About Government Refinance and Home Purchase Programs

Diana Olick over at CNBC made some interesting comments on the impact foreclosures have on local governments and local economies. Here is an excerpt:

Today in Detroit, the U.S. Conference of Mayors is holding a meeting to talk about a new report showing the impact of foreclosures on local cities. The numbers are staggering: billions of dollars in losses from weak residential investment, lower spending and income in the construction industries and curtailed consumer spending due to decreased home equity.

New York State alone is projected to lose $10 billion in 2008 economic output as a result of the mortgage crisis. The report gives all kinds of scary numbers, giving the impression that the foreclosure crisis, whether it’s in your backyard or not, will affect everything in your city from potholes to pencils in school, thanks to all the money lost.

The trouble is, the mayors don’t offer too many suggestions to fix it, other than the usual working with community groups, more communications with lenders, ad campaigns and the ever-popular “reform the FHA.”

Kenneth Harvey over at the Washington Post recently wrote about the FHA reform bill that is stalling in the US senate. Here is an excerpt:

Thousands of Americans may be losing their homes to foreclosure or facing hefty mortgage-payment resets, but the Senate appears to be in no rush to help.

The House has passed several major housing-relief measures in recent weeks, but the Senate hasn’t passed even one. On the eve of its two-week Thanksgiving recess, the House approved by a bipartisan vote the most sweeping reforms of the national mortgage system in more than two decades. Meanwhile, the Senate stalled legislation that would strengthen the Federal Housing Administration’s mortgage programs, a key resource for homeowners who need to refinance out of adjustable-rate loans into more affordable fixed-rate ones.

The FHA reform bill passed the House in September and had been approved by the Senate Banking Committee by a 20-1 vote. But it was blocked from floor action by a small group of Republicans who are unsympathetic to federal involvement in the mortgage market, even if it’s designed to assist subprime borrowers.

The FHA bill is particularly important for high-cost housing markets — California and parts of the East Coast in particular — because it raises the maximum mortgage amounts the agency can insure. It also would cut minimum down payments and allow the FHA to charge lower premiums to applicants with better credit histories and higher premiums to borrowers with less-favorable credit.

The bill was blocked from a floor vote on Nov. 15 by Sens. Tom Coburn (R-Okla.) and Jim DeMint (R-S.C.) after a hold by Elizabeth Dole (R-N.C.). Dole objects to the FHA’s plan to begin pricing mortgages based on credit risk starting in January, whether the reform bill is approved or not. Dole is an ally of the private mortgage insurance industry, which would have to compete with a revived FHA in the low-down-payment segment of the mortgage market.

Read the whole article here.

Steve Brown over at the Dallas Morning News recently had this to say about the FHA reforms that are in the works:

LAS VEGAS – The top officers at two of the country’s mortgage giants said Tuesday that they are taking steps to deal with the mortgage crunch and rising foreclosure rates.

But they acknowledged that they are challenged to make quick, meaningful changes.

Daniel Mudd, chief executive at Fannie Mae, the biggest source of money for U.S. home loans, outlined steps his firm has taken to help homeowners faced with foreclosure.

Too little

“They are clearly not enough in the face of this downturn, the most serious disruption in the housing and mortgage markets in decades,” Mr. Mudd told real estate agents from around the country meeting Tuesday at the National Association of Realtors’ annual convention.

Mr. Mudd said Fannie Mae is renegotiating problem loans – most of them subprime mortgages – at a rate of about 750 a week.

“We are working our way though this problem,” he said.

By many estimates, almost 2 million American homeowners will lose their houses to foreclosure during the next two years because of subprime mortgages that increase their monthly payments.

Kenneth Hardy reported the following rather disappointing news as published over in the San Jose Mercury News:

WASHINGTON – Thousands of Americans may be losing their homes to foreclosure or facing hefty mortgage-payment resets, but Congress appears to be in no rush to offer help.

While the House has passed several major housing-relief measures in recent weeks, the Senate hasn’t managed to pass even one. On the eve of the two-week Thanksgiving recess, the House approved by a bipartisan vote the most sweeping reforms of the national mortgage system in more than two decades.

Meanwhile, the Senate stalled legislation that would strengthen the Federal Housing Administration’s mortgage programs – a key resource for consumers who need to refinance out of adjustable-rate loans with rapidly escalating monthly payments into affordable fixed-rate mortgages.

Here is an excerpt of a recent article in the Cape May County Herald:

Yun also noted that while the credit crunch slowed deals in 2007, much of the pain is being felt in the subprime area, while other mortgage sectors are stabilizing.

