About Government Refinance and Home Purchase Programs

The state of Pennsylvania has been running a foreclosure prevention program in which it reportedly loans unemployed people significant amounts of money to pay their mortgages while they are out of work. A variation of the plan is now being introduced nationally as it is included in the Financial Reform Bill being worked on in the senate right now. Here is more info from a recent HousingWire article on the subject:

The Senate passed the Restoring American Financial Stability Act last week, approving a new program that would reduce mortgage payments for the unemployed.

The program would provide $3bn from the Troubled Asset Relief Program (TARP) to lend up to $50,000 to unemployed homeowners, who could reasonably resume making payments again within two years. The program was modeled after the Homeowners’ Emergency Mortgage Assistance Program (HEMAP) in Pennsylvania.

The Senate passed the bill last week but transplanted its own language into the one passed by the House of Representatives. The status of the reform is still “resolving differences.” But, lawmakers hope to have it in front of President Obama to sign by the July 4, 2010 recess.

Please fill in the contact form in the sidebar to see which programs you could qualify for.

As the euro continues to struggle more and more investors all over the world are buying US treasuries. That in turn is lowering the yield on 10-year treasury notes and that in turn is temporarily reducing mortgage interest rates. These low rates certainly won’t last forever so if you have been considering refinancing to a lower rate now is the time. Contact us in the sidebar to learn more.

In the latest attempt to help prevent foreclosures, House Democrats recently introduced a bill that would give borrowers on the verge of foreclosure the right to rent their home from the bank even after the home is foreclosed. We get this from the recent Housing Wire story on the subject:

A bill filed in the US House of Representatives would allow mortgage borrowers to remain in their homes, as renters, for up to five years after receiving a foreclosure notice.

The “right to rent” bill, House Resolution (HR) 5028, would allow borrowers to petition a judge to stay in their homes as renters under a lease for up to five years. The judge would be empowered to appoint an independent appraiser to set fair market value, which would be allowed to rise with inflation, Representatives Raúl Grijalva (D-OH) and Marcy Kaptur (D-OH) said in a joint release. The bill is an updated version of a similar bill Grijalva introduced in 2008. …

The right to rent program would be limited to homes purchased at or below the median price for its metropolitan statistical area, and must have been the borrower’s principal residence for no less than 2 years. Only mortgages originated before July 1, 2007 will be eligible.

Of course the bill has a long way to go before becoming law but it is an interesting idea.

There was a really interesting article in the NY Times recently on the growing number of struggling homeowners who have stopped paying their mortgages and are living in their homes for free until the bank evicts them. In some cases the process of foreclosing on such a home can take well over a year. Here are some quotes:

A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads. …

The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics. …

In some states, including California and Texas, lenders can pursue foreclosures outside of the courts. With the lender in control, the pace can be brisk. But in Florida, New York and 19 other states, judicial foreclosure is the rule, which slows the process substantially. …

Both generations of Pembertons have hired a local lawyer, Mark P. Stopa. He sends out letters — 1,700 in a recent week — to Floridians who have had a foreclosure suit filed against them by a lender.

Even if you have “no defenses,” the form letter says, “you may be able to keep living in your home for weeks, months or even years without paying your mortgage.”

About 10 new clients a week sign up, according to Mr. Stopa, who says he now has 350 clients in foreclosure, each of whom pays $1,500 a year for a maximum of six hours of attorney time. “I just do as much as needs to be done to force the bank to prove its case,” Mr. Stopa said.

There was an interesting piece over at the WSJ blog recently. The part that really caught my attention was the claim that some borrowers are remaining in their homes for up to two years after they stop making mortgage payments. I had heard of people staying in homes for 6-12 months but never anything like that. Clearly these sorts of things vary by region but it is another indicator of the deep hole the US housing market is trying to dig out of. Here are some excerpts from the piece:

Some borrowers remain in their homes for a year or two after they stop making payments, waiting to be ejected through a clogged foreclosure system. Around 2.6 million households are more than 90 days overdue but still not yet in the foreclosure process, which can take more than a year.

Distressed borrowers are staying put for long periods partly because the federal government has leaned on banks to try to avert as many foreclosures as possible by offering lower payments, a time-consuming process. New state laws also require banks to take more steps to determine which borrowers might be rescued. Further slowing the process, many banks and other loan servicers still don’t have enough capacity to handle all the requests from borrowers for help.


