Word “slipped” out of Washington last week that the Obama administration is considering allowing homeowners with FNMA, FHLMC & FHA mortgage loans to refinance them at a 4%, 30 year fixed rate. 

Understand, that nothing “slips” out of Washington and this was basically the administration’s attempt to “test market” the idea.  If the feedback was negative, Obama could claim it was never his idea in the first place and never discussed seriously.  If the idea was well received the Obama administration would move to put it into action.  The jury’s still out on how well the idea has been received.  Homeowners obviously love it, academics & economists hate it.  Neither really matters as Obama only wants to know what Wall Street and the Banks think and if the idea will lead to them supporting him for re-election.

What’s Obama’s reason for considering this move at this time?

Purely a re-election ploy of course. 

He could have fostered this same plan back in 2009 when he announced HARP, HAMP and a host of other acronym programs to help underwater homeowners.  He didn’t then because he was riding his popularity wave from just being elected.  Now, his popularity at the polls is at it’s lowest, but more importantly, Wall Street isn’t too keen on supporting him for re-election next year. 

So, first and foremost, this plan is all about increasing public support and thereby “encouraging” Wall Street to back him again.

Analyzing the 4% Refinance Plan

Now that the political truths have been covered, let’s look at the plan itself, who it’ll affect and what ripples it will cause.

Who the Plan Will Help

With mortgage rates in the neighborhood of 4% already (disclaimer: you’ll need to pay points to get down that far at this time) many homeowners already have access to the rate Obama is offering.  Through HARP (Home Affordable Refinance Program), even homeowners with a mortgage balance up to 125% of what there home is worth have access to the 4% rate Obama is peddling.  Of course, Obama the politician never tells anyone about the risk-pricing that comes with HARP.  Meaning that if you owe more than 100% of what your home is worth and want to refinance to lower your interest rate & payment, you’ll have to pay a either a higher rate or higher fees than the rest of the market.  Don’t you like how they always leave that part out?  Shouldn’t Obama have to follow Truth-in-Lending disclosure statutes like everyone else? 

So who is this plan really going to help?  The homeowners that don’t qualify for HARP.  These are homeowners that owe more than 125% of their home’s current value, or can’t qualify for a refinance due to credit, income or liquid asset issues.  The question is, which of these will the Obama plan address? 

The easiest roadblock to refinancing to address is the appraisal issue.  Allowing an upside homeowner, that’s still got good credit and income, to refinance will cause the least amount of negative backlash from academics and economists.  We made this point several times when HARP was first announced.  FNMA & FHLMC were by that time taken over by the federal government, so the government really owned their mortgages.  The government has always insured FHA mortgage and owned VA mortgages and guess what?  Both FHA & VA allow homeowners to refinance without having to get a new appraisal – which means it doesn’t matter how upside down a homeowner is, they can still refinance.  Why Obama introduced HARP and only allowed homeowners owing up to 125% to be eligible is still a mystery that makes no logical sense.  It must mean then it was done for political reasons.

I don’t think the plan will allow those with significant credit issues to refinance.  The backlash would be quite large if people that weren’t paying their bills were allowed access to this plan.  The cutoff for qualifying would be ths same as it is now – around a 660 FICO score.  A better option for homeowners with credit issues would be a HAMP (Home Affordable Modification Program) loan modification.  Don’t get us started on the realistic chances of actually getting a loan modification under HAMP.  Read our other posts about that.

Allowing homeowners with good credit, but unable to prove enough income to qualify for the plan sounds like a logical idea – if they’re making their payments, they must have income somewhere.  The problem is the new Dodd-Frank statutes make it very difficult for a lender to give a borrower a loan they don’t demonstrate the income to qualify for.  But, hey this is Obama’s idea and he’s never let laws stop him from doing what he wants before!  Of course, the same can be said of many past Presidents also – another topic for another day.