Subprime constitutes only about 10 percent of mortgage loans, but accounts for some 40 percent of current foreclosures. Going forward, proposed federal legislation that would increase FHA loan limits should help moderate-income buyers, said Yun.

Yun expects GDP growth of 2.8 percent and job growth of 1.1 percent in 2008. Inflation should also remain under 3 percent, and interest rates should rise only slightly, he predicts. “For buyers who are into home ownership for the long term, housing still remains the best investment,” he concluded.

Other national sales downturns in the last 30 years were spurred by broad economic problems, Yun said. This year, by contrast, economic fundamentals remain solid, with the U.S. gross domestic product expected to grow by a respectable 2 percent, supported by 2 million job gains in the last two years and continuing low interest rates.

Yun said 2007 existing-home sales will exceed 5.5 million, close to the level in 2002, a record-setting year. At the same time, home prices remain near record highs despite drops in a few markets.

Jesse Jackson called for more government mortgage assistance in a recent article in the Chicago Sun Times. Here is some of the article:

It is time to act. Join us on Dec. 10 on Wall Street and in cities across the country. Stand up to stop the wave of home loan defaults that threatens to foreclose not just on people’s homes but on our hopes.

The problem keeps getting worse. Two million homeowners face foreclosure over the next year. Their neighbors will lose billions of the equity they have in their homes. Millions will find themselves stuck, unable to get a decent price for their homes in a flooded market. Tens of millions more will tighten their belts. Communities, from Cleveland to Las Vegas to much of Florida and beyond, will struggle with budget crises.

This is a recipe for recession. Fed Chairman Ben S. Bernanke told Congress he expects slowing growth and rising unemployment. How could he not? The financial sector, which generates nearly one-third of all corporate earnings, has written off about $40 billion in troubled loans this year, with more to come. Gas prices are hitting $100 a barrel, even as we head into the cold winter months. Food prices are rising. Americans, already burdened with stagnant incomes, now are piling up credit card debt just to make ends meet. We’re headed into rough waters.

But so far there has been no action on any program of any scale to keep people from losing their homes, fouling their neighborhoods and driving cities and schools into budget crises and the nation into recession.

An article on avoiding foreclosure appeared recently at the KSLA web site in Shreveport. It wisely mentions government backed FHA programs:

An estimated two million Americans could default on loans over the next two years as their loans reset to a much higher rate, according to the U.S. government. With thousands of Ark-La-Tex residents in an ‘adjustable rate mortgage,’ also called an ‘a.r.m.,’ there are steps they can take before their payment adjusts and becomes unpayable.

Officials with the Bush Administration say they’re aggressively dealing with rising numbers of mortgage foreclosures. In front of a congressional committee, officials from the Departments of Treasury as well as Housing and Urban Development said they’re working with an industry group called “Hope Now,” to deal with the crisis.

Under Secretary of Treasury Robert Steel told the committee, “it’s clear to all, that the earlier we identify struggling borrowers the more likely it is that services and lenders will be able to refinance or modify their mortgages into something more sustainable for the long term. If we wait until borrowers miss several payments, their credit profiles will be tarnished and they will have far fewer refinancing options.”

Jessica Anderson of Kiplinger recently wrote an article on how loans are still out there to be found via the FHA and VA programs. Here is an excerpt:

Richard Khoe used to wonder how he could ever afford to buy a home of his own. Coming up with a down payment in the ever-escalating Washington, D.C., market seemed like a pipe dream.

But last February, after years of living in a studio apartment, the 36-year-old public-policy researcher finally saved enough to buy a three-bedroom rowhouse in D.C.’s gentrifying Columbia Heights neighborhood. He had 5% of the purchase price, and his parents kicked in an equal amount so he could make a 10% down payment.

Timing was key for Khoe. The seller had reduced the price from $560,000 to $460,000 as the market dipped. And because the owner hadn’t updated the appliances — or the flowered wallpaper in the bathroom — she accepted an offer of $426,000, with a $5,000 credit for repairs. “Everything was old, but it was in good condition,” says Khoe. “So I didn’t have to spend more money right away to make the place livable.”

The new deal

The housing boom made it easier for all buyers to qualify for a mortgage. In fact, over the past five years, four in ten buyers were first-timers, with a median age of 32. But now there are fewer sources of credit, so lenders are tightening up.

For example, borrowers applying for an adjustable-rate mortgage will have to qualify for the fully indexed interest rate, not the initial teaser rate. And 100% financing deals are drying up. “The whole market is in a panic right now,” says Jim McMillan, a senior loan officer with JP Mortgage/JPMorgan Chase. Until the subprime mess gets sorted out, he says, larger institutions are staying away from any loan except 30-year fixed-rate mortgages with 20% down.

