Tag Archives for " Mortgage "

Falling Mortgage Interest Rates Not Enough to Signal Housing Market Recovery

In spite of falling interest rates and low home pricing, sales hit a 14-year low this year. Analysts project home sales for 2011 to fall short about one million homes from what would indicate a healthy market. The median sales price since the same time last year dropped five percent, bringing the median down to roughly $163 thousand dollars. Although first time home buyers have slightly increased to 36%, that is still 4% below what is considered an indication to recovery.

A backlog of foreclosures and government regulations have prevented the flooding of the housing market to avoid flooding housing inventory and further decreasing pricing. 2011 is expected to bring 20 percent more homes lost to foreclosures over the previous year. As the home market inventory increased to just under 4 million homes, an equal increase in demand has not been the case. The time expected to sell home inventory has increased 33 percent, going from six months to over nine. Consumer knowledge of increasing foreclosures may lead to hesitation on purchases in anticipation of further depreciation.

Home mortgage interest rates have fallen .02 percent on a both 30 and 15 year loans since late last year, but have not been enough to signal a healthy housing market recovery.

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FHFA Sues 17 Financial Institutions for Toxic Mortgage Securities

September 9, 2011 – After the housing market collapsed in 2008, many subprime mortgage-backed securities issued by U.S. financial firms became toxic, causing major losses for Fannie Mae and Freddie Mac. Taking action on Friday, Sept. 2, the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, filed a suit against 17 firms for alleged violations of federal securities laws and common law in sales of subprime mortgage-backed securities.

Among the 17 institutions facing these allegations are Bank of America Corporation, Citigroup, Inc., Goldman Sachs & Co. and JP Morgan Chase & Co. The suits indicate that the toxic securities Fannie Mae and Freddie Mac purchased from these entities totaled almost $200 billion in losses, although this number does not represent the amount of compensation the FHFA is seeking. It has not yet announced an amount for its compensation, saying that “actual recoveries will be determined based on filings by the parties, evidence and judicial findings.”

The FHFA argues that these institutions did not accurately present the characteristics of the mortgages backing these securities when they presented them to Fannie Mae and Freddie Mac. It said it “seeks compensatory damages for negligent misrepresentation,” such as misstating the owner occupancy percentage and loan-to-value ratio.

It claims these reports violated the Securities Act of 1933. More broadly, the FHFA filed these complaints it accordance with its authority under the Housing Economic Recovery Act of 2008.

In a statement issued on Sept. 6, the FHFA stated, “Some portion of the losses that Fannie Mae and Freddie Mac incurred on private-label mortgage-backed securities (PLS) are attributable to misrepresentations and other improper actions by the firms and individuals named in these filings.”

In a statement responding to the lawsuit, Bank of America said that it did not portray false characteristics or misleading information to Fannie Mae and Freddie Mac about the securities. Fannie and Freddie, the statement said, “claimed to understand the risks inherent in investing in subprime securities and continued to invest heavily in those securities even after their regulator told them they did not have the risk management capabilities to do so.”

The lawsuits against these institutions were filed in federal and state courts in New York and in the federal court in Connecticut.  They follow a similar one against UBS Americas, Inc. on July 27, 2011.

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Senate Debates Reducing Government Role in Mortgage Market

September 13, 2011 – In its 10th hearing on home finance reform, the Senate Banking Committee today discussed how to reduce the government’s role in the home mortgage industry.

The reform effort came from a plan presented to Congress by the Obama Administration in February that would reduce the government’s role in home loans. One of the main aspects of his plan was to reduce and eventually eliminate Fannie Mae and Freddie Mac, the two mortgage entities the federal government seized during the housing crisis of 2008.

“The Obama Administration believes that, under normal market conditions, the private sector – subject to stronger oversight and standards for consumer and investor protection – should be the primary source of mortgage credit and bear the burden for losses,” a February White House press release stated.

After three years of controlling the two companies, the government now backs nearly nine out of every 10 new mortgages.

Talks in the Senate today furthered this plan, with lawmakers agreeing that Fannie Mae and Freddie Mac must be downsized, but still debating what the scale of the government influence in subsidizing home finance should be.

“I firmly believe that we need to reform our housing finance system but I am concerned about the unintended consequences for our housing market and economy that could result if a government role is eliminated completely,” Senate Banking Committee Chairman Tim Johnson (D-South Dakota) said in his opening statement. “Returning to the housing system we had before the Great Depression would not be an optimal outcome.”

Johnson outlined concerns about eliminating the government role completely, stating that a lack of government regulation would likely increase interest rates and changes in the availability and character of 30-year fixed mortgages.