Homeowners without the liquid assets to pay for closing costs are the last problem-children to discuss.  Many are living paycheck to paycheck and would welcome the extra savings per month a refinance could offer.  They could be allowed to roll the costs into their new mortgage, making them even further upside down.  Never underestimate the greed of some banks and lenders when it comes to refinance generated revenue.  A cap on the amount that could be rolled would have to be put in place to allow these homeowners to participate.  Even then, a few crooks will find a way around the system and screw a few thousand homeowners.

Of course, we can’t ignore that the 4% Obama Refinance Plan will help everyone in the mortgage refinance business by boosting their income for a period of time.  Loan originators, underwriters, mortgage staff, banks, appraisers, title companies, mortgage service providers, etc., will all think it’s the “good ol’ days” again in the mortgage biz.

Who the Plan Will Hurt

The winners were fairly obvious, but there will also be losers. 

The biggest will be those holding the current mortgages and getting the interest from them.  They’ll lose money every time a homeowner pays off a mortgage with a rate higher than the Obama 4%.  Who are these people & entities?  Banks, Wall Street investors, retirement funds, insurance funds, and oh, wait – our own federal government!

Huh?  How can Obama’s 4% Refinance Plan hurt the federal government?  Well, remember TARP and its sister bailout programs?  Our own wonderful Mr. Ben Bernanke & his Federal Reserve empire now owns around $900 billion of Mortgaged Backed Securities (MBS).  On top of that, remember above that we mentioned the federal government now owns FNMA & FHLMC, the biggest issuers of MBS?  They own almost $1.5 trillion worth of MBS they never sold off to investors. 

This is actually a very important matter.  Think of it this way, the federal government is receiving the interest from the $2.4 trillion in mortgages mentioned above.  Most of these mortgage have rates over 4.5%.  Compare this interest income to the interest rates the federal government is paying to borrower - the rates on the 30 year bond and 10 year T-Bills.  As of the writing of this article the 30 year bond was trading under 3.5% and the 10 year was around 2%.  What this means is that our government is borrowering at a lower rate than it’s receiving on the MBS it owns and this moey is helping our budget deficit.  Allowing the entire $2.4 trillion portfolio to refinance to a lower rate of 4%, will increase the federal deficit. 

Bet you didn’t see that coming!

Wall Street and institutional investors will experience losses in the same way explained above for our federal government.  For those who think it’s all fine and dandy to screw Wall Street and the Too-Big-Too-Fail Banks that caused the housing crisis (by the way, we’d like to see some of them in jail), don’t think it won’t hurt homeowners also.  Wall Street & Banks will lay workers off, cut interest rates they pay on deposits even more and homeowner retirement plans will have lower annual returns.  These are just a couple of the ripple effects.

The Economic of the Plan – Is it a Good Idea?

What a loaded question!  The Obama 4% Refinance Plan will be good for some, bad for others as briefly outlined above. 

Evaluating the plan should depend on comparing who it helps and who it hurts, along with what the overall effect on the economy will be.

Boiling it down the plan will put more money in the hands of homeowners – many who are struggling with unemployment, underemployment, high debt and are just hanging on.  Any benefit to homeowners will come at a cost to the federal government, Wall Street, institutional investors and the retirement plans of the those same homeowners. 

Will any of this improve the country’s employment issues?

How many homeowners will the plan save from foreclosure?

What effect will the plan have on growing the economy?

The answers are beyond our expertise.

So many homeowners want principal reductions, but are told they can’t have them.  A select few though, don’t even have to ask to get them…

Your a homeowner struggling to make your payments on a home your hopelessly upside down on.

Every time you make a payment you ask yourself why you’re continuing to throw good money after bad.  You consider stopping your payments and just letting the home go to foreclosure like several of your neighbors, friends, co-workers, etc. have (we ALL know someone who’s done it!).

You could use the mortgage payments to payoff other debt, save up for a down payment on a new home in your spouse’s name (if they’re not on the current mortgage) or another “angel” relative or you could just rent something for almost half what your mortgage payment is.

