About Government Refinance and Home Purchase Programs

After rising fairly steeply since the end on 2010, interest rates on government-backed mortgages finally dipped a bit over the last several weeks. In the latest few weeks the turmoil in Libya has caused a domino effect started with a falling stock market which in turn increased demand for US treasury bonds which helped lower mortgage interest rates slightly.

Even after the rise in rates over the winter, rates are still surprising low by historical standards. For that reason the recent dip in rates is not likely to hold for long. The Fed and Obama administration have gone to great lengths to compress interest rates for around two years now. But those efforts won’t last for ever and there are signs that they are slowly losing effectiveness. The result will likely eventually be 30-year mortgage rates at more than 6% like we saw just a few years ago. When rates increase like that many people with adjustable rate mortgages will see their payments go up by hundreds of dollars per month. But in the meantime rates are still very low.

If you have an adjustable rate mortgage or if you have a fixed rate mortgage that is higher than you want, contact us in the sidebar right away before interest rates start their upward climb again. One of our counselors can point you in the right direction to take advantage of the government-backed refinance programs that are available.

Republicans in the US House of Representatives would like to end several government sponsored foreclosure prevention programs saying the programs are ineffective. We get this from a recent report published at the Miami Herald:

The House is scheduled to vote this week on getting rid of a refinance program for Federal Housing Administration loans and another program, scheduled to begin next month, that would help homeowners with delinquent payments.

The House Financial Services Committee is expected to vote Wednesday morning on ending two other measures: One of them is a massive effort that was designed to adjust up to 4 million mortgages but so far has tackled just half a million successfully. The other is the Neighborhood Stabilization Program, which steers money to communities hit hard by foreclosures

However it appears that such a vote would end up being symbolic only because there is virtually no chance such a law would get past the Democratics in the Senate or President Obama.

Principal reductions have thus far been more of a myth than a reality in the marketplace. The problem is that banks aren’t anxious to forgive debts. As a result the programs that require banks to write down principal like the FHA short refi program have been major flops so far. But Bank of America has recently announced that it will increase the number of loan write-downs it does in certain hard hit states. We get this from a recent HousingWire article:

Bank of America sent letters to Arizona homeowners who may qualify for mortgage assistance, including a principal writedown, under the Treasury Department’s Hardest Hit Fund.

In June 2010, the Obama administration released $1.5 billion in foreclosure prevention funding for states hardest hit by home price declines. BofA said Wednesday the write downs will go to homeowners experiencing financial hardship and owe considerably more on the mortgage than the property is worth.

It is still unclear what would persuade the folks at BofA to write down the principal on a loan. In all likelihood it would require a situation where a borrower is significantly late on payments and on the verge of foreclosing anyway. In such a case the bank may decide that it would be less expensive to write down the principal and keep the occupants in the house than it would be to proceed with a foreclosure, an eviction, and then the process of listing and selling the foreclosed property.

In any case, principal write-downs are still the exception rather than the rule. And they remain entirely at the discretion of the lenders.

However, borrowers who currently have an FHA loan or who have conventional loan backed by Fannie Mae or Freddie Mac still have refinance options even when they owe more than the home is worth. While refinancing doesn’t reduce the principal it can reduce payments. In addition, borrowers control their own destinies with refinances whereas loan modification requests (including requests for principal reductions) leave borrowers at the mercy of the lender.

Contact us in the sidebar for more information.

There was recent news that Warren Buffett is bullish on the US housing market and is investing in it on the belief that falling housing priced in the US will change course within a year and start heading back upward again. Here is a bit from the HousingWire piece on the subject:

Warren Buffett anticipates a recovery in the housing market to begin within one year and the investment guru said in his biennial letter to investors that mortgages written by his subsidiaries performed better than most of the competition through the financial crisis.

Buffett said the recovery hinges on durable, common sense underwriting based on affordability for mortgage borrowers. …

He added that as the housing market pushes toward a recovery, home ownership can still make sense for many Americans with lower prices and interest rates. Future housing policy, he said, should be sculpted from lessons learned during the downturn.

“But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy,” Buffett said. “Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.”

A recovery in housing prices is good news for US homeowners. Of course odds are that mortgage interest rates will be significantly higher next year at this time than they are now. Contact us in the sidebar if you would like to learn about the government-backed refinance programs that are available now.