Wednesday, July 27, 2011
Loan servicer Ocwen Financial Corporation has launched a new loan modification program aimed at helping borrowers with underwater mortgages.
The new initiative, known as the “Shared Appreciation Modification” (SAM) program, writes down an underwater borrower’s principal balance to 95 percent loan-to-value, thereby creating home equity.
Then, over three years, the written-down portion is forgiven in one-third increments, so long as the homeowner stays current on mortgage payments.
Later, when the house is either sold or refinanced, the borrower must share 25 percent of the appreciation with the investor of the loan.
Ocwen believes this approach won’t reward borrower delinquency, which is always a concern when offering a loan modification.
“Like all modifications, SAMs help homeowners avoid foreclosure. But they also restore equity,” said Ocwen CEO Ronald Faris.
“That’s a significant benefit to the customer and, we believe, the economy and housing market. Psychologically, it’s important too. Our analytics tell us that an underwater mortgage is one-and-a-half to two-times more likely to default than one with at least some positive equity.”
The SAM program was initially launched on a pilot basis back in August 2010, sporting a 79 percent borrower acceptance rate and just a 2.63 percent re-default rate.
Ocwen now has clearance to make it available to qualified customers who are experiencing negative equity in 33 states.
While it seems like a good approach to an ongoing problem, there are probably still scores of borrowers who are beyond the point of no return.
But it does seem to be a bit more strategic than the Making Home Affordable program, which has fallen well short of goal.
Tuesday, July 26, 2011
While everyone always seems to focus on mortgage payments adjusting higher, there are a number of reasons why a mortgage payment may decrease.
No really, there are, so let’s take a look shall we.
Mortgage Payments Decrease on ARMs
If you have an adjustable-rate mortgage, there’s a possibility the interest rate can adjust both up and down.
You may have seen that now infamous interest rate reset chart, the one that shows billions of dollars worth of mortgages resetting from their fixed-rate period into their adjustable period.
Well, the damage may not be as bad as it appears because many of the mortgage indexes tied to these loans are rock bottom.
As a result, some homeowners who stayed in these seemingly “exploding ARMs” may actually see their mortgage payment fall.
When You Pay Down Your Mortgage
If you decide to pay off a large chunk of your mortgage, you can ask the mortgage lender to recast your loan (if they allow it).
This essentially re-amortizes the mortgage so the new, smaller balance is broken down over the existing months left on the loan.
Your mortgage payment is adjusted lower to reflect the smaller principal balance, but your mortgage rate doesn’t change.
While this could increase household cash flow, you may be better suited to pay off your mortgage early by making your old payment despite the lower balance.
Refinance to a Lower Rate
Here’s a no-brainer. If you want a lower mortgage payment, look into a rate and term
Because mortgage rates are still very low, your mortgage payment will probably decrease if you refinance now.
(When to refinance a mortgage?)
Shop Your Insurance, Look Into a Tax Reassessment
Finally, be sure to shop your homeowner’s insurance, as it is typically included in your mortgage payment.
If you can snag a lower premium, your mortgage payment will decrease as a result.
Also look into a tax reassessment of your home.
Property values have been on the decline, so you may be able to save some money on property taxes by asking your county recorder’s office to reassess your property.
Remember, a mortgage payment is typically expressed as PITI, which stands for principal, interest, taxes, and insurance.
So address each component to save money on your housing costs.
Monday, July 25, 2011
For the second month in a row, more than half of respondents think they’re upside down on their home.
The numbers aren’t as bad as June, when an all-time low of 45 percent indicated they were “right-side up,” but it’s still only the third time the number has dipped below 50 percent.
(What is an underwater mortgage?)
For comparison sake, 61 percent believed their home was worth more than their mortgage back in late 2008.
Government Workers More Upbeat
Interestingly, 71 percent of government workers believe their home is worth more than their mortgage, compared to just 50 percent of private sector employees and 42 percent of retirees.
With regard to mortgage payments, just seven percent said they’ve missed one or been late in the past six months.
And only eight percent of homeowners say it’s “at least somewhat likely” they’ll miss a payment in the next six months.
So that’s the good news – borrowers will continue to make on-time payments with the belief they’ll eventually gain home equity and get out of this mess.
The national telephone survey of 676 Homeowners was conducted between July 17-18.
Tuesday, July 19, 2011
Those who purchased their homes post-housing bubble are guilty of overpricing their homes, according to a new survey from Zillow.
The company noted that current home sellers who purchased their homes in 2007 or later are overpricing their properties by an average of 14.1 percent.
