Government Refinance Assistance

With more than 9% of FHA loans now seriously delinquent the fears that the Federal Housing Administration will need to be be bailed out are not going away. Of course that does not mean the FHA will cease lending but it could mean tighter standards and higher fees down the road. We get this from a recent Washington Post article on the subject:

About 9.1 percent of FHA borrowers had missed at least three payments as of December, up from 6.5 percent a year ago, the agency’s figures show.

Although the FHA’s default rate has been climbing for months and eating into the agency’s cash, the latest figures show that the FHA’s woes are getting worse even as the housing market shows signs of improvement. The problems are rooted in FHA mortgages made in 2007 and 2008. Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made.

If the trend continues and the FHA’s cash reserves are exhausted, the federal government would automatically use taxpayer money to cover the losses — a first for the agency, which has always used the fees it charges borrowers to pay for its losses.

The Obama Administration’s Home Affordable Refinance Program, like so many other programs before it, has not delivered as well as hoped. One of the hurdles borrowers and lenders are facing is the documentation required to qualify for the program. The Fed recently announced it was going to reduce those documentation requirements in a bid to speed the program along. We get this from a Washington Post article on the topic:

Facing mounting criticism about the effectiveness of the government’s foreclosure-prevention efforts, the Obama administration announced Thursday that it will tighten the documentation requirements for borrowers applying for its marquee mortgage relief program.

Starting June 1, borrowers must prove they qualify for the mortgage help upfront, providing two pay stubs and other paperwork before their payments can be lowered. The change attempts to prevent a repeat of the current backlog of borrowers who received mortgage relief after a phone conversation with their lender but did not satisfy the government’s documentation requirements within three months.

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While lenders blamed borrowers for not submitting their documentation on time, homeowners and housing counselors have complained that banks often lost the paperwork. In some cases, lenders have been slow to complete the loan modification even after the borrower met all the requirements, they have said. Government officials said the new paperwork requirements will be easier to understand and less onerous for borrowers.

See the official mortgagee letter here for the details. Right now the upfront FHA fee is 1.75%. Starting on April 5th 2010 that will increase to 2.25%. When you combine that with the fact that interest rates will likely be rising soon now is definitely the time to refinance with the FHA if you are a candidate. Contact us in the sidebar if you are a candidate for an FHA refinance.

Several news sources are reporting that the FHA is about to raise the upfront mortgage insurance premium for an FHA loan from 1.75% to 2.25%. This will make refinancing more expensive. We’ll report more details on the timing of the forthcoming changes as they are announced.

The Obama Home Affordable Refinance Program (HARP) and Home Affordable Modification Program (HAMP) are still getting mixed reviews as we approach their one year anniversary. Several new outlets are reporting that the programs are still moving along pretty slowly. Here are some bits from a WSJ article on the topic:

Thousands of homeowners participating in the Obama administration’s foreclosure-prevention plan could miss a government deadline for completing necessary paperwork, putting them at risk of disqualification.

The program, a cornerstone of President Barack Obama’s housing-rescue effort, was launched in February and has been bedeviled by paperwork problems from the start. Many companies have given borrowers modified mortgage terms on a trial basis, based on verbal information, and have struggled to get the documents required to finalize mortgage modifications.

According to data released by the Treasury Department Friday, more than 900,000 borrowers have begun trial modifications under the program, but just 7% of them have received permanent changes so far. …

he administration has said the mortgage program could help as many as four million borrowers. It provides financial incentives for mortgage companies and investors to reduce loan payments to affordable levels.

Through December, 66,465 borrowers had received permanent fixes; an additional 46,056 modifications have been finalized, but await the borrower’s signature. The number of borrowers who have received completed modifications, while low, has more than doubled since November. The Treasury Department announced in December a “conversion drive” designed to increase permanent fixes.

The pending mortgage rate increase is becoming a foregone conclusion. If you have an ARM mortgage or would like to lock your mortgage rate in below 6% for any other reason contact us now in the sidebar. Rates will likely be above 6% again soon so the window of opportunity to refinance is closing.

Here is an excerpt from a recent Reuters article:

U.S. home loan rates could rise by as much as three-quarters of a percentage point in the spring as the Federal Reserve ends its mortgage bonds purchase program, a top Fed policymaker said in an interview published on Saturday.

The Fed has been buying billions of dollars of mortgage backed securities in the last years or so, fueling the huge drop in mortgage interest rated we saw in 2009. Well the plan is to cut that program off in March and that is fueling fears that rates will be skyrocketing soon. We get this from a recent WSJ article:

The Federal Reserve’s pledge to stop buying mortgages by the end of March is sparking fears among home builders, mortgage investors and even some Fed officials that mortgage rates could rise and knock the fragile housing recovery off course.

