About Government Refinance and Home Purchase Programs

Congress is apparently becoming fed up with banks resistance to modifying loans for struggling homeowners. Here are some excerpts from a recent AP story on the subject:

Only one in three homeowners who have signed up for the Obama administration’s mortgage relief plan have sent back the necessary paperwork, highlighting continuing problems for the government’s effort to stem the foreclosure crisis.

The poor results from the mortgage industry drew sharp criticism from House Financial Services Committee members Tuesday. Since the program was launched in March, lenders have made loan modification offers to just 680,000 borrowers, far short of the administration’s goal of up to 4 million.

“Taxpayer-funded foreclosure mitigation programs have been an abject failure,” said Rep. Jeb Hensarling, R-Texas, at a hearing on the program. “Throwing more money at programs that do not work is absolutely insane.

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Much of the criticism for the disappointing results is being leveled at the banks, many of which received billions in taxpayer bailout dollars. Calls are growing louder on Capitol Hill for the Obama administration to take a tougher approach.

“We haven’t spanked anybody,” said Rep. Emanuel Cleaver, D-Mo. “I think they’ve come to the conclusion that spankings are not on the agenda … Why can’t we do something to one of them?”

Herbert Allison, the Treasury Department’s assistant secretary for financial stability, said punishment could be in the works.

The Fed announced it is going to launch a program in 2010 that encourages lenders to agree to more short sales on homes. See the pdf of the announcement here. Here are some excepts as well.

Foreclosure Alternatives
The HAFA program simplifies and streamlines the use of short sale and DIL options by incorporating the following unique features:

-Complements HAMP by providing viable alternatives for borrowers who are HAMP eligible.

-Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.

-Allows the borrower to receive pre-approved short sale terms prior to the property listing.

-Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement.

-Requires that borrowers be fully released from future liability for the debt.

-Provides financial incentives to borrowers, servicers, and investors.

Timing & Eligibility

Servicers — Supplemental Directive 09-09 is effective April 5, 2010, but participating servicers may elect to implement HAFA prior to April 5, 2010, in accordance with the Supplemental Directive. In order to participate in HAFA, a servicer must have executed a HAMP Servicer Participation Agreement (SPA) by December 31, 2009. (The HAMP SPA is available for review on HMPadmin.com.)

Borrowers — Servicers must consider a HAMP-eligible borrower for HAFA in accordance with their policies within 30 calendar days of the date the borrower:

-Does not qualify for a HAMP Trial Period Plan,

-Does not successfully complete a HAMP Trial Period Plan,

-Is delinquent on a HAMP modification by missing at least two consecutive payments, or

-Requests a short sale or DIL.

Note: A borrower must be considered for a HAMP modification and other retention programs offered by the servicer prior to being considered for HAFA.

There was a pretty good article over at the Washington Post on the tightening of FHA lending guidelines coming down the road. Here are some excerpts:

— Higher down payments. The FHA’s current minimum cash down payment is 3.5 percent. On a $200,000 house, a buyer can bring as little as $7,000 to the table, aside from closing costs. A purchase of a $500,000 house in a high-cost area requires only $17,500 in cash.

Critics say 3.5 percent does not force purchasers to have enough “skin in the game” to discourage them from missing payments or risking foreclosure. Rep. Scott Garrett (R-N.J.) introduced legislation last month requiring a minimum 5 percent down payment for all future FHA loans. …

With the reserve funds for the FHA dwindling there is growing speculation that the FHA may need to raise its fees to stay in the black during these tough times in the housing market. Many of the possible fee hikes will affect home buyers mostly — hikes in the minimum down payments for instance. But other possible changes could affect refinances as well. Among the ideas being considered are possibly raising the mortgage insurance fees (currently at 1.75% up front and .55% annually) or even raising the minimum credit score requirements (currently at 620 for most lenders). Whatever the case, with rates likely to increase soon anyway, now is the time to look into refinancing. Contact us in the sidebar if you think you are a candidate for a government-backed refinance.

According to recent figures, about 10% of all US mortgages are more than 30 days late on payments in Q3 2009 and more than 4% are in some stage of foreclosure. Here is an excerpt from an article from CNNmoney.com on the subject:

Mortgage borrowers are still falling behind on their payments in record numbers, despite the many foreclosure prevention efforts initiated by the government and nonprofts.

In the third quarter, 9.64% of all mortgage loans were delinquent, according to a report released Thursday by Mortgage Bankers Association. That represents 4.5 million borrowers and is an increase from 9.24% in the prior three months.

“Despite the recession ending in mid-summer, the decline in mortgage performance continues,” said Jay Brinkmann, MBA’s chief economist. “Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP.”

The new head of HUD speculated that FHA mortgage insurance premiums may need to increase in the future in order to keep the FHA from going in the red. Here are some bits from a recent Bloomberg article on the subject:

Insurance premiums for mortgages guaranteed by the Federal Housing Administration may rise as the Obama administration looks for ways to shore up the agency’s finances, Housing and Urban Development Secretary Shaun Donovan said.

