WHITE HOUSE WIDENING MORTGAGE REFINANCE RELIEF PROGRAM
The Obama administration has made changes recently to the current homeowner bailout program available to homeowners who are underwater on their home mortgage loans in an effort to stem the foreclosure problem.
The program is designed to allow homeowners to refinance to today's lower interest rates when under normal and traditional underwriting guidelines, they would not be able to do so.
The current program would allow strapped borrowers with mortgages up to 105% of their homes value as long as they were not behind on their mortgages. The changes just made allow borrowers to now have up to 125% loan-to-value and still be able to refiance.
BUT HOLD ON. While this sounds great on the surface, and while there has been a lot of consumer interest, the program has not come even close to expectations, helping significantly fewer people than Washington anticipated. It is because of these failures that they have expanded the loan-to-value limits.
This programs failures comes on the heals of two previously highly announced homeowner bailout programs called FHASecure and Hope For Homeowners, which both failed miserably in helping consumers.
Why do they fail? A huge issue on the current program has been that so many people owe more than 105% of the current value of their home. So this change should help qualify more people.
With this and the other programs, there is no lender mandate forcing lenders to participate. Many lenders understand giving people 100% (or higher) loans were part of the original problem, and simply refuse to offer the loans.
Underlying guidelines, shall we say "the small print" is also preventing many people from taking advantage of these programs.
In the end, while this announcement should help a lot more people, I also see this program being labeled a failure.
For more information on the "Making Homes Affordable Program", simply follow this link:
http://www.metzlermortgage.com/makinghomesaffordablerefi
FHA ANNOUNCES CONSUMERS CAN USE THE $8000 TAX CREDIT FOR DOWN PAYMENT
Consumers across the country are now being told they can take advantage of a Federal Housing Administration program to allow qualified home buyers to apply the $8,000 tax credit when purchasing a home.
FHA has said it will now permit its lenders to provide a short-term bridge loan that will let qualified home buyers use the tax credit to either make a larger down payment above the FHA required 3.5 percent, cover closing costs, or buy down their interest rate.
BUT WAIT: Don't get too excited, as nothing from Washington is this easy!
FIRST: if you read the actual Mortgagee letter from HUD, it says "AFTER you contribute your normal and required 3.50% down payment, you can use the $8,000 for a BIGGER down payment." WOW... What a joke Washington! This will have little effect for most buyers.
SECOND: You CAN use the money for closing costs - but most people already just "roll it in", so this option is of little significant help
THIRD: We still need to see how the lenders and banks respond and roll this out to actual Main Street home buyers. We also have to see how the ‘bridge loan' companies respond to this and how they will implement this.
Who is going to lend this short-term money, where is it coming from, how much are they going to charge, how to do you get approved? These and more questions all need to get answered before anyone gets too excited about this news.
We also suspect that the $8000 "loan" minus any fees to get this early from the bridge company won't come cheap!
I think this is a good idea, but clearly Washington has misses the mark (AGAIN), and this deal stinks. We only need the recent examples of FHASecure and Hope For Homeowners to see that what sounds good in Washington doesn't usually play out so good for Main Street.
So while this is good news, it is NOT the homerun that some of us were hoping for - at least not yet.
We've been receiving calls all day about the "announced" ability to use the $8000 first-time homebuyer tax credit FOR DOWN PAYMENT. "
HOLD YOUR HORSES... it doesn't exist.... YET! HUD Secretary Donovan appeared at a NAR function earlier today, and this is an exact excerpt of his remarks: "We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to "monetize" the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly." Okay - so what does that MEAN? It means that they are about to "officially" put their stamp on approving the process (and authority) on who/where/why/when a first-time homebuyer can get a LOAN for the $8000 tax credit - to be used as part of the required down payment! THIS IS HUGE! As soon as the "official" announcement is out, we will get it to you.
The Death of Private Mortgage Insurance Companies
Ahhh the ever hated PMI on your home loan. The necessary evil. Is it going away?
Private Mortgage Insurance (PMI)? It is (was) an insurance policy required by mortgage lenders on conventional loans when the borrower had a loan-to-value (LTV) greater than 80%. PMI was established to help borrowers with little cash buy or refinance houses. I always called it the necessary evil. The rules were simple. If you didn't have 20% down, you didn't get a loan.
To get the loan, lenders required an extra bit of insurance to protect them, but YOU had to pay for it. The less down payment, the more expensive PMI is as your risk as a borrower went higher.
Then along came 2nd mortgages and home equity lines of credit. With these loans, home owners attempted to skirt PMI by dividing up their loan into two. The first mortgage at 80% loan-to-value or less, and therefore no PMI, plus a second mortgage to cover the difference.
Terms such as 80/10/10, 80/15/5 and 80/20 became common and PMI became an afterthought as people thought they had beaten the lenders. The reality was that for many people, the perceived savings were false, as the second mortgages came at a dramatically higher rate, or with higher risk. I can tell you many stories of people caught with their pants down as the "great rate" on the second mortgage climbed higher and higher. The payments ended up far surpassing the "savings" of avoiding PMI.
OTHER HIDDEN COSTS ABOUND: Most first lien lenders charged you a higher rate on your first mortgage because they knew what you were doing, and you really not any less risky by having two loans. For example, if you had taken a loan WITH PMI, your rate may have been 6.00%, but by doing an 80/10, your first mortgage rate was 6.25%. Also, those second mortgages were never free in terms of closing costs. For many people, the extra closing cost of getting the second mortgage completely ate up all the benefits.
Of course each individual transaction is different, and while some truly gained benefit from two loans, few people ever did the real math to determined the true total cost of their loans over time. Plus, they almost never calculated in the fact that private mortgage insurance can be dropped once your loan-to-value reached 80%.
BEHIND THE MAGIC CURTAIN: Something few borrowers understand about the mortgage industry is who actually underwrites loans. For many, the underwriter is actually employed by the private mortgage insurance company, not the actual lender. In simplistic terms, this puts the PMI company on the additional hook for bad underwriting and adds another layer of protecting to the lender. Because of this, while the lenders typically follow Fannie Mae or Freddie Mac guidelines, the PMI company can add their own ADDITIONAL guidelines on top of Fannie and Freddie rules. These additional private mortgage insurance company add on rules have become a major lending industry issue recently, making getting a loan for many, much more difficult.
WHO CAN BLAME THEM? PMI companies are losing $ Billions of dollars to lender claims, and 2nd mortgages and home equity lines are a thing of the past, thrusting PMI companies back into the "only game in town" position as lenders look to reduce their risk. I would anticipate within a short-time, that the private mortgage insurance (PMI) companies will not exist as we know them today, throwing further turmoil into the housing market
NO PMI? NOW WHAT? If the PMI companies die, will you be able to get a loan with less than 20% down or equity in the future? Sure, but I would assume that instead of PMI on your loan, you will probably have some sort of lender self-insured policies which will probably come in the form of dramatically higher rates.
We shall see...What does this mean for homebuyers and homeowners wanting to get a loan with less than 20% equity in the property? MOVE NOW, and be sure working with a professional loan officer who can properly analyze your individual situation and explain current market conditions. This is almost never the guy quoting the lowest interest rate or the guy answering the phone on some big lender 800 phone number.
Call me with any questions you have concerning the current market.
Making Home Affordable Program Details
The Obama Administration unveiled the final details of its "Making Home Affordable Program," which is designed to help up to 9 million American families refinance or modify their loans to a payment that is affordable now and into the future.
One of the initiatives in this program is aimed at helping responsible homeowners "refinance" their loans to take advantage of historically low interest rates. Here are some common Questions and Answers about the Refinancing Initiative in the program.
REFINANCING INITIATIVE
Who is eligible? You may be eligible if:
How do I know if my loan is owned or controlled by Fannie Mae or Freddie Mac?
Simply call or email me. I'll help you determine if your mortgage is backed by Fannie Mae or Freddie Mac.
I owe more than my property is worth. Do I still qualify to refinance under the Making Home Affordable Program?
Eligible loans will include those where the first mortgage will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less, you may qualify. The current value of your property will be determined after you apply to refinance.
If I am delinquent on my mortgage, do I still qualify for the Refinance Initiative?
No. But the good news is, you may qualify for the Modification Initiative. Contact me to discuss your situation and review your options.
I have both a first and a second mortgage. Do I still qualify to refinance under Making Home Affordable?
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible for the Refinance Initiative.
Will refinancing lower my payments?
That depends. If your interest rate is much higher than the current market rate, you would likely see an immediate reduction in your payment amount.
However, if you are paying interest only on your mortgage, you may not see your payment go down. BUT... you will be able to avoid future mortgage payment increases and may save a great deal over the life of the loan.
What are the terms of the refinance and what will the interest rate be?
All loans refinanced under the plan will have a 30- or 15- year term with a fixed interest rate.
The interest rate will be based on market rates at the time of the refinance. Currently, interest rates are at historical lows, which makes this a good time to examine your refinancing options.
Will refinancing reduce the amount that I owe on my loan?
No. Refinancing will not reduce the principal amount you owe. However, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.
Can I get cash out to pay other debts?
No. Only transaction costs, such as the cost of an appraisal or title report may be included in the refinanced amount.
How do I apply for the Refinance Initiative?
Call or email me today to discuss your specific situation and to examine your options. If this plan is right for you, we can begin working on your refinance immediately. PLEASE UNDERSTAND FULL DETAILS HAVE NOT YET BEEN RELEASED TO US, and while we will start taking applications, we will have to wait just a bit for full details and the program to be implemented internally.
As part of the discussion, we may need to look at the following information:
As always, if you have any questions or would like to discuss how this may specifically impact you, I'd be happy to sit down with you. Just call or email me to set up an appointment.
If you are a homeowner who is current on your mortgage payments but unable to refinance to a lower interest rate because your home value has decreased, you may be able to refinance.
Do I qualify for a Making Home Affordable refinance? Answer these questions:
IF YOU ANSWERED YES TO THESE FOUR QUESTIONS, YOU PROBABLY QUALIFY
Contact your local lender for more information
In MINNESOTA and WISCONSIN? You can Apply Online 24/7
FOR MORE INFORMATION, Visit www.FinancialStability.gov
If you snooze, you may lose. Helping you avoid costly mortgage mistakes.
The Fed's been at it again, offering words that sound encouraging at first blush, confirming that their buying program of Mortgage Backed Securities is in full swing and will continue as needed. Of course, the media will pick this up and offer their own interpretation, saying "Good news, the Fed's words on continuing their purchasing program mean that rates will continue to drop lower, and remain low into the summer..." But is this really what that means? Not so.
Here's the truth.
Yes, the Fed has been buying Mortgage Bonds, but if you look at what they are purchasing, they are buying a lot of FNMA 30-yr 5.5% and 5.0% Bonds...which won't have much of an impact on present interest rates. Why? First, see the Fed's purchases for yourself by hitting this link: Direct Link to View Fed Mortgage Bond Buying - http://www.newyorkfed.org/markets/mbs/index.html.
So why is the Fed buying these Bonds? Well if you think about it, it's very smart of the Fed...and maybe even a little sneaky...because 5.5% Bonds actually represent outstanding mortgages with rates of 6 - 6.50%, which are precisely the loans being refinanced at today's great interest rates.
Stay with me here...
With rates at present low levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. And this is likely a big reason why the Fed said they could continue this purchasing program beyond June, if necessary. Bottom line, the Fed buying these higher rate coupons will not necessarily help rates to move lower, as their actions do not impact the loans being originated at today's low rates.
Here's the most important part.
