Mortgage Lenders Nationwide

Recent government initiatives to stem the nation’s looming home foreclosures are hampered because banks and other mortgage lenders in many cases have more financial incentive to let homeowners lose their property in  aforeclosure than to work out a loan modification agreement, some economists have concluded.   Policymakers often say it’s a good deal for home loan lenders to cut borrowers a break on mortgage payments to keep them in their homes. But, according to researchers and industry experts, foreclosing can be more profitable.   The problem is that loan modifications is profitable to banks for only one set of distressed borrowers, while home loan lenders are actually dealing with three very different types. Loan modification plans make economic sense for a bank or other lender only if the borrower can’t sustain payments without it yet will be able to keep up with new, more modest terms. A second set are those who are likely to fall behind on their home loan payments again even after receiving a loan workout and are likely to lose their homes one way or another. Mortgage lenders don’t want to help these borrowers because waiting to foreclose can be costly. 

Finally, there are those delinquent borrowers who can somehow, even at great sacrifice, catch up without a modification. Lenders have little financial incentive to help them.   These financial calculations on the part of lenders pose a difficult challenge for President Obama’s ambitious efforts to address the mortgage crisis, which remains at the heart of the country’s economic troubles and continues to upend millions of lives. Senior officials at the Treasury Department and the Department of Housing and Urban Development have summoned industry executives to a meeting Tuesday to discuss how to step up the pace of loan relief. FHA has already added a new mortgage loan modification alternative to the traditional FHA refinance loans, for borrowers whose mortgages are greater than the value of their property.  The administration is seeking to influence lenders’ calculus in part by offering them billions of dollars in incentives to restructure mortgages and home loans. Still, foreclosed homes continue to flood the market, forcing down home prices. That contributed to the unexpectedly large jump in new-home sales in June, reported yesterday by the Commerce Department.   “There has been this policy push to use modifications as the tool of choice,” said Michael Fratantoni, vice president of single-family-home research at the Mortgage Bankers Association. But “there is going to be this narrow slice of borrowers for which modifications is the right answer.” The size of that slice is tough to discern, he said. “The industry and policymakers have been grappling with that.”   The effort to understand the dynamics of the mortgage business comes as the administration is begging lending companies to extend additional mortgage refinancing to help borrowers under its Making Home Affordable plan, which gives lenders subsidies to lower the payments for distressed borrowers. According to RealtyTrac about 200,000 homeowners have received modified loans since the program launched in March, while more than 1.5 million borrowers were subject during the first half of the year to some form of foreclosure filings, from default notices to completed foreclosure sales.

No doubt part of the explanation is that lenders are overwhelmed by the volume of borrowers seeking to modify their mortgages. Rising unemployment and falling home prices have added to the problem.   But a study released last month by the Federal Reserve Bank of Boston was downbeat on the prospects for widespread modifications. The analysis, which looked at the performance of loans in 2007 and 2008, found that lenders lowered the monthly payments of only 3 % of delinquent borrowers, those who had missed at least two payments. Lenders tried to avoid modifying the loans of borrowers who could “self-cure,” or catch up on their payments without help, and those who would fall behind again even after receiving help, the study found.   “If the presence of self-cure risk and re-default risk do make renegotiation less appealing to investors, the number of easily ‘preventable’ foreclosures may be far less than many commentators believe,” the report said.

Nearly a third of the borrowers who miss 2 payments are able to self-cure without help from their home loan lender, according to the Boston Fed study. Separately, Moody’s Economy.com, a research firm, estimated that about a fifth of those who miss three payments will self-cure.