If only your mortgage servicer would cut you a break…

While YOU may stand little chance of getting the balance of your mortgage cut, others are getting their mortgage balances cut without asking.

Here’s a story by David Streitfeld at the NY Times: Big Banks Easing Terms on Loans Deemed as Risks

Two of the nation’s biggest lenders, JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk.

Rula Giosmas is one of the beneficiaries. Last year she received a letter from Chase saying it was cutting in half the amount she owed on her condominium.
…
Banks are proactively overhauling loans for borrowers like Ms. Giosmas who have so-called pay option adjustable rate mortgages …

Ms. Giosmas bought her two-bedroom, two-bath apartment north of downtown Miami for $359,000 in early 2006, according to real estate records. She made a large down payment, but because each month she paid less than was necessary to pay off the loan, her debt swelled to about $300,000.

Meanwhile, the value of the apartment nosedived. By the time Ms. Giosmas got the letter from Chase, the condominium was worth less than half what she paid. “I would not have defaulted,” she said. “But they don’t know that.”

The letter, which Ms. Giosmas remembers as brief and “totally vague,” said Chase was cutting her principal by $150,000 while raising her interest rate to about 5 percent.

Think this is a relatively new development?  Wrong.  Wells Fargo was offering a similar program last year, here’s an excerpt from the Bloomberg story:

Wells Fargo has forgiven an average of $46,000 in principal, or 15 percent, for the 43,500 option-ARM loans it has modified this year through September, said Franklin Codel, chief financial officer at the bank’s home-lending unit. The San Francisco-based lender has cut as much as 30 percent off the loan principal in a few “rare exceptions,” with the ceiling typically capped at 20 percent, Codel said.

The obvious question is why are these people getting principal reductions and you aren’t?

The reason is that you do’t have the right mortgage program or mortgage servicer:(

Wells Fargo, Chase and Bank of America are only offering principal reductions on the infamous Option ARM’s they have in their portfolios.

What’s an Option ARM you ask?

It’s a mortgage program where the payment amount and interest rate are disconnected.

With most mortgage programs if the interest rate changes, the payment also changes.  Most Adjustable Rate Mortgages (ARM) are set up this way.

Option ARM’s though, have an initial low minimum payment based on an extremely low teaser-rate, typically 1-2%.  The low minimum payment can only change annually and those annual changes are capped, typically for the first 5 years of the loan.  The interest rates though, change monthly after a short introductory period.  So, there’s a disconnect between the interest rate and the payment which leads to the minimum payment not covering the interest accruing on the loan as the interest rate increases.  The extra interest gets added to the mortgage balance, so instead of a homeowner paying down their mortgage balance, it actually increases over time.  This is called “negative amortization”.

The loans are actually designed so that close to 100% of the time, negative amortization occurs.

Why would anyone sign up for such a mortgage?

Well originally these mortgages were designed for the affluent and sophisticated so that they could leverage their money.  Instead of paying down a mortgage with an interest rate of 5-7%, the Option ARM program allowed them to make a relatively small minimum payment and invest the difference in something paying more than the interest rate on their mortgage.  The loans were intentionally more difficult to qualify for than your average mortgage loan.

Than the housing bubble happened and Wall Street encouraged lenders to make the loans easier to get under the premise that housing prices only go up!  Theoretically the increase in home prices would more than cover the increases in the mortgage amount resulting from the Option ARM program.

We all know now that Wall Street was seriously wrong.

A lot of Option ARM mortgage were originated though.  See the graph to the left.

Think about your unhappy situation with your upside down home.  It could still be going down in value as you continue to wrestle with whether or not to continue paying on it.

Now imagine that on top of that, your mortgage balance keeps going up also!

Think you’d be more likely to stop paying your mortgage if that was the case?

Obviously, the answer for many homeowners is yes and Wells Fargo, BOA and Chase are thinking the same thing.

