Obama Announces Plan to Help Struggling Homeowners

Governmental Affairs, Mortgage Lending, News 1 Comment »

Yesterday, President Obama unveiled the Homeowner Affordability and Stability Plan, the administration’s $75 billion effort to help up to 7 to 9 million families avoid foreclosure by refinancing their mortgages.

The key components of the plan are:

  • Government Sponsored Enterprises (GSEs) Refinancing for Up to 4 to 5 Million Responsible Homeowners with GSE loans to Make Their Mortgages More Affordable
  • A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
  • Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

NAR has developed a good summary of the plan to help REALTORS® understand how it is structured.

Posted by Scott Sherrin at 12:15 pm

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Foreclosures: Part of the Problem or the Solution?

Governmental Affairs, Mortgage Lending, News 3 Comments »

In this past weekend’s edition of The Wall Street Journal, opinion writer Ramsey Su argues that the government should not step in to prevent foreclosures, which he believes are the free market’s way of dealing with the current real estate crisis. By not allowing the market to deal with its own problems, Su argues that the government would be creating “a generation of mortgage slaves.”

What is the market telling us? Dataquick recently released December sales data for Southern California, once the hotbed of speculative excesses supported by nontraditional financing. Foreclosures now dominate sales. Prices are down. Sales volume is up. New home construction is down. These are beautiful textbook illustrations of supply and demand driving price and market equilibrium.

It seems Su is not alone in this opinion. In an interview with Memphis native Sarah Lacy on the Yahoo! Finance Tech Ticker yesterday, investor Paul Kedrosky agreed with Su and cited California as an example of free-market forces at work:

Kedrosky cites California as an example: Real estate prices fell so hard, so fast here that a lot of the foreclosure protection programs didn’t get a chance to work. And, as a result, prices have bottomed out and property is starting to move again.

So should the government work to prevent foreclosures, or will that just prolong the pain?

Posted by Scott Sherrin at 3:16 pm

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Little-Known USDA Mortgage Program Getting a Second Look

Mortgage Lending, News No Comments »

Yesterday’s Wall Street Journal included an article (Home Buyers Turn to USDA for Mortgages) about an obscure home-loan program offered through the U.S. Department of Agriculture. The program was created as a way to boost homeownership in rural areas, but is now being used by buyers in some areas outside of major cities that still qualify for the loan terms.

The article shares this story from a recent buyer:

When Erick Moore first read about the USDA’s Rural Development Guaranteed Loan program, he says he imagined it would be “restricted to some little farmhouse.” Instead, the 33-year-old computer programmer moved last month into a four-bedroom, three-bath home in Fuquay-Varina, N.C., 17 miles outside Raleigh. The house sits on nearly one acre and features a brick facade, 10-foot ceilings and hardwood floors.

“I couldn’t believe it until we closed,” says Mr. Moore, who paid only $1,200 out of pocket to move into the $228,000 home. The seller contributed $5,000 in closing costs, and Mr. Moore rolled the 2% fee charged by the USDA into the loan. Mr. Moore, who owned a home in St. Louis before he relocated to the Raleigh area last year, says a 60% drop in his stock portfolio made it difficult to come up with a down payment. He directed his Realtor to show him only homes that were eligible for the USDA program.

There are many areas within our area that would likely qualify for this program. To qualify, borrowers must meet specific income limits based on the number of people in the household the median income of the county where the borrower is buying the home. For most of the Memphis area, the income limit for a household of four individuals would be $70,750. Detailed income limits by state are here.

Despite the low- or no-down payment requirements of these loans, the USDA program has a default rate slightly better than that of loans guaranteed through the Federal Housing Administration. But unlike FHA the USDA loan programs rely on a fixed allocation of funds from Congress, and no additional loans can be made once that money is committed.

In today’s tighter credit market, the USDA program might be a viable and attractive alternative for some buyers.