Sometimes I talk to clients who are in a situation where it makes sense to refinance right now, and save $250 per month for example. But when they hear the media throwing around teases of lower rates ahead, they decide to hold off on making the decision to save the $250 per month right now, in the hopes of gaining another $30 per month in additional savings with a lower rate than where we stand presently. Now clearly, rates could turn higher, and this window of opportunity could pass them by entirely.
The clincher is this:
Even if those clients ultimately are correct in timing the market, and eventually grab that lower rate and save another $30 per month - think of what they have lost by waiting. While they delayed, they lost the savings they could have gained by taking action sooner - or in the example used, $250 - for every single month they waited. So even if they got lucky and obtained the rate they were looking for, it could take years to make up what they lost by waiting.
I don't want anyone to miss an opportunity by either waiting, or not understanding what is at stake. Let's talk further on this - call or email me and let's discuss what this might mean for you.
Better yet, apply online right now. You'll be closed and safely enjoying these low rates next month!
Protecting yourself against predatory lenders, mortgage scams, and Bad Loan Officer screw-ups
Mortgage rates are still great. That's great news for veteran loan hunters.
But for inexperienced shoppers who don't watch their backs, the mortgage business can be a scary place to travel.
The internet especially has make it easier for sly mortgage lenders and brokers to mislead and take advantage of naïve consumers using any number of tricks, from quoting bogus rates over the telephone to slipping gratuitous costs into their loans. To avoid these problems -- as well as other trip-ups posed by the confusing mortgage process itself -- consumers have to brush up on their shopping skills.
Market is ripe for tricks and trip-upsIn the past few years, when the market was hot, a lot of rookie Loan Officers and small brokers came into the market that may not have the experience level you're comfortable with. There was money to be made, and it was easy. Just sit back, and the phone will ring with customers wanting to refinance. The number of lenders and Loan Officers TRIPLED from 2001 to 2005. Lending volume also TRIPLED to the highest numbers in history!
Once that big refinance period ended, and mortgage volume returned to pre 2001 levels, these newer people are desperate to stay in the business. They will say and do anything to capture a deal. 80% of current Loan Officers came into the business AFTER 2002.
Now that we have great rates again in early 2009, here come the bad guys again!
The reality is that most lenders and brokers aren't out to fleece customers and the complexity of the home loan process -- rather than anyone's malfeasance -- takes the blame for some of the obstacles consumers face. Many trip-ups don't rise to the level of "predatory lending" either. Nevertheless, they can cost borrowers serious time and money, and guarding against them becomes even more important during the boom times.
There's kind of a range of games that get played and they're pretty broad, from fairly benign stuff to outright fraud.
Problems can pop up long before a borrower fills out any paperwork. Indeed, just finding out how much a mortgage costs can be confusing.
Sept. 2008: Once again, the Minneapolis / Saint Paul Business Journal has recognized Mortgages Unlimited as one of the top 25 locally owned mortgage lenders in Minnesota. Who are you thinking of doing business with?
Be as specific as possibleMany potential customers simply call lenders up and ask, "What's your rate?" But they fail to indicate what kind of loan they need, how long of a lock period they want, how many discount points they're willing to pay, how long the rate is good for or anything else. Consumers have to specify all of these things or lenders can pretty much say whatever they want, then provide different figures when the customers come in and blame the lack of specificity.
A loan with a lock period of just 15 days, for instance, usually has a lower rate than one that a consumer can lock in for 60 days. Most consumers opt for loans with longer locks because they need more than two weeks to close. But loan officers sometimes quote rates on their shortest-lock loans over the phone or in print just to sound cheap, knowing full well that many callers will never be able to obtain those loans. Companies can provide interest rates that include several discount "points" to make their rates look better, even though most of our customers either can't or don't want to put down several thousand extra dollars at closing for "points" to lower the interest rate.
In most of newspapers, once a week or more, they'll have a list of rates by lender. But frequently you'll find the rates they put in the paper were rates that were really never available. They kind of low ball their rate. When you come in, they'll tell you the market has moved and the rates are now higher. They get away with this because the rate they list in the Sunday paper is usually submitted on Thursday. You read the paper on Sunday, then call the lender on Monday...
Figure in the feesBorrowers often forget to ask about fees, and don't compare lenders based on their closing costs. That allows companies to pad their bottom lines by adding "processing fees" and other miscellaneous charges to the loan at closing. Lenders don't control certain fees for services provided by third parties, such as title searches and appraisals. But they can adjust their own fees.
Don't believe everything you readIt's a competitive business. Lenders understand this, so creative advertising is everywhere. Consumers need to watch out for advertising tricks, too. Companies have been plugging "no cost" refinance loans lately, but the tagline really means "no out-of-pocket costs at closing." Borrowers pay higher rates on these mortgages and lenders use the extra money to pay the costs themselves. There is no such thing as a no cost loan!
The annual percentage rate, or APR, found in advertisements can be misleading as well. Mortgage lenders don't always include all the fees they charge in the calculation that determines APR, so customers who use that figure to shop rather than an itemized breakdown of rates, points and fees may end up comparing apples to oranges.
Of course, it's difficult for borrowers to compare fees when they don't know what they are. By law, lenders and brokers don't have to give what's called the Good Faith Estimate document to customers until three days after they apply. But there's nothing preventing shoppers from asking for it before committing to anything. Reputable lenders will provide one. Please read my article- Beware of the Bad, Good Faith Estimate, so you know what to look for when you do get your estimate!
Banker, Broker, or Direct Lender. All are "Loan Officers", so who is best?When you're looking to get a mortgage loan, you may work with a loan officer, but where they work makes a difference! People often confuse the lender types even though all will glean the same results: a home loan. However, it is important to understand the difference between the three types of lenders so you know what to expect from them during the mortgage application process.
Currently the industry is seeing the biggest problems with loan officers exactly where most customers wouldn't expect. The big banks. Why? Most states have enacted strict guidelines for non-bank lender and brokers. These include criminal background checks, mandatory education, stricter underwriting guidelines, mandatory disclosures, and more. BUT, state banking laws can not trump federal banking law. Federally Chartered Banks (all the big bank names you know) only have to follow less restrictive federal law. Basically they get to do whatever they want! Thanks Washington!
Currently, bank employees are NOT required to get background checks, have any up-front or ongoing education, and do not have pass a test to get a license.
Know the scoreAfter customers apply and have their credit scores pulled by their lenders, they should ask for those too. Companies have no obligation to share them, but those scores often dictate whether borrowers get loans and how much they have to pay for them. Customers who obtain their scores can get rate quotes tailored to them, rather than receive quotes that may apply only to borrowers with better or worse credit.
If I would say at the application stage to my lender, "Hey, when you pull my credit report, will you tell me what my scores are?" and he said no, I think I would go somewhere else. Why not go with somebody who is willing to tell you? You need to know.
Last-minute maneuversCloser to closing, borrowers also have to watch out for counteroffers from their current mortgage lender. When borrowers refinance their loans, their new lenders request "payoff letters" from their old lenders. These letters spell out exactly how much the old lenders are entitled to at closing and are often the only indication that a borrower is refinancing.
To avoid losing customers, lenders who are about to get the boot sometimes swoop in and offer to lower their borrowers' rates or refinance them into new loans themselves. While the offer may sound competitive, they almost always are aren't so.
Another source of confusion is the assumption that your current lender can do a loan for lower fees. The vast majority of the time this is NOT true. Loans are 'packaged' to be resold. The vast majority of lenders resell their loans and therefore any changes to the original loan require a complete new package, new closing, new note, new closing costs, new appraisal, new everything, etc. Plus, they usually come very late in the process. Borrowers who accept them can end up having to forfeit application fees or other monies to the lenders they planned on using.
By learning about all of these miscellaneous traps, consumers can take advantage of today's lower rates and refinance without worrying about being taken for a ride. After all, experts say, preparation is the best defense against shady lending practices.
It comes back to education. If I've called five respectable lenders - I know about what rates and costs are. It's going to be pretty easy for me to know whether one lender is pulling the wool over my eyes.
How do you know if they are are respectable lender? Read "How to Shop for a Lender" for some good clues.
One final word of advice. Don't assume your current lender can give you a great deal because "they already know you." It almost always is a worse deal because they know you DON'T SHOP!
Need financing in MN, WI, or FL... We can help. Apply Here
Blue Collar Common Sense Starts Again This Month
is back on the air with his trademark "Blue Collar Common Sense." Beginning Monday, January 19th. Dan is bringing some familiar characters to the new program. Super Dave will produce the show and Bill Snyder will be sitting in from time to time.
The flagship station for this new syndicated program is Radio for Wright County, AM 1360 KRWC, in the Minneapolis / Saint Paul, Minnesota area. Visit his new web site at www.DanConry.com.
Blue Collar Common Sense hits the air mornings from 7:00 to 9:20 and will be live-streamed and podcast.
Raised in Flatbush Brooklyn in what he calls his crazy Irish family, Dan developed his street smarts & well known self deprecating sense of humor that we have all come to enjoy over the years here in Minnesota. Dan realized his goal of becoming a Police Officer & joined the NYPD in the 1980s. After several years as a street cop in Brooklyn, he became an undercover narcotics Detective in Manhattan. Dan retired from the NYPD after a line of duty injury.
Shortly after a personal relationship brought Dan to Minnesota, A dinner at the St Paul Hotel, along with timing, luck and serendipity, brought Dan to the attention of the powers that be at KSTP AM 1500. A few weeks later, he was sitting in for evening & weekend hosts and soon joined Twin Cities Attorney Ron Rosenbaum. The duo became one of the most popular shows on radio. The pair joined Mark O'Connell after the terrorist attacks in 2001 and hosted the show immediately following the 9-11 tragedy. After this, Dan hosted a morning show at WMEL Melbourne Florida until 2005 when he returned to Minnesota radio on KTLK. From Ground Zero to the 35W bridge tragedy, Dan has cemented his reputation as a reporter and his ability to personally connect with listeners like no other radio host.
Dan who was most recently heard on KTLK, not only hosted his very popular morning show, but was also the steady sub-host for Minnesota radio icon Jason Lewis, as Jason became a steady sub for Rush Limbaugh.
Now engaged to a Minnesota gal & attending St Mary's University, Dan is in Minnesota to stay! So we invite you to join Dan Conry boadcasting live from the new Minnesota Majority studio on Radio for Wright County AM 1360 KRWC. The show can also be heard by live internet stream and podcasts.
What does this post have to do with a mortgage blog you ask? The Joe Metzler Group at Mortgages Unlimited is proud to be one of the inital sponsors and we WISH DAN CONRY great success.
FICO CREDIT SCORE GRADE AND FORECLOSURE RISK BY THE NUMBERS
Just something to think about...
GRADEAA = over 760A = 720 - 759B = 680 - 719C = 640 - 679D = 600 - 639E = 560 - 599F = 520 - 559AVERAGES2% of the population have scores under 4995% of the population has a 500 - 549 score8% of the population has a 550 - 599 score12% of the population has a 600 - 649 score15% of the population has a 650 to 699 score18% of the population has a 700 - 749 score27% of the population has a 750 - 750 - 799 score13% of the population has over 800 scoresFORECLOSURE RISK1 in 588 for Standard Conforming Fixed1 in 189 for Standard Conforming ARM1 in 147 for FHA Fixed1 in 101 for FHA ARM1 in 244 for VA1 in 77 for Subprime Fixed1 in 31 for Subprime ARM
Thinking of refinancing to today's great rates? BEWARE before you commit!
Saint Paul, Minnesota: Real 30-year fixed interest rates without discount points have been hovering right about 5% lately for those with high credit scores and plenty of equity. Lender phones are ringing off the hook with mortgage refinance applications at their highest level in more than 5-years!
While this sounds great, applications don't necessarily equal loan closings. A monstrous black cloud is about to burst on many unsuspecting applicants.
