"Well, it's both a very tough time and a great opportunity. There are great opportunities right now for people when you say average family. It's an unbelievable time to buy a house and especially if a bank happens to own it because they've put the money in so it's not a question of getting financing. The money is already there. Go out and make a deal. The banks want to unload their stock. Go out, see what they have, get yourself a great house, they will give you financing."
--Donald Trump on "Larry King Live", (transcript), CNN.com, Sept. 18, 2008
Tuesday, September 30, 2008
Bailout Article from MAR COO Chris Galler
Helping to Explain the Bailout Issue to Jittery Clients/Consumers
by: Chris Galler, COO
Most of the consumers you talk with will not have a good handle - I am not sure anyone does yet - of the nature of the credit problem. In this short article, I hope to give you at least some quick, understandable talking points when discussing the issue. It is not 100% complete but should give most members an understandable overview of the issue. There is plenty written about the subject if people are interested in more detail.
The vast majority of people are not in trouble. About 3% of total households are behind on mortgage payments (33% of households have no mortgage) and about 1% eventually go through foreclosure.
Most homes are not mortgaged over their true value. The national number is that home owners have a 71% LTV mortgage on the property (2006).
The foreclosure level of today is very similar to the foreclosure level in 1986 from a national perspective. MN did better that time around.
A major difference today is about how financial firms packaged and sold mortgage securities to investors - often leveraging the value many times. (see more below)
No mortgage insurance as consumers opted for loans that avoided PMI, thus increasing the lender's exposure.
Government asset reporting, as a result of Enron, requires a true reflection of the asset value on balance sheets. This means that the 65% LTV mortgage that a financial institution or Fannie/Freddie issued and now holds in their portfolio is reported as a bad investment because the value of the asset has dropped. As an example, Chris takes out a mortgage with 5% down and is issued a 95% LTV mortgage on a $200,000 home. This means the mortgage is $190,000, but it is protected by an asset valued at $200,000. Chris makes all of his payments on time for 3 years. However, in the last 3-years the home's value has dropped by 10% to $180,000. The bank/financial institution/Fannie/Freddie now must report the lower asset value on their books - which means they do not have enough asset value in the home to cover their loan.
Remember the leverage issue. The financial institution now must report and the investors will see that the assets protecting their securities are not sufficient protection to cover their investment. Keep in mid, Chris is paying his mortgage on time - as are the vast majority of people with a mortgage. Yet, if the LTV is upside down because the asset value dropped, the lender is in trouble and in need of funds to shore-up his balance sheet for the investors who purchased the securities backed by mortgages.
Mortgage insurance was part of the protection against falling asset values in the past. Because so many newer loans were issued without PMI, the lender exposure is much greater this time around.
Liar loans and other poor lending practices are a piece of the problem and demonstrate clearly how greed (at all levels - consumer, lender and advisors) overwhelmed reasonableness. This also happened in the mid-1980's with FHA/VA "fog a mirror" assumable mortgages. Credit tightening and consumer "skin-in-the-game" will help eliminate this in the future.
Problem loans in the next 2-years will be a result of 2nd/3rd mortgages which are tied to the LIBOR index. Some are subprime, many are Alt-A and prime.
The LIBOR went up 50% last week and it is the index used to determine the ARM interest rate. Many of these are held by middle-class folks who spent their home equity taking out 2nd & 3rd mortgages. The problem they face is LTV when they go to refinance out of the bad ARM product. Example: Chris has an 80% 1st mortgage and a 20% 2nd mortgage he took out in 2005 to buy a boat and pay off credit cards. The total of the 2 loans is $200,000 on January 1, 2005. He makes all of his payments on time. In October, his 2nd mortgage - which is an ARM - has a payment increase of 25% because of the LIBOR index. He cannot afford the additional payment because of job situation, health insurance, etc. so he goes to the bank to refinance. Because the value of his property has fallen since he took out the mortgages, he can no longer borrow an amount equal to the 1st and 2nd mortgage he has on the house. You can see the hole that Chris has dug for himself - whether he used a subprime or "liar-loan" - as the asset value drops his options are significantly reduced and now must make some very difficult choices.