“The 30-year fixed rate mortgage would also likely take a different form and require substantial down payments and higher interest rates, restricting the number of borrowers to a small number compared to today,” Johnson said.

Although specific legislation regarding the housing reform plan has not yet reached either the House or Senate floor, the first action in reducing Fannie and Freddie’s presence will be on Oct. 1, when the Federal Housing Administration – which regulates the two companies –lowers its loan limits to pre-housing crisis levels.

Obama’s plan for housing finance reform also includes increasing consumer protection to fix fundamental flaws in the mortgage market, heightening transparency for investors and raising underwriting standards.

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Mortgage Rates Reach All-Time Lows

September 15, 2011 – Already at an all-time low, fixed-rate mortgage numbers continue to plummet, having declined by almost 50 percent over the past 10 years.

Freddie Mac announced today the results of its weekly Primary Mortgage Market Survey, which show that fixed mortgage rates remain at their lowest levels in 60 years. The rate for a 30-year fixed mortgage sunk to 4.09 percent, while a 15-year fixed rate now sits at 3.30 percent – both numbers signifying record lows since Freddie Mac began tracking the rates in 1971.

These rates are in their second consecutive week of such declines. Experts cite European financial woes as the source.

“Continued investor concerns over the state of the European debt markets kept U.S. Treasury bond yields low and allowed mortgage rates to ease once more this week,” Vice President and Chief Economist for Freddie Mac Frank Nothaft said.

The 30-year rate has stayed below five percent for the entire past year, except for two weeks. Five years ago, the rate was 6.5 percent, and 10 years ago it was eight percent. The lowest rates in U.S. history were in 1950-51, when the long-term fixed-rate mortgages hit 4.08 percent – notably only .01 percent lower than this week’s average rate.

In spite of historically low rates, the housing industry continues to suffer, with new home sales at their worst in the last half-century and re-sales hitting 14-year lows as well. Freddie Mac attributes this to the fact that rates often come with additional fees that make them higher than they seem. After fees, the 30-year rates are actually closer to 4.25 percent.

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HUD Announces Immediate Suspension of Allied Home Mortgage Corporation

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.

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Freddie Mac Reports Positive Statistics on Mortgage Refinances

According to a recent release by Freddie Mac, homeowners who refinanced their mortgage in the third quarter of 2011 have strengthened their financial situation.
In fact, 82 percent of refinancing homeowners maintained or reduced their mortgage debt, according to the press release.
Those who participated in a home refinance “either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the [refinance] closing table.”
The reduction rate for a 30-year fixed-rate mortgage averaged around 1.2 percent, which translates to a reduction of around 22 percent in interest.
In an effort to further illustrate this reduction rate, Frank Nothaft, Freddie Mac’s vice president, explained “On a $200,000 loan, that translates into saving $2,500 in interest during the next 12 months.”
Nothaft gave further details on the current refinancing situation and opportunities by explaining that “Savvy homeowners are taking advantage of some of the lowest fixed-rates in more than 60 years to lock in interest savings. Fixed-rate mortgage rates hit new lows during September, with 30-year product averaging 4.11 percent and 15-year averaging 3.32 percent that month, according to our Primary Mortgage Market Survey.”
While refinancing is showing positive results, the report’s statistics for home equity conveys more pessimistic information.
At $5.3 billion, the home equity cashed out in the third quarter is down $1 billion from the second quarter. Compared to the boom-time numbers of $83.7 billion held by the second quarter of 2006, the home equity cash-out figures are down a staggering 93.6 percent.
This amount of home equity converted to cash is at its lowest level in 16 years.

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Merrill Lynch Settles Mortgage Loans Suit for $315 Million

Merrill Lynch & Co. has agreed to settle a lawsuit over misrepresentations in the marketing of securities backed by mortgage loan pools. The settlement of $315 million covers a group of investors who purchased mortgage-backed securities between 2006 and 2007.
The misrepresentations, as asserted by the plaintiffs, included misleading appraisals, incorrect debt-to-income ratios, inflated borrower qualifications, and exaggerated credit ratings. The mortgage-backed securities sold to the plaintiffs were at first classified as valuable products, but most fell to the status of “junk” later on.
The brokerage company allegedly misrepresented $16.5 billion worth of mortgage-backed securities, but lawyers on both sides of the case urged their clients to come to an agreement. The terms negotiated came after three years of litigation and after both sides appeared to be wary of their position in the case.
“Although lead plaintiff and lead counsel believe that the claims asserted in the action are meritorious and that the class would ultimately prevail at trial, continued litigation against defendants posed significant risks that made any recovery for the class uncertain,” explained David R. Stickney, a lawyer for the plaintiffs, as reported by the Wall Street Journal.
Merrill Lynch & Co. was one of the Wall Street giants founded in the early 20th century. After suffering significant financial losses resulting from the housing market’s collapse, it was consumed by Bank of America (B of A) in 2009.
This case involved transactions between Merrill Lynch and the plaintiffs before B of A acquired Merrill Lynch.
B of A refused to admit any guilt or wrongdoing. Instead, the settlement papers attribute all losses experienced by the plaintiffs to be a result of “the overall economic downturn, housing price declines and reduced liquidity,” as reported by Business Week.
The final approval for settlement is scheduled to come on March 21, 2012.