When Adrian Jones fell behind on the mortgage payments for her Dallas home earlier this year, her lender asked her to cut other expenses. Jones said she eliminated movies and coffee breaks. She turned to family members for loans. When that failed to raise enough, she sold her second car.   “It hurt, but it also made sense. The debt was my responsibility,” Jones said.   But six months later, after catching up on the mortgage, Jones is again feeling pinched after her hours as an office assistant at an architecture firm were cut. This time, she’s not sure she can fix the problem herself.   “I am going to try, obviously,” she said. “But it is getting harder and harder.”   Like Jones, those who are most determined to meet their obligations are often unlikely candidates for loan modifications.   “These are the people who will get a second job, borrow from their family to keep up,”

Mortgage lenders also worry that borrowers may re-default even after receiving a home loan modification. This only delays foreclosure, which can be costly to the lender because housing prices are falling throughout the country and the home’s condition may deteriorate if the owner isn’t maintaining it. In some cases, lenders lose twice as much foreclosing on a home as they did two years ago, said Laurie Goodman, senior managing director at Amherst Securities.  

American Home Mortgage Services, based in Texas, was willing to modify Edward Partain’s mortgage on his Tennessee home last April after business at his beauty salon slowed and a divorce stretched his budget. But after months of negotiating with his lender, Partain said he was surprised to learn that it would only lower his payments by $90 a month, instead of the $250 decrease he expected.   “At $250, I would have had a chance, but after they added in late fees and payments, I couldn’t do it,” he said.   Partain soon fell behind on his payments again and went back to American Home Mortgage Services seeking a more affordable payment. Partain said he was told that he was ineligible for another modification because it had been less than a year since his last. A foreclosure sale was scheduled for late July. After American Home Mortgage Services was contacted by The Washington Post about the case, the company said Partain would be considered for the federal foreclosure-prevention program and it delayed the sale by three months. Partain is relieved but anxious about the details. “You want to wait and see what figures they come up with,” he said.   Administration officials have not said publicly how many borrowers they expect to re-default under Obama’s program.   But the experience of a separate program run by the Federal Deposit Insurance Corp. could be instructive. After taking over the failed bank IndyMac last year, the FDIC began modifying troubled mortgages held or serviced by the company. Richard Brown, the FDIC’s chief economist, said the agency expects up to 40 % of those borrowers to re-default.   Even at that rate, he said, the modification program is more profitable than doing nothing. “The idea that 30 to 40 % re-default is a failure to a program is false,” Brown said.

According to a recent Inman News article, Closing.com, an online portal that enables consumers, mortgage consultants and real estate professionals to comparison-shop for settlement services online, says it will display cost estimates in the format required on the standardized Good Faith Estimate before mortgage lenders were required to use that form back on January 1st.

By the 4th quarter of this year, borrowers using Closing.com will be able to submit a “pre-GFE” to home loan originators, allowing for more reliable estimates of closing costs, the mortgage technology company said in announcing the launch of a 2.0 version of its Web site in beta testing.

In a recent NAR survey of Realtors, the report indicated that 85% home buyers appeared to be disinterested in the higher-end real estate market because they can’t get jumbo mortgages or didn’t want to pay higher mortgage interest rates.  Although NAR’s re Regulators said the stress tests showed 10 of the nation’s 19 largest banks needed to raise $74.6 billion in capital between them. The banks regulators said must raise the largest sums — Bank of America ($33.9 billion), Wells Fargo ($13.7 billion) and GMAC ($11.5 billion) — are big players in mortgage lending.

In general, the need to raise capital can constrict new home mortgage lending, because new home loans create additional capital requirements. Regulators base mortgage lenders’ capital requirements, in part, on the dollar amount of mortgage loans outstanding, and projected losses on those home loans and other investments. The results of the stress tests shouldn’t have any impact on conforming mortgages, because lenders can sell the loans they originate to Fannie and Freddie, said Tom Kelly, a spokesman for Chase, the consumer and commercial lending business of JPMorgan Chase & Co. Kelly said conforming home loans have made up more than 90 % of Chase’s originations in recent months.   “In terms of whether to do more jumbos or not, it’s a decision about pricing, risk and whether holding jumbo mortgages on your balance sheet is the best use of your capital,” Kelly said. “The secondary market for jumbo mortgage loans has not returned at all, so each individual bank has to decide, one, do they have the capital, and two, do you want to use that capital?”