Two major issues are crushing refinance dreams as after application, many borrowers are finding out they do not have the equity position or credit to actually get a great deal closed.
A prime example is a customer of mine who bought a new home in October 2006. At the time, he put 25% down from the sale of his previous home. Today, I would be able to lower his interest rate about 1.25%. This would save him approximately $202 per month. Payback for closing costs is under two years, and he plans on living in the home a long time. Therefore this customer would appear ripe for a refinance.
Problem one? His property value has dropped to a level where his NEW loan would have a loan-to-value of 90% (a loss of 15% in value).
I now have to add mortgage insurance to his loan, MAKING HIS NEW GREAT RATE REFINANCE PAYMENT GO UP. Dead deal.
Problem two? Credit score requirements. Another recent customer has a first and second loan he wants to refinance into one new loan at today's great rates. He has heard all the rate news and is ready to take advantage, as he THINKS he could lower his rate 1.25%.
In years past, if you qualified for a conforming loan, everyone got the same conforming rate. It didn't matter if your score was a 620, or an 800. Today, you may get a conforming loan, but rates vary greatly depending on your personal situation.
In my example case, because we are paying off a second mortgage, this is considered a higher risk "cash out" transaction. His middle credit score was just 659. Therefore, while I could do the loan, his rate would have been 5.875%, down just 1/4%. Dead deal.
Bad lender problems too. To further complicate matters, and to potentially throw more egg on the mortgage industry face, inexperienced and bad lenders once again are promising the world to customers without doing a proper analysis of the customers situation.
Many of these lenders demand $300 - $500 non-refundable application fees, then send an appraiser to the customers home. The appraisers are told to collect their fee "at the door".
Two weeks later, the customer is told one of the two examples above, and that their great deal isn't so great after all.
DON'T LET THIS BE YOU. Make sure you are working with a true professional Loan Officer and Mortgage Company. Make sure you ask about credit scores and talk about estimated property values and how they may effect your great deal.
DO NOT EVER PAY APPLICATIONS FEES, and DON'T believe everything you hear, especially from a telemarketer. There are plenty of sharks still left in the mortgage sea.
With a little customer knowledge, you may be able to take advantage of today's rates, or save yourself unnecessary application fees and appraisal costs.
© 2009 Metzler Group.
Should you be buying a home, modifying your existing loan, refinancing, or running away?
Saint Paul, MN: These are certainly trying times, and 70% of homeowners have some sort of financing on their home. The economy is hurting, and fear of job loss is on many minds. But what you should be doing in today's market isn't always clear.
The economy is hurting largely because of the initial wave of foreclosures and high gas prices of earlier in 2008. This has spilling over into all aspects of American lives, but is it really as bad as the constant beat of the media drum has one to believe?
Unemployment nationwide is averaging in the 6% range. This is significantly below the highs of years past. retailer are reporting bad Christmas numbers, down some 6-8%. Foreclosures are still at historic high levels. These reports sound bad, but sit back and take a look at your own individual lives to examine if it really is bad for you and what you should be doing.
For example, while possible job loss is on a lot of minds, examine your own ability to market yourself? No job is guaranteed. If you did lose your job, how quickly can you replace it with a similar income, even if in a different field.
I am in the mortgage business, which clearly is suffering. I don't worry about my home or income, because I know that if needed, I would take two or three jobs (even menial jobs) to always make sure my family has the three most important items: Shelter, food, and clothing. I know I can cut off cable TV, sell cars, cut expenses, and go into survival mode and that I will always be able to provide the basics.
If unemployment is averaging 6%, this means 94% of people are working. If foreclosures are averaging 10% of homes, this means 90% of people are OK. Turn off the TV, stop reading the paper. If you didn't hear and read all the "bad news", how would YOU personally view your situation?
BUYING A HOME: We all need a place to live. Home prices are extremely attractive, with great deals to be found everywhere. Mortgage rates are near historic lows. If you have OK or better credit, can come up with a small down payment, plan on staying in the home for at least four years, you are almost foolish to not buy something TODAY.
Many people bought homes they shouldn't have and took risky loans to do so. Simply because a lender said yes, doesn't mean you should have. Even more people who originally bought right used their homes as ATM machines, with a constant "cash out" refinance to pay credit cards and live lifestyles they couldn't afford. I just spoke with a customer who bought this home 15-years ago for $85,000 who is losing it to foreclosure owing $300,000.
MODIFYING YOUR EXISTING LOAN: As little as two years ago, getting a bank to modify your loan was rare, and required you to be seriously behind in payments. Today, banks are very willing to help keep you in your home by modifying your payments. Workouts vary greatly depending on many variables, but the best ones we see lower your rate to around 3% for 5-years. Then the rates start adjusting back to where they originally were.
Unfortunately, we are seeing two problems emerge with modification. The first, is many people who got loan modifications fairly quickly fall behind again. While no one wants to lose a home, you must be realistic. Many times I speak with people where I calculate a payment based on ZERO percent, and they still tell me they can't make the payment. Modifying only delays the inevitable. Getting out completely and into a situation you can afford releases untold weight off your shoulders.
This brings me to another HUGE problem. Unlicensed loan modification companies have popped up everywhere offering to help you. These companies vary from legitimate low or no fee non-profits, to outright fraud. States across the country have files cease and desist orders, criminal charges, and lawsuits against man. We suggest that if a loan modification is right for you, that you consider working with your bank yourself, or contacting a city, county, or state non-profit homeownership center before paying any upfront or advanced fee to anyone, no matter what they promise.
REFINANCING YOUR EXISTING LOAN: Interest rates are currently hovering near historic lows and it is well worth thinking about getting something better if you qualify. The basic criteria is that if you can lower your rate and you'll be there long enough to at least break even on the closing costs, then it is a smart move.
Today unfortunately, we take many refinance applications, but don't actually close a lot of new loans because of a variety of reasons. The biggest is failing values. A customer of mine bought a home 3-years ago with 20% down. Today's appraised value would put him at 90% loan-to-value. While I can lower his rate 1%, I now have to give him mortgage insurance because he would be over 80%. The mortgage insurance cost completely wipes out the interest rate savings making his payment HIGHER than he is currently. (Wondering what your home is worth today, and what it will appraise for? get a FREE home valuation report)
New credit score requirement and tighter lending guidelines in general also combine to make many refinances harder to come by too.
So, should you be buying a home, modifying your existing loan, refinancing, or running away? It all depends, but I suggest we all stop living in fear, properly analyze our lives and personal situations, take our heads out of the sand, and make well educated decisions to put our lives in a better place.
SPECIAL UPDATEGovernment officials have been under enormous pressure to help stabilize home prices and prevent foreclosures. At the same time, they don't want to appear to be using taxpayer money to bail out undeserving individuals and institutions. As Fed Chief Bernanke stated, the solution may involve a "full range of coordinated measures" aimed at different aspects of the problem. The government has already put many programs in place, and others are under discussion. The Fed and the Treasury have used billions of dollars to provide financial institutions with capital to make loans. Last week, they instituted a program to buy MBS to push mortgage rates lower.
Yesterday, the Treasury announced that it is considering a plan which would offer below-market mortgage rates for some loans used to purchase homes. The program being discussed involves the Treasury investing in MBS guaranteed by Ginnie Mae, Fannie Mae, or Freddie Mac, which contain purchase money loans at a specified rate (4.5% was the initial proposal). The lower rates will not be available for refinancing loans. There has been no indication that these loans will have special underwriting or eligibility requirements.Keep in mind, the timing and the final form of this latest program is not known. As we have seen recently, most notably with the $700 billion TARP rescue plan, government programs can change significantly before their implementation. The incentive to execute such a plan is compelling, however. Lower mortgage rates make homes more affordable. As more people purchase homes, prices will stabilize more quickly and new home construction will pick up, giving the overall economy a much needed boost.
Stay tuned. This could get interesting!
WASHINGTON - The Bush Administration today unveiled additional mortgage assistance for homeowners at risk of foreclosure. The HOPE for Homeowners program will refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by HUD's Federal Housing Administration (FHA).
"For families struggling to keep up with their mortgage payments, this program will be another resource to refinance into a loan they can afford," said HUD Secretary Steve Preston. "FHA remains a safe and affordable alternative to the high-priced mortgage loans that threaten homeowners' ability to retain their homes. We strongly encourage borrowers to work with their lenders to determine if HOPE for Homeowners is the right program for them."
The HOPE for Homeowners program was authorized by the Economic and Housing Recovery Act of 2008. Since the President signed this vital legislation into law on July 30, 2008, the HOPE for Homeowners Board of Directors has worked diligently to develop and implement the program as directed by Congress. The Board was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage.
The HOPE for Homeowners program begins today and ends September 30, 2011. The program is available only to owner occupants and will offer 30-year fixed rate mortgages - so the borrower's last payment will be the same as the first payment. In many cases, to avoid what would be an even costlier foreclosure, banks will have to write down the existing mortgage to 90 percent of the new appraised value of the home.
Borrower Eligibility
Borrowers are encouraged to contact their lender to determine eligibility, but may be eligible if, among other factors:
The COMPLETE Home Buyers Guide to Financing Your Home Understanding Your FICO Credit Score Knowing and Understanding Your Credit #1 Mistake People Make When Buying a Home
The COMPLETE Home Buyers Guide to Financing Your Home
Understanding Your FICO Credit Score
Knowing and Understanding Your Credit
#1 Mistake People Make When Buying a Home
"HOPE for Homeowners will add to HUD's existing efforts to make FHA refinancing available to homeowners who need it most," said FHA Commissioner Brian D. Montgomery. "One year ago, FHA expanded refinancing into its FHASecure program. Since that time, we have helped more than 360,000 families keep their homes by refinancing with FHA, and we will assist a total of 500,000 families by the end of this year."
The Board expects that the primary way homeowners will participate in the program is by working with their current lender. HOPE for Homeowners will serve as another loss mitigation tool available to distressed borrowers.
HOPE for Homeowners also includes the following provisions:
The lender will disclose to the homeowner the benefits of the program including home retention, a new affordable mortgage based on the current appraised value, and 10 percent equity. The lender will also explain the prohibition against new junior liens against the property unless directly related to property maintenance, and a minimum of 50 percent equity and appreciation sharing with the Federal government.
The costs to the homeowner include the upfront and annual insurance premiums, as well as a share of the equity created by the write-down associated with the HOPE for Homeowners mortgage and any future appreciation in the value of the home. At settlement, subordinate lien holders will receive a certificate that evidences their interest as an obligation backed by HUD, with payment conditional on the value of HUD's appreciation share.
If the home is sold or refinanced, the homeowner will share the equity with FHA on a sliding scale ranging from a 100 percent FHA share after the first year to a minimum of 50 percent after five years. The lien holder that previously held the highest priority will receive payment up to a proportion of its original interest, not to exceed the amount of available appreciation. This type of delayed payoff will take place until all prior lien holders are satisfied or the amount of available appreciation is exhausted. All remaining appreciation is remitted to FHA.
The HOPE for Homeowners Board of Directors includes HUD Secretary Steve Preston, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and FDIC Chairman Sheila Bair. They have named the following people to serve on the board as their designees: FHA Commissioner and Chairman of the Board Brian Montgomery, Federal Reserve Board Governor Elizabeth Duke, Treasury Assistant Secretary for Economic Policy Phillip Swagel, and Federal Deposit Insurance Corporation Director Tom Curry.
Read more about HOPE for Homeowners at www.hud.gov/hopeforhomeowners.
While our government is bailing out Wall Street, DPA and H.R. 6694 is looking out for Main Street.
