Government Refinance Assistance

The Obama refinance program for people with loans backed by Fannie Mae or Freddie Mac (also known as the Home Affordable Refinance Program) just increased the loan-to-value it will allow from 105% of the appraised value of the home to 125%. While this is good news for borrowers we will have to wait and see which lenders are actually willing to participate in the new program. Many lenders were only allowing up to 95% on the program even though it previously allowed for more so we will see which lenders allow for 125% in practice. Here is a link to the announcement and here are some excerpts:

U.S. Housing and Urban Development Secretary Shaun Donovan today announced an expansion of the Obama Administration’s Home Affordable Refinance Program to include participation by borrowers who are current but up to 125 percent underwater on their mortgage. Under authorization provided by the Federal Housing Finance Agency, borrowers whose mortgages are currently owned or guaranteed by Fannie Mae and Freddie Mac will now be allowed to refinance those loans according to the terms of the Home Affordable Refinance program established earlier this year.

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Currently, only those borrowers whose first mortgage does not exceed 105 percent of the current market value of the property are eligible for the Obama Administration’s Home Affordable Refinance Program. For example if the property is worth $200,000, the borrower must owe $210,000 or less. Today’s announcement will allow more homeowners to become eligible for the program, by increasing the eligibility to 125 percent.

If you are holding your breath to see interest rates around or below you are probably turning blue. There is growing consensus that that particular ship has sailed and is not coming back. However, rates in the mid to upper 5’s are currently available so if you have an interest rate in the 6’s or higher now is still a good time to look at a refinance. It probably won’t be too long before these rates go away as well.

See a video of an interesting 4 minute article in this subject here.

Now is also a great time to purchase a home. Contact us for info on that as well.

A mortgage originator out in Indiana wrote a decent summary of FHA streamlines in an article recently. Here is an excerpt:

FHA has permitted streamline refinances on FHA insured mortgages since the early 1980’s. The tremendous feature of the streamline it is a reduced documentation loan with no statement of income or assets.

Some of the basics of a streamline refinance are:
1. The mortgage to be refinanced must already be FHA insured.
2. The mortgage to be refinanced should be current and not over 30 days delinquent more than once in the last year.
3. The benefit of the refinance is to result in lowering your monthly principal and interest payments.
4. No cash may be taken out on mortgages refinanced using the streamline process, however you may receive up to $500.

FHA Streamline can be done in one of two ways

1. Streamline Refinance with an Appraisal:
2. Streamline Refinance without an Appraisal:

Note: The Streamline without the appraisal you (may) be required to bring to closing due to the final calculation from your mortgage pay-off.

If you have an FHA loan with a rate above 6% contact us about streamlining your loan to a better rate.

There had been some hope over the last month or so that the Fed would act to compress mortgage interest rates back to the levels we saw in the first part of 2009. Based on the announcement by the Fed today that is probably not going to happen. As a result the rates at 5% or better may very well be gone for good. The hope is that we can at least hang on to rates at 5.5% or better for a while.

Here are some excerpts from a LA Times article on the subject:

The Federal Reserve signaled that it won’t try to do more than it previously planned to pull down mortgage rates and other long-term interest rates.
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For homeowners hoping to refinance at a lower interest rate, the Fed didn’t offer any fresh encouragement.

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Nobody expected the Fed to make a change in its short-term rate. But some on Wall Street had hoped that the central bank would boost the $1.75 trillion it plans to spend to buy mortgage-backed bonds and Treasury securities for its own portfolio this year.

The Fed’s purchases, which began earlier this year, were aimed at keeping a lid on long-term bond yields and mortgage rates. But those rates have risen anyway, in part because of the Treasury’s unprecedented borrowing to fund rescue programs for the economy and the financial system.

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Bernanke may have decided there was too much risk in trying to boost efforts to push long-term rates down, with the market leaning in the other direction. Besides, the Fed has said it views rising long-term rates as a sign that the economy is getting better.

“The Fed is not going to take further action, like ramping up asset purchases, to forestall rising long-term interest rates at this time,” said Scott Anderson, senior economist at Wells Fargo & Co. “They see the rate increases so far as a return to normalcy, the taking out of the depression scenario, so to speak.”

