Mortgage financier Fannie Mae has unveiled a new foreclosure prevention tool called the “Deed for Lease Program,” which helps struggling borrowers stay in their homes.
Unfortunately, that’s about all it does; borrowers must transfer the property back to their lender by competing a deed in lieu of foreclosure, and then lease the house at the prevailing market rate.
That said, the Deed for Lease program is only for borrowers who are unable to take advantage of more favorable loan workout solutions such as loan modifications.
“The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications,” said Jay Ryan, Vice President of Fannie Mae, in a statement.
“This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.”
To participate in the Deed for Lease program, the subject property must be the borrower’s primary residence and it must be clear of any subordinate liens (second mortgage).
Borrowers or tenants that wish to stay in the property must be able to document that the new market rent is no more than 31 percent of their gross income (debt to income ratio).
Leases under the new program may be arranged for up to 12 months, with the potential to extend the lease via a month-to-month contract after that period.
Fannie Mae noted that a Deed for Lease property that is subsequently sold will include an assignment of the lease to the buyer.
Mortgage rates reversed course this week after increasing for three straight weeks, according to the latest survey from Freddie Mac.
The classic and always fashionable 30-year fixed mortgage slipped below five percent, averaging 4.98 percent during the week ending November 5.
It’s down from 5.03 percent a week earlier and 6.20 percent a year ago; it’s been straddling the five-percent mark for a while now.
Meanwhile, the 15-year fixed fell to 4.40 percent from 4.46 percent last week, and was nearly a point-and-a-half better than the 5.88 percent average seen a year ago.
Even adjustable-rate mortgages saw relief, with the five-year ARM falling to 4.35 percent from 4.42 percent and the one-year ARM dipping 10 basis points to 4.47 percent.
A year ago, the five-year averaged 6.19 percent and the one-year stood at 5.25 percent.
Keep in mind that the mortgage rates above are only good for conforming mortgages with a loan-to-value of 80 percent.
The rates quoted are also at the par rate without any pricing adjustments, which may raise or lower your effective rate.
Jumbo loans continue to price at least a point higher than mortgages with conforming loan amounts.
The FHA’s Unhealthy Growth
If you were curious what unhealthy growth looked like, take a look at this chart from an article in the Wall Street Journal.
Per the WSJ, the FHA expects defaults on 24 percent of all loans insured in 2007 and 20 percent of those originated in 2008.
FHA’s market share, which was just 1.9 percent in the fourth quarter of 2006, climbed to nearly 25 percent in the fourth quarter of 2008.
The FHA has seen lending absolutely surge between fiscal years 2006-2009, and now they face the prospect of a capital shortfall, which could require a taxpayer bailout.
FHA loans have essentially replaced subprime and Alt-A loans, and are a popular choice for consumers because of their high loan-to-value limits and loose credit requirements.
Oh, and the FHA has apparently delayed the release of a financial audit (without explanation) due out today, per National Mortgage News.
Could it be that ugly?
Mortgage application volume rose for the first time after three straight weeks of declines as interest rates saw some much needed relief, the Mortgage Bankers Association said today.
The home loan index increased 8.2 percent on a seasonally adjusted basis during the week ending October 30, or 7.9 percent unadjusted, compared with one week earlier.
Of course, the rally was all about refinancing, as purchases decreased 3.0 percent from the previous week and were off 3.4 percent compared with the same week a year ago.
Refinances increased 14.5 percent compared with the previous week as borrowers took advantage of a break in interest rates.
As a result, the refinance share of mortgage activity increased to 66.1 percent of total applications from 62.3 percent one week earlier.
The 30-year fixed slipped back below five percent to 4.97 percent, seven basis points better than the 5.04 average seen a week ago.
The 15-year fixed was the biggest mover, sliding 20 basis points lower to 4.33 percent, making it a pretty attractive option for those with more money to burn.
Finally, the one-year adjustable-rate mortgage increased to 6.83 percent from 6.79 percent, which may explain why the ARM-share of apps fell to 6.1 percent from 6.9 percent.
