Mortgage Lenders Nationwide

In a recent article, Obama’s website suggests that they have been examining the sub-prime mortgage lending issues for years.   This is good because it is imperative that the next president thoroughly understand the housing sector and mortgage financing.  Apparently, Obama introduced legislation to fight the war on mortgage fraud and predatory lending.   He vows to protect consumers against abusive mortgage lending practices. The STOP FRAUD Act offers a federal definition of mortgage loan fraud and increases the funding for federal and state law enforcement programs. 

Watch this Mortgage Crisis Video Discussing Predatory Lending 

Obama says he will eliminate laws that prevent bankruptcy courts from introducing loan modifications. This is a good thing if banks are going to offer loan modifications why not do it at this level as well.  Obama says he will introduce a HOME score which enables borrowers to compare several home loan products while better understanding the total cost of the mortgage.  The truth in Lending Law is pretty darn clear.  We all should take some responsibility with this mortgage meltdown.  Whether you are a homeowner, loan officer, lender, bank or politician, we all played a role that led to this foreclosure epidemic.  Read the Complete Mortgage Loan Article

Seniors over the age of 62 years will be able to use FHA for reverse mortgage loans in conjunction with purchasing of a new house under newly revised guidelines issued by HUD.  As of January 1, seniors that want to downsize or can relocate using the proceeds from the sale of their home and an FHA Home Equity Conversion Mortgage to purchase a new residence. “Proceeds from sale of their former home can be combined with funds from reverse mortgages on the new home, allowing the home purchase to be made without any future responsibility of monthly mortgage payments,” said Peter Bell, president of the National Reverse Mortgage Lenders Association. This new feature of the FHA loan program (HECM) also avoids the expense of taking out a regular mortgage on the new residence and then getting a home equity conversion mortgage.

Tiffany Edwards thought she was running out of time to persuade her lender to work out a new loan so her growing family could stay in their Tampa home.  She had been out of work for more than a year, and her husband’s income wasn’t enough to cover all the family’s bills. She found a job a few weeks ago, but her lender was already set to foreclose on the house – likely before Christmas.  With a 3-year old daughter and a baby on the way, Edwards panicked. Last week Fannie Mae and Freddie Mac announced that the nation’s two largest providers of mortgage loans – will postpone foreclosures until early January. In the meantime, they will try to work out home loan modifications so more homeowners can keep their homes.  “What a stress relief,” Edwards said. “Now I have hope we’re going to be able to work something out.”  The Edwards’ are one of about 16,000 families nationwide who are eligible for the help. The foreclosure suspension is exactly the kind of action some economists and industry leaders say is needed as the foreclosure crisis weighs down the entire economy.

Florida Governor Charlie Crist is considering a way to get mortgage lenders to agree to a moratorium on foreclosures until after the holidays.  There were cheers when Fannie and Freddie agreed to hold off on some foreclosures. But now that the dust is settling, many wonder how significant the action will really be.   After January 9, the people helped by the foreclosure reprieve could still lose their house. Even if all those homeowners work out new home loans, they still represent a small percentage of the more than 2 million homes that are expected to be lost in foreclosure before late 2009.  “This is great, it really is,” said Debbi Colon, a Catholic Charities foreclosure counselor who has worked with the Edwards family. “But it’s just a first step.”

After the announcement last week, her phone rang all day and night from clients wondering if they qualified for the reprieve, Colon said. Most don’t, she said, because their loans are held by private companies.  That’s the downside of the plan, Colon said. Only homeowners with home loans owned by Fannie Mae and Freddie Mac are eligible. Together, the two companies own only about 20% of the nation’s delinquent loans.  Of the mortgage loans that Fannie and Freddie own, not all of them are eligible for the reprieve. Homeowners must be still living in the home and must be at least 3 months behind on their payments.  Read complete article written by By SHANNON BEHNKEN

A mortgage loan modification is a popular option for homeowners that don’t want to wait for their lenders to provide mortgage relief.   Short refinancing with Hope for Homeowners is another option, but FHA home loans are not as easy to qualify for because the debt ratio needs to be below the 50% threshold.

