Article of the Day

Administration Announces Refinance Program for Underwater Borrowers

  By: Krista Franks and Carrie Bay 

It’s official. The Federal Housing Finance Agency (FHFA) unveiled a new, revamped government mortgage refinancing program Monday.

The initiative involves a series of rule changes to the Home Affordable Refinance Program (HARP) to allow more underwater homeowners to reduce their mortgage debt by taking advantage of today’s rock-bottom interest rates.
Mortgages backed by Fannie Mae and Freddie Mac, and originally sold to the GSEs on or before May 31, 2009 are eligible for the program.
Under the revised HARP guidelines, the 125 percent loan-to-value (LTV) ceiling has been eliminated. Previously, only borrowers who owed up to 25 percent more than their home was worth could participate in HARP. That limitation has now been removed. The program will continue to be available to borrowers with LTV ratios above 80 percent.
The new program enhancements address several other key aspects of HARP that industry participants say have restricted its impact, including eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers, as well as allowing mortgage insurers to automatically transfer coverage from the original loan to the new loan.
In addition, Fannie Mae and Freddie Mac have done away with the requirement for a new property appraisal where there is a reliable AVM (automated valuation model) estimate already provided by the GSEs, and they’ve agreed to waive certain representations and warranties on loans refinanced through the program.

Not only are loans eligible for HARP considered “seasoned loans,” but a refinance helps borrowers strengthen their household finances, reducing the risk they pose to the GSEs. Thus, FHFA feels reps and warranties are not necessary for some of these loans.
With Monday’s announcement, the end date for HARP has been extended from June 30, 2012 to December 31, 2013.
The GSEs will release program instructions to lenders by the middle of next month, and FHFA expects some lenders will be ready to accept applications by December 1.
Since HARP was rolled out in early 2009, approximately 1 million homeowners have refinanced their mortgage loans through the program. FHFA estimates that with the revised guidelines, another 1 million will be able to take advantage of the program.
To qualify, borrowers must be current on their mortgage payments, but government officials believe by opening HARP up to more homeowners with higher thresholds of negative equity, it will help to prevent foreclosures by erasing the primary motivation behind strategic defaults.
Economists at the University of Chicago Booth School of Business estimate that roughly 35 percent of mortgage defaults are strategic. Numerous industry studies have found that homeowners who owe significantly more than their home is worth are more likely to throw in the towel and walk away from their mortgage debt even if they have the ability to continue making their payments.
“We anticipate that the package of improvements being made to HARP will reduce the Enterprises credit risk, bring greater stability to mortgage markets, and reduce foreclosure risks,” FHFA stated in its announcement Monday.
Fannie Mae and Freddie Mac also released statements in response to the announcement.
Michael J. Williams, Fannie Mae’s president and CEO, called the program a “welcome development.”
“By removing some of the impediments to refinance, lenders can more easily participate in the program allowing more eligible homeowners to take advantage of the low interest rates,” Williams stated.
Charles E. Haldeman, Jr., CEO of Freddie Mac said, “These changes mark another step on the road to recovery for the nation’s housing market.”

Article of the Day

 

ECONOMY - OCTOBER 24, 2011

Home Lending Revamp Planned

New Rules Aim to Speed Refinancing

By NICK TIMIRAOS

Federal regulators on Monday plan to unveil a major overhaul of an under-used mortgage-refinance program designed to help millions of Americans whose home values have tumbled.

The plan is the latest White House effort to deal with one of the most critical impediments to economic recovery—a stagnant housing market caused in part by a surfeit of homeowners who are unable to refinance.

The overhaul will, among other things, let borrowers refinance regardless of how far their homes have fallen in value, eliminating previous limits. That could open up refinancing to legions of borrowers in Nevada, Arizona, Florida, California and elsewhere who are paying high interest rates and are deeply "underwater," owing more than their houses are worth. President Barack Obama is expected to tout the program in Las Vegas on Monday.

The plan will streamline the refinance process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments, according to administration officials and an official at the Federal Housing Finance Agency. Fannie and Freddie have also agreed to waive some fees that made refinancing less attractive for some.