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The recent rise in mortgage rates could be a prelude to even bigger increases in coming months as the Fed steps away from support for the market. That prospect has some in the markets counting on the Fed to change course and keep buying past March, which many officials are reluctant to do.

When such a big investor stops buying, “that could lead to material increases in [interest] rates across the board,” said Ronald Temple, portfolio manager at Lazard Asset Management. He sees mortgage rates rising by a percentage point when the Fed stops buying. A withdrawal of government support, combined with high unemployment and rising mortgage foreclosures, could push home prices down 20%, he said.

There was an article in the LA Times recently talking more about the likelihood of mortgage interest rates increasing dramatically in 2010. Here are some bits from that piece:

Mortgage rates are continuing their creep upward in a trend that well may choke off a recent refinancing boom and provide a test of the strength of the housing market in 2010. …

The climb comes even though a government effort to keep rates low is in place for a while longer. A Federal Reserve program to spend $1.25 trillion to support the market for mortgage-backed securities is scheduled to end in the spring.

Every tick up in loan rates makes it less likely that someone with an existing mortgage will refinance to save money.

But rates in the 5% range remain extraordinarily low by historical standards, offering a huge incentive for buyers.

For example, principal and interest payments on a new 30-year fixed-rate mortgage were about one-third less than they were in May 2000, when rates peaked at 8.6%, said Frank Nothaft, Freddie Mac’s vice president and chief economist.

Yesterday we reported that a Morgan Stanley analyst was forecasting much higher interest rates coming in 2010. The folks over at Subprime Blogger are reporting that a Goldman Sacs analyst came out with an opposing opinion.

These two predictions are on completely different ends of the spectrum when it comes to mortgage rates. Morgan Stanley feels mortgage rates are going to move all the way up to 8% while Goldman Sachs feels mortgage rates are going to stabilize

If nothing else, we can be sure that the current friendly mortgage interest rates are tenuous. If you are in need of a low fixed rate contact us in the sidebar while rates are still relatively low.

We get this from a recent Bloomberg article:

Yields on benchmark 10-year notes will climb about 40 percent to 5.5 percent, the biggest annual increase since 1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The surge will push interest rates on 30-year fixed mortgages to 7.5 percent to 8 percent, almost the highest in a decade, Greenlaw said.

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Mortgage rates last reached 7.5 percent in 2000 as productivity gains slowed after the demise of some Internet companies. The average rate on a typical 30-year fixed-rate mortgage climbed to 5.05 percent in the week ended Dec. 24, according to McLean, Virginia-based Freddie Mac.

Yields on mortgage securities issued by Fannie Mae rose to a four-month high of 4.54 percent last week. Fannie and Freddie securities are used to guide borrowing costs on almost all new U.S. home lending.

Higher borrowing costs as the U.S. shows signs of beginning to emerge from the longest economic contraction since the 1930s puts Treasury Secretary Timothy Geithner in a situation similar to one faced by his predecessor Robert Rubin.

“This is the re-emergence of the bond market vigilantes,” said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed-income officer for Fifth Third Asset Management, who oversees $22 billion. “The vigilantes are saying, OK guys you want to do this, you’re going to pay a higher price for it.”

Right now rates are still in the mid 5’s. If you are considering refinancing or purchasing a property contact us in the sidebar right away.

We have known for some time that artificially created low mortgage interest rates we have seen in 2009 wouldn’t last forever. The end to those low rates seems to be upon us now. There was a good article in the WSJ recently on some of the details. Here is a snippet from that piece:

The days of record-low mortgage rates are numbered.

The U.S. government is slowly extracting itself from the market for home loans, closing out several emergency measures put into place in the throes of distress last year to prevent a collapse of mortgage finance.

The Federal Reserve’s $1.25 trillion program to purchase mortgage-backed securities, considered the most critical support, will draw to a close in the first quarter of 2010. Fannie Mae, Freddie Mac and Ginnie Mae will then be without a government buyer of last resort for their home loans for the first time since the mid-1990s and will have to rely solely on private investors.

A couple of reports today show that despite “green shoots” in the economy more and more people are falling behind on their mortgages still. Here is some info from a piece on the subject over at the WSJ online:

The U.S. housing market continued to deteriorate in the third quarter as even the most credit-worthy borrowers increasingly fell behind on their mortgages, highlighting the problems policy makers have faced in trying to address the problem.

