(Edition April 8, 2009) Vol. 94
In This Week's "Good News":
FNMA Releases New Refinance Program Up to 105% - Without Mortgage Insurance
As part of the new "Homeowner Affordability and Stability Plan" recently rolled out by the government, Fannie Mae has just made public that they are offering refinances of 1 - 4 unit Primary residences, 1 unit Second homes, and 1 - 4 unit Investment properties up to 105% of the current appraised value, without charging Private Mortgage Insurance.
Of course this program has stipulations:
To be used to pay off existing first lien, no new secondary financing allowed, but is able to be subordinated with no maximum LTV/CLTV (loan to value).
Cash back to Homeowner not to exceed 2% or $2000 whichever is less.
Current mortgage must be held by FNMA.
Loans that currently include private mortgage insurance (PMI) are currently not allowed.
The good news:
Allowed loan to value is 105% of appraised value.
No private mortgage insurance can be charged regardless of LTV.
No limit to properties a borrower(s) own.
No limit to number of properties that can be refinanced under this program (i.e. you can do Primary, Second Home, and Investment properties - as noted above)
No assets need to be verified.
No mortgage seasoning requirements. However, payment history for any debt must not have been 60 days late in the last 12 months.
You may apply with any mortgage broker that is approved to do FNMA mortgages - you do not need to stay with your current lender.
If you would like further information, please feel free to call or drop me an e-mail.
In This Week's "Take It How You Will" News:
HUD May Cut Mortgage Balances by 30 Percent
The creators of the wildly-popular Hope for Homeowners (H4H) program are reportedly looking to expand their stable of loss mitigation tools.
The Department of Housing and Urban Development is considering principal balance reductions of up to 30 percent on FHA loans in an effort to keep homeowners afloat, according to a report just released.
Details are sketchy, but most believe it will look like this: basically, the FHA would pay a partial claim to the loan servicer or investor of the mortgage to cover the write-down and bring the loan current.
Here's the kicker though...eventually, the borrower would have to repay the forgiven balance, something I see as a deal killer.
Hope for Homeowners had similar issues, with the whole forcing borrowers to split any future profits from the sale of the property with the government if they accepted a write-down.
But as more FHA loans fall delinquent, which as reader's of my newsletter know is becoming an ever increasing problem, it is clear that HUD will need some serious loss mitigation tools of its own, unless it wants to meet a fate similar to that of what Fannie and Freddie are experiencing.
I will note here, that FHA mortgages 90 days or more past due, including those in foreclosure, rose to 7.46 percent last month, up from 6.16 percent a year ago.
Second Mortgage Lien Assistance May Be Coming
You may or may not count this as "good news", but for the hundreds of thousands of U.S. homeowner's that are ‘underwater' on their mortgages and/or are struggling to make payments, this is certainly a step in the right direction.
The U.S. Treasury is reportedly finalizing a plan that would make it easier to provide assistance to borrowers with second mortgages, which in the majority of cases impedes loan workout and refinance efforts.
An official, who spoke to Reuters on condition of anonymity, said guidelines will soon be unveiled that aim to either modify or extinguish second liens.
As you may remember from the past, when Treasury announced its Making Home Affordable loan modification plan, it said it would include incentives for efforts made to extinguish second liens on loans modified under the program, but provided little detail.
At the same time, it said second mortgages would not be figured into the front-end debt-to-income (DTI), making it easier for borrowers to qualify for the desired housing payment target of 31 percent.
Over the past few years, scores of borrowers relied upon piggyback second mortgages in place of traditional down payments, further expanding risky real estate speculation and homeownership.
As a result, many of these investors and homeowners had little, if any, skin in the game, making the decision to walk away that much easier, leading to an unprecedented number of foreclosures.
Coupled with and because of this fact, most homeowners with second mortgages (which include HELOC's) are finding that trying to obtain a loan workout plan or loan modification for their first mortgage, with a second mortgage of record, you may be waiting so long for the second mortgage lien holder to agree to a re-subordination request , or even deny it, that it effectively killed ‘the deal' with the first lien holder.
As most of you know, interest rates on second mortgages are typically much higher than those on first mortgages because in the event of default, the first mortgage holder must be paid off before the subordinate lien holder. Understandably, the second lien holder wants to protect their lien and possible equity position.
In This Week's "Wait and See" News:
Of significance this week were numbers reported for Consumer Credit, which of course has a direct relationship with Consumer Sentiment.