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Could mortgage rates dive again? Sure — if the economy crumbles.

The Obama refinance program — the Home Affordable Refinance Program — has gotten off to a slow start. Not only have banks had a hard time implementing the program, rates have deteriorated significantly since mid May so refinancing is no longer as enticing for consumers. Additionally, Freddie Mac was very slow to allow anyone but the existing lender to participate in the program so that created problems for some borrowers. On top of that, while the program officially allowed for refinances of up to 105% of the value of the home, most lenders were only willing to fund up to 95% of the value of the home. (This on top of the restrictions for people with second mortgages and the high credit score requirements.)

Well news is coming out this weekend that the Obama administration is not ready to throw in the towel on the program. Here are some quotes from a recent Bloomberg article on the topic:

“We’re actively considering how to structure a program that makes sense over 105 percent,” Federal Housing Finance Agency Director James Lockhart said yesterday. He said a ratio of 125 percent “is a number” that’s on the table, though “not necessarily the number we’re going to end up with.”

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“While this will help some borrowers with higher interest rate loans, you really need to get mortgage rates down below 5 percent to have a huge impact on refinancing,” Scott Buchta, a strategist at Guggenheim Capital Markets LLC in Chicago, said.

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Warehouse Lending

Fannie Mae and Freddie Mac own or guarantee more than half of the single-family mortgages in the U.S. The government- chartered companies were seized by regulators in September amid concern that their capital wasn’t sufficient to weather the worst housing slump since the Great Depression.

Lockhart also said yesterday that his agency, the companies’ regulator, is looking at ways for Fannie Mae and Freddie Mac to help the so-called warehouse lending market, which provides financing to smaller, independent mortgage companies, amid a credit crunch.

While Fannie Mae and Freddie Mac are prohibited by law from lending directly to other firms, Lockhart said they may be able to provide the market some liquidity by committing to purchase multifamily and other loans.

The yield on the 10 year treasury bond bounced up again today after easing since last Friday. It is looking more and more like the sub 5% interest rates from the the spring of ‘09 are gone for good. For now we are holding out hope that 5.5% rates will still be a viable option for a while.

See a WSJ article on the reasons behind today’s bad bond bounce here.

After a brutal 3 weeks where mortgage interest rates shot up nearly three quarters of a percent there has been a little break over the last few days. This could possibly be the last hurrah for the low interest rates we have enjoyed for most of 2009. If you have an FHA loan with a rate above 6% now is the time to contact us to see about streamlining that loan to the mid 5’s. Likewise, anyone who needs a cash out loan or who has expensive mortgage insurance along with a rate in the 6’s or higher ought to contact us now. As the last three weeks have shown, low interest rates won’t last forever.

Are the historically low mortgage interest rates gone for good? It is starting to look like the answer might be yes. This recent Bloomberg article suggests that the markets reacted to the Fed’s rate compressing efforts in the first half of this year but inflation fears are beginning to make the market more and more immune to Fed purchases now. If that is the case, we may soon be at a point where a rate at or below 6% will be considered excellent…

Here are some excerpts from the article:

The Federal Reserve’s mortgage- buying program to bolster housing demand by lowering fixed interest rates is losing effectiveness at a time of the year when sales of U.S. real estate traditionally peak. …

“The government played chicken with the bond market and it lost,” said Randy Johnson, president of Newport Beach, California-based Independence Mortgage Co. “If they were able to keep it up long enough, the housing market would heal and the rest on the economy could start its recovery. What has happened, however, is that the bond market called their bluff.”

The bond market continues to take a beating as it has over the last few weeks. As a result mortgage rates are up nearly a full percentage point. There is no telling when or if the Fed will intervene again to compress rates but in the meantime people looking for mortgages are faced with significantly higher rates than they would have seen a month ago.

Here are some excerpts from an interesting Newsweek article on the details:

Here’s a feedback loop that nobody expected: It looks like investors’ expectations for an economic recovery could end up delaying that very scenario.