First-timers with credit dings are among the hardest hit. One alternative for them is a program that fell into disuse in the easy-credit days: the Federal Housing Administration loan. You apply for the loan at a private lender, but the FHA insures the loan against default. You generally pay a 3% down payment-money that can come from a gift-plus mortgage insurance premiums. Veterans who want to put zero down can turn to VA loans.

A recent article by Les Christie at CNNMoney.com publishes comments by readers none too happy about the help the U.S. government is offering homeowners. Here is an excerpt:

NEW YORK (CNNMoney.com) — Not everyone is happy about mortgage lenders’ latest efforts to help troubled borrowers.

Take Teresa Nelson. Instead of going for an adjustable rate mortgage with its lure of low initial rates, she opted for the security of a 30-year fixed at 7.10 percent for a house she bought in Pinellas Park, Fla. in December, 2005.
Special Reportfull coverage
Mortgage Meltdown

* Mortgage reform bill picks up key backing
* Subprime bailouts: Chump check
* Foreclosures: Moving on up
* Real estate commissions rise

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“I was well aware of what an ARM meant, and was staying far away from those snake-oil pipe-dream promises,” Nelson said. “I also wasn’t shopping for a short-term, big payoff investment – I was looking for my home, until I retire.”

But many delinquent subprime borrowers who went for low teaser rates that shot up to unaffordable levels are now paying lower rates than Nelson as part of a new round of foreclosure prevention packages. And she doesn’t like it.

For example, one subprime borrower had a riskier hybrid adjustable rate mortgage (ARM) with a rate of just under 7 percent that was going to reset in December to 10.5 percent. But last month, as part of a new bailout plan from Countrywide Financial, the lender gave him a rate reduction to 5 percent on his loan, saving him hundreds of dollars a month.

Nelson feels cheated and has little sympathy for people who she believes weren’t as careful as she was. “Everybody was seeing dollar signs,” she said, “and let their greed get the better of them. So, no. No bail-out, no assistance with my tax dollars. Not one red cent.”

She’s not alone. Last month, many CNNMoney.com readers expressed outrage to bailouts – whether they involved tax dollars or not – after Countrywide announced good deals for bad loans.

Read the whole article here.

Robert Schroeder, a reporter for MarketWatch in Washington, filed this interesting assessment of the remarks U.S. Treasury undersecretary Robert Steel made for congress on Friday:

WASHINGTON (MarketWatch) — A top U.S. Treasury official asked for congressional help Friday in reaching out to borrowers with risky mortgages.

Robert Steel, undersecretary for domestic finance, said in prepared remarks to a House Financial Services Committee hearing that a direct-mail campaign to at-risk borrowers is starting up Nov. 19.

Steel told lawmakers that a group called “Hope Now” — composed of mortgage servicers, lenders and counselors — is reaching out to borrowers to educate them about refinancing options.

“When you are home in your districts over the weekend or for the holidays, please tell your constituents about this mail campaign,” Steel said. “Tell them it is OK to contact Hope Now for assistance.”

More than two million subprime mortgages are expected to reset to higher interest rates in the next 18 months.

Neil Roland for Bloomberg recently reported that plans to cease a down payment assistance program have been blocked in federal court for now. Here is the full story are reported in the Charlotte Observer:

A federal court temporarily stopped the government from canceling a down-payment assistance program used by hundreds of thousands of low- and middle-income homebuyers.

The U.S. Department of Housing and Urban Development was set to end the decade-old program, saying it leads to higher prices and a disproportionate number of foreclosures. The program lets nonprofit organizations including AmeriDream Inc. and Nehemiah Corp. of America fund down payments and be reimbursed by the sellers of the homes.

“HUD failed to supply a reasoned analysis for its departure from its longstanding policy,” the U.S. District Court for the District of Columbia said Wednesday in ordering a preliminary injunction. The agency also “failed to consider reasonable proposed alternatives,” the court said.

White House representatives address congress about the rising foreclosures and mortgage difficulties in the US. Martin Crutsinger of the AP wrote this about it:

WASHINGTON (AP) — The Bush administration assured Congress on Friday that it is aggressively working to deal with a rising tide of mortgage foreclosures in the country.

Officials, however, said homeowners threatened with the loss of their homes must do their part by actively seeking help to avert foreclosures.

Robert K. Steel, Treasury’s undersecretary for domestic finance, and Brian D. Montgomery, an assistant secretary at the Department of Housing and Urban Development, said the administration has a comprehensive plan and is working with an industry group formed to deal with the looming foreclosure crisis.