The plan being negotiated by the Bush administration and Congressional leaders calls for the government to spend up to $700 billion to bailout Wall Street. Add in the $300 billion from the "Housing Bill" (H.R 3221) passed in July and this bailout is costing taxpayers $1 TRILLION!
The single largest part of this tragedy is that this $1 trillion is being spent bailout Wall Street, banks, institutional investors and foreign investors!
And while all this is going on in Washington, D.C., who's looking out for the American Taxpayer? Who's focusing on working class Americans?
The growing list of sponsors for H.R. 6694 are! As you know HUD has tried to paint a picture of DPA as part of the problem, and while yes, there have been a few issues, it really has helped. More and more people are realizing that DPA and H.R. 6694 is not the problem, rather, a part of the solution. It is a $150 billion annual boon to our economy that does not require taxpayer subsidy!
Main Street America needs H.R. 6694 as part of the solution to help working class American families become homeowners! Why should these families who are neither rich nor reckless be denied homeownership when it will cost taxpayers nothing?
H.R. 6694 Provides Downpayment Assistance with these benefits: Zero tax dollars are used to fund downpayment assistance (DPA) programs Real estate purchases stimulate the economy and generate tax revenue DPA programs help thousands of families each month realize the dream of homeownership Homes purchased with DPA drive wealth creation
The time is now. Please act. Support H.R. 6694!
Contact your Senators and House Representative and tell them H.R. 6694 should be included as part of the Wall Street bailout plan! Send a Letter in Support of H.R. 6694 and DPA.
Visit http://capwiz.com/nehemia/issues/alert/?alertid=11709431
If you want to know what this mortgage crisis is all about, who is to blame, and some of the realities, here the a Press Release from the FEDERAL HOUSING FINANCE AGENCY that is pretty good reading!
FEDERAL HOUSING FINANCE AGENCY TESTIMONY
For Immediate Release September 25, 2008
Statement of The Honorable James B. Lockhart III, Director Federal Housing Finance Agency Before the House Committee on Financial Services on the Conservatorship of Fannie Mae and Freddie Mac. Chairman Frank, Ranking Minority Member Bachus, and members of the Committee, thank you for the opportunity to testify on the Federal Housing Finance Agency’s (FHFA) decision to place Fannie Mae and Freddie Mac into conservatorship and the plans of the conservator for the ongoing operations of these companies.
But before doing so, I would like to thank this Committee in for its efforts to pass the government sponsored enterprise (GSE) reform legislation, the Housing and Economic Recovery Act of 2008 (HERA).
Fannie Mae and Freddie Mac share the critical mission of providing stability, liquidity, and affordability to the housing market. Between them, these Enterprises have $5.3 trillion of guaranteed mortgage-backed securities (MBS) and debt outstanding, which is equal to the publicly held debt of the United States. Their market share of all new mortgages was 76 percent during the first half of this year. During the turmoil that started last year, they have played a very important role in providing liquidity to the conforming mortgage market. That required capital to support a careful and delicate balance of mission with safety and soundness. A key component of this balance has been their ability to raise and maintain capital. Because of recent market conditions, that balance was upset. Unfortunately, as house prices, earnings and capital have continued to deteriorate, their ability to fulfill their mission has deteriorated. In particular, the capacity to raise capital to absorb further losses without Treasury Department support vanished. That left both Enterprises unable to provide counter-cyclical market support. Worse, it threatened to further damage the mortgage and housing markets if they had to sell assets.
In retrospect and despite OFHEO’s surplus capital requirements, the caps on the growth of their portfolios, and repeated warnings about credit risk, the credit profile at both Enterprises followed the market down in 2006 and 2007. They bought or guaranteed many more low documentation, low verification and non-standard ARM mortgages than they had in the past. For example, for the first half of 2007, roughly one-third of the Enterprises’ new business was composed of Alt-A (less than standard documentation), interest-only, or Option ARM products, and mortgages with layered (multiple) risk characteristics versus 14 percent in 2005. For Fannie Mae, roughly 40 percent of new business in the first half of 2007 was in Alt-A and interest-only products versus 26 percent in 2005. The quality of their holdings of private-label mortgage securities (PLS) issued by others also deteriorated. The portfolio caps restrained the size of their PLS books, but maturing subprime and Alt-A PLS were replaced by PLS from the much riskier 2006 and 2007 origination years. As house prices turned down, delinquencies, foreclosures, losses on real-estate owned and reserves against future losses soared.
Over the last several years OFHEO, now FHFA, worked hard to encourage the Enterprises to rectify their accounting, internal controls systems and risk management issues. Both Enterprises and their dedicated managers and employees made good progress in many areas, but market conditions overwhelmed that progress. Their antiquated capital structures even with the OFHEO additional requirement were not adequate for this market.
The result was that the Enterprises were unable to provide needed stability to the market. They also found themselves unable to meet their affordable housing mission.
Rather than letting these conditions worsen and put the markets in further jeopardy, FHFA decided to take action. The goal of these dual conservatorships is to help restore confidence in Fannie Mae and Freddie Mac, enhance their capacity to fulfill their mission, reduce the systemic risk and make more mortgages available at a lower cost for the American people.
The Determination to Appoint a Conservator
FHFA based its determination on five key areas, which worsened significantly over the past several months:
It became apparent during on intense supervisory review, beginning in July, that market conditions were deteriorating more quickly than the companies had anticipated. In anticipation of the late-July enactment of the Housing and Economic Recovery Act of 2008 (HERA), we supplemented our own examination activity with consultations with senior mortgage credit examiners from the Federal Reserve and the Office of the Comptroller of the Currency. These examiners corroborated our own analysis of the deteriorating credit environment and its threat to capital.
During the last part of July and in August, FHFA was completing its confidential semi-annual examination ratings. FHFA’s rating system is called GSE Enterprise Risk or G-Seer. It stands for Governance, Solvency, Earnings and Enterprise Risk which includes credit, market and operational risk. There were significant and critical weaknesses across the board.
The Enterprises themselves disclosed in their second quarter filing how the rapidly changing credit environment in July was very negatively affecting their outlook and ability to raise capital. Freddie Mac reported losses of $4.7 billion over the last year and Fannie Mae reported losses of $9.7 billion.
The internal supervisory reviews and market evidence led us to conclude that the companies each presented critical safety and soundness concerns pertaining to credit risk and to continued deterioration in the market environment. Importantly, key developments in July and August demonstrated market recognition of these heightened credit concerns and the effect of the deteriorating market environment on the Enterprises. New equity capital in any meaningful size became unavailable, and yields on Enterprise debt and MBS rose relative to other benchmarks. These developments convinced us that the time to act was now.
During the July and August period, there were a wide variety of published reports speculating on the Enterprises’ solvency, the need to raise more capital, their accounting practices, their ability to continue to borrow and even government bailouts. The rating agencies continued to dramatically lower all ratings except the AAA senior debt ratings. Their stock prices fell rapidly and their borrowing costs increased. Conditions in the mortgage market continued to deteriorate with much higher delinquencies and foreclosures. Housing prices continued to fall.
Central banks ceased buying and began selling Enterprise securities. Relatively small sales triggered large price moves. Despite financing 30-year mortgages, the Enterprises had to rely on short-term discount notes, with only a few fixed-rate debt securities issued, none with maturity greater than three years. Yet they had $89 billion in long-term debt maturing in the second half of 2008.
After substantial effort and communication with market participants, each company reported to FHFA and to Treasury that it was unable to access capital markets to bolster its capital position without Treasury financing. FHFA’s and Treasury’s own discussions with investment bankers and investors corroborated this conclusion. In the absence of access to new capital, the only alternative left to the firms was to cease new business and shed assets in a weak market. That would have been disastrous for the mortgage markets as mortgage rates would have continued to move higher and, in turn, disastrous for the Enterprises as the prices of their securities would have fallen and credit losses would have increased.
Therefore, in order to restore the balance between safety and soundness and mission, FHFA placed Fannie Mae and Freddie Mac into conservatorship. That is a statutory process designed to stabilize a troubled institution with the objective of maintaining normal business operations and restoring its safety and soundness. It was the most prudent regulatory action to take.
FHFA did not undertake this action lightly. We consulted with the Chairman of the Board of Governors of the Federal Reserve System, Ben Bernanke, who was made a consultant to FHFA under the new legislation. We also consulted with the Secretary of the Treasury, not only as an FHFA Oversight Board member, but also in line with his ability under the law to provide financing to the GSEs. They both concurred with me that conservatorship needed to be undertaken.
FHFA will act as the conservator of the Enterprises until they are stabilized. The Treasury’s financial commitments, authorized by the new law, were critical to creating a workable conservatorship structure.
Let me now turn to the conservatorships. First signs are that the conservatorships are positive. A lack of confidence had resulted in continued widening of the spread between yields of their MBS and yields of Treasury securities, which meant that virtually none of the large drop in Treasury interest rates over the past year had been passed on to the mortgage markets. On top of that, Freddie Mac and Fannie Mae, in order to try to build capital, may have raised prices and tightened credit standards beyond what was necessary for sound underwriting. I am pleased to say that the Enterprises’ funding costs and the spreads on MBS have declined. As denoted in the attached chart, yields on Freddie Mac guaranteed mortgage securities have declined relative to Treasury debt yields by a third of a percentage point since the Friday before the conservatorship. This lower cost has been passed on to homebuyers, with 30-year fixed-rate mortgage rates below 6 percent for the first time since January.
On the first day, businesses opened as normal, but with stronger backing for the holders of MBS, senior debt and subordinated debt. Consistent with the terms of the Treasury’s financial assistance, over the next 15 months, we will allow each company to increase its portfolio, up to $850 billion, before requiring gradual declines in the portfolios of 10 percent per year. The Enterprises will also continue to grow their guarantee MBS books.
As the conservator, FHFA assumed the power of the board and management. Highly qualified, new Chief Executive Officers have been appointed. The new CEOs are Herb Allison of Fannie Mae and David Moffett of Freddie Mac. Herb has served as President and Chief Operating Officer of Merrill Lynch and for the last six years Chairman and CEO of TIAA-CREF. David had previously served as the Vice Chairman and CFO of US Bancorp. I appreciate the willingness of these two men to take on these tough jobs during these challenging times. In addition, their compensation will be significantly lower than the outgoing CEOs.
Although it is not necessary in a conservatorship, new boards are being formed as a matter of good governance. New non-executive Chairmen were announced last week. Philip Laskawy, former Chairman and CEO of Ernst and Young, has agreed to be the Chairman of Fannie Mae. John Koskinen, former President and CEO of Palmieri Company, a corporate turnaround management company, and former Deputy Director for Management at OMB, has agreed to be the Chairman of Freddie Mac.
As part of the conservatorship, the CEOs of Fannie Mae and Freddie Mac were asked to leave after a transition period. Under the new legislation’s “golden parachute” language, and existing regulations, FHFA directed that severance payments not be made to the CEOs. As appropriate for senior executive officers, their pay over their years at the Enterprises was also at risk, as a major portion of their bonuses were in stock. Their actual pay based on today’s stock price was about a third of what was reported in the press at the time.
FHFA worked with the new CEOs to establish employee retention programs. They agree with me that it is very important to work with the current management teams and employees to encourage them to stay and to continue to make important improvements to the Enterprises.
All political activities -- including all lobbying -- were halted immediately. We will review the charitable activities to ensure that these reflect their mission and their conservatorship status.
In order to conserve over $2 billion in annual capital, the common stock and preferred stock dividends were eliminated. I recognize that the loss of dividend income may have an adverse effect on some investors, including depository institutions. Before taking our action, we consulted with the bank regulators and I understand that they are working with individual institutions under their jurisdiction that may have capital invested in Enterprise preferred stock. As you know, any preferred stock is part of the issuing firm’s equity account and is issued to absorb losses ahead of debt holders. Subordinated debt interest and principal payments will continue to be made, even if the capital test is breached.
