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Mortgage Market Weekly: (Edition November 12, 2008) Vol. 73 In This Week's "Good News": New Streamline Modification Program for Delinquent Mortgages Yesterday afternoon, the newly created FHFA (Federal Housing Finance Agency) announced details of a streamlined loan modification program. This program will be aimed at helping seriously delinquent borrower. This program is set to be launched by December 15th. The program is a collaboration of the FHFA (Fannie and Freddie's new regulator), FHA, Treasury, and Hope Now along with its 27 servicer partners, but does not provide any direct government assistance. To be considered for the program, borrowers must own and occupy the property as their primary residence, be 90 days or more behind on their mortgage, and must not have filed for bankruptcy protection. They must also prove that they have experienced a "hardship or change in financial circumstances" and did not purposely default on the mortgage to receive assistance. Eligible mortgages include Freddie Mac, Fannie Mae or portfolio loans with participating investors. Under the program, borrowers will work with their servicers to establish an affordable monthly mortgage payment, determined as no more than 38 percent of the household's monthly gross income. The affordable payment will be achieved by reducing the interest rate on the loan, extending the life of the loan, or deferring payments, but no principal reductions will be permitted! It should be noted that while no foreclosure moratorium has been put in place, borrowers who remain in contact with their servicers during the modification process may have any planned foreclosure sale suspended. As an incentive for loan servicers -- servicers who take part will receive $800 for each loan modified through the program. As of my writing this article the 27 participating mortgage servicer list has not been released - I will keep you posted.
Foreclosure Filing Numbers Beginning to Fall The number of foreclosure notifications fell for the second consecutive month in October, according to ForeclosureS.com. Pre-foreclosure filings, which include ?notices of a default' or a foreclosure auction, declined by 7% from September and were off 10% from their August high. The number of foreclosure notices dropped in about half of all states, according to ForeclosureS.com. Properties newly repossessed by lenders also declined, falling 22% from the high reached in September. The 84,286 repossessed homes in September was the lowest monthly total since May, the company said. Alexis McGee, president of ForeclosureS.com, said the numbers are "great news because pre-foreclosures are early signals of what's to come." McGee, however, did acknowledge that recent numbers might be skewed by lender programs for homeowners that delay rather than eliminate foreclosures. Most economists believe that some stabilization, albeit probably temporary, is beneficial overall by allowing some real estate market price stabilization, and by slowing the continuously growing housing inventory levels.
Citigroup has joined Morgan Stanley Chase and the myriad of other major lenders to help mitigate the growing numbers of foreclosures of owner-occupied single family homes. The bank said early this week that it is putting a moratorium on both initiating new foreclosures and on completing the legal process against homeowners who are currently moving toward foreclosure. The moratorium will be available to homeowners if they meet several criteria; they must want to stay in their home, be willing to work in good faith with the bank to resolve their problems, and have the income to afford payments on a restructured mortgage. The program will be available initially to borrowers whose mortgage loans are owned by Citigroup but the bank said it is working on expanding the program to include loans that it services for other investors. The bank will also move proactively over the next six months to contact about one-half million homeowners, about one-third of the banks own borrowers, who are current on their mortgage payments now but are at risk of falling behind in the near future. It appears that the geographic focus of Citi's efforts, at first, will be in those areas where unemployment and foreclosure rates are high - these include Florida, Arizona, California, Michigan, Indiana, and Ohio. It is reported that Citigroup will attempt to restructure mortgage loans by reducing the principal of the loan, extending the amortization period, and/or adjusting interest rates. Some 600 bank employees will be involved in the restructuring effort. It is estimated that Citigroup will modify a total of $20 billion of mortgage notes. Like the FDIC, Wells Fargo, Morgan Stanley Chase and even Wachovia which is soon to be absorbed by Wells Fargo have finally realized that working with borrowers to prevent foreclosures, while expensive in the short term, is ultimately less costly than taking, managing, and marketing the foreclosed homes.
