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23 Jun 09 Thirty Year Mortgage Rates Continue to Rise

Mortgage interest rates on U.S. 30-year fixed-rate mortgages rose to 5.57 % a few days after hovering around 5.47% earlier in the week.  According to Zillow Mortgage the rate are down sharply from the previous week when mortgage rates were reported nationally with an average of 5.76% on home loans that were fixed for thirty years.

Conventional and FHA mortgage rates have remained historically low in 2009 and most industry insiders believe that interest rates will maintain low levels for the remainder of the year and into 2010 before climbing with the forecasted inflation. The higher mortgage rates reflect a rise in yields on U.S. government bonds, which are linked to the mortgage market.  The mortgage rate, however, is sharply higher than the roughly 5.00% level seen at the end of May and at the beginning of this year, Zillow said. 

Home loan refinancing activity has dropped precipitously in recent weeks. A move higher in FHA mortgage rates should further dampen demand.  According to Lawrence J. White, professor of economics at New York University’s Stern School of Business, “Higher mortgage rates are certainly an impediment to a U.S. housing market recovery, but other factors are also suppressing demand.  “People are worried about the overall economy, how secure their jobs are as well as their overall financial status,” he said.  “So, while higher mortgage rates matter, they are not the sole driver of housing demand,” he said. 

The applications for mortgage refinance loans dropped as expected, but loan modification requests rose significantly as bad credit mortgages are beginning to reset to the higher adjustable interest rates that have homeowners around the nation fighting to keep their home from foreclosure.  The battered U.S. housing market, which is in the midst of its worst downturn since the Great Depression, is both the source of and a major casualty of the credit crisis.  A setback for the market could hamper a turnaround of the U.S. economy.


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25 Feb 09 Obama Mortgage Rescue Plan Rolls Out as Median Home Price Drop Below $300,000

While most real estate evaluators would agree that Obama’s mortgage rescue plan is likely to slow foreclosures for many homeowners, some financing experts question how much it can help in a high-cost regions such as San Diego where home values have fallen so sharply. For example, the rescue plan offers much-needed refinancing to borrowers who owe more than 80 % of the value of their homes. But homeowners would be ineligible for mortgage refinancing to a lower, more affordable rate if their first loan exceeds 105 % of their home’s current market value.


Home refinancing would be limited to loans guaranteed by Freddie Mac and Fannie Mae, the government-controlled secondary mortgage agencies.  “How is 105 % loan-to-value going to help people who are upside down by 20% to 50 %?” said Dave McDonald, president of the San Diego chapter of the California Association of Mortgage Brokers. 


Less critical was Dustin Hobbs, spokesman for the California Mortgage Bankers Association, who lauded Obama for coming up with a flexible program that could yield some positive results. Much will depend on the implementation, he said, especially the part of the proposal that aims to provide mortgage modifications for borrowers in danger of default or foreclosure. Obama is proposing to have the Treasury Department partner with financial institutions to reduce mortgage payments so that borrowers pay no more than 31% of their income.  Under the new mortgage rescue plan, mortgage rates could be reduced to as little as 2%; they now stand at about 5% for thirty-year, fixed rate home mortgages. “I would certainly hope that when they’re working on the implementation details, they’ll take into consideration that California is in a unique situation with so many borrowers in high-cost regions who are 15% or more underwater,” Hobbs said. 


FHA has attempted to stem the foreclosure crisis with their Hope for Homeowners program that was designed to reward lenders who write-down mortgages to 90% for borrowers with negative home equity and delinquent mortgage payments.  CFB mortgage advisor, Jeff Moran said, “Hope for Homeowners looks great on paper, but the FHA mortgage lenders have not wanted to touch them.”


Nonprofit counseling agencies approved by the federal housing department to work with financially struggling homeowners said they expect the plan will be able to avert foreclosures but caution that there are still those who may have to walk away from their homes. “Some individuals, though, may find there may not be a solution or option to prevent foreclosure. But in renegotiating with their mortgage lender or credit counselor, they can prepare for a new location for their family.”


Part of the strength of the Obama plan is creating clear loan modification standards, said Mark Goldman, a real estate instructor at San Diego State University. “So many of the programs that were supposed to help last year have really done nothing,” he said. “Now, they’re really putting pressure on the lenders, saying you cannot keep the rapid pace of home foreclosures and clearly it’s bad for everyone involved when the foreclosure news continues to worsen.”  The proliferation of foreclosures was reflected in DataQuick’s report, which showed that 1,232 of January’s 2,240 re-sales were foreclosure properties, compared with 340 of 1,038 re-sales in January 2008.


As President Barack Obama unveiled his plan to stem the tide of foreclosures, new figures showed distressed properties continuing to drag down San Diego’s housing market. MDA DataQuick reported yesterday that the county’s median home price fell below $300,000 last month for the first time in seven years depressed by reduced sales prices of foreclosed homes.


