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12 Aug 09 Mortgage Loan Application Activity Slowing

According to the Mortgage Bankers Association home loan rates hopped last week and the response was less mortgage applications. The volume of mortgage loan applications declined 3.5% compared with the previous week.  Home loan applications filed were still up an unadjusted 16.1% for the week ended Aug. 7 from the same week in 2008, according to the MBA’s weekly survey. The survey covers about half of all U.S. retail residential mortgage applications.   FHA mortgage applications filed last week to purchase homes rose 1.1% from the week before. Volumes for conventional, VA and FHA loan applications were all lower than expected.

Mortgage refinancing applications to refinance existing mortgages decreased 7.2%, on a week-to-week basis, reversing the 7.2% increase during the week ended July 31, according to the Washington-based MBA. The four-week moving average for all mortgages was down 0.7%. Home refinancing applications made up 52.3% of all applications last week, down from 54.2% the previous week. ARM mortgage loans accounted for 5.8%, up from 5.4%.

According to the MBA survey, thirty-year fixed-rate mortgage loans carried an average interest rate last week of 5.38%, up from 5.17% the week before. As for 15-year fixed-rate mortgages, the average rose to 4.71% last week, up from 4.60% the week before. And 1-year ARMs averaged 6.71% last week, up from 6.67% the week before.

To obtain mortgage interest rates this low, borrowers are charged of an average 1.125 points when locking a thirty-year fixed-rate home loan.  Loan officers typically refer to these lending costs as “points.” A point is 1% of the entire mortgage amount and it is considered prepaid interest for disclosure purposes.  Sign up and have the latest mortgage news emailed to you with mortgage rate alerts and special lending offers when they arise.

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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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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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