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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.
On Tuesday, Oct. 23, a record-breaking amount of complaints about the sale of payment protection insurance (PPI) was submitted to the financial ombudsman.
Over half a million complaints have been made by consumers to the Financial Ombudsman Service (FOS). The UK-based ombudsman service resolves disputes between financial institutions and their customers.
The FOS said it receives an average of 400 PPI complaints per hour. During the fiscal year, starting in April 2012, the FOS received over 140,000 PPI complaints. PPI has surpassed all competition in becoming the most complained-about product of all time. Second in rank are mortgage endowments, with 350,000 current complaints.
What is PPI?
PPI is also known as credit insurance. It ensures lenders that personal loans will be repaid if borrowers die, become sick or face unexpected job losses. PPI policies are typically taken out by consumers in conjunction with personal loans, car loans and mortgage loans in order to further protect themselves and their families. Some credit card companies have standard PPI in their agreements. For example, if a consumer requests a personal loan for the upcoming holiday season, banks can include a PPI in the loan for extra protection.
While PPI for personal loans is not exclusive to the U.K., consumer protection agencies in the U.S. have yet to receive the amount of complaints that the FOS has received.
One reason for the high level of complaints is the number of consumers who were sold PPI when they did not need or want the insurance. Unlike general insurance plans, PPI is not underwritten during the sales stage, and is often taken out without the consumer deciding if it suits the current loan. For instance, small personal loans are generally less risky than large mortgage loans, but these recent complaints reveal that borrowers have no choice in the matter. Many consumers do not even know they have PPI coverage for their personal loans until they receive a bill.
Solving the Issue
Some UK banks are handling the PPI complaints quickly and in favor of the consumer. Barclays Bank, Lloyds TSB Bank and MBNA Europe Bank are the most-complained about banks, yet they side with the consumer 93-97 percent of the time, according to Huffington Post UK. On Oct. 18, Barclay Bank notified consumers that £700 million (about $1.12 billion) were allotted for various mis-sold payment protections, PPI included.
The three major banks sides with consumers significantly more than average. Approximately 70 percent of PPI complaints were upheld in the consumers’ favor. Banks who received fewer complaints had fewer cases upheld against the bank. For example, Nationwide Building Society has seen only 18 percent of cases upheld against them in comparison to 93 percent for Barclays Bank. Overall, compensation averaged around £2,750 (about $4,400), according to Huffington Post UK.
“It’s extraordinary that we’ve received our 500,000th complaint about PPI — and despite these record numbers, this mis-selling scandal shows no sign of slowing,” Natalie Ceeney, chief financial ombudsman, said to the Huffington Post UK. “While it’s good news that more people know that they can come to the ombudsman, it’s clear that unless the banks sort out their complaints quickly and fairly, people will only face increasingly longer waits for justice.”
The ombudsman report that if PPI complaint rates do not decrease, the figure will be double the initial estimate of 165,000 complaints by April 2013.
Today the US Department of Veterans Affairs announced its 20 millionth home loan guarantee.
The 20 millionth VA loan was awarded to Elizabeth Carpenter, a widow of an Iraq War veteran who passed away in 2010 from cancer. Carpenter and her 3-year-old son Joey purchased a home in Woodbridge, VA with the loan. Carpenter told reporters at the ceremony how influential the loan is for her livelihood.
“Without this program and all of the benefits we have received from the VA, we would not be here,” she said.
The VA home loan program currently has 1.7 million loans worth a total of $284 billion. In 2012 alone, the VA awarded 540,000 mortgages. During the past five years, the program has significantly grown due to a low interest rate, with 71 percent more home purchases and 20 times more loan refinances than in 2007.
“The 20 millionth VA home loan is a major milestone and is a testament to VA’s commitment to support and enhance the lives of Veterans, Servicemembers, their families and survivors,” said VA undersecretary for benefits, Allison A. Hickey, in a statement. “As a result of their service and sacrifice, as a group, they prove to be disciplined, reliable, and honorable—traits that are ideal for this kind of national investment.”
Since the programs’ implementation in 1944, VA loans have allowed veterans to access lower interest rates and better refinance options than traditional loans. The program has remained true to its values since the original GI Bill, according to Mike Frueh, director of loan guaranty services for the Veterans Benefits Administration. Due to the added underwriting standards for the loan process, the veteran’s payments are more manageable for their unique budget.