Fear of inflation and concerns over the long-term impact of ballooning government debt have been driving up yields on 10-year U.S. Treasury notes, which reached 3.91% on June 8 before easing back to 3.84% the next day.

But hasn’t the Federal Reserve been working overtime to keep rates down? The prime reason for the Fed’s commitment to buying Treasury debt was to lower mortgage rates to revive the moribund housing market. That was starting to work, but economists are now warning that rising mortgage rates will stop any rebound in the housing market in its tracks and derail the broader economic recovery. …

Although over the long run the Fed certainly wants to reduce the mortgage market’s reliance on the Fed’s purchasing of mortgages, in the near term it can afford to increase its mortgage purchases in order to keep rates from going higher, says Zelman.

One worrisome sign, notes Zelman: She’s heard the hike in the 30-year fixed-rate mortgage to 5.50% has crippled refinancing activity. Deterioration in home values has caused many owners to lose equity to the point where they would only have positive equity in their homes if they got a rate between 4.5% or 4.875%. Rising rates appear to have boosted new home purchases, however, by pulling in people who were sitting on the fence since they’re increasingly afraid of missing the window of opportunity to secure a relatively low rate.

Things are going from bad to worse in the mortgage market right now as the Fed sits on the sidelines still. Rates today are moving above 5.5% and inching back toward 6%. The markets seem to me goading the Fed to do something. We’ll see how the Fed reacts shortly.

Until recently people who had loans backed by Freddie Mac could only participate in the Obama refinance program through their existing lender. Fannie Mae did not have the same restrictions. Word came out Friday that Freddie is following Fannie’s lead and will allow any qualified lender refinance via the Obama Home Affordable Refinance program. Here is an excerpt from a WSJ article on the subject:

Freddie Mac (FRE) loosened rules for its it Relief Refinance Mortgage program, allowing borrowers who are current on their mortgage payments to refinance their mortgages with any lender affiliated with Freddie Mac. …

Freddie Mac, which had required mortgages refinanced under the program to be refinanced with the original lender, also increased the amount of closing costs, financing costs and escrows that borrowers can roll into refinanced mortgages to the lesser of 4% of the refinanced amount or $5,000.

The 10 year treasury note yield shot up again on Friday. The yield was all the way up to 3.86% at close. That is very bad news for mortgage rates, with par rates higher than 5.5% at the end of the week. The question now is if the Fed will intervene again to compress mortgage rates, and if so when. This WSJ article mentions that the time for Fed intervention may be very soon.

Treasury traders now await further news on purchases from the Fed. So far, it hasn’t shown its hand either way, with Fed Chairman Ben Bernanke making no comments on the issue in testimony to Congress on Wednesday, noting only that the rise in yields reflects both economic optimism and concerns about rising deficits. At the April Fed meeting, policy makers had left the door open for a possible expansion of the program.

Bond bears are betting the Fed won’t be able to halt the rise in yields as any purchases are overwhelmed by mounting debt supply and continued worries over the U.S.’s fiscal outlook. Mortgage-related selling, they say, will drive yields up further.

Bond bulls, however, expect the Fed to take action should the 10-year yield head for 4%, as that would push mortgage rates beyond 5.5%, resulting in more housing woes and undercutting the tenuous recovery currently under way. The 10-year yield was at 3.70% Thursday.

There was a good article over in the Christian Science Monitor that outlines some of the reasons mortgage rates have been rising in recent weeks and why that trend might very well continue. Here are some excerpts:

Surging interest rates are making it harder for Americans to get mortgage deals, and set the stage for taxpayers to pay higher fees on a soaring federal debt.

What’s happening is a full-fledged bear market in Treasury bonds, as investors become more optimistic about the economy. They’re buying more stocks and less government debt, a trend that pushes up government borrowing rates.

The interest rate on a 10-year Treasury note has gone from 2.93 percent in April to 3.68 percent Monday. That’s an extraordinary surge in just a few weeks.

Mortgage rates, which are often tied directly to the direction of US Treasury bonds, are also heading upward, at a time when many households would like to refinance their loans to save money.