It is important to remember that for many years homes were considered a hard un-liquid asset. People rarely borrowed against their home, except for repairs or emergencies, and the equity growth made upward movement possible. Over time, financial geniuses invented tools and convinced people that homes should be a liquid asset that they individually leverage in order to increase their standard of living. That strategy worked for a while until people in mass began living beyond their means.
Often we find that the fundamental principals of the past are concrete solutions for the future.
by: Chris Galler, COO
Most of the consumers you talk with will not have a good handle - I am not sure anyone does yet - of the nature of the credit problem. In this short article, I hope to give you at least some quick, understandable talking points when discussing the issue. It is not 100% complete but should give most members an understandable overview of the issue. There is plenty written about the subject if people are interested in more detail.
The vast majority of people are not in trouble. About 3% of total households are behind on mortgage payments (33% of households have no mortgage) and about 1% eventually go through foreclosure.
Most homes are not mortgaged over their true value. The national number is that home owners have a 71% LTV mortgage on the property (2006).
The foreclosure level of today is very similar to the foreclosure level in 1986 from a national perspective. MN did better that time around.
A major difference today is about how financial firms packaged and sold mortgage securities to investors - often leveraging the value many times. (see more below)
No mortgage insurance as consumers opted for loans that avoided PMI, thus increasing the lender's exposure.
Government asset reporting, as a result of Enron, requires a true reflection of the asset value on balance sheets. This means that the 65% LTV mortgage that a financial institution or Fannie/Freddie issued and now holds in their portfolio is reported as a bad investment because the value of the asset has dropped. As an example, Chris takes out a mortgage with 5% down and is issued a 95% LTV mortgage on a $200,000 home. This means the mortgage is $190,000, but it is protected by an asset valued at $200,000. Chris makes all of his payments on time for 3 years. However, in the last 3-years the home's value has dropped by 10% to $180,000. The bank/financial institution/Fannie/Freddie now must report the lower asset value on their books - which means they do not have enough asset value in the home to cover their loan.
Remember the leverage issue. The financial institution now must report and the investors will see that the assets protecting their securities are not sufficient protection to cover their investment. Keep in mid, Chris is paying his mortgage on time - as are the vast majority of people with a mortgage. Yet, if the LTV is upside down because the asset value dropped, the lender is in trouble and in need of funds to shore-up his balance sheet for the investors who purchased the securities backed by mortgages.
Mortgage insurance was part of the protection against falling asset values in the past. Because so many newer loans were issued without PMI, the lender exposure is much greater this time around.
Liar loans and other poor lending practices are a piece of the problem and demonstrate clearly how greed (at all levels - consumer, lender and advisors) overwhelmed reasonableness. This also happened in the mid-1980's with FHA/VA "fog a mirror" assumable mortgages. Credit tightening and consumer "skin-in-the-game" will help eliminate this in the future.
Problem loans in the next 2-years will be a result of 2nd/3rd mortgages which are tied to the LIBOR index. Some are subprime, many are Alt-A and prime.
The LIBOR went up 50% last week and it is the index used to determine the ARM interest rate. Many of these are held by middle-class folks who spent their home equity taking out 2nd & 3rd mortgages. The problem they face is LTV when they go to refinance out of the bad ARM product. Example: Chris has an 80% 1st mortgage and a 20% 2nd mortgage he took out in 2005 to buy a boat and pay off credit cards. The total of the 2 loans is $200,000 on January 1, 2005. He makes all of his payments on time. In October, his 2nd mortgage - which is an ARM - has a payment increase of 25% because of the LIBOR index. He cannot afford the additional payment because of job situation, health insurance, etc. so he goes to the bank to refinance. Because the value of his property has fallen since he took out the mortgages, he can no longer borrow an amount equal to the 1st and 2nd mortgage he has on the house. You can see the hole that Chris has dug for himself - whether he used a subprime or "liar-loan" - as the asset value drops his options are significantly reduced and now must make some very difficult choices.