Posted by Scott Sherrin at 3:46 pm

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FHFA Director Responds to Questions Raised by REALTORS® at NAR Conference

Market Statistics/Performance, Mortgage Lending, News No Comments »

On December 4, 2008, the Director of the Federal Housing Finance Agency, Jim Lockhart, wrote to NAR President Charles McMillan to follow up on the questions raised by REALTORS® at the Orlando meetings that he was unable to answer at the time. Director Lockhart is the conservator for Fannie Mae and Freddie Mac and the federal regulator of the two government sponsored enterprises (GSEs). In Orlando, Director Lockhart spoke at a standing-room-only session to 600 REALTORS® and then fielded questions for nearly an hour. He also attended the meeting of the Conventional Finance and Lending Committee to discuss GSE issues in a smaller setting.

Here are highlights of the Director’s responses to REALTOR® recommendations that the GSEs:

  • Increase the 4-unit investor loan limit. Director Lockhart advised that one of the GSEs is considering raising the 4-loan limit on investor loans (both GSEs permit waivers). [Note: When one GSE makes a policy change, the other very often follows suit.]
  • Adopt a process to appeal servicer decisions. Mr. Lockhart notes that the GSEs are working to streamline their loss mitigation procedures. On short sales, they are working on a number of initiatives. He did not indicate that the GSEs are developing an appeals process.
  • Establish better foreclosure policies (including concern about banks refusing to work with borrowers until they are at least 90 days delinquent). Mr. Lockhart reviewed the streamlined loan modification program announced shortly after the Orlando meetings by FHFA, Treasury, HUD, and HOPE Now to reduce preventable foreclosures. He did not explain the logic of limiting the new program to borrowers at least 90 days delinquent, but he did refer to other initiatives targeted at borrowers at earlier stages of delinquencies or even those not yet delinquent.
  • Reform owner-occupied condo rules. Mr. Lockhart made two points: (1) in an established project, the 51% owner occupancy requirement does not apply to any loan secured by an owner-occupant principal residence or second home, and (2) at least one of the GSEs is considering clarifying the 51% requirement to exclude bank-owned units from being counted as investor units.
  • Apply the same underwriting standards to jumbo conforming loans (loans above $417,000 that may be purchased by the GSEs) (the member questioned the assumption that jumbo conforming loans are more risky. Mr. Lockhart believes that jumbo conforming loans are riskier because defaults involving larger loans result in higher losses. He also notes that most jumbos have been ARMS which are relatively riskier and may be hard to refinance.

Download the full letter.

Posted by Scott Sherrin at 6:02 pm

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Will Proposed Interest-Rate Buydown Make an Impact?

Market Statistics/Performance, Mortgage Lending, News 1 Comment »

As the overall economy continues to falter, the federal government is now looking at a plan to push down mortgage interest rates to below 5% - far lower than any rate seen ever. This proposal was detailed in yesterday’s Wall Street Journal, and is beyond the plan announced last week to buy up to $600 billion in debt issued or backed by Fannie Mae or Freddie Mac. The Journal reports:

Treasury views this plan as potentially halting the slide in home prices by enabling borrowers to afford bigger loans, thus increasing demand and pushing up home values. The lower interest rates would be available only to borrowers who are buying a home, not those refinancing a mortgage.

Borrowers would have to qualify for a mortgage guaranteed by Fannie, Freddie or the Federal Housing Administration. Those guarantees apply to loans where borrowers can document their income and afford their monthly payments, steering the government away from backing loans considered risky.

The National Association of REALTORS® (NAR) has expressed support for such action, and it is part of a Four-Point Plan NAR unveiled a few months ago to stimulate the housing market.

But the plan has critics, who question how effective such action will be considering that home prices continue to fall and that unemployment rates are expected to climb into 2009.

What do you think? Is this the right approach for the government to take, or will the results have little impact on the housing market?

Mortgage Rates Sink Following Frannie, Freddie Takeover

Mortgage Lending, News No Comments »

Once the federal government took control of Fannie Mae and Freddie Mac last week, many expected a significant drop in mortgage rates, at least for the near-term. As expected rates did fall considerably, with Freddie Mac’s Primary Mortgage Survey showing a .42 point drop in the 30-year rate to 5.93%. With rates falling below 6% we’re likely to see some renewed consumer interest in both new purchases and refinancing.

