All Entries in the "Mortgages" Category

Should I Refinance? Obama Says Yes.

If you’re on the fence about taking the refinancing plunge, you should investigate now.  The US Government is giving the real estate market a kick-start, and the time could be right. For more details about it, you can read Jeffery’s article “Mortgage Rates Hit Record Lows,” posted in January at Queercents.

Making Homes Affordable - the US government estimates that 8 million Americans are eligible for government mortgage programs.  Are you one of them?

Turns out I’m not.  But I may refinance.  I’m at 5.875 and mortgages are below 5% right now.  Obama says 7-8 million Americans can benefit from refinancing right now.

Pinyo over at Moolonamy offers some great advice on the pros and cons of refinancing.

Here’s a great refinance calculator to see if it makes sense dollar-wise.  Here’s a second one should you not like the first.

And finally, if you need some help clearing up your credit, first check out the US government’s National Foundation for Credit Counseling.

On a side not, if you’re a first-time home buyer you may want to “Take Advantage of the $8000 First Time Home Buyer Credit.”

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Freddie Mac… When are You Coming Back?

Fannie Mae and Freddie Mac have a new bail out program, but it by no means will empty the bilge, and in fact, is deemed a weak effort by its critics.

The problem:  The plan can only assist Fannie Mae and Freddie Mac approved loans.

“Freddie Mac and Fanny Mae are the dominant players in the U.S. mortgage market, but represent only 20 percent of delinquent loans.” says the NY Times.  Further, officials said the plan ”falls short of what is needed to achieve wide-scale modifications of distressed mortgages.”

If your loan was one of the chosen that were approved by Fannie or Freddie, and if it meets the criteria below, you could be eligible for mortgage interest assistance such as:

• bringing your payments down to 38% of your total income.
• a part of the total money borrowed could be deferred, with no interest.
• a 30 year term could be extended to 40 years.

The criteria for eligibility:

• your loan is 90 days or more delinquent, and
• your mortgage is greater than 90% of the value of your house.
• you must live in the house.
• you can not have applied for bankruptcy.

Proponents of the plan say that it was not meant to be far reaching.  Instead, it was meant as a model for other financial institutions to follow.

I say, The banks have been getting financial relief.  Let’s hope that the homeowners are starting to get some of the same treatment.

The program begins December 15th.

• Government Making Home Affordable Refinance And Loan Modification Program: Do I Qualify? The last few days I've been hearing an awful lot about the Government's new "Making Home Affordable" program, which has been set up to help...
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• Effect of Government Takeover of Freddie Mac and Fannie Mae on Mortgage Rates Recently the U.S. government took command of the sinking ships that were Freddie Mac and Fannie Mae. Officially Freddie Mac and Fannie Mae were placed...

Finally Some Relief for Struggling Home Owners

Finally, it’s the victim’s turn. The New York Times reports that the senate is about to pass a bill assisting suffering homeowners, and it’s a good one.

You’ll be able to cancel your subprime mortgage and replace it with a new fixed rate mortgage at 90% of your home’s current value.

There are other benefits for all homeowners - not just those with subprime loans - and for first time home buyers as well.

This should have been done long ago, not by the government, but by the lenders responsible for creating such a joke of our mortgage system in the first place. Thousands of people have already lost their homes. It will take these families years to recover financially.

The problem is, that the mortgage companies have no money.

So the government has bailed them out, too. Shouldn’t these companies and their board members have to pay some consequence for their misdeeds?

Not if the federal government can print more money. They just keep printing it. The national debt currently tops nine trillion dollars.

Other national debt facts:

• “The estimated population of the United States is 304,421,913, so each citizen’s share of this debt is $31,344.53.”
• “The National Debt has continued to increase an average of $1.77 billion per day since September 28, 2007.”

Does anyone see a way out of this travesty? I fear we are in for a rough ride the next few years.

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Foreclosure Frenzy

The enormity of the subprime debacle continues to unfold.

RealtyTrac - the pulse of foreclosure info - reports that in April, 243,000, or 1 of every 519 households across the country, were sent foreclosure notices. That’s 67% higher than April 2007, and a 4% increase over last month.

“It’s the highest monthly total we’ve seen since we began issuing the report in January 2005,” said a RealtyTrac spokesman.

Nevada, California, Arizona, and Florida were the worst hit. In Nevada, 1 of every 146 homes are being foreclosed on. In California, 1 of every 204. Some Metropolitan cities report rates as high as 1 in 66 households.

54,000 homes were fully repossessed in April, and 210,000 since the beginning of this year.

Because so many of these properties are being re-introduced into the market, selling prices remain depressed, with single family home values falling 7.7% since the first of the year.

CoreLogic, a company that “analyzes house price trends, foreclosure rates, economic health factors and fraud propensity to predict the chances that future mortgage delinquencies will occur, “predicts that foreclosures will continue to rise, and prices will continue to fall, over the next 6-12 months.