It is important to remember that for many years homes were considered a hard un-liquid asset. People rarely borrowed against their home, except for repairs or emergencies, and the equity growth made upward movement possible. Over time, financial geniuses invented tools and convinced people that homes should be a liquid asset that they individually leverage in order to increase their standard of living. That strategy worked for a while until people in mass began living beyond their means.
Often we find that the fundamental principals of the past are concrete solutions for the future.
Monday, September 29, 2008
Prelim Rescue Plan Info
Congress Debates Rescue Plan, appears a tentative deal has been reached.
Credit markets are dragging down the economy, and the basic problem is clear. Many financial institutions hold large quantities of complex mortgage securities which have declined in value. The precise value of these securities is difficult to determine, since there are few buyers and the market is not functioning efficiently. Amid the uncertainty, it's very difficult and costly to raise additional capital, so financial institutions are conserving their remaining capital. These institutions are very reluctant to make new loans of any kind. If businesses have no capital to grow and consumers have trouble purchasing homes and cars, the economy suffers and jobs are lost.
Fed Chief Bernanke and Treasury Secretary Paulson spent two long days this week presenting a $700 billion rescue plan to Congress. Much of the testimony noted that the rescue plan would be an acquisition of assets. Mortgages and mortgage backed securities will be purchased at a significant discount to the face amount of the underlying mortgages. Many of the mortgages will be performing, while some will not, and they will have houses as collateral. Ultimately, the orderly liquidation of the acquired assets should recover most, if not all, of the purchase price, and the taxpayer might come out ahead. The plan would provide much needed capital to institutions, which is expected to be used to make more loans.
Heading into the weekend, lawmakers have been meeting on the details of the plan and exploring alternatives, such as an insurance solution. For mortgage markets, expectations that funding a rescue plan will increase the supply of debt pushed mortgage rates a little higher during the week. On late Saturday, it appears the Congressional Leaders and the Bush Administration reached a tentative deal and now will be brought to the House for vote, followed by the Senate. If all goes as planned, should be on the President’s desk for signature this week. We will be watching closing the world wide financial markets reactions to the weekend’s legislation progress.
Compliments of
PHH Home Loans
Plymouth Mortgage Team
Credit markets are dragging down the economy, and the basic problem is clear. Many financial institutions hold large quantities of complex mortgage securities which have declined in value. The precise value of these securities is difficult to determine, since there are few buyers and the market is not functioning efficiently. Amid the uncertainty, it's very difficult and costly to raise additional capital, so financial institutions are conserving their remaining capital. These institutions are very reluctant to make new loans of any kind. If businesses have no capital to grow and consumers have trouble purchasing homes and cars, the economy suffers and jobs are lost.
Fed Chief Bernanke and Treasury Secretary Paulson spent two long days this week presenting a $700 billion rescue plan to Congress. Much of the testimony noted that the rescue plan would be an acquisition of assets. Mortgages and mortgage backed securities will be purchased at a significant discount to the face amount of the underlying mortgages. Many of the mortgages will be performing, while some will not, and they will have houses as collateral. Ultimately, the orderly liquidation of the acquired assets should recover most, if not all, of the purchase price, and the taxpayer might come out ahead. The plan would provide much needed capital to institutions, which is expected to be used to make more loans.
Heading into the weekend, lawmakers have been meeting on the details of the plan and exploring alternatives, such as an insurance solution. For mortgage markets, expectations that funding a rescue plan will increase the supply of debt pushed mortgage rates a little higher during the week. On late Saturday, it appears the Congressional Leaders and the Bush Administration reached a tentative deal and now will be brought to the House for vote, followed by the Senate. If all goes as planned, should be on the President’s desk for signature this week. We will be watching closing the world wide financial markets reactions to the weekend’s legislation progress.
