About Government Refinance and Home Purchase Programs

Mortgage rates have jumped more than half of a percent in the last week or so and continued to rise today. A number of factors in the markets are contributing to the rise. For now the days of mortgages at or below 5% appear to be gone. Now is the time to refinance if you have been thinking about it befor rates get back above 6% again.

Here are some quotes from a recent CNNmoney.com article on the subject:

Home mortgage rates jumped in the most recent week, pulled higher by rising Treasury yields, according to a report released Thursday.

The average 30-year fixed mortgage rate rose to 5.45% in the week ended Wednesday, up from 5.24% last week, according to a weekly national survey from Bankrate.com.

“Investors’ nerves were rattled by a potential General Motors bankruptcy and a week of substantial government borrowing,” which “agitated would-be bond investors,” the report said.

Mortgage rates move in tandem with Treasury yields. In particular, the 30-year fixed mortgage rate tracks the benchmark 10-year Treasury yield. In recent days, that benchmark yield has spiked to levels not seen since November 2008.

…

Even as mortgage rates continue to rise, they still remain much lower than last year, when the average 30-year fixed mortgage rate was 6.20%, according to Bankrate.com.

Mortgage rates have been getting significantly worse in the last week or two as the yield of the 10-Year Treasury Note has rocketed up nearly a full percentage point in the last month or so. The Fed has been doing its best to compress interest rates but we all knew it could not last forever. It remains to be seen if this increase in rates is temporary or if the historic lows in mortgage interest rates have seen their last days.

In any case, while rates are off their lows they are still very good so if you are considering refinancing now is the time to contact us before they go up even further.

Some people are predicting housing prices are bottoming out, others think housing prices will continue to fall for another year or two. If we had to bet, we’d lean toward a 2010 bottom.

Here are a couple of links related to this subject. A pessimistic view is found in this video. The argument on the pressures that should continue compressing housing prices over the next year are pretty compelling.

Here is a recent Reuters article with a similar view. Here are some quotes:

Existing home sales probably won’t reach pre-boom levels until the third quarter of 2010 and housing starts won’t surpass 1 million until 2011, a barrier last broken six decades ago, the economists said.

“There are very few V-shaped recoveries in the history of real estate, and this one is likely to be even slower because of the size of the bubble,” said Robert Shiller, the Yale University professor who, with economist Karl Case, created home price indexes in the 1980s now used by Standard & Poor’s.

In comments today Federal Reserve Chairman Ben Bernanke was optimistic in his outlook for the housing market and for the overall economy. Here are some excerpts from a Reuters article on the testimony Bernanke gave before Congress today:

Federal Reserve Chairman Ben Bernanke said on Tuesday the three-year U.S. housing bust may be near a bottom and the recession should end this year, as long as there is no relapse of the credit squeeze that has strangled the economy.

…

“We continue to expect economic activity to bottom out, then to turn up later this year,” Bernanke told the congressional Joint Economic Committee.

“An important caveat is that our forecast assumes continuing gradual repair of the financial system; a relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall.”

While the government-backed loan modification efforts are indeed up and running, those efforts are not without difficulties still. There was a good article recently over at CNNmoney.com outlining some of those snags. Here are some bits from that article:

Loan servicers are overwhelmed by the flood of applications. Mortgage investors are angry about a congressional bill prohibiting them from suing servicers that modify loans. Foreclosures are rising as unemployment soars.

Nearly three months after President Obama first announced his $75 billion mortgage rescue effort, his administration is still refining the program in hopes of reaching its goal to save 9 million homeowners from foreclosure.

There was an interesting article in the New York Times on the slowish start the Obama’s new Home Affordable loan modification is off to. Here are some bits from that piece:

The Obama administration’s plan to help millions of troubled homeowners avoid foreclosure by reducing the size of their mortgage payments is just getting off the ground.

So far, two months after the program went into effect, about 55,000 homeowners have been extended loan modification offers, according to a senior administration official. At the same time, foreclosures continue apace. RealtyTrac reported Wednesday that foreclosure filings reached 342,000 last month, up 32 percent from April 2008. Moody’s has estimated that more than 2.1 million homeowners will lose their homes this year.

There was an interesting article on the AP this morning about the speed at which home prices are dropping in the US in ’09. Here are some quotes:

Home prices fell in nearly nine out of every 10 U.S. cities in the first quarter of this year as first-time buyers looking for bargains dominated the market.

The National Association of Realtors said Tuesday that median sales prices of existing homes declined in 134 out of 152 metropolitan areas compared with the same period a year ago. Prices rose in the other 18 cities. …

“I think we’re near a bottom, but we’re not there yet,” said David Resler, chief economist at Nomura Securities. While prices could hit bottom as soon as this summer, he said, they are likely to remain stable and start edging higher slowly.

But the nascent signs of recovery in the housing market could be short-lived if employers continue to lay off workers in bulk. …

the median sales price nationwide was $169,900, down 13.8 percent from a year ago. The median price is the midpoint, which means half of the homes sold for more and half for less.

If you have an interest rate of 6% or higher and still have any equity left in your home we recommend you contact us immediately to look into a refinance while rates remain at historic lows.

There was a good article over at the Boston Herald recently noting that mortgage rates have been moving back up over the last few weeks. There is a decent chance that the botton has passed us already. So if you are thinking about a refinance contact us now before the rates go even further up.

Here are some excerpts from that piece:

Procrastinators beware: Mortgage rates are beginning to rebound from record lows as the U.S. economy shows more and more signs of stabilizing.

“Rates are still low, but they’ve moved up from the super-low point they hit a few weeks back,” said Greg McBride of market-tracker Bankrate.com. …

Rates began moving upward Thursday after federal officials reported a drop in initial jobless claims and announced that most big U.S. banks had passed new government stress tests.