We’ve explained why principal reductions are being targeted for Option ARM mortgages, but why are only 3 banks offering them?

It’s because Wells Fargo, BOA & Chase own over 80% of the $230 billion in Option ARM mortgages still in existence.

What’s interesting is that none of the 3 really originated these problem loans.  Wells Fargo acquired their portfolio of them when they acquired Wachovia Bank.  Chase got theirs when they took over Washington Mutual (WaMu) and BOA buried themselves with the Countrywide acquisition that may go down in history as one of the worst bank acquisitions ever.

One other fact that explains why Option ARM mortgages are being targeted for principal reductions – the banks actually own the mortgages.

You see, most mortgages are rarely owned by the bank or lender that originate them.  Mortgages are typically pooled together as Mortgage Backed Securities (MBS) and sold on Wall Street as an alternative to U.S. Treasuries and Bonds.

So, to modify or reduce the principal of a mortgage that’s part of an MBS requires the approval of all the investors that bought a part of the MBS pool the loan is in.  Not easy!

Most Option ARM mortgages though, are owned outright by the bank that services them.  So, modifying them or reducing principal is entirely the bank’s decision.

If you have an Option ARM mortgage, contact your lender if they haven’t offered you a principal reduction yet.  They may be more willing to negotiate than you think.

The Office of the Comptroller of the Currency and the Office of Thrift Supervision jointly released the 2011 first quarter Mortgage Performance Report.  The Report provides an in depth analysis on $5.7 trillion of outstanding first mortgages, representing 63% of all first mortgages in the United States.

According to regulators only 80.3% of all bank and thrift held mortgages are current compared to 88.6% of all reported mortgages. Regulators said that the elevated delinquency rate of 19.7%  was due to an over concentration in risky nonconforming mortgages geographically concentrated in weaker real estate markets. The banks not only managed to pack their mortgage portfolios with risky loans, but also managed to write loans in areas that had the largest decline in real estate values.

In addition to a massively delinquent first mortgage portfolio, banks also hold about $760 million in second mortgages.  Most banks have not provided specific data on their second mortgage portfolio, but the large decline in real estate values has rendered many second mortgages effectively worthless.  The relentless decline in housing values further erodes the value of second mortgages. Despite recent reductions or reversal of loan loss reserves, it is highly likely that many banks are severely under reserved for future losses on both first and second mortgages, barring a miraculous recovery of both the housing and job markets.

MORTGAGE PERFORMANCE – SOURCE OCC AND OTS

Ironically, the regulators report that the performance of GSE mortgages held by Fannie Mae and Freddie Mac have a very low rate of default compared to mortgages owned by banks and thrifts.  Fannie and Freddie, both currently in government receivership, have a default rate of 6.8% which is 300% better than the performance of bank owned mortgages.   Regulators ascribe the better performance of Fannie and Freddie mortgages due to holding a greater percentage of prime loans.

GOVERNMENT SPONSORED ENTITIES (GSE) MORTGAGES

Fannie and Freddie have a long way to go before they return to solid profitability, but perhaps long suffering investors in stocks such as Bank of America should consider a “lottery ticket”  investment in Fannie Mae or Freddie Mac.

FANNIE MAE – COURTESY YAHOO FINANCE

Bankers took ridiculous risks to achieve the largest paychecks.  Lending without regard to risk and common sense underwriting guidelines has caused massive losses for both bank shareholders and the taxpayers.

Alan Greenspan, former Federal Reserve Chairman, said recently in an interview with Charlie Rose in Bloomberg Businessweek that “One of the things that I had been almost taking as a given was that corporate executives, specifically bank executives, knew enough about their organizations and cared enough to act in support of the solvency of their institutions.  I was wrong. They did not.”

