Mortgage Cram Downs - Not So Fast
Legislation allowing bankruptcy judges to modify loan balances and terms of mortgages associated to primary residences hit another roadblock. The cram down legislation attained a yes vote in the House of Representatives in March but failed to attract the required votes in the Senate and will now be removed from a broader housing rescue bill.
Opposition came from all Republicans and a small group of Democrats in the Senate. The bill has been lobbied against by the banking industry, including groups such as the Mortgage Bankers Association who argued that it would scare off investors requiring higher interest rates to attract them back.
From a reverse opinion, a report from Credit Suisse found that if such legislation were to become law foreclosures could be reduced by 20 percent as it would prompt banks and lenders to step up loan modification efforts. The National Association of Homebuilders recently reversed its stance and now supports a temporary provision that would allow such modifications.
Mortgage Cram Downs - Not So Fast
Legislation allowing bankruptcy judges to modify loan balances and terms of mortgages associated to primary residences hit another roadblock. The cram down legislation attained a yes vote in the House of Representatives in March but failed to attract the required votes in the Senate and will now be removed from a broader housing rescue bill.
Opposition came from all Republicans and a small group of Democrats in the Senate. The bill has been lobbied against by the banking industry, including groups such as the Mortgage Bankers Association who argued that it would scare off investors requiring higher interest rates to attract them back.
From a reverse opinion, a report from Credit Suisse found that if such legislation were to become law foreclosures could be reduced by 20 percent as it would prompt banks and lenders to step up loan modification efforts. The National Association of Homebuilders recently reversed its stance and now supports a temporary provision that would allow such modifications.
Housing Inventory Starting to Be Underpriced
A report by IHS Global Insight shows that the national housing market is “slightly undervalued” even with continued depreciation of prices. The house prices in America in the fourth quarter update found that prices fell 9.9% from their 2007 peak, mostly in states like California and Florida. “When the 330 metro areas were weighted by market value, the U.S. was 8.4% undervalued; when weighted by housing units, the nation was 10.2% undervalued,” per the IHS report.
Major overvaluation was present in Atlantic City, NJ, and the Pacific Northwest is the only remaining "overvalued" region.
IHS states, “We expect prices to decline further through 2009 as consumers remain wary of taking on housing debt in these uncertain economic conditions. Markets where the boom was greatest, and the fall the hardest, will be watched carefully for any signals that may indicate a trend towards stability and potential growth.”
IHS attributed the home price declines to a excessive inventories, mortgage credit conditions, consumer confidence and job losses.
California Foreclosures Huge Drag On National Housing Market
Notice of defaults in California increased to a high 54,268 filings last month per foreclosurerador.com. Notices of trustee sales escalated 82.3 percent from February and 19.6 percent from the same period a year ago (still lower than record highs).
Sean O'Toole from foreclosurerador.com states, “The average time from the filing of a Notice of Default to foreclosure sale was 176 days in March, which aligns exactly with the September drop in Notice of Default filings. Not one government program aimed at addressing the foreclosure problem has dealt with the core issue of negative equity — and there can be no doubt these programs are having dramatic impacts on the foreclosure process. Unfortunately, the only tangible effect of these programs so far is a significant increase in uncertainty for homeowners, lenders, investors and even government officials trying to make sense of these wild swings in activity".
Southern central and mid state central valleys led the state in foreclosures.
Rates Starting to Rise, Where They Go Nobody Knows...
Mortgage rates increased this week after seeing record lows last week. The 30 year fixed went to 5.125% without points for the week ending April 9.
“Mortgage rates rose slightly this week but still remained historically low,” said Frank Nothaft Freddie Mac's chief economist. “Interest rates for 30-year fixed-rate mortgages have averaged below 5.0 percent for the last four weeks, which should keep homeowner affordability at record levels. Given these low rates, housing demand has strengthened. Conventional mortgage applications both for refinancing and for home purchases have increased over the past five consecutive weeks ending April 3,” said Nothaft.
The above interest rate applies to conforming loan amounts with a loan-to-value of 80 percent with high credit score borrowers.
Making Home Affordable Refinance
The Treasury this weekend unveiled the guidelines for the new Making Home Affordable Mortgage loan modification plan. The Home Affordable Modification refinance program is available to about five million homeowners on existing Fannie Mae or Freddie Mac loans.
Borrowers that can provide a letter of hardship describing a change in circumstances or an effective rise in payments that may lead to default could be eligible for the new refinance program. The Home Affordable Modification will attempt to assist homeowners and those in foreclosure by reducing monthly mortgage payments.
The Program will be offered to: 1) Conforming loans originated on or before January 1, 2009 2) Borrowers that can document income 3) Up to 105% of appraised value for the first mortgage
The program may also be called the Refi Plus program. Contact one of the mortgage experts at www.RealestateloanS.com to find out more about this new program.
Is Your Mortgage Loan Risky?
Parts is parts like the old chicken commercial used to say, but loans are not loans. If they were, the well established parent would get the same terms as the newly graduated college student.
Most consumers think simply when it comes to mortgage loans- "apply and get". Things are changing fast due to the slowing economy and high numbers of recent defaults. But the TV commercials still make it all seem so easy.
Loans and rates are nuanced. I'd like to briefly distinguish some of the nuances that banks must manage when they make mortgage loans.
We'll start with the least risky types of loans and work down to the more risky catagories. Least risky to most...
Mid priced single family 3 bed 2 bath homes that have a lot of potential buyers. Those homes that can be purchased with Fannie Mae and Freddie Mac conventional loans. Lots of available money equals lots of potential buyers...
Single family homes tied to a borrower with 740 plus credit score, providing all documentation including tax returns, bank statements and a down payment of 20% or more with Plenty of savings- 6 or more months of mortgage payments...
Townhomes: less desirable than single family homes and often get neglected for sales during periods of high foreclosure, or over building of single family homes...Condos: same as townhomes but much worse due to associaton management and new "fee" adds implemented by Fannie Mae and Freddie Mac...
2 unit properties: Less attractive to nesters and who wants to manage renters?...
3 and 4 unit properties: not true cash flowing properties and not attractive to nesters that don't want to manage renters also...
Higher priced properties or whats called JUMBO loans. Typically these properties are difficult to sell in hard times, and generally purchased by buyers that are bigger risk takers. $650,000. home prices and up...
Reduced down payments substantially increases risk. Some of the worst loan default rates are due to the zero down payment loans created in the last few years...
Drum role please.. The clearest indicator of potential loan trouble...
Lower credit scores are the biggest concern for mortgage lenders. Scores lower than 620 are typically the point at which risk starts accelerating rapidly. Credit scoring has become much more accurate in the last few years, and has become a great indicator of how borrowers manage their credit and life.
You can mix and match the various risk components to get a "feeling" for what your risk level is.
Bank of America Soon to be Top Mortgage Originator
Wells Fargo was the top mortgage company in January with $24 billion in first-mortgage loans exceeding rival Bank of America by roughly $1 billion. That will soon change when BoA consolidates Countrywides platform into their own within weeks.
Biggest Jumbo Lenders
Bank of America was the jumbo loan leader in the fourth quater of 2008 with $4 billion in originations followed by CitiMortgage with $2.2 billion, ING Bank with $1.7 billion all according to National Mortgage News.
Bank of America has been steady over the last year while CitiMortgage and Wells have reduced their jumbo program loans by 68% and 80% since the Q4 of 2007.