The Federal Bureau of Investigation would get funds to boost the ranks of agents investigating mortgage fraud and predatory lending under a budget blueprint unveiled by the Obama administration Thursday. The Department of Housing and Urban Development would also receive increased funding to crack down on fraudsters and mortgage lenders who prey on home buyers and refinancing borrowers.  The funding increases come amid evidence of rising incidence of mortgage fraud, perhaps the result of increased scrutiny of illegal or predatory practices amid the housing meltdown.

Suspicious activity reports filed by financial institutions on suspected mortgage fraud increased 44% in the 12 months ending in June 2008 compared with the prior year, the Financial Crimes Enforcement Network, a U.S. Treasury unit, said this week. The White House budget blueprint doesn’t specify the increase spending sought to combat mortgage fraud. Details of its budget will be unveiled in mid-April.  The White House has proposed a total budget of $47.5 billion for HUD for fiscal year 2010, a $7.4 billion increase over the level contained in a House budget bill approved on Wednesday. The $47.5 billion doesn’t include $13.6 billion in economic stimulus funds devoted to HUD projects and programs, of which roughly $10 billion have already been allocated by the agency.

The Federal Reserve signaled Wednesday that it stands ready to use new unconventional tools, or expand existing ones, to spur lending and consumer spending that could help lift the economy out of a painful recession.  The Fed also agreed to keep the targeted range for the federal funds rate between zero and 0.25% for “some time” to help brace the economy. Economists predict the Fed will keep the funds rate, the interest banks charge each other on overnight loans, at that record low level through the rest of this year. 

Fed Chief Bernanke Endorses Stimulus Package

View the Analysis and Discussion with Former Fed Governor Lyle Gramley.

With its key lending rate to banks already near zero, the Fed pledged anew to use “all available tools” to revive the economy.  Specifically, the Fed said it is “prepared” to buy longer-term Treasury securities if the circumstances warrant such action. At its previous meeting in December, the Fed said it was merely evaluating that option. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, was the sole dissenter on this point. He wanted the Fed to move forward on buying the securities.  Doing so would help drive down mortgage rates and provide help to the stricken housing market, economists said.  Mortgage lenders continue to report interest rates in the 5% range for 30-year fixed home loans.

For example, many thirty-year mortgage loans featuring fixed interest rates are targeted to the 10-year Treasury note. If the Fed were to buy that security, it would push down rates on home mortgages connected to it. The same logic would apply to other Treasury securities.  “So many consumer rates are pegged to Treasury rates — homes, cars,” said Joel Naroff, president of Naroff Economic Advisors. “If the economy is to recover, consumers need to borrow and need to borrow at reasonable rates. The Fed made clear that it is prepared to make that happen.”  The Fed also said it “stands ready” to expand another program aimed at providing relief to the crippled mortgage market.

Under that program, the Fed is buying up to $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. It also has agreed to buy up to $100 billion of Fannie and Freddie debt.  Mortgage interest rates have fallen since the program’s announcement late last year. The Fed said it could buy more of these bad credit mortgage securities or extend the length of the program.

The Fed on Tuesday took measures to stem home foreclosures as required by a 2008 law. The relief would apply to mortgage assets the Fed is holding because of last year’s bailouts of Bear Stearns and insurer American International Group. Distressed borrowers could see the amount they owe on their home loan lowered or their interest rate reduced, among the options for help.  But borrowers have no way of knowing whether their mortgage loans are held by the Fed, because their loan payments are collected by other companies, known as loan servicers.

The central bank also will be launching a program aimed at bolstering the availability of consumer loans. Under the program, which is expected to start in February, up to $200 billion will be made available to spur auto, student and credit card loans as well as loans to small businesses. To do that, the Fed will buy securities backed by those different types of consumer debt. The Fed also hopes that action will lower rates on those loans.

The Fed said Wednesday that it will assess whether the program should be expanded in size or scope. Fed officials previously have mentioned the possibility of expanding the program to provide financing for other types of securities, such as those backed by commercial mortgages.

Fed Chairman Ben Bernanke and his colleagues are battling a three-headed economic monster: crises in housing, credit and financial markets that — taken together_ haven’t been seen since the 1930s. Despite the Fed’s aggressive rate-cutting campaign, a string of radical Fed programs and a $700 billion financial bailout program run by the Treasury Department, credit and financial markets are still stressed and far from normal. “Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight,” the Fed said. Homeowners need quick mortgage relief with loan modification programs that guarantee homeowners affordable home loan terms.