“Falling home prices have created a vicious cycle: Lower prices lead to more defaults, resulting in excess inventory, which causes demand to fall, bringing home prices even lower, leading to more defaults.”

Government Aid for Homeowners

As Lawmakers debate how to help, it seems George W. Bush has scooped them. An FHA plan was put in place by his administration last August called FHASecure. It provides a channel for subprime mortgage holders to refinance at a lower rate.

CNN reports:

“The Senate Banking Committee is set on Tuesday to consider a comprehensive bill to have the government insure up to $300 billion in loans. Last week, when key committee members were trying to work out their partisan differences, the FHA announced that it had helped 200,000 mortgage holders remain in their homes through FHASecure.”

A little more investigation revealed that of those 200,000 mortgages, only 3000 were actually going into foreclosure. The rest were given to homeowners making their payments whose subprime rates had not yet readjusted. That’s great for those with the foresight to refinance before their rate goes up. But what about all the munchkins who didn’t have the foresight?

More needs to be done, and fast. Hopefully, this week Congress, with Barney Frank leading the charge, will come up with some form of bipartisan agreement. A plan has been written, but the word is that Bush will veto it, favoring enhanced funding of his FHA Plan instead.

Do you think we should assist those being foreclosed on due to subprime shenanigans?

My opinion - these people are victims of a shark feeding frenzy that turned into a foreclosure frenzy (see my post on subprime history.) Somebody needs to come to their aide. But I would prefer that the somebody would be those companies responsible for its occurance rather than me and my tax dollars.

Why are these companies not being held accountable?

They botched one of the greatest of reachable American Dreams - home ownership.

John Mellencamp sings about the American Dream in his song, Pink Houses:

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When People Go Bad: A History of the Subprime Mess

I’ll sum it all up in four words - deregulation, unscrupulous, predatory, greed.

There you have it. And now, here we are, in up to our necks, even atheists helplessly praying, watching as our 401ks shrink from ripe plump grapes into shriveling raisins, hoping we still have our homes and some retirement money left when the subprime drama finally plays out.

How did this mess happen?! Where did it start?

Hi-ho, hi-ho, it’s googling I go.

And as I read through article after article, it became utterly clear that the subprime debacle is a stark example of human greed at its worst.

Here’s my chronological history of what happened. How do you feel about it?

1977- Solomon Brothers and Bank of America jointly introduce the first mortgage backed securities (MBS). Lewis Ranieri, a college dropout initially hired to work in Solomon’s mailroom, is assigned the task of selling these securities (bonds). (See the appendix at the end of this article explaining the complicated MBS system.) They are only legal in 15 states. Ranieri, with “a trader’s nerve and a salesman’s persuasiveness” wins lobbying battles in Washington that remove legal and tax barriers. He heads up a Solomon team that develops “collateralized mortgage obligations”- 2, 5 and 10 year MBS, packaged to appeal to a variety of low, medium, and high risk investors.

And subprime mortgages are born.

Definition: High risk bonds are backed by more speculative, or “sub-prime” mortgages, loans made to higher risk borrowers. These bonds yield more interest than low risk bonds.

1980’s-1990’s- The MBS market explodes. Growing deregulation in the ’80’s provides an environment where unscrupulous people on Wall Street can take advantage of others’ ignorance. And anyone with a phone and a web page becomes a mortgage broker. These brokers are paid by both the borrower and the bank purchasing the loan, and because of this, rather than looking out for the borrower’s best interests, often steer home buyers towards banks that pay the broker the most money.

Broker critics feel that “The system gives brokers powerful incentives to push consumers into toxic loans, and little to fear if their customers can’t handle them.” The more loans they originate, the more money they make. Brokers practicing predatory lending practices especially target subprime borrowers and what are considered high risk groups, such as lower income, minorities, and the elderly.

Spring 2005- It’s clear that the mortgage industry has deteriorated. Fraud of all types is rampant. 68% of all home loans are originated by mortgage brokers.

December 2005- Regulatory agencies offer a set of rules on what is politely called “non-traditional mortgages. Mortgage bankers are outraged. They accuse the agencies of “stifling innovation, regulatory overreach, and substituting bureaucratic judgment for the collective experience and wisdom of thousands of industry leaders.”

January 2006- The National Association of Realtors reports the staggering statistic that 43% of first time home buyers have “taken advantage” of no money down loans. Yet predictions are greater than 50% that home prices will drop, and owners will owe more than their homes are worth.

August 26th 2006- Barron’s reports that strong indicators point to an imminent housing crisis. Since January, the national median price of new homes has dropped 3%. New home inventories are at a record high. Existing home inventories are 39% higher that just one year ago. Home sales are down 10%. Meanwhile, the stock market and many analysts continue ignoring what is now inescapable.