Conversely, those who purchased pre-bubble, from 2002-2006, have only priced their homes 9.3 percent above current market value.
Meanwhile, those who purchased before 2002 have listed their homes by an average of 11.6 percent above market value.
“Post-bubble buyers seem to believe they escaped the worst of the housing recession, as evidenced by how they price their homes today,” said Zillow Chief Economist Dr. Stan Humphries,” in a release.
“But 2006 was just the beginning of the housing recession, and it is continuing in earnest to this day. That means that even people who bought after the bubble burst need to break out the pencil and paper and do serious research into what has happened in their market since they first bought their home, whether it was four years ago or six months ago.”
Humphries added that listing homes above the current market value causes them to stagnate, leading to a more bloated inventory, which further drives homes prices down.
The takeaway is that home prices remain very fragile, and haven’t done much more than fall or move sideways since the crash.
Even those who didn’t see their home price drift lower probably don’t have the required home equity to sell, factoring in agent commissions.
I guess this all begs the question, when is it going to be the right time to buy?
Mortgage rates may be at or near record lows, but closing costs aren’t.
Mortgage closing costs rose for a second straight year, according to a survey released today by Bankrate.
The company said the average loan origination and title insurance fees on a $200,000 mortgage total $4,070, up 8.8 percent from a year ago.
And the average bank/mortgage lender charges roughly $1,614 in loan origination fees, up 10.3 percent from last year.
Loan origination fees include services such as underwriting and loan processing fees, along with loan officer or mortgage broker compensation for closing the loan.
Keep in mind that the person closing your loan can also get paid on the back-end, via yield spread premium, or at least a new form of it now that it’s been outlawed.
(How does a mortgage broker get paid?)
New York Most Expensive for Closing Costs
New York topped the survey again for the second straight year, with average closing costs of $6,183, followed by Texas at $4,944 and Utah at $4,906.
Mortgage closing costs were cheapest in Arkansas, with an average of just $3,378.
The survey is based on good faith estimates for a $200,000 purchase-money mortgage on a single-family home with a 20 percent down payment (80% loan-to-value).
It excludes taxes, homeowners insurance, homeowners association fees, prepaid interest and other prepaid items.
Wednesday, July 13, 2011
A bill from Sen. Barbara Boxer (D-Calif.), which would allow borrowers who are current but underwater on their Fannie Mae or Freddie Mac mortgage to refinance into a lower-rate loan, gained more industry support but also stirred more concern from investors.
Currently, more than 8 million Fannie or Freddie loans carry an interest rate of more than 6%. Boxer introduced the Helping Responsible Homeowners Act of 2011, S. 170, earlier this year. It would eliminate the negative equity restrictions and the upfront fees Fannie and Freddie charge when evaluating current homeowners. The bill would target roughly 2 million borrowers for a refinance into today's lower interest rate loan.
"They have been so solid in their mortgage payments every month even though the value of their home is going down," Boxer said in a conference call Tuesday. "This bill would remove the barriers that kept them trapped."
But under current tax law, a loan with a loan-to-value ratio over 125% would not be allowed to be packaged into a mortgage-backed security.
An aide for Boxer said there are vehicles that could be created and that it was also possible for Fannie and Freddie to move these loans into their portfolio – portfolios that under current conservatorship agreements should be on the decline.
The bill carries the support of Sen. Johnny Isakson (R-Ga.) and several industry trade groups including the National Association of Realtors, Mark Zandi, chief economist for Moody's Analytics and Bill Gross, the founder of investment firm PIMCO.
"The policy efforts implemented throughout the financial crisis have fallen short," Zandi said. "There have been many efforts and they've been helpful and they've clearly not been adequate.
The cost from this bill should be very small. I think this is a very efficient and effective way to help address one of the biggest roadblocks to a recovery and do it very quickly when the economy needs it."
One of the biggest hindrances to one of those initiatives that have under whelmed so far, the Federal Housing Administration Short Refinance program, is that Fannie and Freddie do not participate under guidance from their regulator the Federal Housing Finance Agency.
Wall Street investors expressed nervousness on Tuesday about the proposal, claiming such a move could shake-up an already fragile MBS market. But Boxer claims the cost to Fannie and Freddie to refinance these loans would be offset by the millions of underwater borrowers who could walk away otherwise.
"We don't think this is going to disrupt anything. In fact, we think this will stabilize the markets," Boxer said. "What would roil the market is if these millions of borrowers walk away from their loan."
