Government Refinance Assistance

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.

The Fed announced today that it will be easing off the gas on some of its programs that have pushed mortgage interest rates to record lows in 2009. By October the Fed will stop buying treasury bonds. This is important because buying treasury bonds kept the yields low on those bonds and that was keeping mortgage rates low. Here is an excerpt from an AP article on the subject:

The Fed said it would gradually slow the pace of its program to buy $300 billion worth of Treasury securities so that it will shut down at the end of October, a month later than previously scheduled. It has bought $253 billion of the securities so far.

The program is aimed at lowering rates on mortgages and other consumer debt, a move to spur Americans to spend more. But its effectiveness has been questioned by some on Wall Street and on Capitol Hill who worry that the program makes it look like the Fed is printing money to pay for Uncle Sam’s exploding deficits.

The minutes from the Fed’s June meeting showed officials “saw little point in extending it because a small increase in purchases would probably have little impact on yields, while a big increase might be misinterpreted as a willingness to monetize the budget deficit,” according to Capital Economics senior U.S. economist Paul Ashworth.

The upshot is this: With the Fed getting out of the business of compressing mortgage interest rates soon we will likely be seeing rates in the 6’s again. If you have been holding out waiting for rates to drop before refinancing you might want to look at contacting us now while rates are in the 5’s still. They may be back in the 6’s before we know what hit us.

Last week we linked to a report that said by 2011 up 50% of American homeowners would owe more on heir homes than the home will be worth. Well today a report from the folks over at Zillow.com estimates that we are already half way there. See this from the Bloomberg article on the subject:

Almost one-quarter of U.S. mortgage holders owed more than their homes were worth in the second quarter and that figure may rise to as much as 30 percent by mid-2010 as job losses and foreclosures climb, Zillow.com said.

Homeowners are being hurt by price declines. The estimated median value for single-family houses slid to $186,500 in the period, a 12 percent drop from a year earlier and the 10th consecutive quarterly decrease, the Seattle-based real estate data service said in a report today.

If you have an FHA loan now you can refinance even if you owe more than the house is worth. If you still have equity in your home and an interest rate higher than 6.25% we recommend you contact us about refinancing now while rates are still in the mid 5’s.

If you still have equity in your home and have an ARM or a fixed interest rate above 6% now would be a good time to look into refinancing while rates are still in the mid 5’s.

A new report from the analysts over at Deutche Bank predicts home values will drop another 14% in the next 16 months or so and that reported would put nearly half of all US homeowners “underwater” on their homes. Here are some bits from the recent Reuters write up on the subject:

The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.

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Of prime conforming loans, 41 percent will be “underwater” by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties’ value, up from 29 percent, it said.

“The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding,” the analysts said. Prime jumbo loans make up 13 percent of the total market.

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Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.

The drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough.

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Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added.

“For many, the home has morphed from piggy bank to albatross,” the analysts said.

See these quotes from a recent LA Times article:

In its first report on the Obama administration’s efforts to prod lenders to help as many as 4 million homeowners by reducing their mortgage payments, the Treasury Department said just 9% of eligible loans had been changed.

Loans were modified even less often by the two mega-banks that dominate the mortgage market: Wells Fargo & Co. reduced payments for only 6% of its eligible home loans under the government’s program, and Bank of America Corp. modified just 4%.

The administration, under tremendous pressure to help homeowners avoid foreclosure, has said that despite the low percentage of loans that had been modified under its plan, the program “has made rapid progress in a few short months” and was on track to help 3 million to 4 million eligible borrowers.

But critics say the effort is way behind.

“Congress and the administration need to end their ‘pretty please’ approach to the banks and instead finally force lenders to work to keep people in their homes,” said Kevin Stein, associate director of the California Reinvestment Coalition.

Some of the major lenders whose efforts were documented in the report released Tuesday had better success, such as GMAC and JPMorgan Chase & Co., which racked up 20% modification rates. Others, including Wells Fargo and BofA, said the report didn’t reflect their efforts to modify loans outside Obama’s Making Home Affordable program. They also said the workings of the 5-month-old program were not clarified until last month, forcing lenders to wait until just a couple of weeks ago to adopt it.

Sooner or later the federal government is going to have to use stronger tactics with banks than the pretty please approach if the pace of loan modifications is ever going to pick up significantly. However that kind of government intervention is a potentially dangerous precedent to set so who knows how this will pan out.

FHA mortgages have a few key advantages over conventional mortgages. First among those advantages is the ability to “streamline” an FHA loan. An FHA streamline refinance is basically an low-hassle, low-cost interest rate reduction refinance from one FHA loan to another. In times like these streamlines are especially useful because the borrower does not need to prove income levels or show that the home is still worth more than the loan to get a streamline refinance. So people with FHA loans who have experienced a reduction in in come or who owe more than the home is now worth due to property values dropping can easily refi. However, there are two things that will scuttle a borrower’s ability to get an FHA refi: 1) A 30+ day late mortgage payment in the last 12 months, and 2) a credit score below 620.