Total Fannie, Freddie, FHA REO inventory declined in Q1, Fannie and Freddie REO Sales at Record Levels

Special Note: Because of late reporting at the FHA, this graph only includes FHA REO through February. Also see: Lawler: Monthly Report to Commissioner Suggests Serious REO Inventory Problem at FHA

The combined REO (Real Estate Owned) inventory for Fannie, Freddie and the FHA decreased to 287,184 at the end of Q1 (see FHA special note above) from a record 295,307 units at the end of Q4. The REO inventory increased 37% compared to Q1 2010 (year-over-year comparison).

Click on graph for larger image in new window.

This graph shows the REO inventory for Fannie, Freddie and FHA through Q1 2011 (FHA through Feb 2011).

The REO inventory for the “Fs” increased sharply in 2010, but may have peaked in Q4 2010. The pace of foreclosures is picking up, but so is the pace of REO sales. Freddie Mac noted REO sales were at record levels in Q1:

We expect the pace of our REO acquisitions to increase in the remainder of 2011, in part due to the resumption of foreclosure activity by servicers, as well as the transition of many seriously delinquent loans to REO.

REO disposition reached record levels in 1Q 2011 with over 30,000 homes sold, two-thirds of which were sold to owner occupants, or buyers who intend to live in the home.

Fannie Mae also sold a record 62,814 REO in Q1, up from 38,095 in Q1 2010 and 185,744 for all of 2010.

So Fannie and Freddie sold over 90,000 REO in Q1, and their combined inventory only declined by 16,185. The are foreclosing at record levels, but they are finally selling REOs faster than they acquire them.

This will go on for some time. From Fannie Mae:

[G]iven the large current and anticipated supply of single-family homes in the market, we anticipate that it will take years before our REO inventory is reduced to pre-2008 levels.

Also, this is just a portion of the total REO inventory. Private label securities and banks and thrifts also hold a substantial number of REOs.

As Freddie noted, the pace of foreclosures will pick up this year, and so will the pace of REO sales. This will keep pressure on house prices (see this graph from Clear Capital comparing house prices and REO saturation).

by CalculatedRisk on 5/06/2011 09:20:00 PM

Increases in employment, both more jobs and better paying ones, will spark a housing recovery.

After several years of depreciation every homeowner wants to know when their home, most American’s biggest piggy bank, will start increasing in value again.

Well that’s not going to happen until we see gains in employment and incomes.

It’s simple math – what you can afford to pay monthly for housing is directly related to how much you make.

So first you need a job, so you can afford something, and then you need to get periodic raises so you can afford more and more and more.

How many homeowners bother to look at unemployment and employment numbers?  Hmmm…

How many have been to the website of the Bureau of Labor Statistics (BLS)?

….?

Just as I suspected – not many.

Well, before we go visit the BLS, let’s examine how housing prices and unemployment are connected.

Comparing Housing Prices & Unemployment

Notice in the chart above that when unemployment (the blue line) goes down, housing prices usually go up.

Simply put, when people have more money to spend the economics of supply & demand show that they will use this money to drive prices up on the things that they want.

The opposite is also true as the next graph shows by comparing drops in housing values to job losses in the top 100 metro areas:

Given this important link between jobs and housing prices, we should probably take a look at where the nation’s job picture is.

So let’s go take a look at what we can at the Bureau of Labor Statistics the numbers they report.

Unemployment Numbers

As of August 2010, the official unemployment rate, according to the Bureau of Labor Statistics, is at about 9.6%.

Supposedly, it’s starting to level off as all the stimulus money plowed into the economy (and onto the federal debt) works its way through the system.

According to the government, without the stimulus, unemployment would have been a lot worse:

Here’s exactly what the BLS site says about unemployment in August:

Nonfarm payroll employment changes little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, the U. S. Bureau of Labor Statistics reported today.  Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work.  Priveate-sector payroll employment continued to trend up moestly (+67,000).

The number of unemployed persons (14.9 million) and the unemployment rate (9.6 percent) were little changed in August.  From May through August, the jobless rate remained in the range of 9.5 to 9.7 percent.

