About Government Refinance and Home Purchase Programs

The number of homeowners in default (more than 30 days late) on their mortgage payments dipped in California in the first quarter of this year. Here are some bits from the AP story on the subject:

Mortgage default notices for California homeowners fell 4 percent in the first quarter of the year, another sign that foreclosures could be easing in lower-cost areas, a research firm said Tuesday.

County officials recorded 81,054 notices of default — the first step in the formal foreclosure process — during the January-to-March period, according to San Diego-based MDA DataQuick.

The number is down from 84,568 default notices in the fourth quarter of 2009 and 135,431 in the first quarter of 2009, when the filings peaked. …

Though fewer homes are entering the formal foreclosure process, financial distress among California homeowners remained high. However, more lenders are modifying home loans or allowing short sales in which lenders agree to accept less than what a homeowner owes on the mortgage

There was an interesting piece in the NY Times recently on the future of interest rates in the US. Here’s the short version: They’re going up. In fact the article predicts the lowest mortgage interest rates available by the end of 2010 will be about 6%. That means anyone with an ARM is going to find their payments going way up soon. If you are in an ARM loan that you are worried will shoot up soon contact us in the sidebar to look at refinancing into a low fixed rate mortgage. Here are some excerpts from that article:

Even as prospects for the American economy brighten, consumers are about to face a new financial burden: a sustained period of rising interest rates.

That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.

A government watchdog group released a report yesterday saying that the new changes to government foreclosure prevention plans open cracks for consumers to be scammed and for the government to be scammed by banks. Here are some excerpts from the recent AP article on the topic:

Last month, the Treasury Department revised the $75 billion mortgage assistance program it first rolled out last year. It is intended to prevent 3 million to 4 million home foreclosures by encouraging mortgage lenders to lower monthly payments.

So far only about 170,000 homeowners have qualified for mortgage modifications and critics charge the effort isn’t making much headway. In a report last month, Barofsky’s office said that a lack of planning and shifting rules on who qualifies has slowed the program’s progress.

In response to the criticisms, the administration made several changes. Mortgage lenders will receive incentive payments if they reduce the amount borrowers owe. That would help homeowners with mortgages larger than their homes are worth — a situation known as being “underwater.”

In addition, unemployed homeowners can get their mortgage payments cut to 31 percent of their income for three to six months.

In his report, Barofsky called the changes “a potentially important step forward for homeowner relief.”

But, while the changes were announced “with great fanfare, little was done at the time to warn borrowers” about potential fraud, the report said.

A recent article over at the New York Times reported that the number of homeowners who default on their mortgages after receiving a loan modification has been increasing. Here are some highlights from that piece:

The number of homeowners who defaulted on their mortgages even after securing cheaper terms through the government’s modification program nearly doubled in March, continuing a trend that could undermine the entire program.

Data released Wednesday by the Treasury Department and the Housing and Urban Development Department showed that 2,879 modified loans had been ended since the program’s inception in the fall, up from 1,499 in February and 1,005 in January.

The Treasury Department said it could not explain the growing number of what it called cancellations, almost all of which were apparently prompted by the borrower’s being unable to make the new payment. A scant number — 37 — were because the loan had been paid off, presumably because the borrower sold the house.

About seven million households are behind on their mortgage payments.

As predicted, the exit of the Fed from the mortgage backed securities market has resulted in higher mortgage interest rates. In the last week or so rates on 30 year fixed mortgages have increased about a quarter of a point (from around 5% to around 5.25% for premiere borrowers). Still, rates in the mid to low 5’s are extremely low historically and rates will inevitably be rising much further at some point in the future so if you have an adjustable rate mortgage it might be wise to consider refinancing to a fixed rate mortgage now while you can still get a 30 year fixed loan in the mid to low 5’s.

Further, if you need a loan modification or if you have substantial credit card or medical bills or other unsecured debts contact us in the sidebar for advice on how to ease some of those burdens.

Several executive from some of the big banks were on Capitol Hill today and among the things they revealed is that banks are not at all anxious to start giving money away and forgiving mortgage debts for consumers. We get this from the AP article on the topic:

Top banking industry executives are skeptical about helping troubled borrowers by forgiving a portion of their debt.

The executives told lawmakers on Tuesday they are reducing the amount that troubled borrowers owe on their home loans only in limited cases. That’s because consumers who are paying their mortgages on time are likely to see such reductions as unfair, the executives said.

Such programs “could raise issues of fairness,” agreed Sanjiv Das, Citigroup’s top mortgage executive, who appeared in front of the House Financial Services committee with top executives from Bank of America, Wells Fargo & Co. and JPMorgan Chase.

David Lowman, chief executive of Chase’s mortgage business, told lawmakers that large-scale mortgage principal reduction “could be harmful to consumers, investors and future mortgage market conditions.”

Basically it is going to be business as usual. Banks are going to do what their shareholders require them to do — make as much money as possible. That means that borrowers who want to sell short or get a loan modification or a principal reduction need to demonstrate to the banks why that is a win-win proposal. In other words, if there is nothing in it financially for the bank they probably won’t be interested. In cases where borrowers are underwater there sometimes is something in it for banks though. Foreclosing on homes is expensive for banks to begin with so when the borrower is upside down it gets even more expensive. In those cases borrowers who show they aren’t bluffing about walking away tend to have a lot more leverage at the negotiating table.