Monday, July 11, 2011
Private mortgage insurer PMI Group (PMI: 1.415 -6.29%) will offer cash incentives to some homeowners in negative equity to help prevent mortgage defaults.
PMI subsidiary, Homeowner Reward is working with Loan Value Group, to administer the pilot program, called Responsible Homeowner Reward.
The program launched Monday and will start in select real estate markets where falling house prices left borrowers owing significantly more on their mortgage than what the property is worth.
Participation in RH Reward is voluntary and there is no cost to the homeowner, according to PMI. The cash will come after a lengthy period of keeping the mortgage current, generally from 36 to 60 months. According to PMI, the reward will be between 10 to 30% of the unpaid principal balance.
The Loan Value Group works "to positively influence consumer behavior on behalf of residential mortgage owners and servicers," according to its website.
LVG programs already delivered more than $100 million in cash incentives to distressed homeowners. However, those programs focus on turnkey solutions such as cash for keys, with an aim to avoid principal forgiveness. The Homeowner Reward program is taking a different path.
"We continue to seek creative and effective loss mitigation strategies," said Chris Hovey, PMI vice president of servicing operations and loss management. "PMI is especially supportive of homeownership retention efforts in states that are facing unprecedented housing challenges."
Thursday, July 7, 2011
Mortgage rate Q&A: “Why are mortgage rates different?”
Why is the sky blue? Why are clouds white? Why won’t your neighbor trim their tree branches?
These are all good questions, and ones that often puzzle even the savviest human beings.
First things first, take a look at how mortgage rates are determined to better understand how banks and mortgage lenders come up with interest rates to begin with.
From there, you’ll need to consider why mortgage rates are different for consumer A vs. consumer B.
No One Size Fits All for Mortgage Rates
Mortgages are complicated business, and there certainly isn’t a one-size-fits-all approach.
Every loan scenario is different, and must be priced accordingly to factor in mortgage default risk (risk-based pricing).
Mortgage Rates Vary Based on the Loan Criteria
Mortgage rates don’t exist in a bubble – the parts affect the whole.
Banks and lenders start with a base interest rate (par rate) and then either raise it or lower it (rarely) based on the loan criteria.
There are loan pricing adjustments for all types of stuff, including:
• Loan amount
• Documentation (full, limited, or stated)
• Credit score
• Loan Purpose (purchase or refinance)
• Debt-to-Income Ratio
• Property Type
• Loan-to-value / Combined loan-to-value
The more you’ve “got going on,” the higher your mortgage rate will be. And vice versa.
I’ve already covered a few related topics, including why mortgage rates rates are higher for condos and investment properties.Mortgage rates are also higher on jumbo loans and refinance transactions, especially those involving cash-out.
Advertised Mortgage Rates Are Best Case Scenario
You know those mortgage rates you see on TV? Those assume you’ve got an owner-occupied single family home, a perfect credit score, a huge down payment, and a conforming loan amount. Not to mention a newborn golden retriever.
Most people don’t have all those things, and as a result, they’ll see different mortgage rates. And by “different,” I mean higher.
How much higher depends on all the factors listed above. So take the advertised rates you see with a huge grain of salt.
All the more reason to shop around. Compare mortgage rates online and speak with a mortgage broker.
Tuesday, July 5, 2011
If you thought housing inventory was under control, you might want to read this.
The latest LPS Mortgage Monitor Report released today revealed that mortgages 90+ days delinquent and loans in foreclosure outnumbered foreclosure sales by a staggering 50 to 1 in May.
In other words, there’s an endless housing supply and not nearly enough demand to keep up with it, even with all the measures being taken to slow it all down.
Severely delinquent loans and foreclosure inventory totaled 4,084,557 at the end of May, while foreclosure sales were just 78,676 at month end.
It gets worse.
Foreclosure sales have been slowing – declines of 96 percent in DC, 80 percent in Maryland, 79 percent in New York, and 75 percent were seen in May.
And inventories of foreclosures in judicial states have increased twice as much as those in non-judicial states over the past year.
33% of Borrowers in Foreclosure Haven’t Paid in Two Years
This is good news for those facing foreclosure, as 33 percent of homeowners haven’t made a mortgage payment in over two years.
That’s a lot of free rent.
Oh, and negative equity continues to be a major concern, with nearly 30 percent of current loans underwater (hello short sale).
LPS noted that significantly underwater mortgages are defaulting up to 10 times more than loans with some home equity.
The only sliver of good news is new problem loans, defined as loans that were current six months ago and now 60 or more days delinquent, are now more than 50 percent below peak levels seen in 2009.