Mortgage NewsCharlie Lyons elaborates further on the opportunity available for investors to purchase defaulted home mortgages and the roots of the foreclosure crisis.
The housing crisis came as a result of the subprime mortgage meltdown and subsequent banking crisis. FHA mortgage lenders have been trying to help homeowner recover with FHA loan programs like FHASecure and Hope for Homeowners, but they have not been able to slow the loan delinquencies and sliding home values.
The mortgage industry and the home financing guidelines have a long way to go before the credit markets will be out of trouble, but the road to recovery may be in sight as today we witnessed historic interest rates cut that sparked financial rallies worldwide. The Dow Jones industrials surged 360 points and broader indexes rose over 5% after the central bank said it will utilize “all available tools” to boost the financial systems of our economy. They also set its target for the interest rate at which banks lend to each other to a range of 0% to 0.25%, the lowest level on record.
Wall Street reacted positively with markets soaring Tuesday after the Federal Reserve’s historic decision to cut key interest rates again while providing considerable support to offer mortgage relief to the battered economy. According to Mortgage Rate News, the Fed cut led to mortgage lenders across the nation to reduce home mortgage rates as low as 5% for thirty-year fixed rate mortgages for conventional loan types.
The demand for long-term government bonds rose and caused yields to reach historic lows. The federal government made additional promises to promise to continue to buy bad credit mortgages in an effort to revive the struggling housing markets. Mortgage Brokers Network executive, Steve Park said, “The government commitment to protect struggling borrowers with new FHA loan program opportunities like, Hope for Homeowners should help restore consumer confidence and mortgage lending.”
According to Kelly Media Group president, Jason Cardiff, “The fact the lenders are willing to provide loan modifications to homeowners that do not qualify for traditional or FHA refinancing is simply remarkable.” Cardiff continued, “The interest rate cut by the Fed clearly signals a monumental step by the U.S. to restore trust in our financial systems that should spur more market recovery globally.” With Obama being nominated early in 2009, we can expect quick action from the President for predatory lending reform, government insured mortgage modifications and significant incentives for lenders who cooperate with short refinance loans, loan work-outs and additional foreclosure prevention measures.
Today the Treasury and the Federal Reserve are announcing a facility to finance issuance of non-mortgage asset-backed paper in order to support lending to consumers and small businesses which is vital to our economy. Issuance of ABS in these areas reached $240 billion in 2007, but credit market stresses led to a steep decline in the third quarter of 2008, and the market essentially came to a halt in October. As a result, millions of Americans cannot find affordable financing for their basic credit needs. Credit card rates are rising, making it more expensive for families to finance everyday purchases. This lack of affordable consumer credit undermines consumer spending and as a result weakens our economy. Mortgage rates remain low, but the need for more obtainable credit has become more evident. FHA loan programs continue to offer new opportunities for existing homeowners to refinance and new home-buyers to finance homes.
To address this need and support the return of consumer lending, the Treasury will provided 20 billion of credit protection to the Federal Reserve in connection with its $200 billion term asset-backed securities loan facility. By providing liquidity to issuers of consumer asset-backed paper, the Federal Reserve facility will enable a broad range of institutions to step up their lending, enabling borrowers to have access to reduced cost consumer finance, military home financing and small business loans. Read more of Paulson’s speech at Paulson Announces Mortgage Loan Programs with More Credit
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 2nd, “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.
One positive note to the Countrywide Financial. loan debacle it is that Bank of America now manages the Countrywide loan portfolio and is moving to restructure mortgages as part of an $8.4 billion settlement with three states. With all the news of mortgage lenders working to help troubled borrowers keep up their payments and avoid foreclosure, very few homeowners in these high-cost, risky mortgages have benefited. Bank of America’s agreement with the attorneys general of California, Illinois and Florida isn’t a “we’ll see what we can do” settlement. It’s a must-do resolution of civil lawsuits that could affect 390,000 borrowers.
The B of A program would help homeowners through refinance mortgages into a government-backed FHA loan program, reduce interest rates on adjustable or fixed-rate mortgages or extend low introductory rates so that people aren’t forced into foreclosure because of a rate reset. The goal is to keep home loan payments to about 34 % of a homeowner’s monthly income. That’s reasonable and, we hope, realistic. A Bank of America spokesman says the bank will roll out the foreclosure prevention program to all fifty states, beginning December 1st. An estimated 87,000 Maryland homeowners could potentially benefit, the spokesman said, and state Attorney General Douglas F. Gansler should push to get Maryland involved if a program review shows it would benefit state residents.
As it is, there have been too few initiatives that have delivered real relief for homeowners facing home loan defaults. The state’s efforts, for example, have had limited impact despite increasing to twenty eight the number of housing organizations providing counseling services for refinance loans. According to state figures, state-sponsored mortgage rate modification programs have led to sixty nine mortgage refinances with sixteen16 more pending. In the past eighteen months, at least 8,100 homeowners committed to refinance mortgages to get a better, more stable rate.
But the foreclosure picture here remains sobering. The Mortgage Bankers Association put the number of homes facing foreclosure just this spring at 18,000. Another 65,000 homeowners were late on their payments. Promises to help homeowners avert foreclosure haven’t amounted to much. The attorneys general of California, Florida and Illinois used the power of the law to go after alleged predatory lending practices, and the $8 billion settlement is an impressive return.
Diana Golobay wrote an article recently about wo-thirds of homeowners surveyed in September said they met criteria for a mortgage refinancing program available through the expanded FHA mortgage offerings available under the newly-enacted Hope for Homeowners program, according to a media statement issued Monday by the Consumer Credit Counseling Service of Greater Atlanta.
Homeowners at risk of foreclosure or home loan default who called CCCS of Greater Atlanta for foreclosure prevention counseling in July and August were polled by e-mail regarding the requirements. Of the 591 homeowners polled, 381 – or 64.6 % – indicated through their responses that they were eligible to refinance their current mortgage loans into new fixed-rate mortgage insured by the Federal Housing Administration, according to the CCCS of Greater Atlanta statement.
The Housing and Economic Recovery Act of 2008, which became law in July and took effect Oct. 1, created a mortgage refinancing program intended keep homeowners from foreclosure. To qualify, borrowers must indicate they residence in the at-risk home, their mortgage originated before January 2008 and have no existing home equity lines or other second mortgages. Candidates also needed to indicate they do not own another home and they spend 31 % of their gross monthly income on mortgage debt.
“Our survey results indicate this new FHA loan program holds the potential to help a large number of U.S. citizens struggling to pay their mortgage,” said CCCS of Greater Atlanta president Suzanne Boas in the press statement. “Not everyone will be able to meet the terms. But if someone meets the basic criteria laid out in the housing bill, it would be worth a phone call to their lender to ask about the FHA refinance program.” For the 35% of homeowners polled who indicated multiple loans or second mortgages on the at-risk property, eligibility for the refinance program must wait until all 2nd mortgages or home equity loans are paid off. “Loan modifications could be difficult if the 1st and 2nd mortgage are held by different lenders because only the primary mortgage qualifies for the FHA program,” CCCS of Greater Atlanta said.