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September 8, 2011 – After three years of higher loan limits in some areas, the Federal Housing Administration (FHA) announced in August that single-family home loan limits will be lowered starting Oct. 1. This change is in accordance with the Housing and Economic Recovery Act (HERA) that was passed in July 2008.
The Economic Stimulus Act passed in February 2008 under President George W. Bush raised limits for home loans insured by the FHA to 125 percent of the median house price in the area. This was an effort to “mitigate the effects from the economic downturn and the sharp reduction of mortgage credit availability from private sources,” according to a May market analysis from the U.S. Department of Housing and Urban Development.
While initially the new loan limits stipulated in the HERA were set to take effect in January 2009, financial strains in the credit market delayed congressional implementation until now. The loan limits beginning on Oct. 1 will be in effect until Dec. 31, 2011. The floor loan limit in low cost areas will stay at $271,050 for one-unit properties, while the ceiling limit in high housing cost areas will change from $729,750 to $625,500, or 115 percent of the median house price (whichever is lower).
The new loan limits will take effect in the highest cost metropolitan areas in the country, which amounts to 669 counties out of the 3,234 total in the U.S. in which the FHA insures home loans. According to the FHA, loans in these areas accounted for about three percent of loans granted last year. Any loans insured by the FHA before Oct. 1, 2011 will not be affected by these new limits, including streamline refinance loans. Limits in Hawaii, Guam, the Virgin Islands and Alaska are higher than in other areas because of higher construction costs.
The U.S. Department of Housing and Urban Development (HUD) has suspended this month Allied Home Mortgage Corporation from underwriting and originating new home mortgages insured by the Federal Housing Administration (FHA).
Allied is alleged to have been originating and concealing loans from unapproved branch offices.
In addition to suspending the company, HUD has also suggested to debar the company’s president, James C. Hodge, and the company’s vice president, Jeanne L. Stell.
“We will not tolerate mortgage lenders who play fast and loose with FHA’s standards,” said HUD’s General Counsel Helen Kanovsky in a statement.
HUD cited several violations including using unqualified and inadequate staff members, bypassing FHA requirements and knowingly submitting false information to the FHA.
This suspension was brought on just as the U.S. Attorney in Manhattan finished filing a lawsuit against Allied Home Mortgage Company for multiple charges of mortgage fraud in addition to the FHA violations.
Kanovsky finished her condemnation by stating, “These defendants demonstrated a pattern of recklessness and utter disregard for how [the FHA does] business. They’ve harmed the FHA, hurt homeowners, and now they’ll be held to account for their actions.”
Allied Home Mortgage Company’s website has been made temporarily unavailable and instructs those holding Allied loans to call its loan inquiry desk with any questions they may have.
Imagine walking into a lending office with the nervous anticipation of applying for a home loan, only to be rejected—but not because of poor credit or an unreliable financial history. Instead because the bank has on record that the “subject is deceased.”
That’s what one South Carolina man experienced as he walked into a Bank of America and applied for a home mortgage loan. He was not pale, unbreathing, or helped into the branch by some master puppeteer, nor was he the world’s first zombie attempting to civilize himself by acquiring a home. No, Arthur Livingston, was a warm, walking, breathing, healthy human being that the mortgage loan giant had the audacity to say was dead… to his face, no less.
Five months have passed since he was informed of his undead status, and still no solution has been made. Livingston had hoped to acquire a home loan and move his family into a new residence by now—but that’s proven to be a “major problem” since he’s “deceased,” reported ABC News.
A BofA customer for 14 years, Livingston told ABC News that he regularly pays his credit card bill in full, including $2,000 to $4,000 in travel expenses for work. Despite the fact that his bank accepted these payments, they seem to have failed to let him know that he was flagged as deceased in their records. As a result, Livingston fears that his intentional moves to improve his credit have gone undocumented.
“[Bank of America] is well aware that the account is very active on a daily basis,” Livingston said, referring to his outstanding credit practices. But “It’s been a complete waste of time.”
A credit scoring expert with Credit.com, Tom Quinn agrees. He told ABC News that most credit scoring bureaus have systems in place that prevents a score from being generated if there is any indication of a deceased status.
“Just another good reason why consumers should periodically check their credit report for accuracy and follow the disputing-inaccurate-process if they find this kind of inaccurate information on the file,” he explained.
After BofA allowed this matter to go unresolved for months on end, though, Livingston hit his breaking point and contacted the local television station, WISTV-10.