Compliments of
PHH Home Loans
Plymouth Mortgage Team
Wednesday, September 24, 2008
Tuesday, September 23, 2008
Mortgage Market in Review
Mortgage Market in Review
Week of September 22, 2008 Volume 15, Issue 39
Mortgage bond prices rose last week applying a slight
downward pressure on mortgage rates. Trading in the
financial markets remained in disarray. The Dow
Jones index moved more than 400 points, both up and
down, several times during the week. Rates fell
sharply early in the week as traders fled stocks for the
safety of bonds. This money flow reversed Thursday
afternoon after rumors of a massive government
intervention into the financial markets surfaced.
For the week, interest rates on government and
conventional loans fell by about 1/8 of a discount point.
Durable goods orders and new home sales data will be
the most important events this week. The mortgage
interest rate market remains volatile as US Government
officials strive to bring liquidity to the financial
markets.
PHH Home Loans - Plymouth Team
Week of September 22, 2008 Volume 15, Issue 39
Mortgage bond prices rose last week applying a slight
downward pressure on mortgage rates. Trading in the
financial markets remained in disarray. The Dow
Jones index moved more than 400 points, both up and
down, several times during the week. Rates fell
sharply early in the week as traders fled stocks for the
safety of bonds. This money flow reversed Thursday
afternoon after rumors of a massive government
intervention into the financial markets surfaced.
For the week, interest rates on government and
conventional loans fell by about 1/8 of a discount point.
Durable goods orders and new home sales data will be
the most important events this week. The mortgage
interest rate market remains volatile as US Government
officials strive to bring liquidity to the financial
markets.
PHH Home Loans - Plymouth Team
Housing and Economic Recovery Act of 2008 FAQ
Housing and Economic Recovery Act of 2008 FAQ
Q: How will the law help struggling homeowners keep their homes?
A: Through the Federal Housing Administration (FHA), an estimated 400,000 borrowers in danger of losing their homes will be able to refinance into more affordable government-insured mortgages. The program offers government insurance to lenders who voluntarily reduce mortgages for at-risk homeowners to at least 90% of the property’s current value.
Q: When will the program begin?
A: The program will begin on October 1, 2008 and sunset on September 30, 2011. Homeowners in danger of losing their homes before October 1, however, should not wait to contact their loan servicers and should begin applying for federally insured mortgages now.
Q: Who is eligible?
A: To be eligible to participate in this program, a borrower must:
Have a loan on an owner-occupied principal residence. Investors, speculators, or borrowers who own second homes cannot participate in this program.
Have a monthly mortgage payment greater than at least 31 percent of the borrower’s total monthly income, as of March 1, 2008.
Certify that he or she has not intentionally defaulted on an existing mortgage, and did not obtain the existing loan fraudulently.
Not have been convicted of fraud.
Q: How can a homeowner access this new program?
A: Homeowners or a servicer of an existing eligible loan need to contact an FHA-approved lender. The FHA-approved lender will determine the size of a loan that a borrower can reasonably repay and that meets the requirements of the program. If the current lender or mortgage holder agrees to write-down the amount of the existing mortgage and make the new loan affordable, the FHA lender will pay off the discounted existing mortgage. Loans provided under this program must be 30-year fixed rate loans.
Q: Are lenders required to participate in this program?
A: No. The program is completely voluntary for lenders, investors, loan servicers, and borrowers.
Q: How does this law help neighborhoods that have been hit by the foreclosure crisis?
A: The impact of the current crisis has not been isolated to individual borrowers or investors, but has been felt broadly by neighbors, communities, and governments across the nation. The law strengthens neighborhoods hit hardest by the foreclosure crisis by providing $3.9 billion in Community Development Block Grants to states and localities to buy foreclosed homes standing empty, rehabilitate foreclosed properties, and stabilize the housing market.
Q: Will this law be a bailout for speculators, homeowners, investors, and lenders?
A: No. It is narrowly tailored to keep families in their homes. For example:
Only primary residences are eligible: NO speculators, investment properties, second or third homes will be refinanced.
