About Government Refinance and Home Purchase Programs

Elizabeth Price from the Dow Jones Newswires recently wrote up this summary of recent comments by the US Treasury Secretary:

WASHINGTON -(Dow Jones)- U.S. Treasury Secretary Henry Paulson Wednesday urged mortgage companies to develop new ways and loan products to identify and help borrowers at risk for default on their home loans.

“I am calling on industry participants to review their existing practices and adopt specific criteria that will quickly identify borrowers who can keep their homes and follow up with a refinancing, a loan modification or other flexibility,” Paulson said in a statement released after he met with a group of mortgage lenders participating in Hope Now. Hope Now is a partnership between housing counselors and Wall Street firms aimed at publicizing relief for overstretched borrowers.

U.S. Secretary for Housing and Urban Development, Alphonso Jackson, called on Congress to pass legislation overhauling the Federal Housing Administration.

“It’s been exactly two months since President George W. Bush urged Congress to pass bipartisan legislation to modernize the FHA and 18 months since the administration first proposed a plan,” Jackson said.

The House of Representatives has approved an FHA reform bill but the Senate has not.

Companies participating in Hope Now, including Countrywide Financial Corp. ( CFC), Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC), said they would send letters to borrowers late on their mortgage payments notifying them of counseling beginning Nov. 19.

Paulson said that after making contact with struggling borrowers, mortgage companies can assess whether people are candidates for loan modification. Some people, current on payments but at risk of default after adjustable-rate mortgages reset, might be fast-tracked to refinancing.

Paulson repeated his view that weakness in the housing market is the most significant threat to U.S. economic growth. However, Paulson said the announcement earlier Wednesday that U.S. gross domestic product growth accelerated to 3.9% in the third quarter “reinforces my belief that we have a healthy diversified economy that will continue to grow.”

There was an interesting article by Alan Heavens in the Philadelphia Inquirer the other day about the state of the mortgage business. Here is an excerpt:

Lawrence Yun, senior economist for the National Association of Realtors, agreed that widening credit availability would help turn home sales around.

“Conforming loans are abundantly available at historically favorable mortgage rates,” Yun said. “Pricing has steadily improved on jumbo mortgages [over $417,000] since the August credit crunch, and FHA loans are replacing subprime mortgages.”

According to Freddie Mac, the 30-year fixed interest rate is hovering around 6.5 percent, and short-term rates could back down a bit in the next couple of months, depending on what the Federal Reserve’s Open Market Committee does when it meets Wednesday and Thursday.

Financial markets are “looking for about a 30 percent chance of a 25-basis-point rate cut rather than the 50 percent chance that they had previously expected,” said Frank Nothaft, Freddie Mac’s chief economist.

Nearly 20% of sub prime mortgage holders were late on their payments in July 2007 according to a recent article by Stephen Bernard at the AP. And about 4% of the “Alt-A” mortgages, or mortgages above sub prime but below prime credit scores, had late payments as well. Here is the story:

NEW YORK – In all phases of the mortgage industry this week, from the people who make the loans to the people who insure them, the news was bad — and most of them expect it to get worse.
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Things have gotten so tough, title insurer Stewart Information Services Corp. said it could not cut costs fast enough in August and September to keep up with the plummeting market. The company has already made “significant reductions” in its work force in October. Its insurance reimburses a homeowner or a lender if there is an error in the deed transferring property.

The market turned quickly for mortgage insurer MGIC Investment Corp. as well, as the rising delinquencies forced the company to pay out more in claims in the third quarter. MGIC said it expects to lose money through 2008 because it estimates it will pay billions in claims. MGIC Investment already posted a loss of $372.5 million in the third quarter.

And Countrywide Financial Corp., the nation’s largest mortgage lender, said it lost $1.2 billion over the summer, as the amount of money it set aside to cover losses from loans gone bad skyrocketed.

A recent Reuters story reported that California broke a foreclosure record in the third quarter of 2003:

SAN FRANCISCO (Reuters) – Mortgage lenders launched more than 70,000 foreclosure proceedings in California in the third quarter, marking a record for the state, where many housing markets are slumping amid mortgage market turmoil, according to a report released on Friday.

Mortgage lenders filed 72,571 notices of default against delinquent borrowers from July through September, up 34.5 percent from the prior quarter and 166.6 percent from a year earlier, according to the report by DataQuick Information Systems, a La Jolla, California-based real estate information service.

California’s third-quarter default level topped the state’s previous peak of 61,541 in the first quarter of 1996, reflecting a surge in mortgage borrowers failing to keep up with loan payments.

The staff joint economic committee headed by senator Charles Schumer recently released this interesting report.

Among other things it predicts that there could be 2 million home foreclosures in the US between 2007 and 2009 if current conditions are not changed. It also predicts that nearly $100 billion in homeowner wealth could be lost in that period along with a nearly $1 billion drop in property tax revenues to states.

Maya Roney over at BusinessWeek recently wrote this interesting review of the mortgage troubles the US is currently facing. She sees signs that the worst my be past us now:

In recent months, mortgage issues have been a main force hampering home sales but, according to a new report from the National Association of Realtors, mortgage availability is finally improving—even as home sales continue to slide.

The rate of existing-home sales dropped 8% in September to a seasonally adjusted annual rate of 5.04 million units from a downwardly revised rate of 5.48 million in August, according to the NAR study released Oct. 24. The national median price of existing-homes sold in September fell 4.2% year-over-year, to $211,700. September, 2007, marked the seventh consecutive month in which existing-home sales decreased.