HUD says that about 15% of FHA loan holders do indeed have a late payment in the last year so this week the administration announced a loan modification plan for these FHA loan holders who can’t streamline their loans. Here is an excerpt from a recent Seattle PI article on this topic:

U.S. Housing and Urban Development Secretary Shaun Donovan announced Thursday that the Federal Housing Administration was bringing its mortgage modification program in line with the administration’s Making Home Affordable program, creating a new FHA-Home Affordable Modification Program. The agency has released a mortgagee letter and guidelines, and expects all servicers to implement the changes by Aug. 15.

“Today, we’re bringing another important tool to the table to help struggling families who are desperate to keep their homes,” Donovan said in a news release. “Tens of thousands of FHA borrowers will now be able to modify their mortgages in the same manner as so many others who are taking advantage of the administration’s Making Home Affordable program.”

Diane Golobay over at Housing Wire wrote a nice piece on the recently passed HR 2529 bill in congress. Here is an excerpt:

The House of Representatives this week passed a bill that would authorize federally-insured depository institutions and banks to lease real estate-owned homes for a limited period of time — up to five years.

The House approved HR 2529, the Neighborhood Preservation Act, in a voice vote Wednesday. The bill’s language allows banks covered through the Federal Deposit Insurance Corp. to lease back houses it owns through foreclosure.

By allowing these institutions to enter long-term leases with occupants of the foreclosed property or other parties to restrict the number of houses moving onto the market, the bill aims to keep unsold inventory down and in turn help stabilize home values and restore confidence in housing markets. It would also generate monthly payments and ultimately reduce the extent of the loss taken by the bank upon the property’s sale.

Of course the problem with this bill like many before it is that the program is voluntary for the banks. Who knows if the banks would prefer to be landlords rather than just unload the house.

Of course the bill would need to pass the Senate and the President to becomes law. It is not yet clear to us why a law would be needed to allow banks to use this plan in the first place. Perhaps there are rules now that preclude FDIC banks from renting out the homes they have foreclosed on. We’ll keep you posted on this.

There was an enlightening article in the Washington Post recently explaining that in may cases foreclosing on a homeowner is more profitable for a bank than offering a loan modification. This might shed some light on why convincing banks to modify loans can be so difficult at times. Here are some excerpts:

Modification makes economic sense for a bank or other lender only if the borrower can’t sustain payments without it yet will be able to keep up with new, more modest terms.

A second set are those who are likely to fall behind on their payments again even after receiving a modified loan and are likely to lose their homes one way or another. Lenders don’t want to help these borrowers because waiting to foreclose can be costly.

Finally, there are those delinquent borrowers who can somehow, even at great sacrifice, catch up without a modification. Lenders have little financial incentive to help them.

These financial calculations on the part of lenders pose a difficult challenge for President Obama’s ambitious efforts to address the mortgage crisis, which remains at the heart of the country’s economic troubles and continues to upend millions of lives. Senior officials at the Treasury Department and the Department of Housing and Urban Development have summoned industry executives to a meeting Tuesday to discuss how to step up the pace of loan relief. The administration is seeking to influence lenders’ calculus in part by offering them billions of dollars in incentives to modify home loans.

“Over the next year, Fiserv forecasts that national home prices will drop another 11%, and bottom out in early 2010.”

We get the above prediction from the folks at Fiserv as reported recently over at HousingWire.

The problem is that mortgage interest rates will probably be a lot higher in 2010 than they are now so if you still have any equity and want to refinance the time is now.

It may be due to June being a big month for home sales but but housing prices dropped less in June than they had for the previous 10 months. Here are some excerpts from a recent Bloomberg article on this subject:

U.S. home prices had the smallest annual drop in 10 months, signaling the free fall of property values is abating in the three-year housing slump at the center of a global recession.

Prices declined 5.6 percent in May from a year earlier and rose 0.9 from April, the Federal Housing Finance Agency in Washington said today. Economists expected a 0.2 percent drop for the month, according to the median of 16 estimates in a Bloomberg survey.

See the interview below from the folks over at Yahoo Tech Ticker. The researcher in the interview has anecdotal evidence that up to 25% of people foreclosing still have the ability to pay their mortgage but walk away anyway because the values of the home has dropped so much. He proposes a standardized solution to this problem as well. It is an interesting discussions at the very least.

There was a good interview today over at Yahoo news. See below:

We get this from a recent Washington Post article:

A top Treasury Department official told a Senate panel yesterday that the government is considering a proposal to allow homeowners to stay in their home as renters after a foreclosure.