Warning that the nation is at a “perilous moment,” President Barack Obama made a fresh plea to Congress Wednesday to enact a $825 billion package of increased government spending and tax cuts to stimulate the economy. The recession, now in its second year, could turn out to be the longest since World War II.   The nation’s unemployment rate bolted to a 16-year high of 7.2% in December and could hit 10 % or higher at the end of this year or early next year. A staggering 2.6 million jobs were lost last year, the most since 1945, though the labor force has grown significantly since then. Another 2 million or more jobs will vanish this year, economists predict.

Against that backdrop, the Fed raised the specter of deflation — but didn’t use the word. The Fed saw a risk that “inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.”  With jobs disappearing, home values tanking, foreclosures soaring and nest eggs shriveling, consumers have sharply cut spending. That, along with the housing collapse, has played a big role in causing the economy’s backslide. Many economists predict data will show the economy contracted at a pace of 5.4% in the final three months of last year when the government releases the gross domestic product report Friday. If they are correct, that would mark the worst performance since a drop of 6.4% in the first quarter of 1982, when the country was suffering through a severe recession. The economy is still contracting now — at a pace of around 4%, according to some projections.

Greg McBride from BankRate discusses the mortgage meltdown and Suzy Orman give their different points of view on the Federal Reserve’s rate cuts and how it helps the homeowners, consumers and mortgage lenders!  Mortgage interest rates remain low for conforming and FHA home loans.

Mortgage rates are beginning to show some positive results for rebuilding the mortgage industry.  Record low mortgage rates have spurred a surge in homeowners wanting to refinance. According to a report from Mortgage Bankers Association, over 85% of new home loan activity involved refinancing applications.

Mortgage lenders are swamped by the giant wave of mortgage refinancing requests.  Many have shed staff the past couple of years as the housing market slumped. Now they lack the manpower to quickly process refinancing requests.  “Lenders aren’t prepared for the surge,” says Mark Zandi of Moody’s Economy.com.   Some mortgage lenders are even hiring more people to accommodate the growing demand for refinancing.  Read the complete article online. Mortgage Refinancing Activity Skyrockets.

Wells Fargo & Co. announced Thursday the completion of its merger with Wachovia Corp., resulting in a monstrous distribution system for financial services with 1.4 trillion in assets and 11,000 stores nationwide servicing 48 million banking households and employing 276,000 employees.

The Board of Governors of the Federal Reserve approved the merger in mid-October following a debacle between Citigroup Inc. and Wells Fargo over which suitor would acquire Wachovia’s banking operations — Citi pulled out of talks after four days of discussion on splitting Wachovia’s assets.  Get the Mortgage News as it happens>

As of Thursday, customers of Wells Fargo and Wachovia were granted access to use all the company’s 12,260 combined automated teller machines.  Pat Callahan, an executive vice president and head of the Company’s merger transition, said Wachovia customers will continue to see the Wachovia brand in their banking stores and communities for the near future. “The key to a successful integration will be our ability to provide outstanding customer service throughout the integration,” said Callahan. “So we’re going to take our time and do this right. Wells Fargo and Wachovia customers should continue banking as they do today…”  Wells Fargo continues to be one the most respected mortgage lenders nationwide.

At closing, Wells Fargo acquired all outstanding shares of common stock of Wachovia in a stock-for-stock transaction. Wachovia shareholders received 0.1991 shares of Wells Fargo common stock in exchange for each share of Wachovia common stock they owned. Shares of each outstanding series of Wachovia preferred stock were converted into shares or fractional shares of a corresponding series Wells Fargo preferred stock, having substantially the same rights and preferences, Wells Fargo said in a press statement.  Read the Complete Bank Merger Article >

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.