“It’s likely that you’ll see further changes in the coming months,” Donovan said in an interview following an event today in Washington held by Bloomberg Ventures, a unit of Bloomberg LP, parent of Bloomberg News. “A number of the steps that we are looking at that are possible around the mortgage insurance premium would help to accelerate FHA stepping back as the private market returns.”

Donovan said FHA will likely make program recommendations when it submits its budget request for fiscal 2011 to the president and Congress early next year.

The folks over at Zillow.com reported that the number of Americans who owe more on their mortgages than their homes are worth actually decreased in the third quarter. Here is an excerpt from the CNNmoney.com story on the subject:

Fewer people are underwater on their mortgages — further evidence that the real estate free-fall may be slowing.

Just 21% of all single-family homeowners owe more on their mortgage balances than their homes are worth, according to a third quarter residential real estate report from Zillow.com. That is down from 23% at the end of the second quarter.

That is good news because it should help reduce the number of homeowners losing their homes to foreclosure. Being underwater is one of the two factors that lead to foreclosure, the other being, of course, not having enough income to make the monthly payments.

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But there’s a second, less-positive factor that contributed to the reduction in underwater borrowers: foreclosures. So many people have already lost their homes that the ranks of those underwater is slowly dwindling.

And that highlights one of the most serious concerns that housing markets currently face. “Foreclosure rates,” said Humphries, “are ramping up again.”

Here is an excerpt from the Housing Wire story in the subject:

President Barack Obama signed the “Worker, Homeownership and Business Assistance Act of 2009” into law on Friday, extending the first-time homebuyer tax credit as well as certain jobless benefits…

With the first-time homebuyer tax credit originally scheduled to expire on Dec. 1, 2009, HR 3548 now allows first-time buyers to claim 10% of the purchase price of their home, up to $8,000 for single or married taxpayers filing jointly, if they close on the purchase by midnight June 30, 2010. Taxpayers must purchase or be locked into a contract to close before midnight on April 30, 2010.

Good news for anyone looking to buy or sell a home right now: The tax credit for purchasing homes has been extended. See excerpts from an AP story below and contact us in the sidebar if you would like to participate in this program:

Buy a home before May 1 and collect up to $6,500 from the government. If you’re a first-time homebuyer, get up to $8,000.

As part of the government’s efforts to encourage people to spend money to help revive the economy, the House voted 403-12 Thursday to expand a popular tax credit for homebuyers. The bill, which also extends unemployment benefits and expands a tax break for money-losing businesses, now goes to President Barack Obama, who plans to sign it Friday.

First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package. But with that housing program scheduled to expire at the end of November, the House voted to extend it into the spring — and to expand it to many people who already own homes.

Buyers who have owned their current homes at least five years would be eligible, subject to income limits, for tax credits of up to $6,500. First-time homebuyers — or people who haven’t owned homes in the previous three years — could get up to $8,000. To qualify, buyers have to sign purchase agreements before May 1 and close before July 1.

With the increased loan limits on FHA and Fannie Mae/Freddie Mac loans set to expire at the end of 2009, congress passed a resolution extending the loan limit increase for another year. The loan limit increase is seen as crucial to keep the economic recovery on track and to bolster home sales and refinances throughout the country. President Obama is expected to sign the resolution next week.

There was an interesting article over at Business Week recently speculating on how soon mortgage interest rates will go up. The short answer is this author thinks we might have relatively low rates through the winter. Here are some excerpts:

When the economy—and the real estate market—tumbled in 2008, the Fed stepped in to lower interest rates. As we have seen throughout history, lower interest rates makes housing more affordable, increase the likelihood of transactions, and ultimately produce stabilization in the residential real estate market. A major clue to where the residential real estate market is headed lies in the question of where interest rates might be headed.

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You and I aren’t the only ones doing the watching. If you see the 30-year mortgage rate start to climb relative to other interest rates, it’s a sure indication that your friendly neighborhood mortgage broker thinks a Fed rate hike is on its way—and that mortgages rates will climb.

So if you are thinking of buying or refinancing a home, this is a pretty good time to move, before rates begin to rise again.

There have been several changes to the FHA rules lately. One of those changes will make it harder for consumers to purchase condos with an FHA loan. Here is an excerpt from a recent Bankrate.com/Detroit News article on this subject:

The new rules were supposed to take effect Oct. 1. But the FHA has announced it would delay implementation of the new rules until Nov. 2, and says it might modify some of the policies.

Of the several new rules and requirements, there are four that most directly affect people who want to buy condos with FHA-insured mortgages:

– “Spot approvals” are eliminated, and now the entire condominium project has to meet FHA approval before a borrower can get an FHA-insured loan.

– A maximum of 30 percent of the units can have FHA-insured mortgages (there was no such limitation previously).

– Before the FHA will insure a mortgage on a condo, at least half the units must have already been sold (again, there was no such limitation previously).

– At least half of the project’s owners will have to occupy their units, down from 51 percent.