The revamp is aimed at homeowners like Christine and Hector Penunuri of Gilbert, Ariz., who have never missed a mortgage payment and who both have jobs and good credit. Yet their application to refinance their five-bedroom home, which has fallen in value, was denied earlier this year because their tax returns showed a $1,000 loss in start-up costs from Mr. Penunuri's business, which isn't even his day job.

It's "absurd," says their mortgage broker, Steve Walsh of Scottsdale, because the loan is already guaranteed by government-backed mortgage company Freddie Mac.

The Penunuris could save $350 a month by refinancing to a 4% rate from their current 5.75%. They would use that money to put their two sons into junior sports, take a family vacation and pay off other debts, says Ms. Penunuri, 41 years old. "It's a win-win situation."

Freddie Mac declined to comment on the rejection of the Penunuris' earlier refinancing. Freddie Mac and sister company Fannie Mae together guarantee roughly half of the nation's $10.4 trillion in home loans outstanding.

Christine Penunuri, at her home in Gilbert, Ariz., and her husband have never missed a

mortgage payment and have jobs and good credit, but have been unsuccessful in refinancing their loan.

Regulators are revamping a program rolled out two years ago, the Home Affordable Refinance Program, or HARP, which lets borrowers with less than 20% in equity refinance if their loans are backed by Fannie Mae or Freddie Mac. President Obama announced HARP roughly one month into his presidency. So far, only 894,000 borrowers have used it, of which just 70,000 are significantly underwater.

"It hasn't worked," said James Parrott, a White House economic adviser, in a speech last month.

Officials at the Federal Housing Finance Agency, which regulates Fannie and Freddie, estimate that between 800,000 and one million more borrowers should be able to refinance. "It's in our interest to have these borrowers refinance into lower rates and continue to pay," said an FHFA official.

Monday's refinance announcement is separate from a recent push by state attorneys general to extract concessions from banks to refinance underwater mortgages. That effort, part of the months-long negotiations to settle alleged foreclosure-processing abuses, would apply only to loans held on the books of five of the nation's largest banks, a much smaller subset of loans.

In past downturns, lower interest rates engineered by the Federal Reserve were a powerful antidote for a sluggish economy. Falling mortgage rates triggered a refinancing wave that lowered homeowners' mortgage payments, freeing up cash for other things. That, in turn, helped to stimulate spending that boosted economic growth.

This time around, falling mortgage rates—now averaging just 4.11% for a 30-year fixed-rate mortgage, according to a Freddie Mac survey—haven't packed the usual oomph. The reason: Many homeowners haven't been able to refinance.

Where Refinancing Should Be Happening

While many borrowers with government-backed loans could reduce their rates by refinancing.

CoreLogic, a company that tracks 85% of all mortgages, estimates that 20 million borrowers with equity in their homes could cut the interest rates on their loans by more than one percentage point if they could refinance. That's about a quarter of all the homeowners in the country.

Because a refinanced mortgage is treated like a brand new loan, refinancing is nearly impossible for another eight million borrowers whose homes are worth less than their mortgages, unless they qualify for HARP.

But what about those who still have equity in their homes? Some have blemishes on their credit and employment histories or don't have enough income to qualify under today's tougher lending standards. Some find refinancing isn't worthwhile after factoring in new fees imposed by Fannie and Freddie or other closing costs. Still others can't get a refinancing application through a clogged mortgage-processing system.

That's a big obstacle to a stronger economy. Goldman Sachs economists estimate that if current borrowers with a 30-year fixed-rate loan backed by Fannie or Freddie were to refinance, they would save $24 billion annually. Researchers at Columbia Business School estimate that the benefits would accrue primarily to working- and middle-class borrowers with mortgages below $200,000.

Refinancing Rethink

Key points of the overhaul, designed to make refinancing easier for people with mortgages backed by Fannie Mae and Freddie—about half the nation's $10.4 trillion in outstanding home loans:

·         Open to those owing more than 125% of their home's value

·         Appraisal and underwriting requirements to be reduced

·         Loan fees will drop; waived for borrowers who reduce their loan term

·         Borrowers must be current on previous six payments

The changes should help borrowers like Carol Gesior, who has two underwater mortgages, backed by Freddie Mac, on suburban Chicago properties she bought for siblings. She says she tried to refinance but her bank, Citigroup Inc., told her she couldn't without equity. She was unaware of HARP. If she could refinance both properties, she says she would replace her 1995 Ford Crown Victoria.