“I would suspect that the move up in bond yields will continue into next year,” says Michael Cosgrove, a Dallas economist who publishes the EconoClast, a market newsletter. “In particular, the home mortgage market is the one that will be impacted.”

The short version — this plan turned out to be a disappointment.

First time home buyers get an $8000 tax credit if they purchase a home this year. The hope was that the new plan would allow some or all of that $8000 to be used to cover the 3.5% downpayment requirement for FHA loans. The reality didn’t turn out that way. That will surely be a disappointment to many in the real estate business and many prospective homebuyers.

Here are some quotes from a recent WSJ article on the subject:

Under the guidelines, most borrowers won’t be able to use the funds from the tax credit to meet the minimum 3.5% down payment required for an FHA loan. Rather, they can apply the money toward closing costs, other upfront charges or increasing the size of their down payment above 3.5%.

“One of the primary hindrances for a lot of would-be buyers, especially if they’re entry-level buyers that are looking to be home owners, is coming up with a down payment. It doesn’t erase that,” Brent Anderson, vice president of investor relations for home builder Meritage Homes Corp. (MTH), said.

Anderson pointed out that closing costs can often be paid by the seller. “The down payment is a bigger assistance,” he said.

Mortgage rates have jumped more than half of a percent in the last week or so and continued to rise today. A number of factors in the markets are contributing to the rise. For now the days of mortgages at or below 5% appear to be gone. Now is the time to refinance if you have been thinking about it befor rates get back above 6% again.

Here are some quotes from a recent CNNmoney.com article on the subject:

Home mortgage rates jumped in the most recent week, pulled higher by rising Treasury yields, according to a report released Thursday.

The average 30-year fixed mortgage rate rose to 5.45% in the week ended Wednesday, up from 5.24% last week, according to a weekly national survey from Bankrate.com.

“Investors’ nerves were rattled by a potential General Motors bankruptcy and a week of substantial government borrowing,” which “agitated would-be bond investors,” the report said.

Mortgage rates move in tandem with Treasury yields. In particular, the 30-year fixed mortgage rate tracks the benchmark 10-year Treasury yield. In recent days, that benchmark yield has spiked to levels not seen since November 2008.

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Even as mortgage rates continue to rise, they still remain much lower than last year, when the average 30-year fixed mortgage rate was 6.20%, according to Bankrate.com.

Mortgage rates have been getting significantly worse in the last week or two as the yield of the 10-Year Treasury Note has rocketed up nearly a full percentage point in the last month or so. The Fed has been doing its best to compress interest rates but we all knew it could not last forever. It remains to be seen if this increase in rates is temporary or if the historic lows in mortgage interest rates have seen their last days.

In any case, while rates are off their lows they are still very good so if you are considering refinancing now is the time to contact us before they go up even further.

Some people are predicting housing prices are bottoming out, others think housing prices will continue to fall for another year or two. If we had to bet, we’d lean toward a 2010 bottom.

Here are a couple of links related to this subject. A pessimistic view is found in this video. The argument on the pressures that should continue compressing housing prices over the next year are pretty compelling.

Here is a recent Reuters article with a similar view. Here are some quotes:

Existing home sales probably won’t reach pre-boom levels until the third quarter of 2010 and housing starts won’t surpass 1 million until 2011, a barrier last broken six decades ago, the economists said.

“There are very few V-shaped recoveries in the history of real estate, and this one is likely to be even slower because of the size of the bubble,” said Robert Shiller, the Yale University professor who, with economist Karl Case, created home price indexes in the 1980s now used by Standard & Poor’s.

There was a good article over at Mainstreet.com extolling the virtues of FHA streamline loans. If you have an FHA or VA loan at 6% or higher contact us today to see about streamlining your loan to a lower interest rate while you still can. Here are some excerpts from the article:

Federal Housing Administration (FHA)-insured mortgages have skyrocketed since 2006, and now FHA “streamlined” refinancing programs are following suit.

What’s not to love? FHA loans can be more consumer friendly, don’t require a home appraisal and it does not matter if your home is underwater (meaning the appraised value is less than the amount of money you owe on your mortgage loan).

