The former senior adviser at the Consumer Financial Protection Bureau, Chris Haspel helped develop new mortgage rules aimed at preventing a rerun of the non-prime boom. Now, he is part of a growing industry seeking to profit from making loans that fall outside the new “qualified mortgage” regulation he helped author.
Many of the largest lending companies in the United States have said they do not intend to originate or securitize high numbers of non-qualified-mortgages, raising fears that home financing credit could soon dry up for millions of Americans. At the same time, a crop of new non-bank lenders are stepping in to fill what they see as a gap left by retreating banks
The new QM standard is expected to be followed next month by the “qualified residential mortgage” rule which aims to better align the incentives of those who slice-and-dice loans into mortgage bonds with the interests of the investors who buy the securities. The rule is expected to follow broadly the same criteria set out by the QM rules and will probably exempt the financial entities that create, or “sponsor,” securitisations of QM loans from having to hold on to a slice of the deal. That means securitizers of non-qualified mortgages will probably have to hold a piece of the resulting bond. For banks, already beset by new capital rules, that is an onerous requirement and one that is likely to deter them from bundling non-QM loans.
Props to the Financial Times
The 30-year fixed-rate mortgage averaged 4.94% for the week ending Oct. 1, down from 5.04% last week and 6.10% a year ago. The mortgage hasn’t been below 5% since the week ending May 28, when it averaged 4.91%.
The 15-year fixed-rate mortgage averaged 4.36% this week, down from last week’s 4.46% average. The home loans averaged 5.78% a year ago. It hasn’t been lower since Freddie Mac started tracking it in 1991.
To obtain these low mortgage rates, the 30-year fixed-rate mortgages require a payment with a cost of 0.7 point, the 15-year fixed-rate mortgage and the 5-year ARM required an average 0.6 point and the 1-year ARM required an average 0.5 point. A point is 1% of the mortgage amount, charged as prepaid interest.
Bad credit mortgage rates may be possible with the obama loan relief or the new FHA loan modification that enables borrowers with delinquent loan payments refinance their home if there is a documented hardship.
2. Don’t assume you are pre-qualified when may not be.
3. Don’t just work with any loan officer. Choose a lender that has a good track-record closing first time home buying loans with competitive pricing.
Buying a house is not like buying a stereo or even an automobile. The financing aspect of first time house buying is very critical and making the goof choices can save you a lot of money over time. Rates are still great and many lenders have announced more home financing products that have created new opportunities. Read the entire Yahoo blog post.
Other Lending Articles
Bernanke said the surveys showed that home loan lenders began tightening credit standards in 2007 and have not eased guidelines significantly since. In the latest senior loan survey, released on Monday, only a few American banks reported that they eased standards on fixed home refinance loans over the past three months. A large majority of the loan officers said that the “risk-adjusted profitability of the residential mortgage business relative to other possible uses of funds” was an important factor restraining residential real estate loans. Fear of “putback risk,” the risk that the insurers and mortgage buyers would force them to buy back bad loans, was another important factor.
A number of smaller banks indicated that they were even less likely now to approve a home loan with a FICO score of 620, depending on the down payment. Some more banks were likely to approve a loan application with excellent credit — a FICO score of 720 — and a 20% down payment. About a third of bank loan officers indicated that they were less likely to approve loans insured by the Federal Housing Administration with FICO scores of 580 or 620.
The agency, a primary source of funding for first-time home buyers and those with modest incomes, said it would raise the premiums it charges on loans it guarantees by 10 basis points, adding, on average, about $13 per month to a borrower’s cost. A basis point is one-hundredth of a percentage point.
Housing officials would not say whether the steps would be enough to keep the mortgage insurer from turning to the Treasury Department for a cash infusion for the first time in its 78-year history. “I’m not going to place bets,” FHA Acting Commissioner Carol Galante told reporters. The FHA’s role in the mortgage market has expanded rapidly since the U.S. housing bubble burst. It now insures about 1.2 million mortgages, supporting about 15% of all U.S. home loans, up from 5% in 2006. Combined with government-controlled Fannie Mae and Freddie Mac (FMCC.OB), which buy loans and repackage them as securities for investors, Washington’s footprint in the market has grown to account for nearly nine of every 10 mortgages. FHA still approves cash out loans with bad credit with only 15% equity as long as the borrowers has other strong credentials.