The MBA’s weekly survey, conducted since 1990, covers more than half of all retail, residential mortgage applications, but does not factor out declined or multiple apps.
Wells Fargo is reportedly converting its $100 billion + stable of option arms into interest-only loans to avoid a complete disaster, according to a piece in the WSJ.
Borrowers with option arms are receiving loans with interest-only periods of six to 10 years in the hopes that home prices turn around during that period.
The company has also written down Pick-A-Pay balances on 43,500 loans by a collective $2 billion, or $46,000 per modified loan.
Wells believes such a strategy eliminates the near term risk of borrower default, which could be true, but there’s no guarantee these deeply underwater borrowers will be back in the black once the IO period ends.
After all, they’re only making interest-only payments, so the only way they’ll gain equity is via home price appreciation; but I guess it’s better than negative amortization…
Of course, Wells believes that borrowers are motivated to keep paying their mortgages, driven partially by “kids and schools,” even if they’re underwater.
The San Francisco-based bank and mortgage lender never originated such high-risk loans, but inherited them at a 20 percent discount when it agreed to take over Wachovia last year.
Unsurprisingly, most of the loans are underwater and facing payment shock, so it’s unclear if the discount was in fact a discount.
The troublesome loans accounted for 10.8 percent of the bank’s total loans in the third quarter.
Borrowers who refinanced their conventional conforming mortgages in the third quarter cut their payments by a collective $3 billion over the first year of the loan, according to Freddie Mac.
The mortgage financier said half of those who refinanced their loans lowered their annual interest rate by 17 percent.
The average interest rate post refinance was about 1.1 percentage points below the old rate, thanks to the record low mortgage rates on offer.
“Homeowners are benefiting from an extended period of very low interest rates,” said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.
“In the first nine months of 2009, interest rates on 30-year fixed-rate mortgages have averaged 5.1, the lowest such average in the 38-year history of Freddie Mac’s Primary Mortgage Market Survey.”
Cash Out Refinancing Hits Six Year Low
Meanwhile, cash out refinances hit a six-year low, with such transactions accounting for just 36 percent of the total in the third quarter.
Conversely, rate and term refinances accounted for 64 percent of the total, the highest share in six years.
“In the third quarter, about $20 billion in home equity was cashed out by homeowners when they refinanced their conventional prime-credit home mortgage,” said Amy Crews Cutts, Freddie Mac deputy chief economist.
“Over the first three quarters of this year, the aggregate amount cashed out has been approximately $60 billion.”
That’s the lowest amount of equity extraction over the first three quarters of a year since 2000, a clear sign that equity has slipped away.
Going forward, government sponsored loan modifications will not adversely affect consumers’ credit scores, at least not immediately, according to a report in SF Gate.
Fair Isaac, now simply known as Fico, has applied the change on behalf of the U.S. Treasury Department so borrowers in need of a loan modification don’t hold back on fears of dented credit scores.
As of today, those who receive a loan modification via a government plan will see the phrase “loan modified under a federal government plan” (instead of “partial payment”) on their credit report next to the associated credit tradeline.
At this time, that distinction will neither hurt nor help consumers, but it could do so in the future.
Once Fico can document and predict consumer behavior for those with a government-sponsored loan mod, the data may be factored into credit scoring, potentially hurting those who elected to modify their mortgage.
Per the article, Fico doesn’t typically make changes to its scoring algorithm until it has collected data for at least a year, so we won’t know the real credit score impact for a good while.
Keep in mind that those already delinquent on a mortgage will receive the “appropriate level of delinquency,” and the new system will not simply bring the account current.
Those who already received a loan modification via a government program may be able to get the scoring change applied retroactively, but good luck working with creditors and the credit bureaus.
And there’s always the worry that a potential creditor will see that you’ve received a loan modification and deny your application for new credit, regardless of your intact credit score.