The article continued with this:

The new proposal comes as increasing numbers of borrowers are facing foreclosure as they lose their jobs and fall behind on payments. RealtyTrac reported that foreclosure filings, which can range from default notices to bank repossessions, were up 15 percent during the first half of the year compared with the corresponding period in 2008.

The administration is considering initiatives to help unemployed workers get help with their mortgages, said William Apgar, senior adviser for mortgage finance at the Department of Housing and Urban Development. “The current very high level of unemployment is making the already difficult task of helping families struggling to meet their mortgage payments even harder,” he said.

Under the federal program known as Making Home Affordable, lenders are paid to lower borrowers’ mortgage payments. About 160,000 loans have been modified into lower-cost loans so far. The administration has said the federal effort has already been more successful than previous programs. But officials are also prodding lenders to hire more staff and better train employees.

It is “disgraceful” that borrowers are still struggling to get help more than two years into the housing crisis, said Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Committee on Banking, Housing and Urban Affairs. “Why am I still reading about lost files, understaffed and undertrained servicers, and hours spent on hold?”

As ever, it takes a lot of tries to find a plan that actually works. While some things have worked pretty well the rising tide of foreclosures continues to overwhelm all attempts to stem it.

There has been some talk this week of some early brainstorming the administration has been doing to see if there is any way to help unemployed people avoid foreclosure. It sounds like they have not figured out any good way to do that yet but the fact that they are mulling the concept over is worth noting. Here is a Reuters article on the subject and some excerpts from the piece:

The official told Reuters it was reasonable for policymakers to consider options for loan forbearance — allowing borrowers to delay, defer or skip payments — that are more effective than those currently available in the private sector.

The number of failing home loans has been climbing for three years as risky borrowers have defaulted on their easy-to-get loans, property values have sunk and the unemployment rate has climbed.

But the official said the idea, which is still evolving, was difficult from a policy perspective and carries potential hazards. It could help more people struggling with economic difficulty, but it also could create perverse incentives that distort the housing market, said the official, who did not want to speak on the record about internal administration debates.

If you are among the many people who can’t currently qualify for a refinance a loan modification is likely you only alternative. The problem is that getting banks to modify loans is still very difficult. For that reason the Fed is calling an all-hands meeting to apply more pressure on banks to modify more loans. See a recent NYT article on the subject here. And here are a few highlights:

The subject of the meeting is going to be loan modifications. Specifically, the government is going to be asking — in none-too-friendly fashion — why the nation’s big servicers aren’t doing more to modify loans for homeowners who are in danger of defaulting on their mortgages.

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And yet, five months later — and two years into the housing bust — the rising tide of foreclosures remains the single biggest threat to economic recovery. In 2005, at the height of the bubble, there were some 800,000 foreclosures. This year, sadly, we are on pace to see 3.5 million foreclosures, with no end in sight. “On Main Street, the recovery will begin when foreclosures stop,” said Senator Jack Reed of Rhode Island, who has been pushing the Treasury Department to get mortgage relief more quickly to homeowners at risk of foreclosure.

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What’s more, the anecdotal evidence strongly suggests that homeowners looking for assistance face enormous frustration, and even resistance, from servicers. A few weeks ago, this newspaper published a startling front-page story documenting the difficulty borrowers faced just getting basic information from their servicers. Waiting two months just to get a call returned is not uncommon.

“We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share,” wrote Mr. Geithner and Mr. Donovan in their letter.

A new report from PMI Mortgage Insurance Co. is predicting that for as much as 85% of the country housing prices will be lower in 2011 than they were at the start of 2009. See an article on the subject over at Housing Wire. Here is a quote from an economist at PMI:

“Rapidly rising foreclosure and unemployment rates, continuing declines in house prices, and weakening consumer demand all worked to increase risk in the general economy, and the housing market specifically,” Berson says in a statement today. “As a result of the continued weakness in prices, and the relatively low level of interest rates, improvements in affordability across the nation’s MSAs will continue to incentivize repeat and first-time homebuyers back into the market.”

If you still have equity in your home and need to refinance out of a bad loan or need cash out to pay off other debts it may be wise to contact us now before housing prices drop further.

The good news is that there are new regulations coming around the corner on credit card companies that will preclude them from raking consumers over the coals on rates. The bad news is that those regulations don’t kick in until February of 2010. So in the meantime don’t be surprised if your credit card rates skyrocket to the 20% to 30% range as credit card companies scramble to make as much profit as they can from consumers.

If you have equity in your home and are saddled with too much credit card debt now might be a very good time to look at a cash out refinance to consolidate that credit card debt. Rates are still in the mid 5’s on government backed mortgages and you can get cash out refinances up to 85% of the current value of your home.

Contact us in the sidebar if this situation applies to you.

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.

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.”