The three firms have helped prevent a deeper housing bust, but heavy losses have sparked debate over how to strike the best balance between protecting taxpayers and keeping credit flowing. An independent audit delivered to Congress on Friday showed the FHA had depleted the capital it would need to cover expected losses on the $1.1 trillion in mortgages it backs. It said the losses would leave the agency $16.3 billion in the red. “FHA is in dire need of restructuring,” said Cliff Rossi of the University of Maryland’s business school, who has worked at Fannie Mae, Freddie Mac and Citigroup. “The latest report highlights the broader issue surrounding housing finance and how much of a guarantee the government should provide and to whom.”
The FHA’s troubles stem from rising defaults on mortgages it guaranteed from 2007-2009 as the housing bubble was deflating. The audit projected those losses would amount to $70 billion. Galante emphasized that the White House’s annual budget proposal in February would be instrumental in determining whether the agency would need taxpayer funds by the time its fiscal year expires on Sept. 30. Any final determination would not be made until September. While officials stressed that a bailout is not a foregone conclusion, critics of the agency — including some lawmakers — are concerned it could turn out to be a burden on taxpayers along the lines of mortgage finance companies Fannie Mae and Freddie Mac, which have been propped up by more than $135 billion in funds from the U.S. Treasury. Senate Banking Committee Chairman Tim Johnson said he was “deeply concerned” by the state of the FHA’s finances and urged officials to “do everything in their power to protect taxpayers and restore its capital reserve” to the level required by law. The FHA is mandated to maintain a 2% capital ratio, which is a gauge of its ability to withstand losses, but it has not met that target for four years. The audit found the ratio had dropped to negative 1.44%. Read the original Reuters update on FHA lending.
One in three U.S. consumers would consider a mortgage from retailer Wal-Mart and almost half would consider one from online payment provider PayPal, according to a financial services study to be released on Monday. The results should be especially disconcerting for banks because the two companies do not even offer home financing or second mortgages.
The study shows consumers are willing to try alternative loan companies as borrowers focus on price, customer service and trust in their provider when selecting a mortgage, said Doug Hautop, lending practice lead at the Carlisle & Gallagher Consulting Group, which conducted the survey. “There is a real threat from new entrants,” Hautop said. The study’s results were based on online responses from 618 U.S. consumers in September. Non-bank mortgage companies such as Quicken Loans and Nationstar Mortgage Holdings Inc have gaining market share as some large banks such as Bank of America Corp pull back in a business that burned them during the financial crisis. Carlisle & Gallagher, based in Charlotte, North Carolina, provides consulting services to five of the top eight U.S. mortgage originators, Hautop said. It’s no secret that bank lenders are maintaining high standards on mortgages and they less likely to approve home loans with bad credit.
A Wal-Mart Stores Inc spokeswoman declined to comment on the survey. The retailer provides small business loans at its Sam’s Club stores, but doesn’t offer mortgages. A spokesman for PayPal Inc, a subsidiary of online auction site eBay Inc, said it offers credit lines for customer purchases, but hasn’t announced any plans to move into the mortgage business. Read Original NBC News Article.
Tax Deductibility on Home Equity Interest
Smart Home Equity published a good article about tax deductibility on the topic of home equity-credit lines. The issue of deducting interest on loans up to $100,000 has become a concern as many borrowers are not clear about limitations. We strongly suggest discussing this with a CPA who is well versed on the mortgage interest deductions for 2013.
You will find most loans come with variable interest rates, some come with attractive low introductory rates, and a few come with fixed rates. You also may find most loans have large one-time upfront fees, others have closing costs, and some have continuing costs, such as annual fees. You can find liens with significant balloon payments at the end of the term and others with no balloons but with higher monthly payments. The bottom-line is that there are home equity products that make sense for your situation and loans that do not make sense for you financially as well.
The FTC reminds us to review the home equity contract carefully before you sign it. Read the FTC warning about home equity lines of credit.
The biggest problem remains qualifying criteria for home loan programs as many of the applicants have issue with credit or equity requirements. There may not be enough subprime mortgage lenders offering programs that meet the needs of distressed homeowners. The Home Affordable Refinance Program has helped many homeowners that have upside down mortgages, but you have to have a mortgage owned by Fannie Mae or Freddie Mac. Not all underwater home loans are owned by these government entities so there is still a need to find an underwater refinance programs for people that do not have a mortgage owned by Fannie or Freddie. The biggest criticism of the FHA streamline refinance is that borrowers must pay for closing costs out of their pocket. FHA will not allow people to finance closing costs under the streamline program. They will also not permit no-cost loans in which the lender fees are paid by the loan company. Not everyone has $4,000 or $5,000 to pay for the streamline refinance.