Investors and lenders must take big losses first in order even to participate. The owner of the old mortgage can get a maximum of 90% of the current value of the home (which presumably will be considerably less than the value of the original loan). In many cases the loss will be significantly greater, but 10% is the minimum.
In addition, lenders must waive any penalties or fees, and help pay for the origination and closing costs of the new loans.
Most homeowners will have seen the equity in their homes disappear before being able to refinance under this program. In addition, the FHA will get a portion of any future profits on the house, to make sure the government recoups its investment over the long run.
Q: Will this law reward families who bought homes they could not afford?
A: Many homeowners facing foreclosure were misled, were deceived, or were in other ways the victims of unfair lending practices.
To prevent future abuses by lenders, this law will establish a nationwide loan originator licensing and registration system to set minimum standards for all residential mortgage brokers and lenders. It also strengthens mortgage disclosure requirements to help ensure that borrowers understand their mortgage loan terms.
Q: How will this law make it more affordable to own a home?
A: There are a number of provisions that will make homeownership more affordable:
Creates a refundable tax credit for first-time homebuyers that works like an interest-free loan of up to $7,500 (to be paid back over 15 years).
Grants states $11 billion of additional tax-exempt bond authority in 2008 that they can use to refinance subprime loans, make loans to first-time homebuyers and to finance the building of affordable rental housing.
Raises conforming loan limits for the FHA, Fannie Mae and Freddie Mac to $625,500. Because of the high cost of housing in California, a majority of the state’s residents were previously shut out from these programs. Raising these loan limits will lead to lower interest rates on some loans, greater refinancing opportunities, and enable more borrowers in high cost areas to avoid the type of nontraditional and frequently abusive loans that led to the current crisis.
Provides couples using the standard deduction with up to an additional $1,000 deduction for property taxes ($500 for individuals).
Q: Does the law provide help to those who still cannot afford to own a home?
A: Yes. The bill includes a number of provisions to increase the supply of affordable housing, which has been a major problem in California pre-dating the current foreclosure crisis. For example:
The bill creates a new permanent affordable housing trust fund – financed by Fannie Mae and Freddie Mac and not by taxpayers – to fund the construction, maintenance and preservation of affordable rental housing for low and very low-income individuals and families nationwide in both rural and urban areas.
In addition, the legislation provides a temporary increase in the Low-Income Housing Tax Credit and simplification of the credit to help put builders to work to create new options for families seeking affordable housing alternatives.
-from USA.Gov & the HUD site
Q: How will the law help struggling homeowners keep their homes?
A: Through the Federal Housing Administration (FHA), an estimated 400,000 borrowers in danger of losing their homes will be able to refinance into more affordable government-insured mortgages. The program offers government insurance to lenders who voluntarily reduce mortgages for at-risk homeowners to at least 90% of the property’s current value.
Q: When will the program begin?
A: The program will begin on October 1, 2008 and sunset on September 30, 2011. Homeowners in danger of losing their homes before October 1, however, should not wait to contact their loan servicers and should begin applying for federally insured mortgages now.
Q: Who is eligible?
A: To be eligible to participate in this program, a borrower must:
Have a loan on an owner-occupied principal residence. Investors, speculators, or borrowers who own second homes cannot participate in this program.
Have a monthly mortgage payment greater than at least 31 percent of the borrower’s total monthly income, as of March 1, 2008.
Certify that he or she has not intentionally defaulted on an existing mortgage, and did not obtain the existing loan fraudulently.
Not have been convicted of fraud.
Q: How can a homeowner access this new program?
A: Homeowners or a servicer of an existing eligible loan need to contact an FHA-approved lender. The FHA-approved lender will determine the size of a loan that a borrower can reasonably repay and that meets the requirements of the program. If the current lender or mortgage holder agrees to write-down the amount of the existing mortgage and make the new loan affordable, the FHA lender will pay off the discounted existing mortgage. Loans provided under this program must be 30-year fixed rate loans.
