Suzanne Robinson's Real Estate Update

What's Wrong with the Government's Mortgage Stimulus Programs?

2010-09-21T17:04:00.000-07:00

By Richard T. Cirelli - President of RTC MORTGAGE CORPORATION:

Given the failure of the various stimulus programs introduced by the Government, it's going to be difficult to keep this article short but I'll try...

I read an article last weekend about how homeowners are now suing their loan servicers, particularly Bank of America, for not making their loan modifications permanent even though the borrowers made good on their promise to pay during the Loan Mod trial period. This is a story that I think will gain lots of attention.

Here's the problem with the loan mod program but read on for what's wrong with some of the other programs too...

In order to qualify for a loan mod, a borrower has to demonstrate that they can no longer afford the payments on their loan. If their debt-to-income ratio falls within a certain range (31% to 38%) they may be eligible for a trial period of 3 months and if they keep up their payments during this time, the loan modification can become long-term. Usually, the interest rate is reduced to a level that makes the payment affordable for the borrower. The Lender/Servicer can also reduce the principal balance or lengthen the term of the loan but typically they just reduce the rate.

Very few loan mods have been granted relative to the number that have applied. Why?
· Even though the Banks are being paid a commission by the Federal Government for granting loan mods, the amount is so small that it's really no incentive at all.
· The banks take so long to make a decision that even though the borrower was current in their payments when they applied, by the time the Bank approves their mod they have racked up too much credit card debt in order to stay current on their bills and they no longer qualify
· The debt-to-income ratios are harder to qualify for a loan mod than they were when the original loan was made. Any new borrower can get approved with Debt-to-Income ratios up to 50% and the limits were even higher when these borrowers got their loans. Why should the criteria be more strict now that the borrower is possibly making less money? And why shou ld it be more strict when the loan mod reduces their Debt-to-Income ratio thereby enabling them to start paying down their credit card balances with the money saved by the loan mod?

Here's a link to the article that got me thinking about this:
http://www.usatoday.com/money/economy/housing/2010-09-10mortgagemods10_CV_N.htm?csp=hf

Now let's talk about the Home Affordable Mortgage Program

This is the program that allows a borrower to refinance up to 125% of their home value if their mortgage is currently owned by Fannie Mae or Freddie Mac. Sounds like it should help a lot of homeowners since Fannie and Freddie own so many loans. (Don't be confused by who services these loans. The big banks service many loans but almost always the loan to Fannie, Freddie or other investors).

Here's the first problem.Even though Fannie and Freddie allow the borrower to refinance the loan up to 125% of today value, none of the lenders will refinance it beyond 105%. So even though a typical homeowner will benefit by reducing their rate form say 6% down to 4.5%, the Lenders refuse to make the loan even though it puts the borrower at a lower risk of future default.

Here's the second problem.. If the current loan has Mortgage Insurance, the new refinance up to 105% or any amount over 80% must have mortgage insurance too. That's all fine but here's the rub - the Mortgage Insurance companies refuse to re-insure it even if the borrower qualifies. Once again, a lower rate reduces the borrowers chances against future default thereby improving their portfolio of insured loans. But, they still won't re-insure the better loan.

So, the bottom line is that the Banks and Mortgage Insurance companies are telling the Government "no thanks" to their programs. It's the banks and the MI companies that are running the show - not the U.S. Government. And, I don't see anything being done about it.

New FHA Short Refi Program:

If you think this new program announced this month will be a big help- don't.

The FHA is allowing borrowers with negative equity and non-FHA loans to refinance into a new FHA loan up to 115% of the home's value. You would think that a homeowner with a loan owned by Fannie or Freddie could benefit from this but Fannie and Freddie already said they won't participate. So if you take away all the people that have an FHA loan and all the people that have a loan owned by Fannie Mae or Freddie Mac, who is left to qualify for this program? It will be the minority whose loan is owned by private investors and do you think they will allow their loans to be written down? I wouldn't count on it.

Extended Home Buyer Tax Credit 2009/2010

2009-11-19T17:30:00.000-08:00

As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that:
- Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
- Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.

Click here for more information.

*Source: Realtor.org

Big Rebound in Existing-Home Sales Shows First-Time Buyer Momentum

2009-10-26T20:16:00.000-07:00

Washington, October 23, 2009
Existing-home sales bounced back strongly in September with first-time buyers driving much of the activity, marking five gains in the past six months, according to the National Association of Realtors®.

Click here for more information.

*Source: Realtor.org

Unintended consequence of mortgage modifications: falling credit scores

2009-10-08T18:07:00.000-07:00

NEW YORK — Victor Stern thought his money troubles were over when he got approval to modify his home loan.

Then his credit score dropped 121 points.

Stern, a business development director at an information technology company in Charlotte, N.C., said he was shocked to see his credit score drop to 619 from 740 after entering the trial period for a loan adjustment under President Barack Obama's Home Affordable Modification Program. A salary reduction caused him to seek a change in the terms of his loan before he missed any payments...

To read the complete story click here

*Source: Alexis Leondis, BLOOMBERG NEWS

C.A.R. reports July sales up 12 percent, prices declined 19.6 percent

2009-08-28T17:54:00.000-07:00

Home sales increased 12 percent in July in California compared with the same period a year ago, while the median price of an existing home declined 19.6 percent, C.A.R. reported yesterday.
More Info: http://www.car.org/newsstand/newsreleases/julysalesandpricereport/

*Source: CA Association of Relators

How Does a Refi or Loan Mod Affect Your Credit?

2009-08-20T16:04:00.000-07:00

Refinancing and loan modifications can affect your FICO score in a few areas. How much depends on whether it's reported to the credit bureaus as the same loan with changes or as an entirely new loan.If it's reported as the same loan with changes, three pieces of information associated with the loan modification may affect your score: the credit inquiry, changes to the loan balance, and changes to the terms of that loan. Overall, the impact of these changes on your FICO score should be minimal.If it's reported as a "new" loan, your score could still be affected by the inquiry, balance, and terms of the loan, along with the additional impact of a new "open date." A new or recent open date typically indicates that it is a new credit obligation and, as a result, can impact the score more than if the terms of the existing loan are simply changed.

*Source myFICO.com

Uptrend Continues in Pending Home Sales.

2009-08-07T14:46:00.000-07:00

Pending home sales are up for the fifth consecutive month. NAR's forward-looking Pending Home Sales Index for June indicates signed contracts rose 3.6 percent to an index level of 94.6 from an upwardly revised reading of 91.3 in May. The last time there were five consecutive monthly gains was in July 2003.

For more information, click here: http://www.realtor.org/press_room/news_releases/2009/08/uptrend_pending

*Source Realtor.org