Finally and very importantly, the liquidity, MBS investment, and senior preferred stock facilities with the U.S. Treasury, are all in place. These facilities will provide critically needed support to Freddie Mac and Fannie Mae to fulfill their mission over the long term, while giving a potential upside for the taxpayer. The key facility is the senior preferred stock agreement, which ensures that each Enterprise maintains a positive net worth. This measure adds to market stability by providing additional security to GSE debt holders – senior and subordinated – and adds to mortgage affordability by providing additional confidence to investors in GSE MBS. The senior preferred facility supports all past and future debt and MBS issuances, until the terms of the facility are completely satisfied. In light of this facility the existing regulatory capital requirements will not be binding during the conservatorship. As SEC registrants, the Enterprises will continue to report their financial results quarterly.
The second facility is a secured credit facility that is not only for Fannie Mae and Freddie Mac, but also for the 12 Federal Home Loan Banks that FHFA also regulates. The Federal Home Loan Banks have performed remarkably well over the last year as they have a different business model than Fannie Mae and Freddie Mac and a different capital structure that grows as their lending activity grows. They are jointly and severally liable for the Bank System’s debt obligations and all but one of the 12 are profitable. Therefore, it is very unlikely that they will use the facility.
Another element of Treasury’s financing plan is to hire investment managers to purchase Fannie Mae and Freddie Mac MBS. The goal is to provide additional liquidity to the MBS and lower the costs of mortgages. FHFA helped originate this approach. As such, we are pleased that Treasury has decided to implement these purchases quickly and on a larger scale than originally planned.
We also support other recent actions and proposals of the Bush Administration, Secretary Paulson and Chairman Bernanke designed to take a comprehensive approach to relieving the stress on our financial institutions and markets.
Among these actions are:
These actions are designed to get at the root cause of financial market turmoil which is the liquidity in the nation’s mortgage market.
Let me now bring you up-to-date on our actions since September 7. The new CEOs were introduced to Enterprise senior management at separate meetings at FHFA offices on Sunday, September 7.
To reassure financial counterparties, later that day FHFA posted a statement on its website emphasizing that all existing contracts with the Enterprises remain in effect, that the Enterprises have the authority to enter into new contracts, and that the enforceability of such new contracts is not affected by the appointment of the conservator. I also sent a statement to employees at both Enterprises explaining the conservatorships, and that the purposes of the action are to help restore confidence in the Enterprises, enhance their ability to fulfill their mission, and mitigate systemic risk.
Since the Enterprises opened for business on September 8, FHFA personnel have been continuously on site, both at the Enterprises’ headquarters and locations of other key operations to ensure a smooth transition and continued business operations. FHFA personnel include examiners, attorneys and other experts to provide for timely communications between the GSE, the conservator, and the examination team. As a conservatorship team, the FHFA representatives are there to reassure Enterprise employees about the continued business operations objective of the conservatorship, to support the needs of the new CEOs as they become familiar with their new organizations, and to act as a conduit and communicate any questions and issues that need resolution back to me.
FHFA will continue to work expeditiously on the many regulations needed to implement the new law. Some of the key regulations will be minimum capital standards, prudential safety and soundness standards and portfolio limits. Importantly, the new legislation adds affordable housing and mission enforcement to the responsibilities of the safety and soundness regulator.
While FHFA has had these responsibilities for only a matter of weeks, we are placing a high priority on them. A key reason for moving quickly to conservatorship was that the companies’ abilities to serve their mission had been impaired.
As the companies operate in conservatorship, I have already instructed each new CEO to examine the underwriting standards and pricing. They have begun to do so, and I expect any changes to reflect both safe and sound business strategy and attentiveness to the Enterprise’s mission.
Fannie Mae and Freddie Mac are important to the secondary market for multifamily loans, and multifamily lending is critical to the affordable housing mission of the Enterprises. I am determined to ensure that, in conservatorship, both Enterprises remain dedicated to, and actively involved in, multifamily lending. I released a statement to this effect so that market participants may have assurance that the Enterprises will continue to be a source of underwriting and financing for multifamily loans. That statement acknowledged the importance of all aspects of the Enterprises’ multifamily businesses – including the LIHTC (low-income housing tax credit) area and liquidity facilities for remarketed mortgage revenue bonds.
Over the last year, we have actively challenged Fannie Mae and Freddie Mac to be more creative on foreclosure prevention. They have responded, but more has to be done. We have worked with them to publicly report their loan modification activities, but that work was slowed by the many other actions we were undertaking. Yesterday we did publish our first quarterly report on their foreclosure prevention activities. We will publish a second quarter update next week.
Going forward, we will work with the CEOs to modify business practices, such as the lengthy delay before pulling delinquent loans from securitized pools. Practices such as this were motivated by capital concerns, but undermined efforts to help distressed borrowers. If we are to address the problem of mortgage delinquencies, a systematic approach to loan modification is essential. Well before last week’s actions, we had already asked the Enterprises to facilitate the loan modification program the FDIC has undertaken with IndyMac Federal. I expect the ongoing work on loan modifications being done there, and with other seller servicers, to continue to be a high priority for the conservatorships, both as a matter of good business and as a matter of supporting the Enterprises’ mission.
The new legislation established a Housing Trust Fund to increase and preserve the supply of rental housing for extremely low and very low income families, including homeless families, and to increase homeownership for extremely low and very low income families. I recognize the importance of the Housing Trust Fund to many members of Congress. Under the law, the principal duty of FHFA involves the approval of funds paid by each Enterprise equal to 4.2 basis points for each dollar of unpaid principal balance of its total new business purchases. In the near-term, these funds will be used to fund a key component of the new law, the FHA HOPE for Homeowners Program, which will be funded by Treasury if the Enterprises do not. Enterprise funds are to be used to reimburse Treasury for the cost of the Hope Bonds. My understanding is that Treasury has already issued $29.5 million in Hope Bonds to fund the program’s start-up costs.
Congress also required that the FHFA Director consider circumstances in which such allocations would be suspended. The Director is required to temporarily suspend such allocations upon a finding that they are contributing, or would contribute, to the financial instability of the Enterprise, are causing, or would cause, the Enterprise to be classified as undercapitalized, or are preventing, or would prevent, an Enterprise from successfully completing a capital restoration plan described in the legislation. Accordingly, I intend to make that determination only after a careful and thorough review of existing conditions including their third quarter results. Treasury has provided assurances that a temporary suspension of Enterprise contributions would not impede issuance of Hope Bonds, so the Hope for Homeowners program will not be harmed, even if Enterprises contributions are temporarily suspended Enforcement of the affordable housing goals established for the Enterprises by the Congress, once HUD’s responsibility, is now up to FHFA. While ensuring liquidity in the mortgage marketplace has necessarily been a primary focus in recent weeks and months, ensuring that low and moderate income persons and underserved areas have ready access to affordable mortgage loans remains a critical responsibility of the Enterprises. In the near-term, the Enterprises are charged with meeting the very ambitious goals set by HUD back in 2004, a year in which the mortgage marketplace looked far different than it does today. In 2007, they missed two subgoals. Based on our discussions with the Enterprises, the miss will be larger in 2008.
The market turmoil of this year resulted in a tightening of underwriting criteria for the purchase of new, unseasoned loans used by individual lenders—the entities that actually originate loans sold to the GSEs—and private mortgage insurers, thereby reducing the availability of traditionally goal rich high loan-to-value home purchase loans. In addition, the collapse of the private label, secondary mortgage market further reduced the share of home purchase loans qualifying for goals. Finally, the rise of FHA as a market force means fewer high-LTV, goal-rich borrowers for Fannie Mae and Freddie Mac. Even if some or all of these goals are found to be unattainable, I will expect each Enterprise to develop and implement ambitious plans to support the borrowers and markets targeted by the goals. We have begun to meet with affordable housing advocates, seeking their perspective on implementation of the new goals structure.
Finally, I am pleased to report that FHFA expects to have a regulation in place by October 1 to implement Section 1218 of HERA, which provides temporary authority for the Federal Home Loan Banks to use a portion of the subsidy money in Affordable Housing Program to refinance mortgages for families at or below 80 percent of area median income. In broad terms, we intend to issue a regulation implementing this program so that it supports the refinance program in HERA’s Hope for Homeowners program by permitting AHP funding of additional principal write-downs or payment of closing costs. We’ve discussed this initiative with the FHA, which is very supportive of the prospect of added support on this initiative. Conclusion The decision to appoint a conservator for each Enterprise was a tough, but necessary one. They can now play their correct role of being part of the solution and not part of the problem. Unfortunately, all the good and hard work put in by the FHFA and the Enterprises was not sufficient to offset the consequences of the antiquated capital requirements and the turmoil in housing markets. Conservatorship will give the Enterprises time to restore the balances between safety and soundness and their missions. I want to thank the FHFA employees for their work during this intense regulatory process. They represent the best in public service.
I also recognize that many employees at each company have been working extremely hard through years of remediation and through the past year of market volatility. Employees have lost personal savings as a result of the plummet in their company’s stock price and they have been working, and continue to work, long hours in the face of uncertainty. To them, I say thank you and pledge that, as conservator, we share the common goal of stabilizing your company while ensuring it continues to serve its public purpose of providing stability, liquidity, and affordability to the mortgage market. Working together we can finish the job of restoring confidence in the Enterprises and with the new legislation you provided, build a stronger and safer future for the mortgage markets, homeowners and renters in America. Thank you. I would be pleased to answer any questions you may have.
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Testimony is also available on Web at: http://www.ofheo.gov/newsroom.aspx?ID=468&q1=1&q2=None
FHA bans "BUY and BAIL" strategy
FHA just released new rules which specifically address loan transactions in which a borrower is purchasing a NEW primary residence WITHOUT selling their existing resident.
Commonly known as "BUY and BAIL", many people have been buying a new (usually cheaper) home then purposely letting their old home go into foreclosure. Many of these original homes had been For Sale without selling for a significant amount of time, and are usually worth LESS than what is owned.
To achieve this, many new applicants "claimed" their existing home was to become a rental property, then used fake "rental income" to qualify.
The conforming market also recently closed this loop hole by mandating new loan-to-value guidelines on homes being converted to rentals, proof of security deposits, significantly higher amounts of money in application bank accounts for reserves, and new rules as to what can and can't qualify for "renatl income."
The entire FHA Mortgee Letter text follows, but is also available at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-25ml.doc
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Mortgagee Letter 2008-25
Through this Mortgagee Letter, the Federal Housing Administration (FHA) takes steps to immediately respond to an unscrupulous practice arising in the housing mortgage market that poses a risk to FHA, FHA-approved lenders, and consequently to FHA’s ability to help new homeowners.
Recently, FHA and others in the mortgage industry have observed an increasing number of homeowners who have chosen to vacate their existing principal residence and purchase a new residence. This has been occurring as some homeowners, given the rising price of fuel, are relocating to homes nearer their employment, or are taking advantage of other home buying opportunities arising in the marketplace.
Due to FHA’s concern that some homebuyers in these transactions may attempt to provide misleading information regarding the rental income of the property being vacated to qualify for the new mortgage, FHA is instituting underwriting guidance designed to assure that the homebuyer can make payments on the full debt service of both mortgages. Consequently, beginning with case number assignments on or after the date of this Mortgagee Letter and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter. The exclusion of rental income from property being vacated is being instituted on a temporary basis while FHA further analyzes this situation to determine whether permanent measures may need to be taken. This will assure that a homeowner either has sufficient income to make both mortgage payments without any rental income or has an equity position not likely to result in defaulting on the mortgage on the property being vacated. In either case, this guidance is directed to preventing the practice known as “buy and bail” where the homebuyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage. Although the property being vacated will not have a mortgage insured by FHA, surrounding properties may and, thus, FHA may be indirectly negatively affected should that property result in a foreclosure.