Ah, but the BLS is part of our federal government and they’re not above a little slight-of-hand to make the numbers look better and improve their odds of getting re-elected.

Let’s dissect the August report a bit to see what we can see…

Well in the BLS quote above, they state the number of unemployed is 14.9 million people, which leads to an unemployment rate of 9.6%.

But wait there’s more!  Look at these tidbits:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 331,000 over the month to 98.9 million.  These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

About 2.4 million persons were marginally attached to the labor force in August, little changed from a year earlier.  (The data are not seasonally adjusted.)  These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months.  They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

So, you’re stuck working a part time job because you can’t find a full time job, even though you may desperately need one, you’re not included in the unemployment numbers?  What happens if you’re trying to feed your family by working two or three part time jobs?  Talk about skewing the numbers!

If we add these people into the mix, we get much higher numbers on unemployment – 26.2 million Americans are out of work or underemployed.

That’s an unemployment rate of 16.4% not the reported 9.6%!

Surprising, this number is published by the BLS and is referred to as the U-6 number.

Why does the media publish the 9.6% number when the truer 16.4% number is so easy to find?

Your guess is as good as mine.

Summary

Well, where does all this leave us?

There’s been a lot of media mention of the term, “jobless recovery”.  The term refers to how companies seem to be improving their profits without hiring workers back.

My question is, if workers don’t go back to work where are people going to get the money to actually buy things like cars and houses?

How can that be called a recovery?

For homeowners out there wondering when they’ll see the values of their homes rebound, I hope you now realize how important the unemployment rate is to that happening.

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy

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With the world’s largest bond fund PIMCO stating there’s a 25% chance of deflation, the Federal Reserve announces new measures to spur the U.S. economy.

The Federal Reserve met yesterday and the markets held their collective breath to see what actions the Fed would take.

Citing continued concerns about the economy, the Fed left rates where they were as expected.

All the signs and statements point to the Fed being more & more concerned about deflation and the resulting contraction of the economy.  The Federal Reserve Press Release published after the meeting pointed out:

Bank lending has continued to contract.

and:

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.¹ The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.

That last part is very good news for the housing industry.

The Fed reinvesting into more bonds means they’ll still be effectively subsidizing interest rates.

Don’t celebrate too soon though.  The Fed also remarked:

Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

These factors are all working against many potential buyers taking the plunge into home ownership along with the contracted lending policies of the banking system.

Deflation will also work against the housing market.  You’ve probably already witnessed a deflationary mindset and didn’t recognize it.  Many potential home buyers have waited to buy a home believing that prices will continue to fall.  Think about a significant portion of consumers taking that attitude with cars, electronics, etc.  The whole economy goes into a tailspin that’s not easy to get out of.

When can we expect to see a sustained recovery in the housing market?

Look to the employment numbers.

I don’t mean the unemployment numbers!  Those are now skewed by the numbers of people that have given up on looking for a job.

When people start going back to work and getting raises, they’ll start buying houses.

In the mean time, those that can afford to buy will realize the best deals.

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy

Check out this chart, compliments of my friendly neighborhood First American Title rep, Julia Halpin:)

Gadzooks & zounds!  These historically low mortgage rates are record setters.

What more could a Michigan homeowner looking to refinance or a Michigan homebuyer looking to buy ask for?

How about appraisals coming in higher & a job to qualify to buy!

These historically low mortgage rates are a sign that our economy is not doing all that well:(

But, if your home can appraise or you do have a job, it’s a fantastic time to get a mortgage!

So, give our team a call.

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

Both the House & Senate approved a bill to allow homebuyers with purchase contracts dated by April 30, 2010 to close on their transactions until September 30, 2010.  The bill is now on its way to President Obama to be signed into law.

Why the extra time?

According to the National Association of Realtors, approximately 180,000 homebuyers would lose out on the credit as they can’t close by the current June 30th deadline.