“I’m not trying to be overdramatic,” he said in defense of himself. “I’m not legal-seeking. I’ve been patient for 90 days.”
The news special was finally enough to gain BofA’s attention, and Livingston was contacted by a representative shortly thereafter, assuring him that the matter was now being reviewed by the right people.
Victor Searcy, the director of fraud operations for Identity Theft 911, offers a possible defense for BofA. Searcy claims that since Livingston’s name may be common, the nation’s largest bank could have simple mistook Livingston for a deceased client.
Despite a possible mix up, Searcy clearly sides with Livingston. “Regardless of the situation, it shouldn’t take 100 days to investigate and clear. He can obviously present identification and appear in person to provide ‘proof of life,’” reported ABC News.
Feeling worn out from the weight of an ongoing home mortgage loan? Try turning your house into a permanent billboard in return for payment. That’s one of the newest, albeit unusual, approaches some are taking in order to secure themselves in their home.
Scott and Beth Hostetler did just that, as their fuming neighbors watched their house turn from a classic drab color to the bright, neon orange that it radiates today. For nearly $2,000 a month, a marketing company called Braniacs from Mars is paying this Buena Park couple for this new residential advertisement.
Romeo Mendoza, the CEO of Braniacs for Mars, told Reuters that he is trying to turn 1,000 homes across the United States into these giant, permanent advertisements for his business. For each homeowner that agrees to host his house-billboards, Mendoza will make their mortgage loan payments for one full year.
“If we roll it out to scale and impact the foreclosure crisis, that would be amazing,” the 42-year-old CEO told Reuters.
The Hostetler’s were chosen because Mendoza thought they were a nice and deserving couple. Gaining favor with the CEO is helpful in this selection process, as the marketing firm has reported it has already received over 38,000 applications. Unsurprisingly, most of those applications are from California, Nevada and Florida—the three cities that were his hardest by the housing collapse.
“The response has been overwhelming,” said Mendoza. “People are hurting, and struggling to stay in their homes. If we can help some of them, that would be great.”
The marketing firm is definitely receiving publicity from this stunt too—but it’s not all positive.
“This does not follow with the city codes,” said Fred Smith, a Buena Park city council member, according to Reuters. “They are going to be in trouble. They need to go someplace else.”
And it’s not just the local government’s that’s expressing distaste. Some feel the vibrant colors, pictures, and aesthetic separation from neighboring units create an ugly and embarrassing intrusion.
“If it’s for a month, I’m ok with it,” explained a neighbor named Vivian Largent. “But no longer.”
After sacrificing their home’s aesthetics and perhaps a few of their ties with neighbors, the Hostetler’s have at least bought themselves another year in their home. The question remains though: is it worth it?
As the nation’s student loan debt quickly approaches $1 trillion, it’s no wonder why the low interest rates on home mortgages aren’t providing the expected boost in home sales that experts initially predicted.
Roshell Schenck, a Ph.D graduate with a degree in pharmacy currently earns an annual salary of six-digits, but can’t qualify for a home loan to provide shelter for her daughter and herself, reported Bloomberg. Despite the fact that she makes $125,000 a year, she has more than $110,000 in student loan debt, which is putting a real strain on her income and potential borrowing opportunities.
“I’d love to buy and can afford to buy,” Schenck told Bloomberg.
Willing and able borrowers seem to be a rarity these days, but it seems that even if borrowers have the desire and the funds to purchase a house, banks want little to do with borrowers if they have outstanding student loans.
Since loans used for education are being viewed with greater scrutiny than other types of outstanding financing, Schenck is unable to get approved. “It’s almost impossible for me to get a loan,” she explained. “My debt is crushing my chances of purchasing a home.”
The Trillion Dollar Mark
Because the demographic that makes up most of the “first-time” homebuyers tends to be of the younger generation, they often carry student loan payments. Graduates or not, this higher education financing has found commonplace amongst the nation’s new adults, but as banks are seeing defaults rise, they’re very wary about issuing mortgages to those indebted with these loans.
“Students coming out of college are burdened with more debt than traditionally they have been, and they are also coming into an economy that is underperforming previous recoveries,” said Rick Palacios, a senior analyst at John Burns Real Estate Consulting LLC in Irvine, CA, to Bloomberg. “These things pile on each other and tell us it’s not going to help the housing recovery right now.”
Particularly as the $1 trillion mark comes closer and closer, and experts are predicting a student loan bubble being formed.
“Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and rtenders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future,” said John Rao, vice president of the National Association of Consumer Bankruptcy Attorneys, in a Bloomberg article.
