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.

The Mortgage Bankers Association announced that the mortgage refinance gauge decreased to 1,482.2, the lowest reading since November, from 2,116.3 the previous week. The home purchase index fell to 267.7 last week from a two-month high of 280.3.  Unemployment, which touched a 26-year high in May, and rising borrowing costs discouraged homeowners from refinancing, while a growing number of home foreclosures sidelined potential buyers waiting for house prices to stop declining.

The share of home loan applicants seeking to refinance loans plunged to 46.4% of total applications last week from 54%.  The average interest rate on a 30-year fixed-rate mortgage loan fell to 5.34% from 5.44% the prior week. The rate reached 4.61% at the end of March, the lowest level since the group’s records began in 1990.  At the current thirty-year mortgage rate, monthly borrowing costs for each $100,000 of a loan would be $558, or about $62 less than the same week a year earlier, when the rate was 6.33%.  Many loan officers have voiced their concern that market needs to keep conforming and FHA mortgage rates low until the housing sector can recover.

2009 has clearly been a good year for mortgage rates and homeowner, mortgage lenders and brokers have all benefitted from the Federal Reserve’s commitment to lower interest rates.  Which direction will the mortgage rates go from here is anyone’s guess.

Home mortgage rates remain low as the Federal Reserve continues to make moves to keep them that way. Freddie Mac’s weekly rate report says thirty-year fixed-rate mortgages fell to an average 4.82%, down from 4.86 % last week. A year ago, thirty-year mortgages were averaging about 6%. 

Long-term fixed rate mortgage loans are now on par with many adjustable rate mortgages. A one year ARM also averaged 4.82% this week. “Long-term fixed-rate mortgage rates have remained below 5% for the past ten weeks as the U.S. Treasury and Federal Reserve act to keep interest rates low through security purchases,” says Freddie Mac chief economist Frank Nothaft. “The treasury purchased $136 billion in mortgage-backed securities through April and the Fed bought $740 billion through mid-May.”

The Federal Reserve has also purchased $115 billion in Treasury bonds since March. Homebuilder confidence rose this month, according to the National Home Builders Association, despite a drop in housing starts. The decline in construction was led primarily by a continued drop in condo and apartment construction.

The Mortgage Bankers Association also reported this week a continued rise in home loan applications, led by refinancing activity.   Mortgage refinancing now accounts for 74 % of all mortgage applications.

In a recent article, Aleshia Howe considers the impact of low interest rates and the lack of home financing in recent weeks.  Mortgage lenders and consumers alike have watched home mortgage rates tumble to near mid-4 % range before quickly rising above than 5%. As home mortgage rates continue to flirt with 30-year lows, local mortgage lenders say they’re seeing a noticeable spike in refinancing inquiries, but the historic low rates have done little to convince “looky-lue” homebuyers to re-enter the market.

Is now a good time for New Homebuyers to Jump in Because Home Mortgage Rates are low? 

The volatility in the market is expected to hang around. However, with mortgage rates approaching record lows, applications for the week ended Dec. 26, 2008, ran 155% ahead of the mortgage activity seen during the same week in 2007, according to the Mortgage Bankers Association’s weekly survey.    Many mortgage lenders say the rise in applications coincided with another drop in mortgage rates, as the federal government’s efforts to throw a lifeline to the residential mortgage market begin to manifest.  FHA home loan rates remain low and most of the new home loan applications reflect some type of FHA loan product.

According to the MBA’s survey, rates on thirty-year fixed-rate mortgage loans averaged 5.03% last week, down from 5.04 % the previous week.  Mortgage refinancing applications for refinancing made up 82.9% of all applications filed for the week ending Dec. 26, 2008, while the share of applications for adjustable rate mortgages, or ARMs, averaged 0.8%.  Not unlike the refinance boom that occurred during the last economic downturn in 2003, local lenders say their phones are continuously ringing and home refinancing is on most borrower’ minds. The difference between 2003 and now, however, rests in the guidelines.  “Mortgage rates have gone down; they’re not the lowest they’ve ever been, but they are definitely the lowest they’ve been in a while. Of course, these days are tougher than in the old days because of what’s gone on in the past year or so,” said Bob Neville, lender at Franklin Financial Mortgage in Southlake and board member with the Dallas-Fort Worth Association of Mortgage Brokers, or DFWMBA. “Things have tightened up considerably and it’s a whole new ball game, but people with good credit and a little equity are able to get some very nice rates.”