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Here are the details. FHA streamlined loans, also known as “rate reduction” loans are designed specifically for one big task; to reduce a homeowner’s monthly mortgage payment. It’s not rocket science but for the most part, it’s flying under the radar, possibly because only FHA mortgage-holders qualify.

But if you do qualify for an FHA streamlined mortgage, the package looks like a good one; maybe the most consumer-friendly and cost-effective refinancing program out there.

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Though, it’s not just a simple cakewalk for FHA loan applicants. You’ve got to be current on your home loans. Even a single 30-day late payment is enough to gum up the works. In addition, a potential borrower must establish a good history of making their mortgage payments; six-months worth of on-time mortgage payments must usually be established. Credit scores will also weigh into the equation and most likely anything under 620 will cut you out of the deal (although it’s still a good idea to check with your FHA lender first).

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If you want to refinance, and you have an FHA loan, streamlining it may be the best way to go.

In comments today Federal Reserve Chairman Ben Bernanke was optimistic in his outlook for the housing market and for the overall economy. Here are some excerpts from a Reuters article on the testimony Bernanke gave before Congress today:

Federal Reserve Chairman Ben Bernanke said on Tuesday the three-year U.S. housing bust may be near a bottom and the recession should end this year, as long as there is no relapse of the credit squeeze that has strangled the economy.

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“We continue to expect economic activity to bottom out, then to turn up later this year,” Bernanke told the congressional Joint Economic Committee.

“An important caveat is that our forecast assumes continuing gradual repair of the financial system; a relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall.”

While the government-backed loan modification efforts are indeed up and running, those efforts are not without difficulties still. There was a good article recently over at CNNmoney.com outlining some of those snags. Here are some bits from that article:

Loan servicers are overwhelmed by the flood of applications. Mortgage investors are angry about a congressional bill prohibiting them from suing servicers that modify loans. Foreclosures are rising as unemployment soars.

Nearly three months after President Obama first announced his $75 billion mortgage rescue effort, his administration is still refining the program in hopes of reaching its goal to save 9 million homeowners from foreclosure.

There was an interesting article in the New York Times on the slowish start the Obama’s new Home Affordable loan modification is off to. Here are some bits from that piece:

The Obama administration’s plan to help millions of troubled homeowners avoid foreclosure by reducing the size of their mortgage payments is just getting off the ground.

So far, two months after the program went into effect, about 55,000 homeowners have been extended loan modification offers, according to a senior administration official. At the same time, foreclosures continue apace. RealtyTrac reported Wednesday that foreclosure filings reached 342,000 last month, up 32 percent from April 2008. Moody’s has estimated that more than 2.1 million homeowners will lose their homes this year.

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In late April, officials fleshed out their plan to modify or forgive second mortgages — one of the big stumbling blocks in modifying primary mortgages — and provided more details on the Hope for Homeowners program, for borrowers who owe more than their homes are worth. Congress is close to acting on legislation to protect mortgage servicers from potential lawsuits from investors, while also expanding the Federal Housing Administration’s ability to modify loans.

While it is still too early to know how effective the program will ultimately be, many homeowners who have tried to gain entrance say they have been successful only through persistence — and sometimes, the help of a lawyer.

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The mortgage modifications to date have come in various forms, but some have not reduced monthly payments and most have not reduced the balance owed — crucial for people who owe more than their homes are worth. Still, the number of loan modifications with lower payments has increased in recent months, an encouraging sign.

In April, 59 percent of loan modifications reduced payments, 29 percent increased payments and 12 percent of modifications kept payments steady, according to Professor White at Valparaiso. Borrowers with loan modifications that have not cut their payments tend to default again within six to 12 months.

There was an interesting article on the AP this morning about the speed at which home prices are dropping in the US in ‘09. Here are some quotes:

Home prices fell in nearly nine out of every 10 U.S. cities in the first quarter of this year as first-time buyers looking for bargains dominated the market.