The January median of $280,000 was down 6.7% from December, the largest single month percentage decrease of the current slump. While home sales volume was up 34.7% from a year earlier, a record 55% of re-sales were homes that had gone through foreclosure in 2008. “I think for a lot of buyers in inland areas, this has become a bargain bonanza,” DataQuick analyst Andrew LePage said.


The Census Bureau and U.S. Department of Housing and Urban Development reported separately that construction of new homes and apartments nationwide dropped 16.8% last month to a seasonally adjusted annual rate of 466,000 units, the slowest pace for a survey that dates back to 1959, two years before Obama was born.

Meanwhile, DataQuick’s LePage said some neighborhoods – Lemon Grove, Oceanside and South Bay as a whole turned in record sales counts for any January since the company began tracking San Diego in 1988.  “All indications are that prices will continue to erode, but not everyone is waiting for the ultimate price bottom,” LePage said.  Mortgage interest rates remain incredibly low but the credit crunch continues with mortgage lenders continuing to offer tighter guidelines that prevent the average consumer from purchasing a new home or refinancing an existing property in an effort to avoid foreclosure.


As of January, San Diego County’s overall median had dropped 45.9% from the November 2005 peak of $517,500. The resale house median was down 44.3% from its $574,000 peak to $320,000, and resale condos were off 51.3% from their $400,000 peak to $195,000.  Among signs of an eventual recovery, however, is a continuing drop in the number of homes for sale.


According to the San Diego Association of Realtors, active listings yesterday totaled 15,108, down 18.1% from a year ago.   “There’s very little we can say positive about the economy or job market,” Dennehy said, “but we can certainly say this is an encouraging sign that qualified buyers are responding to the bargains available to the market and volumes are improving from last year’s levels.”  Read complete  UNION-TRIBUNE CA Housing Article article written by Roger Showley and Lori Weisberg



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03 Feb 09 Washington Attorneys Seek Loan Modification Reform

A group of state attorneys general is urging federal officials to push national banks and federal thrifts to modify home mortgage loans that are becoming unaffordable for struggling buyers.  In their letter to U.S. Comptroller of the Currency John Dugan and director of the Office of Thrift Supervision John Reich, the attorneys general said loan modifications would help many Americans remain in their homes by avoiding foreclosure.

“Every day, our office hears from families struggling to make their mortgage loan payments and those who have lost their homes,” Washington Attorney General Rob McKenna said. “They are our neighbors and we have as much of an investment in helping them as do officials in the other Washington.

The states want to work with federal regulators – not against them – to help prevent foreclosures and get homeowners through these difficult financial times.” The letter was signed by attorneys general who are members of the State Foreclosure Prevention Working Group.  Get the latest Mortgage News from the Industry’s Choice for Mortgage Rates and Blog Post.


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11 Nov 08 Citi Provides Mortgage Loan Modifications to 500,000 Homeowners

Citigroup to offer mortgage loan relief to 500,000 mortgage customers who have high risk home loans. The modification plan is targeted at homeowners who are current on their payments but many anticipate will be in trouble later. The effort will focus on areas whose home values have fallen, including California.

Citigroup Inc. today plans to announce a six-month program to reach out to 500,000 mortgage customers with higher risk loans who are presently current with their mortgage payments but many predict will need a loan modifications to maintain affordability to keep their homes.  The New York bank said it would focus on areas with high unemployment and where housing prices have fallen sharply, including California, Arizona, Florida, Michigan, Indiana and Ohio.  Borrowers whose credit ratings have dropped or who exhibit other signs of financial stress may also be contacted, said Mark Rodgers, a spokesman for the bank’s mortgage operations.

Citigroup owns about 1.5 million first and second mortgages with a combined balance of $175 billion.  It provides customer service on an additional 5 million mortgages totaling about $600 billion mortgage loans that have been sold into the secondary market, where investors trade mortgage bonds. Citi plans to reach out with loan modification agreements initially with the loans they service. It said it was negotiating with investors to apply the program to loan work-out services.

Consumer advocates point out that although many lenders talk about helping borrowers before they become delinquent, foreclosures have soared nonetheless to levels unseen in the post-World War II era.  While Citigroup’s plan appears to be the most ambitious, it remains to be seen what effects it will generate, said Paul Leonard, California director of the Center for Responsible Lending.  “We certainly welcome creative efforts to contact borrowers, particularly before they get into trouble,” Leonard said. “But the proof, as they say, is in the pudding.”  Foreclosure lawyers are breathing down their necks and it makes sense to provide loan work-outs now before liquidity completely erodes.

Citigroup’s announcement is the latest by major mortgage lenders providing loan modifications to minimize the giant losses they are suffering on foreclosures.  Bank of America Corp. and JPMorgan Chase & Co. recently announced plans to help distressed borrowers, and the Federal Deposit Insurance Corp. has another aggressive plan to modify loans at IndyMac Bank, which failed last summer.  Citi said it recently streamlined its existing loan modification program to make it similar to those plans.  The idea is to reduce the first mortgage payment to no more than 40% of a borrower’s pre-tax income by first reducing interest rates, then extending



30 Oct 08 Mortgage Justice Is Blind

The current American economic crisis, which began with a housing collapse that had devastating consequences for our financial system, now threatens the global economy. But while we are rushing around trying to pick up all the other falling dominos, the housing crisis continues, and must be addressed.