Driving Away the Fix
But cautious or not, driving away first-time homebuyers from the mortgage market is crippling the housing world.
“Potential first-time homebuyers have been disproportionately affected by the very tight conditions in mortgage markets,” said Ben Bernanke at a homebuilders conference last week, according to Bloomberg. “First-time homebuyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly.”
Despite the fact that current student loan borrowers are being turned away from the mortgage market, some remain optimistic.
“The dream feels like it’s farther out of reach than I ever thought it would be,” said Shenck. “[But still,] I haven’t given up hope of one day owning my own home.”
The Bank of Ireland forgave a nurse’s home loan that amounted to 152,000 euro, or the equivalent of $210,000, making this instance of debt forgiveness the highest profile case yet.
Laura White first purchased her home, located in North Dublin, for 245,000 euro. But after falling behind on her payments, the Bank of Ireland agreed to help her by offering complete home loan forgiveness in return for surrendering the home and repaying 18,000 euro over six years.
“This is a great mercy that the banks have showed,” said White, as reported by Bloomberg. “There is great hope for people here.”
Experts believe this move, similar to a bank-sponsored short sale, is something the Bank of Ireland decided to perform amid the country’s housing crisis. With one in seven home loans being upside-down, Ireland’s housing market is in a position similar to the United State’s market.
“Banks probably still have to absorb large losses,” said Michael Saunders, economist at Citigroup Inc. in London to Bloomberg in a note. “The housing market and economy remain weak.”
Ireland’s government sought a bailout in 2010, but the soured housing market continues to remain on a downward trajectory.
Due to the country’s continuing economic failure, Ireland’s central bank is advising other banks to find solutions to the nation’s growing home loan problem.
“We have to set a specific timeline for delivery which requires lenders to segment their mortgage arrears portfolios and to pilot appropriate solutions by the end of September this year, with the full roll out to commence in the last quarter of the year,” said Bernard Sheridan, director of consumer protection at the central bank.
The Bank of Ireland said that deals such as White’s will be considered on a case-by-case basis, but some experts remain hopeful that the bank will continue to help the Ireland’s struggling home loan borrowers.
“Deals like this are going to become commonplace,” said Ross Maguire, the lawyer who represented White, reported Bloomberg. “There are going to be based not on the level of writedown the bank is forced to take, but rather on the ability of the borrower to pay and get on with their lives.”
In the first quarter of 2012, more than 95 percent of home loan borrowers took out fixed-rate mortgages, according to Freddie Mac’s Quarterly Product Transition Report. The report revealed that refinancers preferred fixed-rate home loans, regardless of whether or not their original financing was fixed or adjustable.
Fixed-rate mortgages are touted by home loan experts as being the safest and most responsible way to finance real estate. Adjustable-rate mortgages (ARMs), on the other hand, are usually reserved for seasoned investors who hope to pay off the entirety of their loan within a short amount of time.
However, many are drawn to ARMs due to their extremely low initial interest rates. But what some fail to realize is that ARM’s interest rates “adjust” depending on the index their tied to. So those attractive initial rates rarely remain the same. Instead, some find themselves owing much more than they originally expect just a few years down the road.
Some experts claimed the public’s lack of education on ARMs played a part in the popping of the home loan bubble in 2008.
But given the extremely low interest rates on fixed-rate mortgages, many are opting to settle for these safer alternatives to volatile and risky ARMs.
“Fixed mortgage rates averaged 3.92 percent for 30-year loans and 3.19 percent for 15-year product during the first quarter of Freddie Mac’s Primary Mortgage Market Survey, well below long-term averages. The Bureau of Economic Analysis has estimated the average coupon on single-family loans was about 5.1 percent during the first quarter of 2012,” said Frank Nothaft, Freddie Mac’s vice president and chief economist, in a news release. “It’s no wonder we continue to see strong refinance activity into fixed-rate loans.”
Additionally, a full 31 percent of those who refinanced reduced their 30-year terms to either 20-year, 15-year, or 10-year home loans.
“Compared to a 30-year fixed-rate mortgage the interest rate on a 15-year fixed was about three-quarters of a percentage point lower during the first quarter,” said Nothaft. “For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term.”
Home loan interest rates fell again this week, breaking yet another historic record. According to Freddie Mac’s weekly report on interest rates, 30- and 15-year home loans hit never-before-seen low rates.
As of Thursday, the 30-year fixed-rate home loan averaged at 3.56 percent. That’s a 0.06 percent drop from last week’s historic low level.