"I made a commitment. I signed an agreement to pay. But I didn't do anything to cause the values of these homes to decrease," says Ms. Gesior, 52, an office manager at an investment management firm. "Any logical person would have walked away already."

A Citi spokesman says the company is "happy to work with this client to explore refinancing options that may be available to her."

One problem is that bankers or other mortgage originators shy away from refinancing all but the safest borrowers because Fannie and Freddie can force a lender to buy back a loan if underwriting flaws emerge. In response, lenders are asking for extra documentation of incomes and scrutinizing appraisals, steps that raise costs and lead to more denials.

Another obstacle is new fees that Fannie and Freddie charge borrowers with less-than-perfect credit, even if the borrower's existing mortgage is guaranteed by Fannie or Freddie.

The changes being prepared by federal officials should boost refinancing because they will let banks avoid the risk of any "buy-back" on a HARP mortgage as long as borrowers have made their last six mortgage payments and they prove that they have a job or another source of passive income. They are also set to reduce loan fees that Fannie and Freddie charge. The fees will be waived on borrowers that refinance into loans with shorter terms, such as a 15-year mortgage.

Developments

Twelve Questions on Obama's Refi Plan

Pricing details won't be published until mid-November, and lenders could begin refinancing loans under the retooled program as soon as Dec. 1, according to federal officials. Loans that exceed the current limit of 125% of the property's value won't be able to participate until early next year. The program's expiration date, originally next June, will be extended through 2013. HARP is only open to loans that Fannie and Freddie guaranteed as of June 2009.

Mr. Walsh, the Scottsdale broker, says such changes could lead him to hire "a ton" of new loan officers. "I have a line out the door of people who want to refinance under that program and can't," he says.

Refinancing can't fix the biggest problems eating at the housing market. Tight lending standards and high volumes of foreclosed-property sales are putting pressure on home prices at a time when demand is weak, potentially creating more underwater borrowers.

But refinancing could help those borrowers repair their balance sheets and guard against future defaults. If lenders and regulators successfully execute the changes, they could be "amazingly powerful," said mortgage-market pioneer Lewis Ranieri. "It'll start to create the confidence which is largely what's keeping the system from going forward."

The changes could spur an additional 1.6 million refinanced loans by the end of 2013, assuming interest rates don't rise sharply, according to Mark Zandi, chief economist at Moody's Analytics.

For the very safest homeowners, falling mortgage rates have been a bonanza. Some have become serial refinancers. Jim Wozniak locked in a 3.88% rate for 30-year fixed-rate mortgages for his primary residence in Brookfield, Wis., and his lakefront home in nearby Hartland late last month. Replacing 4.25% loans, he will save $2,700 annually.

"This is probably my third time in three years," says Mr. Wozniak, a 54-year-old investment adviser who says he has an excellent credit score and lots of equity in both properties.

For others, the hurdles are insurmountable. Appraisals are a big one. When an appraisal shows that a property has too little equity, lenders sometimes order a second appraisal. "You get into these appraisal wars, often at the borrowers' expense," says Marietta Rodriguez, the national director for home-ownership and lending at NeighborWorks America, a nonprofit housing group.

Steven Eisner, a 59-year-old attorney in Haddonfield, N.J., says he expected to sail through the process when he tried to refinance last month because he has good credit and strong income. Instead, he was startled to find that the appraisal on his vacation condo in Bonita Springs, Fla., came in so low he would have needed to ante up $52,000.

He put 25% down when he bought it four years ago. But, because of sagging home prices, his equity has declined to just 10% of the property's value. Refinancing "is simply not worth the trouble," says Mr. Eisner, whose mortgage is guaranteed by Fannie.

Not everyone benefits from encouraging more refinancing, of course. Banks and investors in mortgage-backed securities—including Fannie and Freddie and the Federal Reserve—stand to lose billions if performing loans pay off, leaving investors with cash to reinvest at today's lower rates.