The National Association of Realtors said Tuesday that median sales prices of existing homes declined in 134 out of 152 metropolitan areas compared with the same period a year ago. Prices rose in the other 18 cities. …

“I think we’re near a bottom, but we’re not there yet,” said David Resler, chief economist at Nomura Securities. While prices could hit bottom as soon as this summer, he said, they are likely to remain stable and start edging higher slowly.

But the nascent signs of recovery in the housing market could be short-lived if employers continue to lay off workers in bulk. …

the median sales price nationwide was $169,900, down 13.8 percent from a year ago. The median price is the midpoint, which means half of the homes sold for more and half for less.

If you have an interest rate of 6% or higher and still have any equity left in your home we recommend you contact us immediately to look into a refinance while rates remain at historic lows.

There was a good article over at the Boston Herald recently noting that mortgage rates have been moving back up over the last few weeks. There is a decent chance that the botton has passed us already. So if you are thinking about a refinance contact us now before the rates go even further up.

Here are some excerpts from that piece:

Procrastinators beware: Mortgage rates are beginning to rebound from record lows as the U.S. economy shows more and more signs of stabilizing.

“Rates are still low, but they’ve moved up from the super-low point they hit a few weeks back,” said Greg McBride of market-tracker Bankrate.com. …

Rates began moving upward Thursday after federal officials reported a drop in initial jobless claims and announced that most big U.S. banks had passed new government “stress tests.”

Then, the Labor Department reported Friday that America lost 539,000 non-farm jobs in April - 61,000 less than many analysts had forecast.

The three better-than-expected reports pushed mortgage rates higher as lenders priced in a possible economic recovery that could raise loan demand and increase inflation.

“The economic glass is now being seen as half full instead of half empty,” McBride said.

Although the analyst expects rates to fluctuate in coming months, McBride recommends would-be borrowers not wait to see if interest levels drop back downward.

After all, McBride said today’s rates are still well below the market’s 7.5 percent long-term average.

The new bill the Senate just overwhelmingly passed does a couple of very important things that ought to make loan modifications much easier to obtain soon. The most important thing it does is protect loan servicers from being sued if by their investors for modifying loans. Right now many loan servicers must answer to investors and as a result they are in danger of being sued if they modify loans for borrowers in trouble. The net result of this fear is a lot of borrowers are being turned down for loan modifications and that leads to more foreclosures and that leads to further declines in the housing market. The new bill grants servicers protection from these lawsuits. That ought to lead to a lot more loan modifications if it passes.

Here is a link to the bill (S 896) summary and a few quotes:

Shields servicers from liability for implementing mortgage loan modifications or loss mitigation plans if they are in compliance with fiduciary duties required by the Truth in Lending Act (including any refinancing undertaken pursuant to standard loan modification, sale, or disposition guidelines issued by the Secretary of the Treasury).

Amends the National Housing Act to modify the HOPE for Homeowners Program (HOPE).

Authorizes the Secretary to establish a payment of up to $1,000 per insured loan to the loan servicer of the existing senior mortgage for every loan insured under HOPE.

The efforts to resurrect the Hope For Homeowners program are in full swing now. The House already passed a bill designed to loosen requirements for the program and increase incentives for lenders to participate. The Senate just passed a similar bill today. The next step is for the two bodies to draft a melded final bill and push toward final votes. Here are some excerpt from a recent AP story on the subject:

Trying to curb home foreclosures, the Senate voted on Wednesday to make it easier for homeowners with risky credit to switch to a lower-cost mortgage backed by the government.

The bill, passed 91-5, also would give banks a break by encouraging reduced fees they must pay for the government to insure deposits.

While both steps put taxpayer money on the line, lawmakers say the legislation is needed to prevent the economy from getting worse.

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The Senate housing bill would expand an existing $300 billion program called “Hope for Homeowners,” which encourages lenders to write down an individual’s mortgage if the homeowner agrees to pay an insurance premium. The program, which is set to expire in 2011, is intended to swap out a homeowner’s high-interest rate for a 30-year fixed loan backed by the Federal Housing Administration.

So far, the program has been a dud.

When it was established last year, Congress envisioned helping some 400,000 troubled homeowners. But because eligibility requirements were so strict, one borrower has completed the refinancing process