In This Week's "Take It How You Will" News:
Tax Payer's to Foot Bill for Fannie/Freddie Lawsuits? Well, it appears that ?golden parachutes' are not the only thing protecting mortgage banking executives. When the government took over mortgage giants Fannie Mae and Freddie Mac, taxpayers inherited more than just bad debts. It appears that we are also potentially on the hook for tens of millions of dollars in legal fees for the executives at the center of the current housing market's collapse. As expected, with the Justice Department investigating companies involved in the mortgage and financial meltdown, executives around the country are hiring defense lawyers. Like most large companies, Fannie and Freddie had contracts promising to cover legal bills for their executives. When the Treasury Department delivered a $200 billion bailout to Fannie and Freddie, that obligation passed to the government, which may find itself (ergo, the tax payer) paying for the lawyers defending the executives against the government's own prosecutors. "Who'd have thought we might be on the hook for paying the defense costs when we're also paying the prosecution costs?" said Doug Heller, executive director of Consumer Watchdog, a Santa Monica, Calif.-based group that has been critical of the financial bailout packages. "To defend the economy from the havoc that's been created, we're going to defend the havoc creators?" On top of this, Fannie's and Freddie's contracts also cover legal fees from shareholder lawsuits. Taxpayers could be forced to pay those legal bills, too. If the shareholders win -- if they can prove the companies were mismanaged -- the government could be liable for millions of dollars to make up for the executives' failures. Both Fannie Mae and Freddie Mac have been subpoenaed as part of the wide-ranging Justice Department investigation into the companies' accounting, disclosure and governance practices. The Bush administration is working to avoid it. The Federal Housing Finance Agency, which controls Fannie and Freddie, said in regulatory filings it soon will try to prohibit the two companies from paying legal fees to their executives. But such a prohibition almost certainly would lead to a costly court fight over who's responsible for the bills when the Justice Department comes knocking. At this point, neither Fannie nor Freddie has said whether they already have advanced any legal fees to former executives. The companies are required to make general disclosures about such payments but only on quarterly corporate filings. It is estimated that the legal fees that are likely to be involved could easily stretch into tens of millions of dollars.
NAR: Has the Market Hit Bottom?
At the annual National Association of Realtors conference in Orlando, Lawrence Yun, NAR's chief economist, said that the average sales price of existing homes would slide 9.8% by the end of 2008. This would represent the largest decline since the group began keeping records in 1968.
The usually positive National Association of Realtors struck a decidedly downbeat chord at its annual convention, predicting that housing prices would fall this year by the largest percentage since the Great Depression.
Yun told reporters that the NAR is expecting prices to go back up by 1.1% in 2009, but states that the slight increase would be realistically "essentially no change."
However, by 2010, Yun is expecting appreciation to return to the historical norm of 4-5% as the inventory of unsold houses returns to normal. "We have hit bottom, we believe, in terms of sales activity," he said. "But not prices. The only way to stabilize prices is to get inventory down, and we're not there yet."
In This Week's "Wait and See" News:
Here we go again -- another volatile week on Wall Street, but what did we expect. Increasing unemployment numbers and decreasing consumer confidence numbers this week appear to be the driving factors.
The DOW closed today -411.30 to 8,282.66, following the drops of most overseas markets.
The good news, the national average of unleaded gasoline, has dropped to $2.22/gallon.
Next week should be a relatively slow week as far as numbers affecting the U.S. markets - look for major players to add volatility by looking for ?value buys'.
Next week's Economic Calendar:
Remember, typically, weaker than expected news is beneficial to a mortgage rate decrease and an increase in bond yields, and more positive than expected news will cause mortgage rates to increase and stocks to increase in value.
In This Week's "Not So Good Right Now" News: Higher Loan Limits to Expire As part of the economic stimulus bill that became law last February, loan limits on government-backed mortgages were increased in areas around the country where housing costs are high. This allowed more borrowers to benefit from the lower interest rates associated with loans backed by mortgage financing companies Fannie Mae and Freddie Mac, and the Federal Housing Administration. The change was designed to encourage more home-buying. In ?high-cost' areas, the maximum for these "agency jumbo" or "high-balance" conforming loans was temporarily increased to its current level of $729,750. The expanded loan limits expire December 31st. The new loan limit for ?high-cost' areas will be $625,000, and will affect some customers even earlier than the end of the year deadline because many lenders have already said they won't accept new applications for loans up to $729,750 past early December to ensure they will have backing for the loans made. Time is short for customers. For Wells Fargo loans made through mortgage brokers, for example, brokers must lock in rates for "high-balance conforming loans" by Nov. 17 and close the transactions by Dec. 1. As you can see, if your clients are hoping to buy or refinance a home using a loan of more than $625,500 but less than $729,750, they should apply for it as soon as possible. Higher rates and bigger down payment requirements will soon apply to such loans.
Next Week's Rate Trends:
Today's Conforming Loan National Averages (Bank Rate): 30 year fixed: 6.06% 15 year fixed: 5.76% 5/1 ARM: 5.93% 30 year Jumbo: 7.50% 5/1 Jumbo ARM: 6.17%
As you see above, rates appear to be stabilizing. Many financial experts expect this trend to continue throughout the end of the year -- I, however, do not. If you have clients expecting to close on their loan(s) by the end of this year, you may want to seriously consider advising them of the historic norm - banks like most other businesses tend to go on ?auto-pilot" around the holiday season; this means increasing rates. Most lenders tend to increase rates to decrease the flow of business due to employee absences that during holidays are inevitable. For the short term, expect the 30 year Conforming Conventional fixed rate to fluctuate in the range of 5.875 to 6.25 percent. FHA and VA 30 year fixed rate loans have also dipped. Expect FHA and VA 30 year fixed rate notes to be in the range of 6.00to 6.5 percent through the end of the week and through the first part of next week. Mortgage Market Weekly: |
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