U.S. Consumer Credit numbers fell more than expected in February, showing consumers borrowed even less amid the economic downturn. However, the previous month's increase saw a significant upward revision.
The Federal Reserve reported that consumer credit fell by $7.5 billion, against forecasts for a $3.0 billion drop - more than double the forecast.
Revised February numbers show; revolving debt, such as credit cards, was $955.7 billion, while non-revolving debt, such as auto loans, came to $1,608.2 billion.
Markets ended Wednesday like this: DOW up @ 7837.11 (+47.55), NASDAQ up @ 190.66 (+29.05) and the S&P up @ 825316 (+9.61).
Of significance for next week: Crude Oil Inventory numbers (April 15) will have some impact across major markets.
Also look for Building Permit, Housing Start and Initial Jobless Claim numbers (April 16) to have a moderate to high impact across the DOW and S&P, as numbers will probably be worse than expected - this will likely cause a great deal of volatility.
Next week's Economic Calendar:
Week of April 13 - April 17
Date | ET | Release | For | Briefing.com | Consensus | Prior |
Apr 14 | 08:30 | Retail Sales | Mar | NA | NA | -0.1% |
Apr 14 | 08:30 | Retail Sales - excluding Auto. | Mar | NA | NA | 0.7% |
Apr 14 | 10:00 | Business Inventories | Feb | NA | NA | -1.1% |
Apr 15 | 08:30 | Core CPI (Consumer Price Index) | Mar | NA | NA | 0.2% |
Apr 15 | 08:30 | CPI | Mar | NA | NA | 0.4% |
Apr 15 | 08:30 | Empire Manufacturing | Apr | NA | NA | -38.2 |
Apr 15 | 09:15 | Capacity Utilization | Mar | NA | NA | 70.9% |
Apr 15 | 09:15 | Industrial Production | Mar | NA | NA | -1.4% |
Apr 15 | 10:30 | Crude Inventories | 04/10 | NA | NA | NA |
Apr 15 | 14:00 | Fed's Beige Book | | | | |
Apr 16 | 08:30 | Building Permits | Mar | NA | NA | 547K |
Apr 16 | 08:30 | Housing Starts | Mar | NA | NA | 583K |
Apr 16 | 08:30 | Initial Jobless Claims | 04/11 | NA | NA | NA |
Apr 16 | 10:00 | Philadelphia Fed | Apr | NA | NA | -35.0 |
* Remember, typically, weaker than expected news is beneficial to a mortgage rate decrease and an increase in bond yields, and more positive than expected news will cause mortgage rates to increase and stocks to increase in value.
In This Week's "Not So Good Right Now" News:
An Estimated 600,000 Bank Owned Properties Not on the Market
According to a report just released by the San Francisco Chronicle, an estimated 600,000 foreclosed homes owned by banks and mortgage lenders nationwide haven't been resold or listed.
This so-called ‘shadow inventory' could likely drive home prices much lower once unloaded on the market, and clearly distorts the existing home inventory numbers that has recently appeared to be improving.
In the state of California alone, estimates of ‘shadow inventory' range from 80,000 to 100,000 properties.
The numbers were derived from a recent RealtyTrac study, which compared its database of bank-owned properties with those found on the MLS, discovering that only 30 percent of the foreclosures were listed.
There appear to be a number of reasons why they may not be selling or even listed, including, but not limited to, capacity overload, accounting games to minimize banks losses, and strategic moves to hold back on sales in an effort to reduce home price declines.
RealtyTrac Vice President Rick Sharga said in a typical market there are about 160,000 foreclosures for sale annually, but the current numbers are about 80,000 per month.
The inventory appears to be too much to bear, forcing many of these banks to hold onto properties for much longer than they normally would.
This inventory is so large, it led to the creation of the so-called "National Real Estate Owned Rental Policy," with mortgage financier Fannie Mae taking on the role of landlord to manage its swelling inventory of distressed property.
And remember, adding to this mess are the scores of distressed properties nearing the brink of foreclosure, thanks to various foreclosure moratoria that seem to have simply delayed the process and the inevitable.
Mortgage Delinquencies Double from 2008
As if the above news was not bad enough; in news just released by the credit bureau Equifax, mortgage delinquencies more than doubled from a year ago.
In February, seven percent of homeowners with mortgages were at least 30 days late, up more than 50 percent from the same period a year earlier.