The new bill the Senate just overwhelmingly passed does a couple of very important things that ought to make loan modifications much easier to obtain soon. The most important thing it does is protect loan servicers from being sued if by their investors for modifying loans. Right now many loan servicers must answer to investors and as a result they are in danger of being sued if they modify loans for borrowers in trouble. The net result of this fear is a lot of borrowers are being turned down for loan modifications and that leads to more foreclosures and that leads to further declines in the housing market. The new bill grants servicers protection from these lawsuits. That ought to lead to a lot more loan modifications if it passes.

Here is a link to the bill (S 896) summary and a few quotes:

Shields servicers from liability for implementing mortgage loan modifications or loss mitigation plans if they are in compliance with fiduciary duties required by the Truth in Lending Act (including any refinancing undertaken pursuant to standard loan modification, sale, or disposition guidelines issued by the Secretary of the Treasury).

Amends the National Housing Act to modify the HOPE for Homeowners Program (HOPE).

Authorizes the Secretary to establish a payment of up to $1,000 per insured loan to the loan servicer of the existing senior mortgage for every loan insured under HOPE.

There was an article over at the WSJ on the ever increasing number of people who owe more on their mortgages than the value of their home. If you still have equity in your home and an interest rate of 6% or higher contact us today to look into a refinance.

Here are some excerpts from the piece:

The downturn in home prices has left about 20% of U.S. homeowners owing more on a mortgage than their homes are worth, according to one new study, signaling additional challenges to the Obama administration’s efforts to stabilize the housing market.

The increase in the number of such “underwater” borrowers comes amid signs that falling prices are making homes more affordable for first-time buyers and others who have been shut out of the housing market. But falling prices also make it more difficult for homeowners who get into financial trouble to refinance or sell their homes, and for others to take advantage of lower interest rates.

…

Real-estate Web site Zillow.com said that overall, the number of borrowers who are underwater climbed to 20.4 million at the end of the first quarter from 16.3 million at the end of the fourth quarter. The latest figure represents 21.9% of all homeowners, according to Zillow, up from 17.6% in the fourth quarter and 14.3% in the third quarter.

There was a useful article that came out in the AP this week on some details of refinancing into a lower mortgage rate. Here are a few excerpts:

Q: So, can I get a mortgage with a 4.78 percent rate?

A: Not necessarily. There are several reasons that borrowers may not get the low rates they expect.

First, consumers must realize that Freddie Mac reports average rates, which should not be thought of as a standard, industrywide number.

Second, a rate can change several times during the day due to fluctuations in the market — it could be 5.5 percent in the morning and increase to 5.75 percent in the afternoon.

Loan rates also vary by type. For instance, Freddie Mac’s survey showed Thursday that the average rate on a 15-year fixed-rate mortgage was 4.48 percent this week, lower than the 30-year fixed mortgage. And the size of the loan can affect the interest rate — “jumbo loans,” ones taken out for expensive homes, are becoming harder to get and carry higher rates than loans for $729,000 or less, for example.

…

Q: What if I manage to snare a mortgage rate in the 4.78 percent range — are there other costs to worry about?

A: There most certainly are.

One aspect of mortgages that can confuse borrowers is points, or fees. Points vary by lender: Some are paid at the time of application, others at closing. Higher fees mean more cost to the consumer, and could outweigh the benefit of a relatively low interest rate.

Some fees, like title insurance, are negotiable, so don’t be shy about trying to get them reduced.

Here is the pdf of the fact sheet on the new program announced yesterday to help people modify their second mortgages. Below are some important excerpts:

We estimate up to 50 percent of at-risk mortgages currently have second liens. By offering homeowners a way to lower payments on their second mortgages through our Second Lien Program, we may potentially reduce payments further for up to 1 to 1.5 million homeowners, accounting for up to 50 percent of participants in the Home Affordable Modification Program, as well as maximize the effectiveness of our first lien modification program. The program ensures that first and second lien holders are treated fairly and consistent with priority of liens.

…

These new details on the Second Lien Program and the integration of Hope for Homeowners mark ongoing progress of the Making Home Affordable Program in improving mortgage affordability for responsible homeowners and keeping more Americans in their homes.

…

For amortizing loans (loans with monthly payments of interest and principal), we will share the cost of reducing the interest rate on the second mortgage to 1 percent. Participating servicers will be required to follow these steps to modify amortizing second liens:

– Reduce the interest rate to 1 percent;

– Extend the term of the modified second mortgage to match the term of the modified first mortgage, by amortizing the unpaid principal balance of the second lien over a term that matches the term of the modified first mortgage;

– Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule;

– After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate;

– The second mortgage will re-amortize over the remaining term at the higher interest rate(s); and

– Investors will receive an incentive payment from Treasury equal to half of the difference between (i) the interest rate on the first lien as modified and (ii) 1 percent, subject to a floor.

For interest-only loans, we will share the cost of reducing the interest rate on the second mortgage to 2 percent. Participating servicers will be required to follow these steps to modify interest-only second liens:

– Reduce the interest rate to 2 percent;

– Forbear principal in the same proportion as any principal forbearance on the first lien, with the option of extinguishing principal under the Extinguishment Schedule;

– After five years, the interest rate on the second lien will step up to the then current interest rate on the modified first mortgage, subject to the Interest Rate Cap on the first lien, set equal to the Freddie Mac Survey Rate;

– The second lien will amortize over the longer of the remaining term of the modified first lien or the originally scheduled amortization term, with amortization to begin at the time specified in the original contract;

– Investors will receive an incentive payment from Treasury equal to half of the difference between (i) the lower of the contract rate on the second lien and the interest rate on the first lien as modified and (ii) 2 percent, subject to a floor.