The Federal Deposit Insurance Corp. said Tuesday the list of banks it considers to be in trouble shot up nearly 50% to 171 during the third quarter — yet another sign of escalating problems among the institutions controlling Americans’ deposits.  The 171 banks on the FDIC’s “problem list” encompass only about 2% of the nearly 8,500 FDIC-insured institutions. Still, the increase from 117 in the second quarter is sharp, and the current tally is the highest since late 1995.  “We’ve had profound problems in our financial markets that are taking a rising toll on the real economy,” said FDIC Chairman Sheila Bair in a statement, adding that Tuesday’s report “reflects these challenges.”

Nationally, banks have been wounded by the crash of the sub-prime mortgage market and then problems created from the aftermath from the FHA mortgage lending spectrum. As the FDIC report indicates, the number of hindered institutions is increasing at an alarming pace, a trend that has already begun to reshape the banking industry.  The FDIC said total assets held by troubled institutions climbed from $78.3 billion to $115.6 billion — a figure that suggests that the nation’s top 20 banks aren’t on the list, even though they are getting slammed, too, by the growing credit crisis. The FDIC does not reveal the names of the institutions it deems troubled.

According to Hayden Mcbride, a California FHA mortgage lender, “When Mortgage banks like this go down it’s like dropping a bomb in the lending community.”  Mcbride continued, “The remaining lending companies tighten their guidelines each time a bank goes down and after a while the mortgage loan products no longer meet the consumer’s demands.”  “Clearly the mortgage lenders are out of touch with the reality of Joe the homeowner.”  With more and more mortgage lenders providing loan modifications, the refinance market is clearly staggering.

Nine banks failed in the third quarter, decreasing the FDIC’s deposit insurance fund to $34.6 billion from $45.2 billion in the second quarter. This quarter, the pace appears to be picking up — nine banks have already failed since September 30, including Downey Savings and Loan Association, based in Newport Beach, Calif.  “To some extent, a bank failure is a regulatory failure,” Ely said. Regulators, if they address bank problems early on, can convince a troubled bank to sell off assets, raise capital or find a buyer, he said. “My hope is they’re moving faster on these problems.”

James Chessen, chief economist at the American Bankers Association, said in a statement that the banking industry as whole, however, “remains well-positioned to meet the credit needs of local communities.” Since last year, bank lending to businesses has risen by more than 8%, while bank lending to individuals has risen by nearly 7%, he said.  The U.S. government has been guaranteeing and buying more and more types of debt in an effort to keep the financial system functional. Late Sunday, Citigroup Inc. got a government backstop for $306 billion worth of mortgage loans and other assets. On Tuesday, the Federal Reserve agreed to buy up to $600 billion in mortgage-backed assets.

The action, announced late Sunday by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., is aimed at shoring up a huge financial institution whose crash would deplete the already traumatized financial system.  “With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy,” the three agencies said in a joint statement. “We will continue to use all of our resources to preserve the strength of our banking system and promote the process of repair and recovery and to manage risks.”  Citi announced last week that they would be providing loan modifications to thousands of their customers who had mortgages with adjustable interest rates.

The U.S. government announced plans to bail-out Citigroup, who holds the mortgage notes of hundreds of billions of dollars in possible losses at the stricken bank and to plow a fresh $20 billion into the company.  The mortgage lender has been struck hard home loan defaults and foreclosures from high-risk mortgage loans lent to borrowers with bad credit or no income documentation.  The company has not showed a profit in any of the last 4quarters and has announced plans to cut thousands of jobs.

The debate continues to heat up over the future of Fannie Mae and Freddie Mac as the two government-backed mortgage companies struggle with heavy losses and investors continue to shy away from their debt even and the foreclosure crisis continues to deepen.  Fannie and Freddie “are teetering on the brink” as losses increase and borrowing costs rise, Jerry Howard, chief executive of the National Association of Home Builders, said in an interview. He called for the government to explicitly guarantee their debt and for Congress to quickly come up with a new structure and better-defined role for Fannie and Freddie.

