Government Refinance Assistance

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

There was an article over at the WSJ on the ever increasing number of people who owe more on their mortgages than the value of their home. If you still have equity in your home and an interest rate of 6% or higher contact us today to look into a refinance.

Here are some excerpts from the piece:

The downturn in home prices has left about 20% of U.S. homeowners owing more on a mortgage than their homes are worth, according to one new study, signaling additional challenges to the Obama administration’s efforts to stabilize the housing market.

The increase in the number of such “underwater” borrowers comes amid signs that falling prices are making homes more affordable for first-time buyers and others who have been shut out of the housing market. But falling prices also make it more difficult for homeowners who get into financial trouble to refinance or sell their homes, and for others to take advantage of lower interest rates.

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Real-estate Web site Zillow.com said that overall, the number of borrowers who are underwater climbed to 20.4 million at the end of the first quarter from 16.3 million at the end of the fourth quarter. The latest figure represents 21.9% of all homeowners, according to Zillow, up from 17.6% in the fourth quarter and 14.3% in the third quarter.

There was a useful article that came out in the AP this week on some details of refinancing into a lower mortgage rate. Here are a few excerpts:

Q: So, can I get a mortgage with a 4.78 percent rate?

A: Not necessarily. There are several reasons that borrowers may not get the low rates they expect.

First, consumers must realize that Freddie Mac reports average rates, which should not be thought of as a standard, industrywide number.

Second, a rate can change several times during the day due to fluctuations in the market — it could be 5.5 percent in the morning and increase to 5.75 percent in the afternoon.

Loan rates also vary by type. For instance, Freddie Mac’s survey showed Thursday that the average rate on a 15-year fixed-rate mortgage was 4.48 percent this week, lower than the 30-year fixed mortgage. And the size of the loan can affect the interest rate — “jumbo loans,” ones taken out for expensive homes, are becoming harder to get and carry higher rates than loans for $729,000 or less, for example.

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Q: What if I manage to snare a mortgage rate in the 4.78 percent range — are there other costs to worry about?

A: There most certainly are.

One aspect of mortgages that can confuse borrowers is points, or fees. Points vary by lender: Some are paid at the time of application, others at closing. Higher fees mean more cost to the consumer, and could outweigh the benefit of a relatively low interest rate.

Some fees, like title insurance, are negotiable, so don’t be shy about trying to get them reduced.