The delinquency rate for subprime borrowers increased to 39.8 percent from 23.7 percent last year, meaning four out of ten of these homeowners can't make their monthly mortgage payments.
Dann Adams, president of U.S. Information Systems for Equifax Inc., said the increase in delinquencies foreshadows more foreclosures, short sales, and home price declines, despite recent optimistic reports talking about a housing bottom on the horizon.
Rising unemployment is adding to these woes, forcing more borrowers to turn to credit cards for relief.
Unfortunately, banks are clamping down on borrowers' credit cards as well; during February, eight million credit card accounts were closed, reducing the number of outstanding cards to 400 million from a July 2008 peak of 483 million.
Credit limits are also being slashed on open cards, down to a combined $3.27 trillion from a July 2008 peak of $3.59 trillion, which is severely impacting potential borrower's credit scores, in many cases making them now ineligible to refinance or purchase because of low credit scores.
Meanwhile, bank card delinquency is at its highest level in the past five years, with 4.5 percent of bank-issued credit cards 60 days or more past due in February, a 32.7 percent from a year ago.
This double whammy could put even more homeowners on the road to foreclosure, delaying the recovery some seem to think is just months away. Hmmm.
In This Week's "Versus" News:
Paying Point(s) vs. Not Paying Point(s)
Many questions that I receive on a daily basis are in regards to Origination Fees and Discount Points, i.e. "Should I pay points?", so I thought that this week I would try to tackle this issue.
Lenders charge points in order to secure mortgage financing on behalf of a borrower(s), and to secure a particular interest rate on behalf of the borrower.
According to the IRS (publication 936(2008)) , the term "points" is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points.
Mortgage points are based on a percentage of the loan amount, with each
point being equal to 1% of the loan regardless of what the term used is; (i.e. Origination Fee of 1% is equal to a 1% Discount Fee). Thus, if you obtain a $200,000 mortgage loan, one point is $2,000.
Many mortgage brokers, bankers, and loan officers charge a standard 1% Origination Fee (1% of the loan amount), this is, typically, the major way that they are compensated for providing and securing a mortgage loan and interest rate for the borrower.
I have noted recently, that many lenders (loan officers, bankers, and mortgage brokers) are tending to shy away from the charging the borrower an Origination Fee, and are disclosing their fee as a Discount Point(s), which in the ‘old days' as some would remember, was traditionally used to ‘buy down' the Note interest rate on behalf of the borrower (i.e. borrower is willing to pay a 1% Discount Point to secure mortgage financing at a note rate of 4.875% vs. a rate of 5.125%).
In my mind, they are simply trying to set themselves apart from other mortgage originators that charge the a standard 1% Origination Fee (and No Discount Points -- unless a borrower truly wants to pay the charge buy-down their Note rate). They do this by telling the prospective borrower that are minimizing their fees on behalf of the borrower by not charging an Origination Fee, but explain to the borrower that they are required to charge the Discount Points in order to secure their interest rate, which is typically a higher interest rate, than paying the standard 1% Origination Fee and Zero Discount Points.
I have found by looking through countless Good Faith Estimates being provided by clients that are thinking about or have applied with other mortgage lenders throughout the United States, that those not charging a standard Origination Fee of 1%, are charging significant Discount Points (typically, 2-3 points, which of course is 2 - 3% of the loan amount - referring to the above example: instead of the borrower paying 1% of $200,000 or $2000 as an origination fee, they are being charged 2 percent ($4,000) to 3 percent ($6,000) in discount points for an same interest rate, and in many cases a higher interest rate. End result, the borrower is being ripped off.
Are all lenders, brokers and loan officers doing this? Of course not, but an ever increasing number of them are.
Here is an easy way for a borrower to make sure that they are receiving a competitive interest rate for a competitive price (regardless if they are being charged points (by way of Origination Fee or Discount Points) or not paying any points at all - remember that a point by any other name, is still a point.
The following does (should) not cost you, a potential borrower, a dime; (I will note here that any lender who is not willing to give you a Good Faith Estimate prior to your actual loan application, should be discarded from your list of potential lenders immediately).
The first key is to comparison shop: get a minimum of two Good Faith Estimates (GFE's) from different lenders based on the same information given to the each lender (loan amount, credit score, monthly income and estimated appraised value). When you give them your information, request that they do not include impounds (charges for property taxes, homeowner's insurance or prepaid interest - as these charges are often "low-balled" by investors looking to appear cheaper than their competition - these charges are "static" they will not change depending on what lender you use)
- If you do not know your credit scores, you may want to let one of the proposed lenders pull a copy of your credit report, which will include the score(s) that the lender will use to determine "credit worthiness" of the borrower -- but do so, only if they are willing to disclose this information to you in writing. Remember the investor pays attention to the mid (or middle) score, in the case that there are not 3 credit scores, the investor will pay attention to the lower of the two scores.