This continuous decline in home sales has been predictable, to put it lightly. After existing-home sales fell 4.3% in August, the NAR advised realtors and homeowners to expect “similar results” in September and cited “temporary mortgage problems” as the main reason for poor home sales in August.
Jumbo Rates Down.

Christie Smythe over at the Arizona Daily Star in Tucson wrote this interesting piece on the resurgence of FHA loans this year. It’s worth a read:

On the national level, slow real estate sales and sinking prices are prompting some comparisons to the Great Depression.

Little wonder, then, that a home-buying program from the New Deal is beginning to make a comeback.

Federal Housing Administration loans, which fell out of favor during the red-hot real estate market of years past, are becoming more alluring to real estate agents and mortgage professionals looking for ways to keep transactions flowing.

The FHA program was established in 1934 to help moderate-income Americans purchase homes, according to the U.S. Department of Housing and Urban Development. The Federal Housing Administration doesn’t provide mortgages, but rather insures them against default.

Jeanne Sahadi over at CNNMoney.com recently gave this review of FHA and other govement backed loan bail-out programs:

NEW YORK (CNNMoney.com) — Lend a hand to distressed homeowners? No way, say many, who worry the tab will come out of their pockets as taxpayers.

Some proposals, it’s true, would be directly financed by taxes. For example, the Senate voted in favor of an appropriations bill that earmarks $100 million to provide housing counseling for those facing foreclosure.

But some proposals would cost taxpayers money only in a worst-case scenario.

The worst case for FHA and Fannie and Freddie

Taxpayer dollars, for instance, don’t directly support the Federal Housing Administration’s loan insurance program – the premiums paid by homeowners with FHA loans do.

More…

Amy Hoak over at MarketWatch recently wrote this interesting review of the current state of sub-prime loans and how goverment-backed programs like FHA fit in:

BOSTON (MarketWatch) — Although “subprime” has become a four-letter word in the country’s collective lexicon and no one is sure when the credit crisis that was spawned by a meltdown in the risky lending sector will ease, mortgage bankers say you can count on this: Subprime shall return.

The next generation of subprime mortgages, however, will look much different than the loans issued during the height of the housing boom in the first half of the decade that are now causing so much trouble, mortgage professionals say.

“So long as we have a policy position in this country of maintaining or further increasing homeownership rates there is going to be subprime lending,” said Mark Fleming, chief economist with First American CoreLogic, a provider of mortgage-risk management and fraud-protection technology.

More…

Alphonso Jackson, the Secretary of the Department of Housing and Urban Development wrote an interesting response to an editorial in the Wall Street Journal this week. Here is the the letter:

John Berlau’s Oct. 15 commentary opposing FHA modernization (“The Subprime FHA”) is incorrect when he tries to pin the “worst excesses” of subprime loans — such as unverified income levels — on the Federal Housing Administration. The FHA requires lenders to underwrite all loans and borrowers to document their credit history and income. Short-term “flipping” of homes is also prohibited, contrary to his claims.

Mr. Berlau conveniently omitted that the FHA, despite considerable opposition from special interests, has closed the loophole allowing seller-funded downpayment assistance. We agree that such loans have been a drag on the FHA’s portfolio for years. They are a financial shell game where the seller wins and too many homebuyers lose. Our rule puts an end to this type of self-serving, circular-financing arrangement and its harmful effects on homeowners and the housing market. By closing this loophole, the FHA will help prevent more people from being steered into a situation where they don’t understand the fine print and end up being foreclosed upon.

A healthy FHA is good medicine for the ailing housing market. It is self-sustaining, costing taxpayers nothing, not “subsidized,” as Mr. Berlau claims. It is safe, with a foreclosure rate half that of risky subprime mortgages. And it is sound, free of costly gimmicks such as “teaser” interest rates or prepayment penalties. It also offers mandatory loss mitigation, meaning that we will work with homebuyers if they get in trouble.

If you have an FHA loan now and have an interest rate of 6% or higher, contact us in the form below. One of the primary benefits of government-backed FHA loans is the option to “streamline” one FHA loan to an improved one with virtually no hassles. In many cases FHA loan holders are able to reduce their monthly payments significantly while not needing to pay any money out of pocket. The primary requirement is that borrower cannot have gone more than 30 days late on their mortgage payment in the last 12 months.

Just fill in form on the sidebar and we will contact you about a streamline.

There was a blurb over in the Santa Cruz Sentinel recently on the progress of increasing the loan limits on FHA loans:

SACRAMENTO — The California Association of Mortgage Brokers is lobbying to raise the Fannie Mae and Freddie Mac loan limits in California from $417,000 to $625,000 as a way out of the mortgage mess.

Such a change would allow tens of thousands of California homeowners to refinance out of their risky subprime loans, reducing their interest rates and payments, and obtaining affordable loans, said group president Pete Ogilvie, a Santa Cruz mortgage broker.

The House of Representatives passed HR 1427, the “Federal Housing Finance Reform Act of 2007,” May 22, allowing government-backed loan limits to be raised. The Senate version of this bill passed the Senate Banking Committee but the full Senate has yet to act.

The House also passed HR 1852, which could increase FHA loan amounts, on Sept. 18 but the Senate has not taken action. A 2005 study by the California Association of Mortgage Brokers projected that raising conforming loan limits would cut interest rates for more than 150,000 borrowers, allowing them to buy a median-priced home. The state median is $588,970.