Scott Burdette, managing director of the Dallas-Fort Worth offices of IRR–Residential Valuation Consultants, said his firm also has seen a drastic uptick in refinancing applications for local properties.  “You’ve got willing people, but not all are capable because of new rules,” he said. “But there’s a definite spike and that means at least people are trying to be smart and make sure they’re in the best situation they can be in.”  Read the complete home financing article >

The Federal Reserve moved forward forging their  plan to purchase mortgage bonds issued by Fannie Mae and Freddie Mac on Tuesday, saying it would start buying early next month and purchase up to $500bn (£345bn) by the end of June.  The aggressive tactics – the Fed had previously said it would buy this amount over “several quarters” signifies the central bank’s determination to hammer down the risk spreads on the mortgage bonds and thereby reduce mortgage interest rates.

The Fed said “the program is being established to support the mortgage and housing markets and to foster improved conditions in financial markets more generally”.  The move comes as policymakers at the central bank and in both the outgoing Bush and incoming Obama administrations look to target lower FHA mortgage rates in the hope that lowering them would halt the decline in house prices and thereby support financial asset prices.

Many Washington-based analysts think there is still a chance that Hank Paulson, the outgoing Treasury secretary, will announce plans for low-cost 4.5 % mortgages for new homebuying before leaving office, based on a plan proposed by Columbia University professors Glenn Hubbard and Chris Mayer.  Barack Obama’s incoming economic team is also looking at ways to lower mortgage rates and ensure the availability of mortgage financing. Meanwhile, regulators are considering relaxing rules on mortgage refinancing in order to make it easier for borrowers with existing mortgage loans to take advantage of lower mortgage rates.  The Fed is also focused on two other areas as it seeks to stimulate the economy – financing consumer loans and potential purchases of Treasury bonds. Read complete article written by Krishna Guha >

The number of mortgage loan applications filed nationally rose last week compared with a year ago, according to a report today from the Mortgage Bankers Association. In the week ended December 5th, the trade group’s seasonally adjusted Market Composite Index – a measure of overall mortgage loan application volume – was 796.8 points. That represented a decline of 7% from the 857.7 points of the week ended November. 28th, but an increase of 99.90% from the eight-year low of the week ended November 15 and a year-over-year increase of 2.2%.

The Refinance Index dipped 0.9% last week to 3,767.3 points, after surging 203.3% Thanksgiving week and falling 2.1% the week ended Nov. 21. Mortgage refinancing was the goal of nearly three-quarters of loan applications last week – 73.7% – up from 69.1% in the week ended Nov. 28 and 49.3% in the week ended Nov. 21, the MBA said.   The share of mortgage applicants who were seeking adjustable-rate mortgage loans (ARMs) – rather than conventional fixed-rate home loans – fell to 1.1% last week from 1.4% Thanksgiving week and 3.0 % of applications filed in the week ended November 21st.  

The average contract interest rate for a thirty-year, fixed-rate mortgage dipped to 5.45% last week from the previous week’s from 5.4 %, while the contract interest rate on a fifteen-year, fixed-rate mortgage loan declined to 5.09% from the previous 5.13%. But the average contract rate on a one-year ARM rose to 6.76% from the preceding week’s 6.61% average.   Still, by historical standards, “mortgage applications for purchases remain subdued,” Anna Piretti, a senior economist at BNP Paribas in New York, told Bloomberg News. And, she added, “tighter credit standards suggest actual mortgage lending remains constrained, weighing on sales.”

The Mortgage Bankers Association is a trade group representing the real estate finance industry. Its 3,000 member companies include mortgage firms, commercial banks, thrifts, life insurance companies and others. Additional information, including the MBA’s Weekly Application Survey, is available at www.MortgageBankers.org.

MBA cites the Federal Reserve’s bailout of Fannie and Freddie for plummeting rates, with refinancing leading the way.  Mortgage loan applications increased significantly last week, a mortgage bankers’ group said Wednesday, as government bailouts led to sinking interest rates that made mortgage refinancing especially more attractive.  

According to Kelly Media Group president, Jason Cardiff, “Clearly lower mortgage rates are good for starving brokers and ultimately, low interest rates will help revive the economy.  Cardiff continued, “The important thing to note is that the Fed and the mortgage lenders are making changes, something they have not been doing enough of.”

Conforming mortgage rates have been the primary benefactor of the Federal Reserve’s influence. The average for a conforming 30-year fixed rate mortgage slipped to a weekly average of 5.57%, down considerably from an October 15 recent peak of 6.75%, and well below the 6.06% seen on the date of the announcement. As well, the 10-day string of rates below 6% represents the longest such string since February.  Read the complete article > Mortgage Loan Application Activity Surges.

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?