March, 2007- As the number of home foreclosures continues escalating, it can no longer be ignored, and the subprime melt-down rears it’s ugly head, Steve Pearlstein, of the Washington Post, and others, ostracize the mortgage industry for creating mortgage deals too good to be true. Money Magazine reports that 1.4 million Americans will see their mortgages double in the next five years. Foreclosure rates are up 30% from one year ago. Home values continue to fall.
Below is a list of some “creative” mortgages used by mortgage brokers(compiled by me from Pearlstein’s and others’ articles.)

The No Money Down Loan- the borrower purchases a home paying more then the seller’s asking price. The seller gives the extra money back to the buyer at closing.
The Balloon Mortgage- the borrower pays only interest for 10 years before a big lump-sum payment is due.
The Liar Loan- the borrower is asked merely to state his annual income, without presenting any documentation.
The Option ARM Loan- the borrower can pay less than the agreed-upon interest and principal payment, simply by adding to the outstanding balance of the loan.
The Piggyback Loan- a combination of a first and second mortgage eliminates the need for any down payment.
The Teaser Loan- the borrower qualifies for a loan based on an artificially low initial interest rate, even though he or she doesn’t have sufficient income to make the monthly payments when the interest rate is reset in two years.
The Stretch Loan- the borrower has to commit more than 50 percent of gross income to make the monthly payments.

September 2007- As Wall Street drowns in the subprime meltdown, Alan Greenspan, on NBC’s 60 Minutes, admits mistakes in the subprime mess.

“I was aware of “subprime” lending practices where homebuyers got very low initial rates, only to see them later jacked up, causing severe payment shock. But I didn’t initially realize the harm they could do…..I really didn’t get it until very late in 2005 and 2006.”

Greenspan retired in 2006.

March 2008- as the subprime crisis worsens, Bear Stearns Investment Bank is on the brink of collapse due to mortgage market losses. In an unprecedented move, Bernanke and the Federal Reserve rescue the bank by loaning money to JP Morgan, who will use it to purchase the failing firm.

What would have happened if Bear Stearns was allowed to go bankrupt? NPR states:

“If the bank did go bankrupt, an unbelievably long and complex legal process would begin. Thousands of Bear Stearns customers — from individual retirees to massive hedge funds — would have huge amounts of money just frozen. Imagine how complicated a personal bankruptcy is and multiply that by tens of billions of dollars in assets. The Federal Reserve wanted to avoid that.”

During this crisis, the Feds took a number of other aggressive measures to stabilize and restore confidence, hoping to ease worried investors’ minds, but at the same time, creating suspicion regarding just how bad the banking problem must be.

April, 2008- The Feds have reconstructed the subprime house of cards. But what happens when the next strong breeze comes along?

APPENDIX

Borrowing the MBS Way

(Diagram and definitions taken from a speech made by Sheila C. Baer, Chairman, FDIC, in April, 2007.

As the terminology is used in the securitization contracts and in the diagram above, the key elements to a typical securitization include the following:

• Issuer - A bankruptcy-remote special purpose entity (SPE) formed to facilitate
  a securitization and to issue securities to investors.⁸
• Lender - An entity that underwrites and funds loans that are eventually sold to
  the SPE for inclusion in the securitization. Lenders are compensated by cash
  for the purchase of the loan and by fees. In some cases, the lender might
  contract with mortgage brokers. Lenders can be banks or non-banks.
• Mortgage Broker - Acts as a facilitator between a borrower and the lender.
  The mortgage broker receives fee income upon the loan’s closing.
• Servicer - The entity responsible for collecting loan payments from borrowers
  and for remitting these payments to the issuer for distribution to the investors.
  The servicer is typically compensated with fees based on the volume of loans
  serviced. The servicer is generally obligated to maximize the payments from
  the borrowers to the issuer, and is responsible for handling delinquent loans
  and foreclosures.
• Investors - The purchasers of the various securities issued by a securitization.
  Investors provide funding for the loans and assume varying degrees of credit
  risk, based on the terms of the securities they purchase.
• Rating Agency - Assigns initial ratings to the various securities issued by the
  issuer and updates these ratings based on subsequent performance and
  perceived risk. Rating agency criteria influence the initial structure of the
  securities.
• Trustee - A third party appointed to represent the investors’ interests in a
  securitization. The trustee ensures that the securitization operates as set forth
  in the securitization documents, which may include determinations about the
  servicer’s compliance with established servicing criteria.
• Securitization Documents - The documents create the securitization and
  specify how it operates. One of the securitization documents is the Pooling
  and Servicing Agreement (PSA), which is a contract that defines how loans
  will be combined in a securitization, the administration and servicing of the
  loans, representations and warranties, and permissible loss mitigation
  strategies that the servicer can perform in event of loan default.
• Underwriter - Administers the issuance of the securities to investors.
• Credit Enhancement Provider - Securitization transactions may include credit
  enhancement (designed to decrease the credit risk of the structure) provided
  by an independent third party in the form of letters of credit or guarantees.

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