There were fears that when the Fed stopped buying mortgage-backed securities at the end of March 2010 mortgage interest rates wold shoot way up. There was some validity to those fears. When the MBS purchasing program concluded the rates on mortgages bounced up more than a quarter of a percent in the following weeks.

Since then other global factors have kicked in and mortgage rates are back down again. The main driver of the dip in rates is the troubles the European Union are facing lately. With the troubles across the pond more global investors are buying the relatively safe US treasury bills and that is in turn compressing mortgage interest rates.

The takeaway from all of this is that if you have been considering refinancing to a better mortgage interest rate contact us in the sidebar now. The current dip in interest rates is a temporary thing so rates will likely only move up from here.

Here are some more interesting excerpts from the recent press release on the progress of the HAMP program:

At the time we launched HAMP in March 2009, President Obama said that the program would “enable as many as three to four million homeowners to modify the terms of their mortgages.”

* The target of three to four million homeowners includes both agency loans (owned or guaranteed by the Government-Sponsored Enterprises, Fannie Mae and Freddie Mac) and non-agency loans.
* We have continued to report offers of trial modifications, because the offer is the servicer’s commitment to extend a trial modification subject to the borrower’s agreement. At this point, a homeowner is provided an opportunity to reduce his or her monthly mortgage payment.
* There will be fewer permanent modifications than trial modifications, as modifications are only offered permanent status once the homeowner has accepted a trial modification, has performed for at least three months in a trial modification, and has met the full documentation requirements for the permanent modification. By requiring borrowers to demonstrate their ability and willingness to meet their monthly obligations, the trial modification helps ensure that taxpayer dollars are not spent on unsustainable modifications.
* Loan modifications have a risk of re-default. Among the permanent modifications, some will re-default and that factor is incorporated into the program’s design.
* In fact, we designed our program specifically to protect the taxpayer in cases where re-default occurs payments to servicers, investors, and borrowers are conditional on actual performance over time.
* The projection of three to four million homeowners helped is based on our best estimate of the number of HAMP-eligible households that are likely to require assistance during the four-year program. The number of households that actually require assistance from HAMP during the remaining three years may diverge from our expectations if economic conditions or home prices evolve differently than projected.

More than 1.4 million borrowers have been extended a modification offer, with approximately 1.2 million of these approved offers resulting in modification trials. In a program scheduled to last nearly four years (March 2009 through December 2012), either figure places the program well on schedule to meet the goal announced by President Obama.

Contact us in the sidebar to discuss your situation.

There was a pretty useful press release at the MakingHomeAffordable web site recently. It has a lot of information but here are a few highlights:

Actions Helping Homeowners Purchase Homes, Refinance and Modify Mortgages to More Affordable Payments, Prevent Foreclosures and Stabilize Communities

The Administration has:

* Launched a modification initiative to help homeowners reduce mortgage payments to affordable levels and to prevent avoidable foreclosures. Homeowners in active modifications are saving around $500 per month on average;
* Supported temporarily expanding the limits for loans guaranteed by Fannie Mae, Freddie Mac, and FHA from previous limits up to $625,500 per loan to $729,750 to provide needed support to keep markets functioning during this crisis;
* Expanded refinancing flexibilities for the Fannie Mae and Freddie Mac loans, particularly for borrowers with negative equity. Combined with historically low mortgage rates, this has helped more than four million American homeowners to refinance, saving an estimated $150 per month on average and more than $7 billion cumulatively in the past year;
* Launched a $23.5 billion Housing Finance Agencies Initiative which is helping more than 90 state and local housing finance agencies (HFAs) across 49 states provide sustainable homeownership and rental resources for American families;
* Supported the First-Time Homebuyer Tax Credit, and the subsequent extension and expansion of the credit to also assist move-up buyers, which has helped hundreds of thousands of responsible Americans purchase homes.
* Through the Recovery Act, provided over $5 billion in support for affordable rental housing through low-income housing tax credit programs and $2 billion in additional support for the Neighborhood Stabilization Program (NSP), on top of the first round of $4 billion of NSP funds, to restore neighborhoods hardest-hit by concentrated foreclosures; and
* On February 19, 2010, announced the $1.5 billion HFA Hardest-Hit Fund for five state HFAs in the nation’s hardest-hit housing markets to design innovative, locally targeted foreclosure prevention programs. On March 29, 2010, we announced a $600 million expansion of that program for an additional five HFAs.

Contact us in the sidebar if you would like to discuss your situation.

