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21 Jan 09 Average Loan to Value Ratios Projected to Hit 109%

Home prices have fallen 18% since 2006 and could drop another 10% in 2009, which means the average mortgage could be “underwater” soon, according to a former Fannie Mae executive who served as the GSE’s chief credit officer in the 1980s. Speaking before the American Enterprise Institute, former GSE executive Edward Pinto said the average loan-to-value ratio on most single-family loans was roughly 95% at year-end 2008.   Even with mortgage rates at record levels, property values continue to decline.  The fear of losing home equity is still real.  

Mr. Pinto, now a consultant, said that figure could rise to 109% at the end of this year, a first. He noted that a 20%-plus drop in home prices has not occurred since the Great Depression when values fell 24% between 1929 and 1933. LTVs, though, were much lower in the Depression. The consultant relies on home price indexes issued by the Federal Housing Finance Agency and S&P Case Shiller in making his price estimates. Mr. Pinto said the government is on the hook for nearly 70% of all mortgages due to its backing of Fannie Mae, Freddie Mac, the Federal Home Loan Banks, the Federal Housing Administration and Federal Deposit Insurance Corp. If Congress passes bankruptcy reform legislation that allows for mortgage cram downs, the government will be “cramming down the loans they are responsible for,” Mr. Pinto said.


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13 Jan 09 Home Mortgage Lending Guidelines Tighten

Unfortunately with default rates breaking records every month, lenders are tightening guidelines more and more.  Many mortgage lenders start revising guideline requirements with their wholesale mortgage products.  Most lenders start by increasing the home equity requirements for cash out and rate and term refinancing.  Most mortgage lenders will also increase the credit score requirements, especially on the stated income or jumbo mortgage loan products.  Now with cash out FHA loans, lenders are requiring 2 full URAR appraisals to meet HUD product modification requirements.  Get the latest interest rate updates and mortgage news reports as they happen.

Many California homeowners residing in high cost regions are unhappy with HUD lowering mortgage limits.  The 2009 FHA loan limits are being lowered but HUD assures Mortgage Related News that millions of borrowers will still benefit from these FHA loan programs nationally.  FHA announced the new ceiling in the high cost markets will be $625,500.


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18 Nov 08 Are You an Idiot to Pay Your Mortgage Loan on Time?

Should you keep paying your mortgage?   If you have measurable equity in your home, you should continue paying your mortgage on time.  However If you lost your home equity, it’s becoming increasingly more difficult to answer that question, especially when our government keeps handing out home loan relief to homeowners who owe more than their homes are worth so many reasons not to pay.  Last week, the government announced a program that will substantially lower payments for many homeowners who have little or no equity, but only if they are at least 90 days delinquent.  Critics say the loan modification plan, which applies to home loans owned or guaranteed by government wards Fannie Mae and Freddie Mac among others, would encourage people to suspend payments by rewarding them with a mortgage modification that ensures them a lower mortgage payment. 

What about the moral obligation to pay off a debt?  Elected officials have been chipping away at that by blaming the foreclosure crisis largely on predatory lenders. In a campaign fact sheet, President-elect Barack Obama says he “recognizes that the real victims in the subprime mortgage crisis are not the lenders, but the millions of borrowers who followed the rules and whose only crime was taking out mortgages that lenders told them they could afford.”

Last year, Congress started removing some financial hazards of default when it passed a bill that temporarily waives the income tax on mortgage debt that is canceled when a homeowner is foreclosed upon, sells a home for less than the remaining debt (a short sale) or gets a loan modification that reduces the principal balance.  The tax waiver originally applied only to debt on a primary residence canceled in 2007, 2008 or 2009. Last month, in the bailout bill, Congress extended the waiver until 2013.  There are exceptions: The waiver applies only to debt that was used to buy or improve a primary residence. If you took out a home-equity loan or did a cash-out refinance to buy a car, you’ll still owe tax on that debt if it is canceled. For state income taxes, California has partially conformed to the federal law, but only for debt canceled in 2007 or 2008.

FHA home loan lenders have rolled out two new programs to help homeowners refinance or modify their mortgage with a more-affordable loan payment that features reduced interest rates, FHA Secure and Help for Homeowners Loans. Neither requires borrowers to be current on their mortgage payments.  The program goes a step further by requiring homeowners to actually be late.  The Streamlined Modification Program, sponsored by the government agency that oversees Fannie Mae, Freddie Mac and 27 loan servicers, promises to quickly lower payments for specific borrowers who face foreclosure.

How to qualify

To qualify, you must be at least 90 days delinquent and live in the home as your primary residence. You must owe at least 90 % of the home’s value. It’s fine if you owe more than it’s worth.  Your mortgage must be owned or guaranteed by Fannie Mae and Freddie Mac or held by one of the participating loan companies.


If you meet these requirements and can document your income, your servicer will reduce your monthly mortgage payment including property taxes, insurance and association dues – to 38 % of your gross income.  The restructure mortgage can be accomplished in one or more ways:

  • Lowering the mortgage rate, but not below 3 %. (The new mortgage rate, if below market, reverts back to a market rate after five years.)
  • Extending the mortgage loan for up to 40 year terms.
  • Reducing the outstanding principal on which monthly payments are calculated. Unpaid principal is added to the mortgage loan balance and due when the homeowner sells or refinances. The reduced interest payments never have to be repaid.

If you owe more than the home is worth, the plan will only reduce principal down to 100 % of market value, according to an official for the Federal Housing Finance Agency, which supervises Fannie Mae and Freddie Mac.   If all three of these maneuvers can’t reduce your payments to 38 % of income, you won’t get a fast-track modification but could still request a customized deal, says the official, who spoke on the condition of anonymity.  The streamlined loan process looks only at income, not assets. If you refinanced your home to buy a Mercedes or own another home, you won’t be expected to sell them to pay your mortgage.

Peter Schiff, president of Euro Pacific Capital, predicts that many homeowners who have little or no equity will stop paying their home loan and then reduce their income to get the biggest mortgage loan relief available. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again.  “This is a once-in-a-lifetime opportunity,” Schiff says. “People are going to feel like complete morons if they don’t participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn’t afford.”   The government is offering loan servicers $800 for every homeowner they get into the loan modification plan.  Schiff predicts that loan officers and sales agents “will be cold-calling people trying to get them into it. Just like they encouraged people to overstate their income to get a bigger loan in the first place, now they will encourage them to understate their income to qualify for a smaller loan.”  To prevent fraud, the government says a borrower “must certify that he or she experienced a hardship or change in financial circumstances, and did not purposely default to obtain a mortgage modification.”

The housing agency official doubts that people will stop paying just to get a modification because it will hurt their credit record, and that will make it harder to get a loan and possibly a job.  “Credit bureau reports are checked by employers. They’re taking a big risk missing three payments just to get a lower rate,” she says. An existing mortgage lender who sees your credit score deteriorate could also cut back on your credit and possibly raise your rate.   > Read Complete Article By Kathleen Pender



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