A new report from the Office of Thrift Supervision and Office of the Comptroller of the Currency found that the percentage of current and performing mortgages dropped for the sixth consecutive quarter, as foreclosures in process topped 1 million mortgages at the end of September. The report covers roughly 34 million loans totaling $6 trillion in principal balances, or approximately 65% of the U.S. mortgage market.

The regulators said that serious delinquencies, loans that are at least 60 days past due, increased across all loan categories and climbed to 6.2% of the loans in the portfolio during the third quarter. The report said that just 67.7% of option adjustable-rate mortgages were considered current at the end of the third quarter, while 27.9% were either seriously delinquent or in the process of foreclosure.

The most troubling finding was that even borrowers considered “prime,” or the least risky, increasingly can’t pay their loans. The report said that 3.6% of prime mortgages were more than two months behind on payments, more than double from a year ago.

We specialize in helping people prevent falling behind by refinancing out of ARM’s and other undesirable mortgages before they find themselves late. If you fall into that category contact us in the sidebar and we can look at your options.

Recent reports showed lenders canceling a lot of scheduled California foreclosures in November 2009. Here is an excerpt from a San Jose Mercury story on this topic:

Under intense pressure to help more people stay in their homes, mortgage lenders canceled far more scheduled foreclosures in November than in the previous month, according to a report Tuesday.

A total of 10,469 scheduled foreclosures were canceled in November throughout California, up 20 percent from 8,741 in October, according to ForeclosureRadar, a Discovery Bay company that tracks foreclosure activity daily. In Santa Clara County, 337 were canceled, up from 269 in October.

The raw numbers may actually understate the scale of the increase, said Sean O’Toole, ForeclosureRadar’s founder. There were 416 cancellations each business day in October, and 581 each business day in November. That was an increase of 40 percent on an average daily basis because there were three fewer business days in November than October.

After a really good run of about 5 weeks mortgage interest rates started getting worse again after Thanksgiving. Many loans are still coming in between 5% and 5.5% but those rates won’t last forever. If you have been procrastinating looking into a refinance our of a bad rate or an ARM or if you need a cash out refinance contact us in the sidebar before rate creep back toward 6% and higher again.

Congress is apparently becoming fed up with banks resistance to modifying loans for struggling homeowners. Here are some excerpts from a recent AP story on the subject:

Only one in three homeowners who have signed up for the Obama administration’s mortgage relief plan have sent back the necessary paperwork, highlighting continuing problems for the government’s effort to stem the foreclosure crisis.

The poor results from the mortgage industry drew sharp criticism from House Financial Services Committee members Tuesday. Since the program was launched in March, lenders have made loan modification offers to just 680,000 borrowers, far short of the administration’s goal of up to 4 million.

“Taxpayer-funded foreclosure mitigation programs have been an abject failure,” said Rep. Jeb Hensarling, R-Texas, at a hearing on the program. “Throwing more money at programs that do not work is absolutely insane.

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Much of the criticism for the disappointing results is being leveled at the banks, many of which received billions in taxpayer bailout dollars. Calls are growing louder on Capitol Hill for the Obama administration to take a tougher approach.

“We haven’t spanked anybody,” said Rep. Emanuel Cleaver, D-Mo. “I think they’ve come to the conclusion that spankings are not on the agenda … Why can’t we do something to one of them?”

Herbert Allison, the Treasury Department’s assistant secretary for financial stability, said punishment could be in the works.

While recent FHA policy changes eliminated some of the benefits of FHA streamline loans, the FHA streamline program is still running and still has some real benefits. Here are some of those benefits:

- FHA streamlines still allow for homeowners who are underwater on their FHA mortgages to refinance to a better rate without requiring an appraisal
- FHA streamlines require more paperwork than they used to but still require significantly less paperwork than traditional refinances

The biggest difference for FHA streamlines going forward is that they will normally require some money at closing because FHA is no longer allowing escrow prepayments, title fees, or bank fees to be rolled into the new FHA loan. Usually the best way to deal with this is to close the FHA streamline loan near the end of the month and to bring the normal mortgage payment due the next month to the closing. So for instance, for an FHA streamline closed in January the borrower would make the normal January payment at the start of the month and then bring the February payment to closing on, say, the 26th of January. With the February payment made the first payment on the new FHA loan would be due in March.

Of course each situation is different and in some cases we as the federally-chartered lender would be able to foot the bill for some of the closing costs.

The primary point is that FHA streamline program is still one of the best programs available for people who already have an FHA loan and would like a lower interest rate. Contact us today in the sidebar if you have an FHA loan at 5.75% or higher and we’ll see if can help you lower your rate and payments.