Some banks have had an uneasy relationship with Fannie and Freddie, would like to see them disappear, at least in their current form. One idea being discussed among bankers is to replace Fannie and Freddie with several lender-owned cooperatives that would package mortgage loans into securities. Under this idea, the U.S. Treasury would get fees for backing up those securities if losses reached catastrophic levels.  In prepared remarks for a speech in Detroit on Tuesday, Bank of America Corp. Chief Executive Kenneth Lewis called for scrapping the business model of Fannie and Freddie. He said the U.S. should “move in the direction of a system that relies more on private-sector institutions,” without government guarantees, to channel money from investors to home mortgage lenders.

Watch Steve Forbes Video Discussing Fannie Mae, Freddie Mac & the Mortgage Meltdown.  

In the short term, though, Mr. Lewis said the government should make its backing of Fannie and Freddie “more explicit” to boost investor confidence and push down mortgage interest rates.  The Mortgage Bankers Association, a trade group, will host a meeting of lenders, real-estate brokers and academics in Washington on Wednesday to discuss how the two companies might be reshaped and how the U.S. could best ensure a steady flow of money into home mortgages.  The meeting comes amid concern that the $11 trillion U.S. residential-mortgage market needs an overhaul rather than a few tweaks.

Bankers have accused Fannie and Freddie of grabbing more than their fair share of profits from the mortgage business, while Fannie and Freddie officials have insisted that banks wanted to gouge consumers with higher mortgage rates.  Any attempt to scrap Fannie and Freddie entirely is sure to lead to a debate. The home builders and the National Association of Realtors both oppose the idea of relying totally on private institutions to provide money for mortgages.  “In times of crisis, the government really needs to step in,” said Lawrence Yun, chief economist of the Realtors. Mr. Howard, of the home-builders group, opposes the idea of nationalizing them, saying that a government agency wouldn’t be nimble enough to keep up with market needs. But he said it might make sense to treat them as tightly regulated public utility companies or as cooperatives owned by mortgage lenders.

The uncertainty over how the companies will be reshaped and even whether they will continue to exist has made many investors wary of buying bonds issued by Fannie and Freddie.  Treasury Secretary Henry Paulson last week said investors can “bank on” the government’s promises to ensure that Fannie and Freddie will pay their obligations. But there is no explicit federal guarantee of Fannie and Freddie debt, and investors, especially those overseas, are less willing than in the past to accept “implied” guarantees or oral promises.  Because of the ambiguity over government backing for them, investors are demanding higher yields on their bonds, particularly those that mature in 12 months or more. On Tuesday, yields on two-year Fannie and Freddie bonds were 1.67 percentage points above those on comparable Treasury bonds, compared with a spread of just 0.29 point in mid-2007, according to FTN Financial Capital Markets.

On Sept. 6, federal regulators seized control of the management of Fannie and Freddie. At that time, the Treasury pledged to provide as much as $100 billion of capital to each company in exchange for preferred stock. Last week, Freddie said it needs a $13.8 billion cash injection from the Treasury, and Fannie said it may need Treasury funds by year end.  FHA will be releasing a home loan modification product next month to help distressed homeowners.

For the third quarter, Fannie and Freddie reported combined losses of about $54 billion, largely due to the elimination of tax credits no longer expected to be usable.  The incoming Obama administration hasn’t announced any plan for reformulating Fannie and Freddie, though President-elect Barack Obama referred to them earlier this year as a “weird blend” of the public and private sectors.

The U.S. Department of Housing and Urban Development released its first revision to the Real Estate Settlement Procedures Act in 30 years. The new form requires disclosure of yield spread premiums paid to mortgage brokers.  HUD claims the new loan disclosure revisions for a new standardized Good Faith Estimate that HUD estimates will save borrowers about $700.  “For the first time ever, HUD is requiring mortgage lenders and brokers to provide borrowers with an easy-to-read standard Good Faith Estimate that will clearly answer the key questions they have when applying for a mortgage loan,” HUD said.

The current financial crisis began with the collapse of Fannie Mae and Freddie Mac in July. The dominant institutions in the American mortgage market, and among the most powerful institutions politically, became wards of the government in a matter of weeks. What was their fatal flaw?

One popular explanation, often advanced by the GSEs themselves, is their “affordable-housing goals.” In 1992, as part of the Federal Housing Enterprises Financial Safety and Soundness Act, Congress required the GSEs to devote some of their home loan purchases to housing for families in the lower half of the income distribution, and also to families living in areas considered to be “underserved.” Housing for both homeowners and renters is included. Specific %age targets were set on a transition basis; the U.S. Department of Housing and Urban Development was required to revise the targets periodically, by regulation, which it has done 3 times (1996, 2001, and 2005).