There is a foreclosure prevention plan on the table in California that has the government matching principal write-downs offered by banks. Here are some details from a recent WSJ piece on the subject:

California’s proposal would limit aid to low-to-moderate income borrowers and those with loans of less than $730,000. The initiative offers homeowners up to $50,000 in assistance through four different programs:

* Principal write-downs for underwater borrowers, or those that owe more than their properties are worth. Lenders would be required to match write-downs on a dollar-for-dollar basis and loan balances would be reduced over three years. Borrowers would have to prove that they faced hardship and that they could afford modified loan payments after a write-down. The California Housing Finance Agency estimates that around 5,500 households would be able to participate. (Around $427 million would be used for this program.)
* Up to $15,000 for borrowers who are able to make their mortgage payments but who had temporarily fallen behind on their payments and are facing foreclosure as a result of late payments. The state would spend around $130 million on that program, and officials estimate that it could reach 17,000 borrowers.
* Subsidize mortgage payments for borrowers who are temporarily unemployed and therefore unable to make their mortgage payments. Funds would be limited 50% of monthly mortgage payments up to $1,500 and would be provided for up to six months. The state estimates that around 9,000 borrowers would be eligible for that program. Some $65 million would fund this effort.
* Provide up to $5,000 in relocation assistance to homeowners who hand in their keys voluntarily under a “deed-in-lieu” of foreclosure or a short sale, where a home is sold for less than the amount due. Officials estimate that around 6,500 borrowers could participate at a cost of around $33 million.

As industry insiders have known for a long time, when it comes to getting a loan modification working with a bank tends to be easier than working with a loan servicing company. This is partially because loan servicing companies have less authority to make decisions about modifications. But it is also partially due to laziness and/or ineptitude in other cases. Treasury Secretary Timothy Geithner promised to do more to crack down on loan servicers that aren’t doing enough to help people avoid foreclosure. Here is a bit from a recent Reuters article on the topic:

U.S. Treasury Secretary Timothy Geithner on Thursday slammed mortgage service companies for failing to do enough to help Americans avoid losing their homes and promised to crack down on shoddy practices.

“We do not believe servicers are doing enough to help homeowners — not doing enough to help them navigate the difficult and frightening process of avoiding foreclosure,” Geithner said in prepared remarks for delivery to a Senate appropriations subcommittee.

He said Treasury was “troubled” by reports that servicers had done things like foreclose on homeowners who were potentially eligible for relief under the government’s Home Affordable Mortgage Program, lost documents or claimed to have done so and even steered troubled homeowners away from available assistance.

“None of this is acceptable,” Geithner said, adding that Treasury was doing “targeted, in-depth compliance reviews” to make sure that servicers were acting in good faith.

There was an informative report over at Housing Wire on the recommendations that recently came out of a House finance committee regarding FHA mortgages. Here are some excerpts:

The House Financial Services Committee approved a bill to increase capital reserves in the Federal Housing Administration (FHA) and reduce risks to its insurance fund. The bill will now move to the House floor for debate.

The bill would amend the National Housing Act by increasing the cap of annual premium payments collected by the FHA from 0.50% to 1.5%. It would also hold approved lenders accountable for the FHA loans they write. Under the new bill, if the FHA pays out a claim on a mortgage it finds did not meet its underwriting standards or detects fraud involved with the origination of the loan, it could require that lender to pay reparations for the loss to the insurance fund.

The bill also widens the authority of the FHA to terminate its approval of lenders to write its insured mortgages. If the FHA finds a lender has an excessive rate of early defaults and claims, it could remove the lender approval for any area in the country not just within its region.

Basically they are talking about tripling the monthly PMI fees for FHA loans going forward. I doubt the bill will get much traction if the goal is to keep FHA loans popular. Tripling FHA PMI fees would make FHA loans a very undesirable option for borrowers — especially when combined with the other fee increases that have been implemented recently.

Nevertheless, if you are interested in an FHA loan it may be wise to contact us sooner rather than later because even if this bill does not become law FHA loan could become more expensive this year one way or another.

There was a lot of concern that when the Fed stopped purchasing mortgage backed securities on March 31, 2010 that it would spell the end of the low mortgage interest rates we have enjoyed for more than a year. To the surprise of many, rates have remained relatively low through most of April with rates on 30 year fixed loans still available as low as 5% in some cases. That is terrific news for anyone looking to refinance from an ARM that is about to reset to a fixed rate loan. In addition, folks who need to lower payments in the short run but plan to sell their home in the next few years can look at ARM’s with rates in the 3’s and 4’s right now.

Contact us in the sidebar to learn more about the conventional and government-backed refinance options available.