Exceptions:
Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA Homeownership Center (see http://www.hud.gov/offices/hsg/sfh/ref/sfh2-21u.cfm) may be considered in the underwriting analysis under the following circumstances:
· Relocations: The homebuyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance. A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year’s duration after the loan is closed is required. FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner.
· Sufficient Equity in Vacated Property: The homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property. The appraisal, in addition to using forms Fannie Mae1004/Freddie Mac 70, may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie Mae1075/Freddie Mac 466.
The guidance in this Mortgagee Letter applies solely to a principal residence being vacated in favor of another principal residence. This Mortgagee Letter is not applicable to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).
It is important to note that if the property being vacated had a mortgage insured by FHA, eligibility for a second FHA insured mortgage can only occur under the exemptions described in handbook HUD-4155.1 REV-5, paragraph 1-2.
If you have any questions regarding this Mortgagee Letter, call 1-800-CALLFHA.
Important News - Fannie and Freddie Takeover by the Fed
As you no doubt know, the federal government yesterday took significant action with regard to Fannie Mae and Freddie Mac.
The basic facts are below. The
The view is that:
--
--Through 2010, the Dept of Treasury plans to grow Fannie and Freddies portfolios; i.e. the intent appears to be to expand Fannie and Freddie business, at least during the housing downturn
--Fannie and Freddie may actually loosen up credit standards to help stimulate the mortgage market
--Concerns about stable foreign debt investment in the GSEs was likely the primary driver for the fed move.
Longer term: It seems to me that the Treasury plan basically reverts Fannie and Freddie to a facility for federally backed mortgage debt. The Treasury theory appears to be to employ F/F as a counter cyclical model -- when times are tough they will ratchet up the companies; when the environment is more "normal" they will ratchet back and let the private market carry the ball.
Regarding the future structure of Fannie/Freddie: Next year Congress and the new administration and the interest groups will be consumed with the question of what the post conservator GSEs look like.
Here are the main facts regarding the federal action:
· Conservatorship
Fannie Mae and Freddie Mac are placed into conservatorship immediately. (No change in status for the Federal Home Loan Banks.)
· GSE Portfolios
To promote market stability, the GSEs will be allowed to increase their MBS portfolios through the end of 2009. However, starting in 2010 the portfolios will gradually be reduced at a rate of 10% per year through run-off, eventually stabilizing at a much lower size.
· Treasury Preferred Stock Agreement
Treasury and the Federal Housing Finance Agency (FHFA) have established a Preferred Stock Purchase Agreement to ensure that each company maintains positive net worth. These agreements are intended to provide security to GSE debt holders and MBS investors. In exchange, Treasury receives a senior preferred equity share and warrants to protect taxpayers - common and preferred shareholders will bear any potential losses ahead of the government's senior preferred shares.
· Secured Lending Credit Facility
Treasury has established a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. This facility is intended to serve as an "ultimate liquidity backstop." This facility will expire on December 31, 2009.
· Treasury Program to Buy GSE MBS
Later this month, Treasury will be initiating a temporary program to purchase Fannie Mae and Freddie Mac MBS. Such purchases will be made as appropriate. The program will expire on December 31, 2009.
Other highlights:
· On Monday, the GSEs are expected to resume normal business operations.
· The U.S. government assumes control over the Board and management.
· Current Fannie Mae and Freddie Mac CEOs are being replaced, but will stay on through a transition period.
· Herb Allison will assume CEO duties at Fannie Mae, and David Moffett will assume CEO duties at Freddie Mac.
·
· There will be no dividends paid on preferred or common stock.
FHA's NEW Upfront and Monthly Mortgage Insurance Guidelines
To add more confusion to the already confusing market, HUD (U.S. Department of Housing and Urban Development) is AGAIN changing their upfront and monthly mortgage insurance premium guidelines for all NEW FHA case numbers assigned commencing OCTOBER 1, 2008 to be consistent with the Housing and Economic Recovery Act of 2008.
FHA guidelines had been unchanged for years. But, back on July 14, 2008, FHA had introduced new risk based premiums for both the upfront MIP and the monthly mortgage insurance on FHA loans. Those guidelines rewarded better qualified buyers with lower premiums, while charging riskier buyers with higher premiums. To avoid any confusion, I will not list those here, as they will be gone shortly.
EFFECTIVE 10/1/2008
UPFRONT PREMIUMS: 1) FHA will charge upfront MIP (mortgage insurance premium) of 1.75% of the loan amount on all purchase transactions2) Streamline refinances (all types) = 1.50% of the loan amount3) FHASecure (delinquent mortgagors) = 3.00% of the loan amount
MONTHLY PREMIUMS:30-year loans, less than 95% LTV = .50%30-year loans, greater than 95% LTV = .55%15-year loans, less than 90% LTV = None15-year loans, greater than 90% LTV = .25%FHA secure, all loan terms, less than 95% LTV = .50%FHASecure, all loan terms, greater than 95% LTV = .55%
There are many other changes being made to not only FHA loans, but just about every single loan option and program in the market. Therefore our advice to you is to be smart, ask questions, and get good answers by only working with experienced dedicated professionals
More than likely, this is one of the largest and most important financial transactions most people will ever make. They might do this only four or five times in their entire life, but we do this every single day. It's their home and their future. It's our profession and our passion. We're ready to work for your best interest.
We provide FHA loans in Minnesota (MN), Wisconsin (WI), and Florida (FL) only. Apply for your FHA loan securely online 24/7.
(c) 2008 Metzler Enterprises, www.JoeMetzler.com
Why loans blow up... and do not close at the last minute!
The purchase agreement has been written and accepted, the buyers and sellers have moving trucks packed and people literally sleeping on couches or even on the floor waiting for a closing date, then everything blows up at the 11th hour.
Why do these deals blow up like this? How is it possible to have a loan denied at the last minute?
The Loan Officer / Mortgage Consultant He or she may be quick to assume that the deal meets guidelines and even issues a pre-approval letter and assures the buyer that everything is fine. These types of loan officers are what I call glorified in-bound telemarketing clerks. They don't know what they are doing, so their approach is to throw the file against the wall and if it sticks then, great, but if not, oh well...
Knowledgeable and professional Loan Officers will properly "pre-underwrite" their file upfront before submitting it to underwriting. This means that they will tear a file apart to identify anything that may be a red flag or might be a concern and address it and find a solution so that when the file is submitted to underwriting, he or she is confident that the bases are covered. However, nothing is guaranteed until literally, the checks are written, and you sign at the closing table.
The word, "loan approval" is used WAY too loosely. Realtor love to demand" a loan "commitment" letter. Many have recieved this document, then expressed with frustration, "but the lender had already issued a loan approval" when the deal falls apart.
Underwritering will always INITIALLY issue a CONDITIONAL loan approval, subject to all conditions being met. Clean files usually only need a title report, an appraisal, and an acceptable purchase agreement as "conditions".
Typically, underwriting will ask for more than that (more bank statement, pay stubs, proof of all sorts of things). Then, even if a condition is submitted, it may raise more questions and more conditions. If any of these conditions are not met, then the "conditional" approval is not valid.
This explains the vast majority of cases why a lender, or many times the loan officer, may say that the loan is approved, but then later problems arise and the deal is dead.
Misunderstanding of the meaning of a locked loan. Others have expressed, "I thought the loan was locked." The process of locking an interest rate commitment for a certain period and at a particular price is completely independent of underwriting and approving a loan. Having a locked interest rate only insures that if the loan is approved, then it will be delivered using the locked interest rate. It is possible to have a locked loan and at the same time have it denied by underwriting. Therefore, if a loan officer promises a buyer that their loan is approved based on a rate lock, then they are either not telling the whole truth or have no knowledge of how the process works.
The wild and crazy mortgage market of late. With so many changes in the mortgage market in the past year, many lenders have changed their guidelines because the loans that previously were possible are no longer saleable in the secondary market. Consequently, if investors are unwilling to buy those loans, then banks may not be willing to keep those loans in their portfolio. Thus, the tightening of guidelines. Sometimes, some of these lenders have not been communicating very promptly these changes to the loan officers in the trenches and they don't find out about the changes until the last minute. This is a fairly recent problem.
Overconfidence in lenders. Overconfidence in someone quoting the "lowest rate", be them local or out state. Just because someone has a web site, just because someone quotes you a rate or cost doesn't mean anything.
The big lenders, the small lenders, the bankers, the brokers... They all screw up. They all make mistakes! Although I must admit, I actually fix more loans started at banks (especially the big banks), than I do with smaller lenders.
My opinion, stop shopping rates and closing costs, and start shopping LOAN OFFICER (NOT Lender). There are good Loan Officers and bad Loan Officers at every single mortgage originating office nationwide. The name of the company is meaningless. The EXPERIENCE OF THE LOAN OFFICER is all that matters.
A great Loan Officer with tons of experience rarely if ever makes a mistake, always have the customers best interest in mind, and give very competitive rates and costs for the individual customers exact situation.
You can have a very experienced person like myself handle your largest financial transaction, or you can have the glorified in-bound telemarketing clerk (oops, I mean Loan Officer).
I know what I would choose!
NEW FORECLOSURE RESCUE LAW - REAL HELP OR FANTASY?
So, the boys on capital hill have put together one heck of a package, called the Housing and Economic Recovery Act, which was designed to slow down the pace of home foreclosures and increase sales of existing homes. This all sounds great on paper, but will it really do anything? Democratic Representative Barney Frank of Massachusetts thinks so. The programs are in effect from Oct. 1, 2008 until Sept. 30, 2011
This law is the governments attempt to reach millions this year and next of people who are defaulting on the home loans. Many of these people have weak credit, bought homes using zero down payment or sub-prime loans, or simply over extended themselves with multiple cash-out refinances and exotic Option ARM, Interest Only, or No Documentation loans. The failure of these foreclosed homes have driven values down, flooded the market with unsold homes, and created the biggest credit crunch in history.
WHAT THE LAW DOES AND DOESN'T DO
REFINANCE RESCUEThe law has provision designed to rescue people from foreclosure by allowing them to refinance into FHA loans, as alternatives to going to sub-prime lenders. The first problem with this is simple. False sounding hope. There are no longer any sub-prime loan options to be found. Sub-prime loans very quickly went away in the first round of the credit crunch.
Refinancing into an FHA loan sounds great, but wait: It may require the current lender's approval. Huh? If the homes value is LESS than what is currently owed, which is likely if you bought a home in the past 4 to 5 years, the current lender must agree to accept 90% of TODAY'S appraised value as payment in full. If they do, you can now try to get approved for a government-backed FHA loan.
Under the new rules, assuming the current lender agrees to accept less as payment in full, you still need to get approved for the FHA loan. You still need to meet qualification guidelines (income, assets, credit, etc.). Anyone who obtained a mortgage after January 1, 2008, or whose payment is less than 31 percent of their gross income doesn't qualify.
Then in this provision, the real kick in the butt, you have to agree to SHARE HALF of any future appreciation of the property with FHA!
The gigantic problem with this effort is two-fold. Talking your lender into breaking your contract, and accepting a significant less amount of money usually only happens after you have gotten significantly behind in payments, or are actually in foreclosure. If you are making timely payment, why would they accept this in anything other than the most extreme cases?