The Fed announced it is going to launch a program in 2010 that encourages lenders to agree to more short sales on homes. See the pdf of the announcement here. Here are some excepts as well.

Foreclosure Alternatives
The HAFA program simplifies and streamlines the use of short sale and DIL options by incorporating the following unique features:

-Complements HAMP by providing viable alternatives for borrowers who are HAMP eligible.

-Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.

-Allows the borrower to receive pre-approved short sale terms prior to the property listing.

-Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement.

-Requires that borrowers be fully released from future liability for the debt.

-Provides financial incentives to borrowers, servicers, and investors.

Timing & Eligibility

Servicers – Supplemental Directive 09-09 is effective April 5, 2010, but participating servicers may elect to implement HAFA prior to April 5, 2010, in accordance with the Supplemental Directive. In order to participate in HAFA, a servicer must have executed a HAMP Servicer Participation Agreement (SPA) by December 31, 2009. (The HAMP SPA is available for review on HMPadmin.com.)

Borrowers – Servicers must consider a HAMP-eligible borrower for HAFA in accordance with their policies within 30 calendar days of the date the borrower:

-Does not qualify for a HAMP Trial Period Plan,

-Does not successfully complete a HAMP Trial Period Plan,

-Is delinquent on a HAMP modification by missing at least two consecutive payments, or

-Requests a short sale or DIL.

Note: A borrower must be considered for a HAMP modification and other retention programs offered by the servicer prior to being considered for HAFA.

There was a pretty good article over at the Washington Post on the tightening of FHA lending guidelines coming down the road. Here are some excerpts:

– Higher down payments. The FHA’s current minimum cash down payment is 3.5 percent. On a $200,000 house, a buyer can bring as little as $7,000 to the table, aside from closing costs. A purchase of a $500,000 house in a high-cost area requires only $17,500 in cash.

Critics say 3.5 percent does not force purchasers to have enough “skin in the game” to discourage them from missing payments or risking foreclosure. Rep. Scott Garrett (R-N.J.) introduced legislation last month requiring a minimum 5 percent down payment for all future FHA loans. …

– Higher mortgage insurance premiums. The FHA charges an “upfront” mortgage insurance premium of 1.75 percent of the loan amount. Most borrowers roll that into their loan and finance it. The agency also charges an annual premium, paid in monthly installments, of either 0.5 percent or 0.55 percent, depending on the down payment. To rebuild reserves, the FHA could tweak one or both premiums to yield more revenue. It could, for example, raise the upfront premium to 2 percent or as high as the current statutory maximum of 2.25 percent. It could also raise the annual fee, but the total premium could not exceed 3 percent under current congressional limits.

Mortgage industry officials say raising premiums would be a logical move, with a gentler impact on borrowers. Lipes calculates that on a $200,000 loan, an increase in the upfront premium to 2 percent — and a move to 0.6 percent on the annual — would raise a borrower’s monthly payment by just $10 at today’s interest rates. …

– Toughening credit standards. In the mortgage market, the FHA is by far the most lenient and flexible player when it comes to evaluating applicants’ creditworthiness. It does not have a minimum credit score, though it permits lenders to impose FICO score minimums. The FHA also traditionally has been far more tolerant of credit-history peccadilloes than Fannie Mae or Freddie Mac. When there are extenuating circumstances associated with credit problems — medical, marital or employment — the FHA seeks to give applicants the benefit of the doubt.

But critics say underwriting generosity can lead to higher delinquencies, foreclosures and losses. They want the FHA to toughen up. In fact, many mortgage market participants would prefer to see the FHA move to the approach used by private insurers — risk-based pricing. Paul Skeens, president of Waldorf-based Colonial Mortgage Group, said the FHA should calibrate premiums to a tiered system of credit scores and down-payment amounts, charging more for borrowers with low down payments and low scores, and less for those with higher cash in the deal and better scores.

With the reserve funds for the FHA dwindling there is growing speculation that the FHA may need to raise its fees to stay in the black during these tough times in the housing market. Many of the possible fee hikes will affect home buyers mostly — hikes in the minimum down payments for instance. But other possible changes could affect refinances as well. Among the ideas being considered are possibly raising the mortgage insurance fees (currently at 1.75% up front and .55% annually) or even raising the minimum credit score requirements (currently at 620 for most lenders). Whatever the case, with rates likely to increase soon anyway, now is the time to look into refinancing. Contact us in the sidebar if you think you are a candidate for a government-backed refinance.