Contact us in the sidebar to learn about the programs that are available that might help you.

It is hard to tell if these sorts of things are only for show, but Chase is holding foreclosure prevention events that presumably deal with their loan modification programs. We get this from a recent HousingWire article:

JPMorgan Chase will host borrower outreach programs at 51 Chase Homeownership Centers in an effort to help struggling homeowners current on payments and avoid foreclosure.

Yesterday, Chase announced the opening of its 11th Homeownership Center in Florida. The firm published a list today of multi-day outreach events to be conducted in eight major US markets in 2010. Up to 40 Chase counselors will work with homeowners for up to 12 hours a day for four to five days at each event, many based in the centers.

Borrowers applying for a mortgage modification also receive short-sale assistance at the events. Those already in the modification process can drop off documents and sign final modification papers.

The multi-day events began in Florida, where counselors met with 3,200 borrowers. Chase said half of the homeowners spoke with counselors after less than 10 minutes. According to Chase, 75% of them said the experience was “excellent,” while another 12% said it was “very good.”

The Obama administration today announced a new plan that would pay people to sell their homes for less than they owe, a process known as selling short, rather than foreclose. In addition, lenders will need to follow rules that expedite the whole process. Here are some excerpts from the AP story on the announcement:

The government launched a new effort on Monday to speed up the time-consuming, often-frustrating process of selling your home if you owe more than it’s worth.

The Obama administration will give $3,000 for moving expenses to homeowners who complete such a sale — known as a short sale — or agree to turn over the deed of the property to the lender. It’s designed for homeowners who are in financial trouble but don’t qualify for the administration’s $75 billion mortgage modification program.

Owners will still lose their homes, but a short sale or deed in lieu of foreclosure doesn’t hurt a borrower’s credit score for as much time as a foreclosure. For lenders, a home usually fetches more money in a short sale than a foreclosure. And the bank avoids expensive legal bills, cleanup fees and maintenance costs that follow a foreclosure. …

For more than a year the Fed has been buying up billions of dollars worth of mortgage backed securities. Essentially that means that when banks lend money on mortgages they have been able to bundle those mortgages and sell them on the market (mostly to the Fed) and thus free up funds to offer more mortgages. Well the Fed is officially out of the market of buying these mortgage-backed securities (MBS’s) as of today. As a result banks will have fewer buyers of the loans on their books and thus they might have less money available to lend. The end result is expected to be that mortgage rates will be heading up. The big question now is how much will rates change? We shall soon find out but many analysts are expecting rates to only jump about a 0.25%

Here are some excerpts from a recent Business Week article on the topic:

Yields on Fannie Mae and Freddie Mac mortgage securities jumped by the most relative to benchmark rates in five weeks as the Federal Reserve’s unprecedented buying of housing debt drew to a close today.

Spreads on agency mortgage bonds will widen “a bit” and become more volatile after the end of the Fed’s daily purchases, though they probably won’t expand more than 0.2 percentage point, Curtis Arledge, chief investment officer of fixed income at New York-based BlackRock Inc., said today in an interview with Bloomberg Television.

“It’s been one of the more telegraphed changes we’ve seen in a long time,” said Arledge, who oversees about $590 billion at the world’s largest money manager. “The marketplace has positioned itself for the Fed to be absent.”

The latest installment of government refinance assistance programs was unveiled today. We get this from the AP story on the subject:

After months of criticism that it hasn’t done enough to prevent foreclosures, the Obama administration announced on Friday a plan to reduce the amount some troubled borrowers owe on their home loans.

The multifaceted effort will allow people who owe more on their mortgages than their properties are worth to get new loans backed by the Federal Housing Administration, a government agency that insures home loans against default. …

Rumors are swirling today that the Obama administration will soon unveil a new plan designed to help people who owe more on their mortgages than their homes are worth. Here are some bits from the recent AP story on the subject:

The Obama administration will announce Friday a plan to reduce the amount some troubled borrowers owe on their home loans, after months of criticism that it hasn’t done enough to prevent foreclosures.

The plan will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, people briefed on the plan said. It would be funded by $14 billion from the administration’s existing $75 billion foreclosure-prevention program. …

The plan also will require the more than 100 mortgage companies participating in the administration’s program to consider slashing the amount borrowers owe. They will get incentive payments if they do so. The plan also is expected to include at least three months of temporary aid for borrowers who have lost their jobs.

With so many US homeowners underwater on their mortgages and so many homeowners defaulting, Bank of America has decided to start a principal reduction program. It appears that B of A has decided it would be less expensive to reduce principal in some cases than to go through the trouble and expense of foreclosure. Here is a bit from the AP story on the subject:

Bank of America is taking a major step to help some of its most troubled mortgage borrowers. The bank says it will forgive up to 30 percent of some customers’ loan principal.

The bank has said Wednesday it will start forgiving principal for homeowners who owe more than 120 percent of their home’s value.

The plan, to begin in May, is among the first by a U.S. mortgage lender that takes a systematic approach to reducing mortgage principal when home values drop well below the amount owed. The effort is aimed at preventing foreclosures.