NAR blames backed up lenders, delays in Flood Insurance and the Rural Development programs and new construction issues as the primary reasons homebuyers can’t close.

Here’s NAR’s 180,000 list broken down by state:

Alabama, 2,590; Alaska, 830; Arizona, 5,440; Arkansas, 2,090; California, 17,700; Colorado, 3,390; Connecticut, 1,770; Delaware, 400; District of Columbia, 300; Florida, 14,830; Georgia, 6,270; Hawaii, 710; Idaho, 1,270; Illinois, 7,030; Indiana, 3,560; Iowa, 2, 030; Kansas, 1,840; Kentucky, 2,540; Louisiana,1,800; Maine, 840; Maryland, 2,630; Massachusetts, 3,930; Michigan, 6,470; Minnesota, 3,760; Mississippi, 1,530; Missouri, 3,600; Montana, 760; Nebraska, 1,110; Nevada, 3,800; New Hampshire, 690; New Jersey, 4,300; New Mexico, 1,160; New York, 9,190; North Carolina, 4,890; North Dakota, 460; Ohio, 8,510; Oklahoma, 2,760; Oregon, 2,090; Pennsylvania, 5,830; Rhode Island, 500; South Carolina, 2,460; South Dakota, 500; Tennessee, 3,910; Texas, 15,340; Utah, 1,130; Vermont, 400; Virginia, 3,890; Washington, 3,190; West Virginia, 940; Wisconsin, 2,690; and Wyoming, 390.

What about all the buyers that have contracts on short sales? 

Short sale can easily take 4 months or longer to close.  So, if a homebuyer entered into a purchase contract in April, there’s a very low chance they would be able to close by the current June 30th deadline. 

A good portion of short sales will be lucky to be able to close by the soon-to-be extended deadline of September 30th.

Now if only Congress could get its act together on the Flood Insurance issue…

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

In an attempt to encourage Michigan Homeowners to work with their lenders on Short Sales or Deed-in-Lieu‘s instead of just letting their homes go to Foreclosure, FNMA just announced some changes to their policy in regards to these homeowners qualifying for their next mortgage.

Previously, Deed-in-Lieu’s were treated the same as Foreclosures - giving a Michigan Homeowner little incentive to work out anything with their lender.

There was also a lot of confusion regarding when a homebuyer could qualify for a new mortgage after a Short Sale.

FNMA’s announcement SEL-2010-05 clarifies their policies. 

A summary of the new guidelines:

• Putting 20% Down – minimum wait period of 2 years
• Putting 10% Down, minimum wait period of 4 years
• Putting less than 10% Down, minimum wait period of 7 years

There are still exceptions for extenuating circumstances (out of homebuyer’s control), but the minimum regardless of reason is 2 years.

FNMA has also clarified what constitutes acceptable re-established credit after a Foreclosure, Deed-In-Lieu, Preforeclosure, Short Sale or Bankruptcy.  The homebuyer’s credit can only be re-established through credit tradelines reported through the credit bureaus.  Nontraditional credit - utility bills, car insurance, etc, that is not reported through the credit bureaus will no longer be acceptable.

What’s this mean for Michigan Homeowners considering a Short Sale, Deed-in-Lieu, Foreclosure and/or Bankruptcy? 

• Will your lender even work with you or will they ignore you and give you the run around pushing you into Foreclosure, despite the financial incentives the government is giving lenders?
• If you work with your lender to do a Deed-in-Lieu or Short Sale instead of Foreclosure, where will you live and how will you pay for that housing?
• You’ll have to weigh the new waiting time periods against how long you can stay in your home without making payments.  Can you save enough to pay cash for a new home or for a down payment on a land contract to avoid having to worry about a new mortgage?
• Are your debts such that you’ll have to file Bankruptcy, which FNMA requires you to wait 4 years, so the 2 year incentive doens’t really matter?

