8. April 2010 by admin.

by Brian Montgomery

The latest iteration of housing assistance announced by the Obama Administration has turned up the volume on the “worthiness” argument. 

Critics see struggling borrowers being bailed out for what they believe was reckless behavior by both lenders and home buyers.   Many skeptics feel this group of borrowers did not play by the “rules,” and now everyone who did is being forced to bail them out.  Why do they get a lower interest rate for their irresponsible decisions?  Why isn’t my loan principal being reduced? 

Others ask why the government is taking on more risk by refinancing high loan balance borrowers. These are distressed homeowners who live in one of the 75 HUD specified high-cost loan limit counties.  This pool of borrowers is able to rate/term refinance up to a $729,000 loan amount. These limits were set to expire at the end of 2008 but instead were extended two years by Congress.  Most housing experts expect the loan limits to drop significantly in 2011 even though the percentage of mortgage activity at these levels is a small percentage of FHA’s entire book of business. 

And then there are those who bought their home at the worst possible time (when the market reached its apex) and are now attempting to survive in a very difficult economic landscape.  They weren’t reckless speculators or searching for a “get-rich quick” scheme (most of those were foreclosed on months ago).   More than likely they were a rental family looking for their version of the American dream.  For too many that dream is now their worst nightmare. 

These are well-reasoned concerns, but what is the alternative – mass foreclosure?  Can the nation endure a few million more foreclosures?  Of course not as that would only imperil what has been a measured and unpredictable housing recovery.

The FHA is rightfully trying to help the borrowers who can still be saved.   Assisting at-risk borrowers especially during trying economic times is one of the primary reasons FHA exists as a government entity.  It is not chasing profits or trying to push a stock price to a 52 week high—it is simply trying to do what it does best for housing.  And even though these homeowners may be deemed “risky,”  I remind you that these borrowers must still pass FHA’s underwriting process which include:

• Be current on existing mortgage
• Proof of wages
• Stable employment history
• New appraisal must be obtained. New loan to value can be no higher than 97.75%.
• Must occupy the home as their primary residence
• New Front Ratio limit is 31%. Maximum back ratio is 50%

As a kid, I can remember riding through a stretch of desolate Texas highways where one large sign ominously warned: Last Gasoline Station for 200 Miles Exit Now.  If you’re an at-risk borrower and your options are few, now is the time for you to exit – this latest effort by the FHA could be your last chance.

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8. April 2010 by admin.

by Victor Burek

 Mortgage rates put a stop to a distressing losing streak yesterday as benchmark Treasury yields finally fell and prices of mortgage backed securities managed to rally. Mortgage rates opened the day better and were able to retain their early session improvements after the Treasury Department saw strong demand for a $40 billion 3 year note auction. After that, the release of the FOMC Minutes at 2pm presented no surprises to market participants and the day ended with MBS price gains intact. While there were a few lenders repriced for the better, the

The economic calendar did not offer much in the form of “market moving” data today, there were a few other events that sparked some interest though. 

The Mortgage Bankers Association released their Weekly Mortgage Applications Index at 7am.  The MBA survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts.  The data gives economists a look into consumer demand for mortgage loans.  A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole.

Recent reports from the MBA have shown  purchase demand picking up as warm weather and the soon to expire tax credit have inspired prospective homebuyers to get serious about purchasing a home. We expect this group of borrowers to be our main source of business in the months to come. On the other hand, refinance demand has been slowly fading as man home owners have already taken advantage of  mortgage rates below 5.00%.  Today’s release extended this trend. Purchase application activity rose a modest  0.2% while refinance applications declined 16.9%. For more on this report including a discussion about the competitiveness of the mortgage industry.

If you are looking to take advantage of the Home Buyer Tax credit you better hurry.  You must be under contract by the end of this month. After you have signed a contract you have until the end of June to close on the purchase. At this point in time an extension of the homebuyer tax credit seems very unlikely, so get out there and find your new home before it’s too late!

At 1pm eastern, the Department of Treasury released the results of this week’s second Treasury auction, this time it was $21billion 10 year notes. Demand was fantastic! This is refreshing considering how poorly the Treasury auctions went two weeks ago. After the auction results were released, benchmark Treasury yields and MBS prices both rallied to their best levels of the week! THIS ALLOWED THE MAJORITY OF LENDERS TO REPRICE FOR THE BETTER!

Reports from fellow mortgage professionals indicate lender rate sheets to be improved from yesterday lowering consumer borrowing costs.  The par 30 year conventional mortgage rate mortgage is now in the  4.875% to 5.25% range for well qualified consumers.  There are  however only a few lenders offering par mortgage rates at 4.875%.   To secure a par rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee.  You  may elect to pay less in costs but you will have to accept a higher interest rate which is a great option for home owners not planning on keeping current home for more than 3 years. 

I continue to favor floating.  One day at a time…

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