The law requires HUD to set goals on the basis of the kinds of mortgage loans the GSEs actually buy — their market — and the importance of lower-income borrowers and underserved areas in that market. Research in the late 1990s showed that the GSEs were already buying the better-quality bad credit mortgages and also low-documentation loans (“Alt-A”), so the goals in 2001 and 2005 included these loans as part of their market.

The home financing goals will then be factored in as %ages of the mortgages the GSEs actually bought between 2001 and 2004, for example, out of every 100 loans they bought, 50 were supposed to be for homeowners and renters in the lower half of the income distribution. This may sound high, but in those years other mortgage lenders, making loans to similar types borrowers as the GSEs, made more than 57% of their loans to lower-income families. Effective in 2005, the goal was raised to 52%, with a further increase to 53% for 2006.

RESPA continues to promote affordable-housing goals, but is that realistic? They let the GSEs off the hook and shift the blame to the Bush administration, at the same time diverting attention from the refusal of congressional Democrats to allow stronger regulation of Fannie and Freddie after their accounting scandals surfaced in 2003. The goals are even blamed by some conservatives, who see them as credit allocation, and overlook the special privileges conferred on the GSEs by their federal charters which create something close to a federally sponsored duopoly in the mortgage financing market.

Chief economist for Moody’s Economy.com, Mark Zandi, estimates that 1.6 million American homeowners will lose their homes this year either in a foreclosure or short sale. Some 1.9 million are projected to lose their homes in 2009.  It is highly unlikely the mortgage banks’ loan modification programs can be as successful as they hope.  For example, IndyMac’s program was launched in late August with the belief that they could modify 40,000 home loans. But in late October, FDIC chief Sheila Bair told a congressional committee that the FDIC had only completed 3,500 loan work outs.  So when considering BofA’s claim that it will help 400,000 Countrywide customers and Chase’s goal of providing mortgage relief to 400,000 borrowers, we must understand that the loss and mitigation departments may not be equipped to fulfill such bold goals.

Still, Bernstein welcomes every effort. “Let a thousand flowers bloom,” he said. “It’s like an experiment and, if we’re smart, we’ll see what plans work and what doesn’t.” Then, the best aspects of the various plans could be applied to as many at-risk mortgages as possible.  But the bottom line is that the bank programs won’t be nearly as effective as any massive foreclosure prevention effort that may yet be implemented by the U.S. government, according to Bernstein.   And there is a possibility that such a program may yet emerge. Congress already enacted its Hope for Homeowners initiative, which will offer borrowers refinance mortgages with loans insured by FHA. Now there is talk of a new $50 billion plan that could bail out as many as 3 million homeowners.  

By now most people understand that we have a significant foreclosure crisis evolving. Hundreds of thousands of people each month are receiving a notice of default that is the first step of the foreclosure process.  The latest numbers from HUD are stunning: For the first 15 days of October only 49 homeowners with delinquent conventional loans were able to refinance with FHA home loans. That’s less than one per state.

Consider that the highly-anticipated new FHA loan program, Hope for Homeowners was going to cure the mortgage refinancing problems? HUD announced on October 2^nd, “The Bush Administration today unveiled additional mortgage loan assistance for homeowners who may be at risk of foreclosure. The HOPE for Homeowners Program will refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new FHA loan insured by HUD’s Federal Housing Administration.”

In fact, the Bush Administration was vehemently opposed to the legislation and just days before it passed was threatening to veto the FHA Loan Reform bill which included the Hope for Homeowners package.  But now FHA mortgage reform has become law. The mortgage law has been effective since July but very few borrowers were able to qualify FHA mortgage applicants. But this refinance program just doesn’t work well for delinquent borrowers because they typically have too many late payments.

HUD recently reports that for the first 15 days of October it had 42 home loan applications and they were unable to approve any of these applicants. Even though the FHA home loan program has a history of helping homeowners with bad credit, the Hope for Homeowner loan is providing very little hope for homeowners who are trying to prevent a foreclosure.