Also, by the time the lender would reasonably look at such an option, your credit is typically destroyed, making it nearly impossible to get any new loan. A similar program launched last year, called "FHAsecure" was designed to help people who had non FHA adjustable mortgages, and it has fallen embarrassingly under Congressional projections of helping people.
FIRST TIME BUYER CREDIT. The law allows for a first-time buyer credit of $7,500. While this sounds good on paper, it really isn't a credit. It is actually a 15-year interest free loan. The new homeowner would repay 1/15th of the amount BACK to the government each year. This would equal $500 per year for 15-years assuming one qualified for the full $7,500. Some of the requirements include single borrowers must earn less that $95,000 per year, married couples, less that $170,000.
ELIMINATE POPULAR DOWN PAYMENT ASSISTANCEPopular, yet disastrous "seller funded" down payment assistance programs are now banned. Nehemiah, Genesis, and other seller funded down payment programs were a creative way of by-passing down payment rules on programs like FHA, which allow a "gift" of down payment from a relative, government, or non-profit entity. The money to "gift" the buyer of a home actually came from the seller of he home, who agreed to "give" the program the same amount the program was "gifting" the buyer. In reality, the buyer was usually paying significantly more for the home, based on increased, and often unrealistic appraisals. Defaults on loans using this type of down payment assistance is dramatically higher than those who pay their own down payment, get a gift from parents, or get a true grant.
Government, state, county, and true non-profit assistance is still available. To qualify, the assistance MUST become a mortgage against the home. Under these programs, the "assistance" mortgage usually has no payments, and is either forgiven after about 10-years, or payable when you sell, refinance, or no longer occupy the home.
FHA DOWN PAYMENT GOING UPCurrently, the minimum amount required to purchase a home out-of-pocket using FHA financing is 3.0%. This is going UP to 3.50%. While this may initially seem counter-productive in helping move the huge amount of homes for sale - statistics have pretty much proven the Zero Down Payment experiment a big failure.
Prior to about 2000, there were essentially no options for zero down (other than a VA loan), and everyone either saved up their own money, or got a gift from their parents. This is again where the market has gone. ZERO DOWN PAYMENT IS GONE. It will not be back anytime soon, so GET USED TO IT.
THE BOTTOM LINEWill this work? NO! While it will help a few people get cheaper loans, possibly saving their home, and while plenty of people will take the first-time buyer credit, the overall aspect of these actions will help few, and change little. But it sure does make it look like those on Capital Hill are earning their pay and doing something - unfortunately, it is pretty much just smoke and mirrors
Buyers, sellers, lenders, banks, wall street, realtors, builder, and everyone else got stupid drunk on equity, or the possibility of equity. Drunk people do dumb things. Today, we are all suffering the handover. It will take a lot more than these actions to fix the problems and make the hangover go away.
(C) 2008 - Joe Metzler - www.JoeMetzler.com
Countrywide Sued AGAIN for Inducing Consumers to Take Out Loans They Couldn't Afford
CHARLESTON, WV - The Attorney General for West Virginia filed suit against Countrywide Financial Corporation, Countrywide Home Loans, Inc., Countrywide Home Loans Servicing, LP, Full Spectrum Lending, Inc. and Angelo R. Mozilo, individually and as CEO of Countrywide Financial Corporation. The state alleges Countrywide made loans to West Virginia consumers on terms that were unaffordable and unconscionable. These loans exposed consumers to foreclosure and loss of their homes. Countrywide also used unfair and deceptive acts or practices to make loans and service loans. For example, Countrywide induced consumers to take out adjustable rate mortgages that offered a teaser rate for the first 2-5 years, but then reset at a much higher, unaffordable rate. In other cases, Countrywide made loans that required no down payment, but, after 15 years of payments, the consumer owed a balloon payment of almost the original amount borrowed. In one case, the consumers could not refinance because the initial appraisal was inflated.Foreclosures in a neighborhood affect the value of all homes in that neighborhood. Therefore, while the consumers facing foreclosure are directly affected by Countrywide’s practices, all homeowners are indirectly affected.
Last week in Hartford, CT, Attorney General Richard Blumenthal announced his office has sued mortgage giant Countrywide Financial Corp. and related companies for allegedly pushing consumers into deceptive, unaffordable loans and workouts, and charging homeowners in default unjustified and excessive legal fees.
Countrywide has recently been bought by Bank of America.
Mortgages Unlimited Offers New Government Benefits for Homebuyers
Tax Credits, New Federal Programs Can Save Homeowners Thousands
Saint Paul, MN, Aug. 12, 2008 – A major federal effort to assist homebuyers and existing homeowners was recently passed by Congress and signed into law by President Bush. The Metzler Group at Mortgages Unlimited is pleased to announce they will offer all the benefits of these new federal programs, including:
• A $7500.00 tax credit for first time homebuyers. The tax credit is available for families with incomes up to $170,000.
• Lower rate jumbo loans backed by Fannie Mae and Freddie Mac
• Expanded availability of loans guaranteed by the Federal Housing Administration (FHA)
• $300 billion available in safe FHA loans for homeowners trapped in high cost subprime loans
• A larger federally backed program of reverse mortgages or HECMS (Home Equity Conversion Mortgages) that enables seniors over age 62 to tap their home equity
Injunction against ban on trigger lists granted in Minnesota.
On July 30, 2007, a preliminary injunction was granted by a Minnesota U.S. District Court against Attorney General Lori Swanson, prohibiting her from enforcing a statute forbidding the sale of trigger lists. The injunction was a result of a suit filed July 17, 2007 by the Consumer Data Industry Association to ban enforcement of SF 0241 and companion bill HF 0211, which passed in May and were to become effective Aug. 1, 2007.
The bills state that a "consumer reporting agency or any other business entity may not sell to, or exchange with, a third party, unless the third party holds an existing mortgage loan on the property, the existence of a credit inquiry arising from a consumer mortgage loan application when the sale or exchange is triggered by an inquiry made in response to an application for credit."
"The sale of such sensitive personal information to companies that have no, or at best a tenuous relationship with the consumer, directly increases the chance that a consumer could fall victim to identity theft or be exposed to deceitful bait-and-switch schemes," voiced the National Association of Mortgage Brokers' position on its Web site. We are "also concerned by the sale and use of prescreened lists to market mortgage products to consumers through telemarketing. Therefore, we support restricting the use of prescreened mortgage lists to written solicitations only so that entities purchasing these lists are able to comply with the four corners of FCRA (the Fair Credit Reporting Act) and communicate clearly to consumers their right to opt-out.'"
However, in court documents, the Consumer Data Industry Association claimed "the new law irreparably harms Minnesota consumers who want to receive firm offers that may save them money or provide beneficial credit opportunities, but who will not because the state of MInnesota prohibits reports that include the content that would lead to such an offer."
The court determined that the bills were in violation of the Fair Credit Reporting Act, which "permits a lender to buy and a credit bureau to sell prescreened lists under certain circumstances," including a firm offer of credit, court documents stated.
In response, Swanson argued that at least some of the lenders who purchase mortgage-trigger lists do not make "firm offers" of credit to customers.
A telemarketer cannot meaningfully make a 'firm offer' to a consumer to enter into a transaction as complex as a mortgage loan over the telephone.
While Swanson may be right, the court agreed that it would not give Minnesota the right under the FCRA to regulate mortgage-trigger lists. It would simply mean that those lenders - and perhaps the credit bureaus that sell mortgage-trigger lists to them - could be held liable under federal law for violating the FCRA.
Court documents also indicated that public interest in the situation has been neutral, and we simply assume because there is little, if any public knowledge about triggers lists.
On the one hand, perhaps Minnesotans would benefit from enforcement of (the FCRA). On the other hand, Minnesotans have an interest, as citizens of the United States, in seeing federal statutes enforced. And while the state legislature apparently thought that forbidding the sale of mortgage-trigger lists would be in the public interest, Congress thought the public interest would be better served by preventing states from regulating in this area, thereby ensuring uniform national regulation of the sale and use of credit reports.
As for Minnesota, an amended consent order to temporarily restrain from enforcing the bills was filed Aug. 21, 2007. The injunction will remain in force until the case has been fully and finally adjudicated on the merits.
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One of the better pieces of legislation to come out the Capital this year is a law banning the sale of what are known as "trigger leads".
The new law prohibits consumer reporting agencies or any other business entity from selling or exchanging with a third party information that a person’s credit history was requested in connection with a mortgage loan application.
In other words, until today, any time you applied for a mortgage, or had a mortgage lender run your credit report, that information, along with whatever other data was available in your file (credit score, current address, telephone number, loan balances, etc.) was immediately sold by the credit repositories - Experian, Equifax, Trans-Union, to all sorts of bad lenders from coast to coast. They would then use that data to solicit you for a loan, often using shady bait-and-switch tactics to trick you into doing business with them.
The credit bureau's defend the practice by saying it gives more "choice" to the consumer. The realtity is it was a money making(as if anyone would choose to be hounded by lenders who will try to trick them.)
It WAS a perfectly legal practice in Minnesota. The good news is it no longer is here, and for the rest of the states, you can opt-out, so your name is not included in these trigger lists.
Though we have always recommended shopping for a mortgage lender to work with, this should be done on your terms, with a lender of YOUR choice, as opposed to someone who paid good money to get your name, then would say or do anything to recover their costs.
Trigger leads are a horrible practice, a breach of consumer privacy, and need to be ended nationwide as soon as possible.
The Law Sponsored by Rep. Kurt Zellers (R-Maple Grove) and Sen. Warren Limmer (R-Maple Grove), a new law prohibits consumer reporting agencies or any other business entity from selling or exchanging with a third party information that a person’s credit history was requested in connection with a mortgage loan application, unless the third party holds an existing mortgage loan on the property. Most of the law takes effect Aug. 1, 2007.
The law also contains provisions for:
• increasing the dollar amount and other aspects of the homestead exemption from creditors, and provides for inflation adjustments;
• prohibiting real property from being subject to execution under certain conditions involving the homestead or other property rights of non-debtors, such as the spouse of the debtor;
• modifying provisions relating to the sale of homestead property; and
• building contractors to bring action against subcontractors for contribution or indemnity. This provision is retroactive to June 30, 2006.
FHA changing MIP / PMI requirements effective July 14, 2008
FHA now cheaper, or more expensive to borrowers depending on credit!
FHA, as with many other lending options is switching to new RISK BASED PRICING. Risk-based premiums enable FHA to respond to changes in the market, like the recent implosion of subprime lending, by reaching out to higher-risk borrowers without having to raise premiums for all borrowers. Borrowers are better off, even with higher mortgage insurance premiums, because FHA insurance gives borrowers access to substantially lower interest rates than are charged for subprime loans, thereby lowering borrowers' overall borrowing costs.
Many of FHA's lower-income borrowers have FICO scores above 680 and would qualify for premium reductions relative to today's premium levels. In fact, as a result of the predominantly low- and moderate-income character of FHA borrowers, a larger number of low-income borrowers would benefit from premium reductions than would moderate-, middle-, and upper-income borrowers combined.
The first number is the UP-FRONT MIP. The second number is the monthly PMI
FHA Single Family Mortgage Insurance
Upfront and Annual Mortgage Insurance Premiums
(Loan Terms > 15 years)
Effective as of July 14, 2008
All premiums are specified in basis points (0.01%)
Decision Credit Score (FICO)
LTV
850-680
679-640
639-600
599-560
559-500
499-300
NON-TRADITIONAL
≤ 90.00
125/50
150/50
175/50
90.01-95.00
200/50
n/a
> 95
125/55
150/55
175/55
200/55
225a/55
Call Joe Metzler for all your MINNESOTA FHA deals at (651) 552-3681
Upfront Mortgage and Annual Mortgage Insurance Premiums
Loan Terms of 15 Years or Fewer
= 90.00
100/0
125/0
150/0
175/0
100/25
125/25
150/25
175/25
200/25
Need all the details?