"Somebody's going to get hit. This isn't a free good," says Anthony Sanders, a real-estate finance professor at George Mason University in Fairfax, Va.

That doesn't faze Mr. Eisner. "We've certainly done enough to prop the banks up," he says. "These are loans that everyone knew could prepay."

The success of any refinance push rests not only on whether policy makers can untangle a Gordian knot of technical hurdles, but also on whether they can get buy-in from private-sector players. One major obstacle to refinancing is that the mortgage industry has shrunk. Four big banks now control more than 60% of the mortgage market. Many originators, including the biggest banks, have cut staff or shifted loan underwriters into units working through piles of delinquent mortgages.

New rules designed to prevent independent mortgage brokers—who originate loans on behalf of a bank or other lender—from fleecing consumers have made it harder for them to compete with bigger lenders that aren't subject to the same rules. For example, new compensation rules make it less attractive for brokers to originate smaller or more complicated loans.

The reduced competition has led to longer processing times and higher prices for consumers. When their borrowing costs fall, banks aren't necessarily reducing the rates they charge borrowers by the same amount. Banks with big market share "know they can get away with it," says Thomas Lawler, an independent housing economist in Leesburg, Va. "The market's just not as competitive as it once was."

Industry executives dispute the notion that the market isn't competitive but concede that the industry wasn't ready to handle a surge in applications after rates dropped two months ago.

"Capacity constraints" will be temporary because lenders are hiring more staff, but "in the short run, there's no question that's a challenge," says David Stevens, the chief executive of the Mortgage Bankers Association. Lenders are going "through a lot more checks and balances simply to get a loan approved safely and soundly."

Some spurned borrowers aren't giving up. Barb Skaer, 70, of Appleton, Wis., and her husband wanted to refinance a $402,000 mortgage on a second home that appraised at $547,000 two years ago. She says they have strong credit scores and own part of a manufacturing business that makes bobby pins and hair clips.

Ms. Skaer says their bank, J.P. Morgan Chase & Co., quoted a 4% rate. But she says her loan officer told her she and her husband wouldn't qualify for a new loan because their income from their factory business declined the past two years. A J.P. Morgan spokesman declined to comment.

Ms. Skaer says they are appealing the decision at their bank and may go elsewhere if that doesn't work.

"Our theory is that if we can afford [the current payment of] $2,189 per month, we should be able to afford $200 less by refinancing," says Ms. Skaer. "This makes absolutely no sense to us, and we are not taking 'no' for an answer."

Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved

Article of the Day

Real Estate Transactions Continue to Climb Across Minnesota

by Minnesota Association of REALTORS on Thursday, October 20, 2011 at 9:06am

October 20, 2011 (Edina) – Consumers across Minnesota continue to take advantage of historically low interest rates and lower prices by purchasing homes and showing more confidence in the housing market. The September 2011 Housing Report from the Minnesota Association of REALTORS® shows pending sales are up more than 40 percent compared to September 2010. This is the fifth consecutive monthly increase in pending sales.

“Purchase agreements for Minnesota residential home sales that are not yet closed were up significantly,” said June Wiener, President of the Minnesota Association of REALTORS®.  “Housing affordability, low interest rates and an improving employment sector all contributed to the strong results.”

Closed transactions are another positive indicator of a stronger housing market. In September 2011, closings were up 24 percent from the same time in 2010. Homebuyers have closed on more homes year-to-date than in the previous year as well.

“An increase in closed sales is important because it indicates that buyers are interested in moving forward with homeownership,” said Wiener. “Low interest rates, a very affordable housing inventory and strengthening confidence in Minnesota’s employment sector are all contributing to the rebound.”

Many Minnesota homeowners are concerned about the value of their property and in September the year-to-date numbers still looked disappointing.  Statewide, median sales prices were down 6.6 percent compared to values in 2010.  The median is the midpoint, indicating as many transactions above as below the stated price.  In August the median home price was $140,000.

“This is not an uncommon situation when the market is stabilizing,” said Wiener. “Individual monthly prices can fluctuate as housing consumers look for bargains and sellers price their properties competitively with others on the market.” 