I highly recommend struggling homeowners seek out the advice of Certified Mortgage Professionals, Attorneys & CPA’s in analyzing their options.  Don’t let anyone tell you what to do!  True professionals assist you in understanding your options so you, and only you, make the best decision for your future.

Here’s the chart FNMA published regarding their guidelines concerning this:
 

 
To read the announcement yourself click here.

I would expect FHLMC to soon follow this with their own updates.

Contact me with questions or for assistance.

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

The government is getting more serious about bailing out the housing industry with HUD’s latest announcement about the new FHA program.

It’s potentially good news for upside down Michigan homeowners, as to make a loan eligible for the program, the lender must write down the principal balance AND make sure the payment isn’t more than 31% of income. 

The program is voluntary for lenders, but if the government can get enough lenders to actually participate this could finally be the program that stabilizes the housing market.

Here are some highlights of the program:

• Voluntary option for lenders and borrowers with mortgages NOT currently insured by FHA.
• Encourages lenders and borrowers to work together, when appropriate, to restructure debts.
  • Loans must have a minimum writedown of 10% and all mortgages on a property total to less than 115% of the property’s current value.
• Eligible upside down Michigan homeowners are refinanced into new FHA-insured loans on standard FHA refinance terms for documentation, income ratios and complete underwriting.
• Terms of FHA refinancing:
  • New FHA loan must be equal to no more than 97.75% of the current value of the property.
  • Combined mortgage debt must be written down to a maximum of 115% of the current value of the home.
  • Standard mortgage insurance premium structure will apply.
• Mandatory principal writedown as part of refinance.
• Minimum writedown by lender of at least 10% of the unpaid balance of the original loan.
• Reduced monthly mortgage payments to facilitate sustainable homeownership:
  • Rate on refinanced loan will be set at prevailing FHA interest rate.
  • Total monthly mortgage payment, including second mortgage, will not be greater than approximately 31% of gross monthly income.
  • Total debt service including all forms of household debt will not be greater than approximately 50% of gross monthly income, except for some borrowers with especially strong credit histories.
• Existing lenders can retain their second mortgages on the property, but only up to a combined 115% of the current value of the home.
  • If there is an existing mortgage that is not extinguished, lenders must agree to re-subordinate and extinguish any amount over 115% of the current value of the home.
• Homeowner Eligibility
  • Homeowners must be current on their mortgage payments.
  • Homeowner must occupy the home as their primary residence and fully document their income.
  • Homeowners must qualify under standard FHA borrower guidelines.
  • Homeowners must have a FICO credit score of at least 500.
  • Existing lenders’ choice to consent for an FHA refinancing of this type is voluntary given the principal writedown requirement. Thus, not all homeowners who meet above criteria will receive an FHA refinanced loan.
  • As with any loan forgiveness, the short refinancing will be reflected on borrowers’ credit score.

HUD plans to use up to $14 billion in TARP funding to support the FHA refinance options. The funds will be used to payoff second liens, provide incentives to servicers and provide coverage for some share of potential losses resulting from the newly refinanced loans.

Here’s an example provided by HUD:

Example of a Typical FHA Refinance

• In 2006: Family A took out a 30-year fixed mortgage with a balance of $250,000 and an interest rate of 9.0%. Their monthly payment was about $2,000 per month.
• Today: Home prices have dropped and Family A’s home is worth $180,000.
• With a FHA Refinance: Family A’s loan balance will be reduced to $207,000 and their monthly payment will fall to about $1300 per month. This will reduce their principal balance by about $33,000 and reduce their monthly payments by about $700 per month, saving the family nearly $42,000 over the next 5 years.

When will this all be available to upside down Michigan homeowners?  HUD says,

“FHA will move to implement this as quickly as possible and expect that lenders can begin making decisions by the fall. Specific guidelines will be posted in a FHA Mortgagee Letter in the near future.”

You can read HUD’s press release about the program here, be sure to click on the links at the bottom for even more info.

Additional FAQs can be found at the Making Home Affordable website.