The 15-year fixed-rate home loan averaged at 2.74 percent, which is a 0.05 percent drop from last week’s reported level.
In addition to the low fixed-rate mortgages, mortgages with adjustable rates (ARMs) are also experiencing extremely low levels. However, only one of the two saw a decline.
The 5-year ARM averaged at 2.74 percent this week, which is down by 0.05 percent from last week.
The 1-year ARM averaged at 2.69 percent, which is actually up from last week by 0.01 percent.
While these extremely cheap home loan options provide wonderful opportunities for willing and able buyers looking to snatch up a new property, they’re revealing of something slightly more sinister than just a poor seller’s market.
“Following a lackluster employment report for June, long-term U.S. Treasury bond yields eased somewhat this week allowing fixed mortgage rates to reach yet another record low,” said Frank Nothaft, Freddie Mac’s vice president and chief economist, in a press release.
Our unemployment rate seems stuck at 8.2 percent, and last month’s job report, boasting the creation of only 80,000 new jobs nationwide, did little to help that number.
Judging by Nothaft’s explanation, if the unemployment problem remains consistent, so will our real estate market’s falling interest rates.
Dominick Vulpis, a plumber from New Jersey, received a disheartening letter in mail around Christmas of 2011. The letter revealed his property and home loan had fallen into foreclosure, and that he and his wife would be expected to vacate themselves from the premises after their house was sold at auction.
The most unfortunate part of this New Jersey resident’s situation is that he wasn’t even late on his home loan payment.
Rather, a lien had been placed on his property over a $140 sewer bill that had ballooned with late fees into a $50,000 monstrosity.
Vulpis claimed that he didn’t even know he had the outstanding payment levied against his property.
“It was never brought to my attention until it was too late and we were served with papers saying we had to move out of our house,” said Vulpis in an NBC News interview. “I may pay a bill late, but I pay them. I’m not trying to beat anyone for $140.”
The lien was originally placed on the home by the city he resides in, but the cash-strapped city sold that lien off to a property investor in order to reclaim some money—an all too common practice amongst smaller towns trying to raise necessary funds, according to NBC News.
The 60-year-old plumber protested the foreclosure notice, and, after much debate, finally convinced the investor to drop their foreclosure filings. But unfortunately, that debate still cost Vulpis $37,500 in a settlement agreement.
That money will be tacked onto Vulpis’s current mortgage loan balance, which is something Vulpis is already having trouble paying.
According to his attorney, Vulpis is currently negotiating to have his home loan modified.
What began as a measly $140 sewer bill turned into a frightening, frustrating, and completely demoralizing five-figure bill. And attorney’s fees have yet to be included in that bill.
Vulpis’s attorney fears that his client’s total additional cost to his home loan will equate to more than $50,000 when all is said and done.
In an effort to jumpstart the mortgage refinance market, many lenders have started to waive closing costs on refinances in exchange for offering slightly higher interest rates. Those waived fees in conjunction with record-breaking low interest rates have given way to a new trend called “serial refinancing.”
According to MarketWatch, between 2006 and 2008—which was the heart of the collapse—around 3.5 million homeowners refinanced at least twice. But those refinances often resulted in more expensive monthly mortgage payments for borrowers since closing costs and consumer confidence were both at all time highs.
As a result, 86 percent of borrowers who refinanced their home loan during the housing boom took out extra cash and wound up with a higher loan amount than they originally had, according to Freddie Mac.
But consumers aren’t taking out new financing at a loss anymore. With home equity being such a scarce commodity nowadays, consumers will only refinance if doing so leads to saving them money.
And that’s exactly what lenders are seeking to satisfy.
Freddie Mac reports the national average mortgage interest rates every Thursday, and over the past few months there have been more than 11 weeks of record-breaking interest rates.
But to further incentivize homeowners to apply, lenders are saying they’ll waive closing costs on home refinance loans in exchange for granting slightly higher interest rates on loans.
For an increase of a mere 0.25 percent, many homeowners are finding themselves scoring free refinance loans. Due to these “free” home loan refinances, some borrowers are finding themselves going back for more when rates drop as little as three-eighths of a percentage point, says MarketWatch.
“The traditional rules of refinancing are no longer in play,” Bruce Thielen, a vice president at NASB Financial, told MarketWatch.
Serial refinancing has proven to be an excellent money saving technique for homeowners, and it is bringing action to what’s been a very sluggish sector of the home mortgage market.