In September, housing inventories fell 13 percent. Homes were on the market an average of 130 days.

The Minnesota Association of REALTORS® is the largest professional trade association in the state with almost 18,000 members who are active in all aspects of the real estate industry.

Article of the Day

States and Servicers Consider New Proposal for Aiding Those Underwater

10/18/2011 By: Carrie Bay 

Help for underwater homeowners has moved from principal writedowns to refinancing in the settlement negotiations between state attorneys general and the nation’s five largest mortgage servicers.

According to a widely circulated Wall Street Journal report, the proposal was put on the table at a meeting last week between representatives from both sides.
DSNews.com has received confirmation from a source involved in the negotiations that the parties are indeed considering a proposal to incorporate refinancing for underwater homeowners into an agreement to settle allegations of robo-signing and improper foreclosure practices.
While the Journal concedes that discussions are ongoing and “any final outcome is uncertain,” reporters Nick Timiraos, Ruth Simon, and Dan Fitzpatrick lay out the framework for who would qualify for such assistance.
Borrowers who are current on their mortgage payments but unable to take out a new loan due to the equity constraints of a typical refinance would fit the bill.
The main caveat is that the borrower’s loan must be owned directly by one of the five banks involved in the

settlement talks – Bank of America, Citigroup, Ally’s GMAC, JPMorgan Chase, or Wells Fargo – and not have been packaged into a mortgage-backed security and resold.
The impact of such a proposal would be limited, considering some 80 percent of mortgages are securitized and owned by investors.
While the agreement between states and servicers is intended to settle allegations of wrongful foreclosures and faulty paperwork, early on in the negotiations, attorneys general were demanding mortgage relief also be extended to underwater borrowers in the form of principal-reducing loan modifications.
Principal writedowns became a key sticking point for the settlement talks with even some attorneys general openly expressing their reservations about the moral hazard such a move might carry.
Officials are hoping to advance negotiations with a refinancing compromise, which also could be leveraged to win back the support of those attorneys general who have dropped out of the discussions, such as California Attorney General Kamala Harris.
Harris excused herself from the negotiations late last month, calling the settlement proposal at that time “inadequate” for homeowners in her state – a state where the dive in home prices has left millions underwater.
Litigation liability has also been a stumbling block in reaching an agreement. The banks want some sort of assurance that the settlement will protect them from future litigation, but some AGs say any joint agreement should not prevent them from pursuing their own actions.
Geoff Greenwood, a spokesperson for the states’ lead negotiator, Iowa Attorney General Tom Miller, told DSNews.com, “It’s hard to say exactly how close we are. We’re getting closer and we’re cautiously optimistic we’ll reach an agreement in principle.”

Article of the Day

Thirty-Year Mortgage Rate Falls Below 4%

10/06/2011 By: Carrie Bay 

The average rate for the conventional 30-year fixed mortgage has dropped below the 4 percent mark for the first time in history, according to numbers released Thursday by Freddie Mac.
The GSE’s market analysis also shows that the 15-year fixed rate – which has become a popular refinancing option among existing homeowners – fell to its lowest level on record for the sixth consecutive week.

Freddie Mac’s regular weekly survey of mortgage rates is based on data collected from about 125 lenders across the country.
The GSE puts the average rate for a 30-year fixed mortgage at 3.94 percent (0.8 point) for the week ending October 6, 2011. That’s down 7 basis points from its average of 4.01 percent last week. As a point of comparison, last year at this time, the 30-year rate was 4.27 percent.
The 15-year fixed-rate mortgage came in at 3.26 percent (0.8 point) this week, dropping 2 basis points from 3.28 percent last week. A year ago at this time, the 15-year rate was averaging 3.72 percent.
Adjustable-rate mortgages (ARMs) were mixed this week in Freddie’s study. The 5-year ARM dropped from 3.02 percent to 2.96 percent (0.6 point), while the 1-year ARM rose from 2.83 percent to 2.95 percent (0.5 point).
At this time last year, the 5-year ARM was averaging 3.47 percent, and the 1-year ARM was 3.40 percent.