Do not let numerous brokers , bankers or loan officers, pull your credit report, as this may hurt your score -- regardless of what the loan officer(s) may say.
With the above example, it will become very clear to a potential borrower what the total charges that are (or should be at the close of escrow or "closing").
· Remember you want to compare apples to apples, so if you are willing to pay an Origination Fee of 1% or a Discount Point of 1%, let the lender know that you are willing to pay ‘a point' or 1% of the loan amount to get the best possible rate for the term of the mortgage you are looking for; i.e. a Conforming 30 year fixed rate mortgage.
If you notice that there are specific fees that may be missing on a GFE, because it is being charged on other Good Faith Estimates, call that proposed lender and ask if they may have forgotten a charge, do not assume that it will not be charged to you on the Final Good Faith Estimate and Settlement charges at the closing of your loan. There are laws to protect borrower from this, but the best rule that I have found is: "Walk Away".
Once you think that you have found the lender you will use, it will be necessary for them to pull a copy of your credit report, as this is mandated by federal lending guidelines.
Remember: If the loan terms and/or lenders' fees change in any significant way from the start of your loan application process at which time you will received your original Good Faith Estimate, to the end of your loan process "the Closing", where you will be able to see the final charges to you via the Final Good Faith or HUD-1 Settlement Statement - Walk Away from the closing table. Do not allow yourself to be overcharged, guilted into closing, or misguided - remember, your mortgage is one of the most significant decisions that you will make in your lifetime, and one of the few things that you have control over.
And finally, I will note, that you will find that by being willing to pay or have financed into the loan amount the fee of 1% of the loan amount(whether disclosed as a Discount Point or Origination Fee), you will secure the most competitive interest rate - remember, no one likes to work for free.
I would suggest here that you only allow more than one percent of your loan amount to be charged to you or financed into your loan if the following apply:
1. You are intentionally buying down the note interest rate being charged to you.
2. It is a Hard Money transaction, which is a ‘take it or leave it proposition', by non-traditional lenders (normally termed "private money" lending).
3. Or, in cases like the purchase of Investment properties, where the actual bank fees being charged to the broker, loan officer or banker are in excess of 1%, and are being passed on to you, because it is an ‘actual' cost charged by the lender (bank), in order to secure mortgage financing on your behalf.
If you prefer to do a Zero point (no Origination Fee, no Discount Points), or a "No Closing Cost" loan, your interest rate will be significantly higher than the average interest rate, because the loan originator will need to raise your rate in order to get paid for his/her services, and in the case of a "No Closing Cost" loan, to pay the loan closing costs on your behalf, and receive compensation for themselves.
Remember, typically, Loan Origination Fees and Discount Points are tax deductible. If you have any questions regarding the tax deductibility of mortgage points, please refer to: IRS publication 936 which can readily be found on the internet, or consult your tax advisor.
Mortgage Rate Trends:
The Week's National* Conforming Loan Averages (overnight BankRate avg.):
30 year fixed: 5.08% Up
15 year fixed: 4.70% Up
5/1 ARM: 4.79% Up
30 year Jumbo: 6.46% Same
5/1 Jumbo ARM: 5.37% Same
* Keep in mind that these rates are national averages', rates may be lower in your region of the country. If you would like a ‘real time' quote, give me a call, or drop me an e-mail.
Expect FHA and VA 30 year fixed rate loans to stay in the range of 5.00 to 5.25 percent.
Great news for Rural Housing rates: look for the 30 year fixed to be in the range of 5.00 to 5.25 percent.
If you have a client(s) that you are having trouble getting qualified through your normal channels, or questions/comments regarding any information contained in this newsletter, please feel free to contact me.
Sincerely,
Richard Shreeve, Editor
Direct: 480-332-4547
Toll Free Direct: 1-800-466-1809 (Your AZ Lender of Choice)
The purpose of this newsletter is to help all real estate professionals, their potential clients and current mortgage borrowers stay up-to-date with current market news. So, feel free to post this newsletter to your website (all I would ask is that you post it in its entirety).
The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.