Just how long the rates stay low is up for debate, as NAR Chief Economist Lawrence Yun discussed in his most recent commentary piece:

Mortgage rates will trend down over the short run. But how much of a decline will depend on how actively the government - more specifically the Treasury Department and the FHFA - loosens their mortgage liquidity spigot. For over the next 12 months at least, the FHFA has the authority to purchase more than the normal amount of mortgages from lenders to put into their portfolio holdings. That means all conforming loans, including the newly conforming jumbo loans up to $625,000, will qualify for purchase by the FHFA. That will help drive down mortgage rates. In about two year time, when the housing recovery is assumed to be well underway, the government will trim its mortgage portfolio. Then Fannie and Freddie will be completely restructured. It will be up to the next administration and Congress to determine that structure in for which NAR will make our 1.3 million voices heard.

Now it appears the financial markets are heading for some more turbulence, with some of the biggest players continuing to see fallout from their mortgage-related assets. Just what impact these most recent developments have on overall markets remains to be seen.

Freddie Mac Increases Incentives for Helping Borrowers Avoid Foreclosure

Mortgage Lending, News 1 Comment »

Mortgage servicers who handle Freddie Mac-owned mortgages just got more incentive to help those borrowers who might be facing foreclosure.

Freddie announced yesterday that it is doubling the incentive it pays to servicers for each workout that helps keep a delinquent Freddie-owned mortgage out of foreclosure. Freddie will also begin reimbursing servicers for the cost of door-to-door outreach programs and offer more time to negotiate workouts in those states with fast foreclosure processes, including Tennessee, where the average time to complete a non-judicial foreclosure is 60 days.

Beginning today, servicers will be allowed up to 10 months from the due date of the last payment until a foreclosure sale will occur to seek aggressive and sustainable workout solutions for borrowers.

Posted by Scott Sherrin at 2:08 pm

New Housing Law Offers Relief, Benefits to Home Buyers

Community, Governmental Affairs, Market Statistics/Performance, Mortgage Lending, News 3 Comments »

This morning, President Bush signed into law the Housing and Economic Recovery Act of 2008, legislation aimed at shoring up the housing market in the United States and offering current homeowners with troubled mortgages and potential homeowners with significant assistance.

Of most interest to people who do not own a home but have been thinking about it is a $7,500 tax credit to qualified first-time home buyers who purchase a home between April 9, 2008, and June 30, 2009. That’s a tax credit, meaning those who qualify will receive a dollar-for-dollar reduction in what they owe the year the credit is taken against their income taxes. The credit does have to be repaid, but it is done over 15 years and payments don’t start until tax returns files two years after the credit is taken.

In the Memphis-area market first-time buyers make up a larger share of all buyers than the national average, which means a larger number of people locally stand to benefit from the credit. Add to that the affordability of Memphis-area real estate and it adds up to an outstanding opportunity for first-time buyers.

Here’s the fine print:

  • The credit amount can be 10 percent of the cost of the home purchased, not to exceed $7,500.
  • Any single-family property (including condos) that will be used as a primary residence is eligible.
  • The full amount of the credit is available for individuals with adjusted gross income of no more than $75,000 ($150,000 for joint filers). The amount of credit available gradually phases out as adjusted gross income reaches $95,000 for a single filer and $170,000 for joint filers.
  • The credit is repayable over 15 years (without interest) in equal installments of 6.67% of the credit or when the owners sell the home, assuming there is sufficient capital gain from the sale. Repayment does not begin until two years after the credit is claimed.

More detailed information on the tax credit, including FAQs and answers, is available at this site created by the National Association of Home Builders.

Read the rest of this entry »

Posted by Scott Sherrin at 12:49 pm

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An Overview of Short Sales in Plain English

Education, Market Statistics/Performance, Mortgage Lending 2 Comments »

The Virginia Association of REALTORS® has posted on its VAR Buzz blog an excellent article on short sales that offers someone new to this type of transaction a good overview of the topic. While no article can replace experience, especially when it comes to short sales (where each transaction is likely to be nothing like the next one), this article provides a great foundation or review for any practitioner.

And if you’re looking for more instruction on short sales, register for the August 8 class at MAAR.

Posted by Scott Sherrin at 7:42 am

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