Not only do VA loans assist borrowers, but they protect the lenders if the borrower fails to repay the loan. According to a report by the Mortgage Bankers Association, mortgages guaranteed by the VA had the lowest foreclosure rate for the last 17 quarters, coupled with the lowest delinquency rate for the past 14 quarters.
The VA loan program’s opportunities assist homeowners in preventing foreclosure. Since 2009, this assistance has saved taxpayers over $8 billion in foreclosure avoidance.
The dollar value of SBA loans lent in Michigan has reached a new record high. 2,075 business loans worth $944 million were lent in the 2012 fiscal year. While the number of business loans in Michigan has decreased since 2011, the total value of loans lent has not.
SBA commercial loans are business financing guaranteed by the Small Business Administration. The SBA insures the money that lenders give to borrowers, minimizing the risk that lending institutions—such as banks and credit unions—face in financing. This allows lenders to give financing with lower interest rates.
In the 2012 fiscal year, the Michigan District Office guaranteed 1,742 SBA loans in its 7(a) guarantee program for a total value of $547 million. This was a 16 percent decrease from 2011, largely due to the termination of the American Recovery Act. That act aided small businesses by providing contracts, grants, and entitlement programs.
“Lenders throughout the state have found that SBA business loan programs are an important asset in helping small business clients,” said SBA Michigan District Director Gerald Moore, in an interview with CBS Detroit.
The SBA 504 loan program accounts for a sizable portion of Michigan’s record since it led to the lending of 333 commercial loans that totaled $176 million. The SBA loans in the 504 loan program leveraged an additional $221 million in financing for a grand total of $397 million.
“This program helped small businesses position themselves for expansion and job creation,” said Moore.
Compared to 2011, the dollar value of all SBA financing rose 62 percent. The 504 loan program increased due to a temporary program that allowed the refinancing of existing commercial debt. Unfortunately for entrepreneurs and small business owners, this refinancing program ended in September of 2012.
SBA loans were lent in 74 of Michigan’s 83 countries by over 135 lenders. This signifies that despite being a state hard-hit by the recession and a member of the “Rust Belt,” Michigan still has a desire and drive to participate in the SBA business loan program.
Student loan delinquencies reached record highs according to data released yesterday by the Federal Reserve Bank of New York (FRBNY).
The report shows that 11 percent of student loans were 90 days or more past due in the third quarter: a rise from 8.9 percent in the previous quarter. The rate was 8.8 percent a year ago. The current rate is the highest seen since the FRBNY started tracking student loan delinquencies in 2003.
Outstanding student debt currently stands at $956 billion, an increase of $42 billion since last quarter. Of the new $42 billion increase, $23 billion is new student loan debt, while the remaining $19 billion is from previously defaulted loans that have been updated on credit reports during the quarter.
Student loan debt is now more prone to delinquency than credit card debt. After surpassing credit card debt in the middle of 2010, the number of outstanding student debt has increased 42 percent more than the $674 billion in outstanding credit card debt.
Despite this trend, other consumer debts are dropping.
“The increase in mortgage originations, auto loan and credit card balances suggests that consumers are slowly gaining confidence in their financial position,” Donghoon Lee, New York Fed senior economist, said in a release. “As consumers feel more comfortable, they may start to make purchases that were previously delayed.”
According to the report, delinquency rates on outstanding consumer debt fell to 8.9 percent in the third quarter, a drop from 10 percent the previous year.
Mortgage debt is currently at $8.03 trillion: the lowest figure since 2006. Additionally, mortgage delinquencies decreased from 6.3 percent to 5.9 percent.
The FRBNY report is compiled from national representative samples, randomly drawn from Equifax credit report data. The calculations count borrowers in forbearance or deferment as being current on their loans. Once the payment periods are over, a new influx of delinquencies can occur. The Fed predicts that the real delinquency rate in the current cycle is “roughly twice as high.”
According to FinAid.org, experts say that student loan debt must increase significantly in order for a real economic crisis to occur. The two-year default rate on federal student loans would need to triple.
Unlike credit cards, where losses usually fall on private lenders, federal student debt is usually placed on taxpayers’ backs. And the burden is only set to grow with the implementation of income-based repayment. This relatively new plan allows students to pay between 10 to 15 percent of their discretionary income to repay loan debts.