Senator John McCain introduced a new plan during the second presidential candidates’ debate on Tuesday night that he believes will rescue the housing market and bolster the economy.  The McCain plan, dubbed the American Homeownership Resurgence Plan, would allow the Secretary of Treasury to buy up bad home mortgage loans, convert them into low-interest FHA-insured loans, and reset the loan principal (therefore decreasing monthly payments) based on a decrease in the value of the home.  The McCain camp thinks his plan will save homeowners from foreclosure.

The plan is aimed at helping those 1 in 6 Americans that are now upside down in their mortgages due, in part, to sinking home values.  McCain’s home financing plan would give these people a chance to refinance based on the current value of their home.  McCain’s plan would be paid for by U.S. taxpayers under funding that’s already been approved in the $700 billion bailout.  According to Scott Hess, former WMC executive, “Americans need a new alternative to refinancing, because sadly, most homeowners do not qualify to refinance their home because of tightened lending guidelines nobody anticipated.”  Hess continued, “At least with a loan modification, homeowners can restructure their mortgage with a fixed rate and a payment that they can afford.”

Opponents, say his proposal are unfair to homeowners who are paying their mortgage loans every month, and that it’s a bad financing decision.  Scott Messina, believes McCain’s plan is a place to begin, but it’s likely won’t solve the mortgage crisis. “It’s a step in the right direction because it attempts to address the issue of rising foreclosures,” said Messina.  “However, it’s important for market stability that those people who are paying their mortgages on time and don’t need a bailout are not penalized.”

“Where’s the incentive for homeowners on the brink to do the right thing?  If everyone else is getting a bail out with no repercussions, then why should you continue to struggle?” questioned Messina. Under Messina’s plan, the Congress would pass legislation that provides for a new FHA mortgage loan program, the 203S, or the 203 Save program that would be sold as Ginnie Mae securities just like many FHA loans are now and would carry the current guarantee by the U.S. Government.  All 203S mortgages would only offer fixed mortgage rates only available to homeowners currently facing 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.

In a recent article, Barry Habib, CEO of the Mortgage Market Guide talks about the challenges mortgage lenders and brokers have with their clients after the Federal Reserve lowers key rates.  Mortgage lenders in every state report similar challenges after Fed meetings.  Claudio Pereida, a mortgage broker in Orange County said, “every time the Fed lowers the rates, my clients call me and expect their mortgage in process to have the rate reduced.”  He continued, “locked or unlocked borrowers really believe that if the Fed lowers interest rates that their rate showed be dropped as well.”  He tries to explain to them that it doesn’t work that way but the customers seem to feel that they aren’t being treated fairly.  Many refinancing borrowers call their loan officer and demand a rate reduction.  Many patient homeowners are perplexed as to why mortgage refinancing rates have not dropped during Fed’s last six rate cuts.

According to Bryan Dornan, a mortgage banker from California, “In most cases, the home lenders anticipate the Fed cutting the rate and actually lower the rates prior to the Federal Reserve meeting and announcing the key rate discounting.” This can be challenging to explain to borrowers who have watched a three point reduction by the Federal Reserve yet have no positive effect on mortgage rates for refinancing purposes.  How many mortgage lenders and brokers out there have lost borrowers with loans in process for similar issues?

The Federal Reserve meets today to discuss the economy and key interest rates that significantly affect credit and mortgage rates. It is widely anticipated that the Fed leave the key interest rates at 2%, which would keep the prime-lending rate for consumers at 5%.  The Federal Reserve has signaled that its next move on interest rates is likely a hike but when the Fed changes directions remains unclear. Several Maryland FHA Mortgage Lenders indicated in a recent article that, rate and term refinancing has declined for conventional loans but has increased slightly for FHA streamline refinance loans.  According to Drew Mchale, “FHA streamline business is very volatile, because if the interest rates rise at all, then borrowers typically back out of the loan, because the benefits disappear.”

Charles Plosser, president of the Federal Reserve Bank of Philadelphia, last month said the Fed probably will need to boost rates “sooner rather than later” even if employment and financial conditions haven’t revived.  Richard Fisher, president of the Federal Reserve Bank of Dallas, opposed the Fed’s decision in June to leave mortgage rates unchanged. He said he preferred a rate increase then to fend off inflation.  Mortgage lenders eagerly await the Fed’s next moves.