For easy reading, start at page 26.... http://portal.hud.gov/pls/portal/docs/PAGE/FHA/IMAGE_LIBRARY/5171-N-02%20RBP%20FINNTC%20TO%20PUBLISH%20%205-13-08%20.PDF
Feds sign off on new predatory lending rules
Saint Paul / Minneapolis, Minnesota: Yesterday, the Federal Reserve signed off on the much anticipated new set of predatory lending rules. While most legitimate lenders, brokers, and consumer groups applaud the action, it is more smoke and mirrors than any true fix. It looks like the government is doing something, but it is more akin to closing the barn doors well after the horses have left.
The new rules will cover only new loans, not previously existing ones. Additionally, the bulk of the rules would have really only effected the short-term lenders who jumped into the over heated mortgage market, caused a lot of damage, and have long since gone out of business and disappeared. Good lenders, following good lending practices will actually see little or no changes to how they operate.
The biggest change is the nationwide elimination for not only brokers, but also banks, of any no proof of income type loans. These loans were highly abused by both bad lenders and borrowers alike. The new rules prevent any lender from making a loan without looking at a reasonable proof of their income and ability to pay back the loan. Unfortunately, many legitimate borrowers (typically the self employed), will now be completely without any home loan options.
Another key point is the requirement of full disclosure of not only the principal and interest payment, but taxes and insurance too. This problem was highly noted in new construction, where builders, using the builders "preferred lender", focused on only the principal part of the payment. Many inexperienced buyers failed to calculate their ability to pay once you added insurance, association dues, and property taxes into their overall housing obligation. This problem really kicked in as many new construction buyers never realized, or were told that typically you only pay empty lot based taxes the first year or so, then taxes sky rocket up as they were now assessed the full improved value of the lot including the home. This could easily have added hundreds of dollars to their monthly payment.
Pre-payment penalties, which were mostly on sub-prime loans, and another highly controversial subject between lenders and borrowers will also be severely restricted, but not eliminated completely. Consumer advocacy groups wanted the penalties lifted altogether. Unfortunately, the side effect is that without the penalties, everyone may now have to pay more.
Finally, the new rules add more teeth to the existing advertising rules which bad lenders completely ignored, and to which the regulators allowed to be abused. Again, looks good in the press, but truely a meaningless action.
(c) Metzler Mortgage Group - www.JoeMetzler.com
Home owners are still optimistic about their home’s value, despite falling home prices all around them, according to a survey of homeowner confidence conducted by Harris Interactive for Zillow.com According to the survey, 72 percent of home owners believe their home's value has increased or stayed the same in the past year.
The reality is 75 percent of U.S. homes actually decreased in value from the same period a year ago, according to Zillow. In fact, in the first quarter home values dropped 7.7 percent year-over-year, which was the largest year-over-year decline in more than a decade, Zillow points out.
But home owners could be growing more realistic. Since the confidence survey was first conducted last December, home owners show signs they are moving closer to reality as 5 percent more respondents in the first quarter said they think their home value has decreased in the past year compared to those surveyed in the fourth quarter of 2007. Source: Zillow .com
Wondering what your homes value might be today? We here at the Metzler Mortgage Group at Mortgages Unlimited offer a FREE Home Value report right on this site. No cost, no obligation, and no one will call. We simply provide the service in hopes you'll keep us in mind for your next purchase or refinance!
What came first, falling home prices or a slumping market?
Chicken or the Egg?
While pundits galore will claim many different views, the answer is rather simple in economic terms. After years and years of record home price increases, the market simply couldn't support the increases anymore. Buyers could no longer afford the prices. House prices started falling first simply because no one was willing to pay the price anymore.
Most loan programs like to see debt ratios no higher than around 40% of income. FHA for example is 43% on a manual underwrite. Again, simple economics apply here. If the average wage in Minnesota (where I am at) is $784 per week ($40,784 per year), assuming no other debt (not likely), 5% down, PMI, taxes and insurance, this person could buy around a $180,000 home. Start throwing in debt, car loans, credit cards, etc., and the maximum home price starts sinking as fast as a rock in water.
As home prices increased, buyers started switching to high risk, short-term loan products to make homes more affordable. As we can see by today's market, that was a short sighted plan that didn't work out well for many.
Therefore there really is only one way to get demand up and people to start buying again. Affordable prices. Simple supply and demand economics. Too much supply because of too little demand forces prices to drop. As unsold inventory clears, the result will be higher prices, but fewer sales.
The higher price but fewer sales, the normal supply and demand cycle was dramatically upset the past ten years as people threw caution to the wind and kept demand artificially high. Everyone wanted in and was willing to pay whatever price was asked. Everyone figured you could make a killing in the housing market. This was especially evident in the investment property market.
A killing has occurred. Just not the one most people expected.
So what do we do? Nothing. The market will correct itself as prices drop, rates stay attractive, and housing affordability returns.
(C) 2008 Joe Metzler. www.JoeMetzler.com
Choosing your loan with "APR" CAN COST YOU MONEY
A borrower shopping for the best mortgage rate can easily be seduced by low rate offers that are accompanied by low annual percentage rates (APR). Federal law requires that APR be disclosed along side the actual interest rate as a means to help borrowers make a more informed decision on their mortgage.
The truth is that APR is a very poor way to comparison shop for a mortgage and can cause borrowers to make costly decisions. APR was created to provide a way for borrowers to account for costs associated with the mortgage. This sounds good because it may not be very easy to choose between a loan with a lower rate and higher fees or a loan at a higher rate with low fees.
The problem is that the APR calculation is based on bad assumptions. First, APR assumes zero inflation and that the value or buying power of a dollar today will be exactly equal to the value of a dollar 10, 20, or even 30 years from now. Next, the APR calculation assumes that the mortgage will never be pre-paid or paid. That means no refinancing or selling the home, which is highly unlikely since the average life of a home mortgage loan is less than four years. Just think about your own loans: Is it rare to see the same loan in place for even five years-forget 30 years?
The APR calculation does not consider the value of the money used for fees. So if you spent thousands of dollars in points or fees to get a lower rate, the APR calculation does not give any value to the money if it wasn't spent on closing costs. Finally, APR does not take tax consequences into consideration. This can be significant, since higher fees on the mortgage may not be deductible, while the higher interest rate typically is deductible. Moreover, APR can be easily manipulated by bad lenders, making it totally worthless.
How does APR work?APR basically takes the base interest rates, calculates closing costs, and gives you a number. Technically, the lower the number, the better the deal. If two lender quote you the exact same (base) rate, the lender with the lower APR is supposed to be a better deal. If the lenders are playing fair, this works well in giving you accurate information.
If the two lenders are quoting different (base) rates, then the APR calculation is totally misleading.
Furthermore, the APR calculation only keeps the monthly payment information the same. Instead of the mortgage amount, APR uses "amount financed." This is the "amount financed" information on the Truth in Lending statement. Amount financed takes into consideration the fees that are lender imposed, such as application fees, points, commitment fees, and interim or per diem interest. So, amount financed is the mortgage amount less any lender fees, points, and interim interest. The more fees, the lower the amount financed. The monthly payment is then calculated as a product of the amount financed to give you the annual percentage rate or APR. So, the lower the amount financed, the higher the APR is. Amount financed can be manipulated by assuming a closing on the last day instead of the first day of the month. That would increase the amount financed and decrease the APR.
Here is a real example on a $150,000 fixed rate 30-year mortgage with zero points: Lender A is offering a great low rate of 5.875 percent and Lender B is offering a higher rate of 6.125 percent.
Let's look at the real story. The payment difference between the two is $24 per month. So is it worth paying $3,000 in fees to Lender A in order to save $24 per month? Hardly. It will take over 10 years for a borrower just to get back his investment-a bad choice when you consider that mortgage loans are typically retired within four years. To make the decision to go with Lender A even worse, if that's possible, borrowers rarely take the value of to day's dollars into account.
Rather than giving Lender A your hard-earned $3,000, you should give it to yourself. Reduce the loan balance on your mortgage by the fees you are saving. In the example given, that would reduce the loan from $150,000 to $147,000. This makes the payment difference just $6 per month instead of $24 per month! The true time to break even is really 500 months (more than 40 years). So it is impossible to benefit from the higher fee program from Lender A, because the maximum period on the loan is 30 years or 360 months. One more thing: when you calculate your tax deduction on the payment difference, it makes even more sense to avoid paying higher non-deductible fees. The obvious correct choice is to go with Lender B, even though the APR is lower with Lender A.
The bottom line is that you should forget APR and think twice about those advertised low rates when they are accompanied by higher fees.
The real estate market today is one of the toughest in recent history. A large number of foreclosed homes on the market is marking it tough on the traditional home seller. While every market is different, most areas have seen about a 10% drop. The mortgage industry has tighten lending, with a virtual elimination of all non-traditional financing and zero down type options. Most programs today require 3% to 5% down and good credit.
Traditional sellers have the upper hand and an easier time in most cases in the "condition of the property" category versus a foreclosure, but it is still very tough when the banks are liquidating foreclosed properties, and the prices they are giving some of them away at.
So, what is a seller and buyer to do? How does a seller sell and a buyer buy in today's market?
First, understand that because of the large volume of foreclosed properties, it is a great time to be a buyer, whether you are a move-up buyer or a first-time buyer.
For sellers, now is not the time to try and sell your own property. You need the help of a FULL-TIME, experienced Realtor to help guide you through the process. Buyers need the same help to guide them through the maze of properties, both traditional and bank-owned. Having a good agent is extremely important. Take some time to interview your Realtor. How long have they been in business? How many sales have they completed? How many buyers have they helped? Can you get references? Don't just pick your agent from an open house, or use your sisters best friend who got her license last month.
For move-up buyers, you may have to give in to a lower than you like selling price, but you should reap a nice reward on any new home you buy. This is especially true if you are moving from the low $200k to the mid $300k range, as homes that were selling in the $400k range are now in the $350k. Therefore, even if you have to give up a little on your current sale price, you should more than make up for it on the buy side. Remember, a house priced right, and realistic, will sell even in today's market right away. Furthermore, with today's standard fixed rates hovering around 6%, you can still lock in historically great rates!
For first-time buyers, it is a great time to find aggressively priced homes, whether it is a bank-owned foreclosure, or a motivated traditional seller. Not all buyers are ready, or want to tackle "AS IS" foreclosures, so be sure to be honest with yourself about what you are doing to avoid a potential disaster down the road. Today's prices are again extremely affordable in the first-time buyer starter home category. Even though most zero down programs are no longer available, with proper negotiation, you can get the seller to pay most, if not all of your closing costs. This means you can buy a $150k home for just $4500 out-of-pocket. With programs like FHA, the entire down payment can be a gift from family members, or community assistance programs. That is how it was always done prior to about 1999... and somehow people bought houses then, so don't sit back waiting. NOW is the time to buy!
Finally, one of the first things you should do is get pre-approved with a quality lender who will discuss with you your qualifying ability and program options in today's market. Someone who has the knowledge, expertise, and full range of programs (like FHA) to bring you to a successful no surprises closing. This is never the guy on the internet posting the lowest rate, or at the call center of the big bank. A word of caution. If you are shopping for a lender based on rate, be prepared to get screwed. Be sure to read these informative articles for more information: "Rate Shopping - How to do it right", and "Lender Shopping - How to do it right".
No matter what your real estate needs are, buying or selling, with the proper guidance of full-time professional Realtor and Loan Officer, you should be able to have your dreams come true.
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Phone: (651) 552-3681
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