According to recent figures, about 10% of all US mortgages are more than 30 days late on payments in Q3 2009 and more than 4% are in some stage of foreclosure. Here is an excerpt from an article from CNNmoney.com on the subject:

Mortgage borrowers are still falling behind on their payments in record numbers, despite the many foreclosure prevention efforts initiated by the government and nonprofts.

In the third quarter, 9.64% of all mortgage loans were delinquent, according to a report released Thursday by Mortgage Bankers Association. That represents 4.5 million borrowers and is an increase from 9.24% in the prior three months.

“Despite the recession ending in mid-summer, the decline in mortgage performance continues,” said Jay Brinkmann, MBA’s chief economist. “Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP.”

The new head of HUD speculated that FHA mortgage insurance premiums may need to increase in the future in order to keep the FHA from going in the red. Here are some bits from a recent Bloomberg article on the subject:

Insurance premiums for mortgages guaranteed by the Federal Housing Administration may rise as the Obama administration looks for ways to shore up the agency’s finances, Housing and Urban Development Secretary Shaun Donovan said.

“It’s likely that you’ll see further changes in the coming months,” Donovan said in an interview following an event today in Washington held by Bloomberg Ventures, a unit of Bloomberg LP, parent of Bloomberg News. “A number of the steps that we are looking at that are possible around the mortgage insurance premium would help to accelerate FHA stepping back as the private market returns.”

Donovan said FHA will likely make program recommendations when it submits its budget request for fiscal 2011 to the president and Congress early next year.

If you have an FHA loan with a rate at 6% or higher it is now or never to streamline your loan to a rate in the low between 5% and 5.5%. The FHA is pulling the plug on this program Monday November 16th.

Streamlines currently require no appraisal, no income or asset verification, and no money at closing. They allow you to significantly lower your interest rate, skip a month’s mortgage payment, and receive a refund on your current escrow account.

All you need is to qualify is no 30 day late payments on your current FHA loan and a credit score above 620. Contact us in the sidebar now if you fall into that category. If we get your application started by Monday we will be ok.

The folks over at Zillow.com reported that the number of Americans who owe more on their mortgages than their homes are worth actually decreased in the third quarter. Here is an excerpt from the CNNmoney.com story on the subject:

Fewer people are underwater on their mortgages — further evidence that the real estate free-fall may be slowing.

Just 21% of all single-family homeowners owe more on their mortgage balances than their homes are worth, according to a third quarter residential real estate report from Zillow.com. That is down from 23% at the end of the second quarter.

That is good news because it should help reduce the number of homeowners losing their homes to foreclosure. Being underwater is one of the two factors that lead to foreclosure, the other being, of course, not having enough income to make the monthly payments.

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But there’s a second, less-positive factor that contributed to the reduction in underwater borrowers: foreclosures. So many people have already lost their homes that the ranks of those underwater is slowly dwindling.

And that highlights one of the most serious concerns that housing markets currently face. “Foreclosure rates,” said Humphries, “are ramping up again.”

Here is an excerpt from the Housing Wire story in the subject:

President Barack Obama signed the “Worker, Homeownership and Business Assistance Act of 2009” into law on Friday, extending the first-time homebuyer tax credit as well as certain jobless benefits…

With the first-time homebuyer tax credit originally scheduled to expire on Dec. 1, 2009, HR 3548 now allows first-time buyers to claim 10% of the purchase price of their home, up to $8,000 for single or married taxpayers filing jointly, if they close on the purchase by midnight June 30, 2010. Taxpayers must purchase or be locked into a contract to close before midnight on April 30, 2010.

Good news for anyone looking to buy or sell a home right now: The tax credit for purchasing homes has been extended. See excerpts from an AP story below and contact us in the sidebar if you would like to participate in this program:

Buy a home before May 1 and collect up to $6,500 from the government. If you’re a first-time homebuyer, get up to $8,000.

As part of the government’s efforts to encourage people to spend money to help revive the economy, the House voted 403-12 Thursday to expand a popular tax credit for homebuyers. The bill, which also extends unemployment benefits and expands a tax break for money-losing businesses, now goes to President Barack Obama, who plans to sign it Friday.

First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package. But with that housing program scheduled to expire at the end of November, the House voted to extend it into the spring — and to expand it to many people who already own homes.

Buyers who have owned their current homes at least five years would be eligible, subject to income limits, for tax credits of up to $6,500. First-time homebuyers — or people who haven’t owned homes in the previous three years — could get up to $8,000. To qualify, buyers have to sign purchase agreements before May 1 and close before July 1.