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30-Year Mortgage Loan Rates Hit Record Low—Again

This week marks yet another record breaking anniversary for mortgage loan interest rates. Freddie Mac reported that the 30-year fixed rate dropped from the previous record of 3.89 percent to 3.88 percent—breaking the historic floor for the eighth time in a single year.
Extraordinarily low rates such as this present extremely lucrative deals for willing and able homebuyers. Those in the market for a refinance are also in a great position to reduce their monthly payments and cut back on the amount of interest they will owe over the lifetime of their mortgage loan.
While these low rates draw applaud from many market analysts, Freddie Mac’s chief vice president, Frank Nothaft, made a statement that may suggest a reason for concern over the housing market.
Nobody Can Take Advantage
Despite this being the eighth time the floor has shattered on home loan rates, real estate sales have remained stagnant and slow moving.
“On the consumer front, retail sales edged up only 0.1 percent in December,” said Nothaft in a Freddie Mac press release.
Even though historic deals are presenting themselves, would-be buyers are few and far between as high unemployment and underemployment are keeping potential home loan borrowers at bay.
In addition to the lack of funds resulting from the nation’s poor job climate, a significant portion of the buying population has been removed from the market. Those who experienced foreclosure in the recent past are blacklisted from obtaining a home loan and participating in this buyer’s market. Whether they’re shunned due to a crippled credit score or because lenders are adhering to Freddie Mac’s seven year lock-out on homeowners who foreclosed, past defaulters are forced to sit idle and watch these deals pass by—even if they’re willing to buy right now.
Construction Industry’s Health
Nothaft also revealed that construction is slower than previously expected—raising alarm in the nation’s housing-start industry.
“On the business side, industrial production rose 0.4 percent in December, slightly below the market consensus forecast,” said Nothaft.
Once a prosperous industry, construction quickly became one riddled with lay-offs and lack of business following the great economic fall of 2007. Until the job market bounces back, prompting new business creation and demand for commercial buildings, this blue-collared industry will remain in a slump.
However, commercial construction’s counterpart, housing, has experienced a slight rise.
“On the home construction front, builder confidence rose for the fourth consecutive month in January to the highest level since June 2007.”
The morale of home construction professionals is reason to carry an optimistic view of the housing market’s health. Hopefully this eighth historic low in mortgage loan rates will prompt even more demand, and thus increase the supplier’s business—prompting a financial chain reaction that will ignite fuses across the entire economic market.

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Residents Turn Their Home into Billboard to Pay Mortgage

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?

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Mortgage Rates Rise Above 4 Percent

At their highest point in five months, the average interest rate for a 30-year mortgage loan increased to 4.08 percent. Last week, the average rested at 3.92 percent, meaning rates rose by an alarming 0.16 percent in just a week’s time.

The 30-year average is the highest since Oct. 27, when it hit a height of 4.1 percent.

Home loan applications fell for a sixth week in a row, indicating an enormous slump in the refinancing market.

This refinancing slump is particularly worrying for some since the governments new HARP 2 just went into full affect this month. HARP 2 was supposed to encourage the nation’s underwater mortgage loan holders to refinance their home loans. Instead, however, the nation has entered the largest refinancing dip since November.

But despite these ominous signs, some experts believe there’s no reason to worry.

“The effect of higher rates should be minimal as long as the increases are limited,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto in an interview, according to Bloomberg Businessweek. “Refinancings could take a further hit but they’re up hugely in the past year. I doubt applications for purchases of a home would be affected much. Affordability has never been better.”

Guatieri’s assessment of affordability may be a bit of an exaggeration, but affordability is definitely growing at a steady pace. According to Reuters, the number of new unemployment benefits claims dropped to a four-year low last week, signaling an increase in jobs availability.

The Reuters report stated employers added 227,000 jobs to their payrolls in February, bringing the new job total over the past three months to an encouraging 734,000.

The more accessible jobs are to the American public, the more easily the nation can afford new home loans—even at 4 percent interest rates.

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