Economists for the trade group estimated that modest economic growth, more sales to owner-occupants and a small boost in average home prices will drive a 16% increase in home purchase mortgages, to $585 billion. Meanwhile, home refinance transactions are forecasted to decrease $785 billion, down from an estimated $1.2 trillion this year. The American Action Forum, a public policy group, recently estimated that combined all the new regulations would result in 20% fewer mortgages than otherwise would be made, up to 1 million fewer housing starts over a three-year period and 3.9 million fewer jobs. Renting is roaring. Investors are scooping up distressed suburban homes to turn them into rentals, and the majority of multifamily construction now going on is apartments, not condominiums.
Will Interest Rates Come Back to Record Levels?
The refinance share of total residential lending activity slipped to 80% of applications from 81%. Fixed rates on 30-year loans averaged 3.65% in the week. This indicated a rise of 2 basis points from 3.63% the week before. According to MBA the weekly survey covers over 75% of mortgage applications in all 50 states.
Freddie Mac said it “strongly encourages” servicers to help affected borrowers with Freddie Mac-owned loans by suspending foreclosure and eviction proceedings for up to 12 months, waiving assessments of penalties or late fees against borrowers with disaster-damaged homes and not reporting forbearance or delinquencies caused by the disaster to credit bureaus. Fannie Mae said its policy with mortgage servicers, updated in 2009, allows borrowers to enter forbearance for up to 90-days. Fannie Mae said servicers were reminded of the existing guidelines on disaster relief in light of the recent storm.
To reach Fannie Mae, visit their website in regards to loan relief, call 1-800-732-6643. Call Freddie Mac at 1-800-373-3343.
The Most Significant Benefits of a No Cost Refinance
According to Market Watch, the government alleges Countrywide Home Loans., a company that B of A acquired in 2008, dismembered checks on loan quality in 2007 through 2009, adopting a process called “the Hustle” that aimed to boost the speed at which it originated and sold loans to the companies. The mortgage unit falsely continued to claim the loans qualified for insurance from Fannie Mae. Preet Bharara, the U.S. attorney for the Southern District of New York, called Countrywide’s alleged behavior “spectacularly brazen in scope.” The bank approved high risk liens, like the “no-income mortgage” and stuck taxpayers with the bill,” he said in a statement. “Countrywide and Bank of America systematically removed every check in favor of its own balance — they cast aside underwriters, eliminated quality controls, extended incentives to unqualified personnel to cut corners, and concealed the resulting defects.” The high risk mortgage programs had a high default rate that ultimately led to the foreclosure crisis.
Fannie and Freddie, while backed by taxpayers since the 2008 bailout, are not part of the government. Previous suits have been brought on behalf of government agencies such as Medicare and the FHA. Fannie and Freddie were publicly traded entities before their market funding evaporated in the early stages of the financial crisis, forcing their effective nationalization. Taxpayers have since poured $142 billion into the companies, which along with other government agencies financed nine out of 10 home loans written last year. Fannie and Freddie don’t make loans but guarantee regular principal and interest payments to mortgage-bond investors.
Other actions to speed up loan processing included eliminating underwriter review of high risk loans, eliminating mandatory checklists on underwriting instructions, getting rid of compliance specialists inside the company and revamping the compensation structure based solely on loan volume, according to the complaint.
Instead of underwriter reviews, the company gave those tasks to loan processors “who were previously considered unqualified even to answer questions,” the complaint stated. The complaint also alleges Countrywide instituted the Hustle program while it was assuring Fannie and Freddie that they had tightened requirements and underwriting guidelines. Some $1 billion in loans defaulted as a result of the program, according to the complaint.
Fannie Mae stopped buying or guaranteeing new loans delivered by Bank of America this past February amid an impasse over billions in defaulted mortgages that Fannie said Bank of America was obligated to repurchase. Negotiations over resolving the dispute are ongoing, according to both parties.
Bank of America briefly became Fannie’s top client following its acquisition of Countrywide. It accounted for 20% of all loans Fannie bought or backed in 2009, but that share had fallen below 10% by the third quarter of 2011, and below 3% in the fourth quarter, according to Inside Mortgage Finance.
The suit follows in a long line of legal headaches for Bank of America. Last month, the bank agreed to pay $2.43 billion to settle claims it misled investors about the acquisition of brokerage firm Merrill Lynch & Co., the largest settlement of a shareholder claim by a financial-services firm since the upheaval of 2008 and 2009. Read the complete Market Watch article on the Government and B of A lawsuit.
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