We start with this simple fact: Too many families are being thrown out of their homes when it makes more sense to let them stay by “reworking” their mortgages — adjusting terms to make it possible for the homeowners to meet their responsibilities. In many cases, adjusting loans would help the homeowners and the lenders: the new mortgages would have lower monthly payments that homeowners could afford to pay, and would end up giving the lenders more money than the 50 cents on the dollar that many foreclosure sales are bringing these days.

The presidential candidates have proposed plans to help some homeowners and mortgage-security holders by buying out loans or putting a moratorium on foreclosures. We have a plan that would be much less costly than buyouts and more comprehensive than a moratorium.

In the old days, a mortgage loan involved only two parties, a borrower and a bank. If the borrower ran into difficulty, it was in the bank’s interest to ease the homeowner’s burden and adjust the terms of the loan. When housing prices fell drastically, bankers renegotiated, helping to stabilize the market.   The world of securitization changed that, especially for bad credit mortgages. There is no longer any equivalent of “the bank” that has an incentive to rework failing loans. The loans are pooled together, and the pooled mortgage payments are divided up among many securities according to complicated rules. A party called a “master servicer” manages the pools of loans. The security holders are effectively the lenders, but legally they are prohibited from contacting the homeowners.

In place of the bank lender, the master servicer now holds the power to modify mortgage loans. And, as we have seen in the current crisis, these servicers aren’t doing that, as house after house goes into foreclosure.

Why are the master servicers not doing what an old-fashioned banker would do? Because a mortgage servicing company has very different incentives. Most anything a master servicer does to rework a loan will create big winners but also some big losers among the security holders to whom the servicer holds equal duties. So the servicers feel safer doing nothing. By allowing foreclosures to proceed without much intervention, they avoid potentially huge lawsuits by injured security holders.

On top of the legal risks, restructuring mortgage loans can be costly for master servicers. They need to document what new monthly payment a homeowner can afford and assess fluctuating property values to determine whether foreclosing would yield more or less than reworking. It’s costly just to track down the distressed homeowners, who are understandably inclined to ignore calls from master servicers that they sense may be all too eager to foreclose.

Yes, the master servicer is paid to oversee the mortgages, but those fees were agreed on during the housing boom, and were based on the notion that reworking mortgages would be a relatively small part of the job and would carry little litigation risk. Last, some big master servicers are part of, or have now been bought out by, the very companies that own the securities that can be affected by the reworking or foreclosure decisions the master servicer makes. This conflict further increases the chances of litigation and contributes to inaction.

Thus it is no surprise that so few home mortgages have been reworked, with devastating consequences for the economy. It is also no surprise that trading in the securities tied to the mortgage pools has drastically declined, because potential buyers cannot be sure what the servicers are going to do with the underlying home loans.  To solve this problem, we propose home financing legislation that moves the reworking function from the paralyzed master servicers and transfers it to community-based, government-appointed trustees. These trustees would be given no information about which securities are derived from which mortgages, or how those securities would be affected by the reworking and foreclosure decisions they make.

Instead of worrying about which securities might be harmed, the blind trustees would consider, loan by loan, whether a reworking would bring in more money than a foreclosure. The government expense would be limited to paying for the trustees — no small amount of money, but much cheaper than first paying off the security holders by buying out the loans, which would then have to be reworked anyway. Our plan would also be far more efficient than having judges attempt this role. The trustees would be hired from the ranks of community bankers, and thus have the expertise the judiciary lacks.

Americans have repeatedly been told that the distressed loans cannot be reworked because these mortgages can no longer be “put back together.” But that is not true. Our plan does not require that the loans be reassembled from the securities in which they are now divided, nor does it require the buying up of any loans or securities. It does require the transfer of the servicers’ duty to restructure home loans to government trustees. It requires that restrictions in some servicing contracts, like those on how many loans can be reworked in each pool, be eliminated when the duty to rework is transferred to the trustees.  Read Complete Article Written by John D. Geanakoplos is a professor of economics at Yale


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29 Oct 08 FDIC Unveils Incentives to Mortgage Industry to Modify Mortgage Loans

Federal Deposit Insurance Corp. Chairman Sheila Bair announced that the agency has created a program to offer economic incentives to the mortgage industry to modify loans and aid borrowers prevent foreclosures.  Speaking at the Annual Conference of the International Association of Deposit Insurers in Arlington, Virginia, Bair said, “Such a framework is needed to for loan modifications on a scale large enough to have a major impact.”

Bair appealed for a “smarter” oversight of leveraging and a greater transparency in the financial industry. Bair also called for a major overhaul of financial and home financing regulations, describing current loan programs as “too balkanized.” “We need lending guidelines and meaningful enforcement of those rules that apply across the board,” Bair said.


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