next year, said Jay Brinkmann, the group’s chief economist.

“It is unlikely we will see meaningful reductions in the foreclosure and delinquency rates until the employment situation improves,” he said.

About 13.16 percent of mortgage loans were delinquent or in the foreclosure process during the quarter, according to the group. That is the highest level ever recorded by the survey, which has been conducted since 1972, and breaks a record set last quarter.

The majority of the problem remains in the Sunbelt states, such as California and Florida, which accounted for about 35 percent of the foreclosures started during the second quarter. “Florida continues to establish itself as the worst state in the union for mortgage performance,” Brinkmann said.

We get this interesting note from a recent article over at CNNmoney.com:

The average 30-year fixed rate mortgage inched up to 5.67% from 5.65% the week prior, and the 15-year fixed fell to 4.93% from 4.97%, according to the weekly national survey from Bankrate.com.

Mortgage rates have held within a narrow range for almost two months, despite some economic improvement, the report noted.

“With the Federal Reserve beginning to wean the markets from its repurchases of Treasury debt, there will be less to restrain mortgage rates if the economic data continue to improve,” the report said. Bond yields tend to influence mortgage rates. …

Current mortgage rates remain much lower than last year’s levels, when the average 30-year fixed was 6.74%, according to Bankrate.com.