Independent mortgage bankers and subsidiaries of banks, thrifts, and hedge funds saw an average profit of $1,358 on each loan they originated in the second quarter, according to a report released by the Mortgage Bankers Association.
That’s up from first quarter profits of $1,088 per loan, helped on by higher loan volume and reduced production costs.
“The refinance boom continued in the second quarter of 2009,” said Marina Walsh, MBA’s Associate Vice President of Industry Analysis. The big increase in production volume allowed lenders to spread their fixed costs over a larger number of loans, thus increasing net profits.”
“At the same time, purchases picked up as homebuyers with good credit took advantage of low interest rates.
Walsh noted that there was both an uptick in average borrower FICO and pull-through rate, the latter climbing to about 73 percent in the second quarter from roughly 67 percent in the first quarter.
“These factors contributed to the further drop in production operating expenses per loan,” she said.
The average production volume per firm was $280.9 million in the second quarter, up from $213.9 million a quarter earlier and $125.6 million in the fourth quarter of 2008.
And 96 percent of the firms in the study posted a pre-tax profit, up from 85 percent a quarter earlier and 53 percent in the fourth quarter.
Wholesale lenders saw the biggest improvement, with profit per loan rising to $1,213 from $803 per loan in the first quarter.
Retail loan officers originated an average of 11 loans per month in the second quarter, up from 10.4 loans per month during the first quarter.
The HUD’s Mortgagee Review Board has proposed to permanently withdraw HUD/FHA approval for Financial Mortgage USA, Inc., a reverse mortgage lender based in Honolulu, Hawaii.
HUD alleges that the company failed to implement an FHA-required quality control plan, instead allowing its Vice President to conduct such reviews.
Additionally, it failed to separate its lending operations from those of an affiliated life insurance company, so borrowers were unclear who they were actually doing business with.
In one particularly egregious case, the company apparently got an 88-year-old borrower to purchase an annuity that wouldn’t mature until her 104th birthday.
The reverse lender also failed to discuss options for receiving home equity conversion mortgage (HECM) proceeds, or flat out ignored borrowers’ stated preferences with regard to their distribution.
HUD claims Financial Mortgage USA did not conform to prudent lending practices and failed to provide borrowers with a list of housing counseling agencies in their area.
“FHA will not tolerate lenders who violate our rules and prey on those who depend on a reverse mortgage to continue to live independently,” said FHA Commissioner David Stevens, in a statement.
“FHA-approved lenders must understand that we mean business when it comes to protecting the FHA insurance fund from those who cut corners and take advantage of unsuspecting senior citizens.”
HUD slapped Financial Mortgage USA with a $97,500 civil money penalty and said the company has 30 days to respond to the Board’s proposed withdrawal and seek a hearing before an Administrative Law Judge.
(photo: cchan808)
The higher home loan limits currently in place are expected to stick throughout 2010, according to National Mortgage News.
The Obama Administration reportedly supports an extension of the current enhanced loan limits for Fannie Mae, Freddie Mac, and FHA loans.
The maximum conforming jumbo loan limit of $729,750 (in the nation’s most expensive counties) is set to expire on December 31, at which point it would drop to $625,500 per the Economic Stimulus Act of 2008.
The true current conforming loan limit is $417,000 for condos and single-family residences.
Earlier this week, several agencies called on the Senate to move swiftly in dealing with the loan limits, as lenders were uncertain whether to approve such loans pending the extension.
Homebuyer Tax Credit Extension
Senate leaders have also agreed on extending the $8,000 first-time homebuyer tax credit, as well as a $6,500 tax credit for so-called “move-up buyers.”
The tax credit would be extended from its current expiration date of November 30 through to April 30, 2010 and give home buyers with a binding contract an extra 60 days to close.
The first-time homebuyer tax credit extension also comes with higher income eligibility limits, $125,000 for single filers and $225,000 for joint filers, up from $75,000 and $150,000, respectively.
The “move-up tax credit” applies to current homeowners who have used their current property as a primary residence for five of the previous eight years.
(photo: doug88888)