Q: Are lenders required to participate in this program?
A: No. The program is completely voluntary for lenders, investors, loan servicers, and borrowers.
Q: How does this law help neighborhoods that have been hit by the foreclosure crisis?
A: The impact of the current crisis has not been isolated to individual borrowers or investors, but has been felt broadly by neighbors, communities, and governments across the nation. The law strengthens neighborhoods hit hardest by the foreclosure crisis by providing $3.9 billion in Community Development Block Grants to states and localities to buy foreclosed homes standing empty, rehabilitate foreclosed properties, and stabilize the housing market.
Q: Will this law be a bailout for speculators, homeowners, investors, and lenders?
A: No. It is narrowly tailored to keep families in their homes. For example:
Only primary residences are eligible: NO speculators, investment properties, second or third homes will be refinanced.
Investors and lenders must take big losses first in order even to participate. The owner of the old mortgage can get a maximum of 90% of the current value of the home (which presumably will be considerably less than the value of the original loan). In many cases the loss will be significantly greater, but 10% is the minimum.
In addition, lenders must waive any penalties or fees, and help pay for the origination and closing costs of the new loans.
Most homeowners will have seen the equity in their homes disappear before being able to refinance under this program. In addition, the FHA will get a portion of any future profits on the house, to make sure the government recoups its investment over the long run.
Q: Will this law reward families who bought homes they could not afford?
A: Many homeowners facing foreclosure were misled, were deceived, or were in other ways the victims of unfair lending practices.
To prevent future abuses by lenders, this law will establish a nationwide loan originator licensing and registration system to set minimum standards for all residential mortgage brokers and lenders. It also strengthens mortgage disclosure requirements to help ensure that borrowers understand their mortgage loan terms.
Q: How will this law make it more affordable to own a home?
A: There are a number of provisions that will make homeownership more affordable:
Creates a refundable tax credit for first-time homebuyers that works like an interest-free loan of up to $7,500 (to be paid back over 15 years).
Grants states $11 billion of additional tax-exempt bond authority in 2008 that they can use to refinance subprime loans, make loans to first-time homebuyers and to finance the building of affordable rental housing.
Raises conforming loan limits for the FHA, Fannie Mae and Freddie Mac to $625,500. Because of the high cost of housing in California, a majority of the state’s residents were previously shut out from these programs. Raising these loan limits will lead to lower interest rates on some loans, greater refinancing opportunities, and enable more borrowers in high cost areas to avoid the type of nontraditional and frequently abusive loans that led to the current crisis.
Provides couples using the standard deduction with up to an additional $1,000 deduction for property taxes ($500 for individuals).
Q: Does the law provide help to those who still cannot afford to own a home?
A: Yes. The bill includes a number of provisions to increase the supply of affordable housing, which has been a major problem in California pre-dating the current foreclosure crisis. For example:
The bill creates a new permanent affordable housing trust fund – financed by Fannie Mae and Freddie Mac and not by taxpayers – to fund the construction, maintenance and preservation of affordable rental housing for low and very low-income individuals and families nationwide in both rural and urban areas.
In addition, the legislation provides a temporary increase in the Low-Income Housing Tax Credit and simplification of the credit to help put builders to work to create new options for families seeking affordable housing alternatives.
-from USA.Gov & the HUD site
New Freddie Mac Incentives
Freddie Mac on Thursday said it is boosting incentives to mortgage servicing companies to help more borrowers renegotiate loans in an effort to curb rising delinquencies.
Freddie Mac, a government-chartered company, will also increase the time it gives mortgage servicers to negotiate with delinquent borrowers in Washington, D.C., and 20 states to 300 days from a range of 120 to 299 days, a spokeswoman said. The states are those with relatively fast foreclosure processes, Freddie Mac said.
Freddie Mac is struggling to contain billions of dollars in losses sustained since mid-2007 as the housing slump deepened more than expected. Speculation that losses will severely pinch capital positions at the company and rival Fannie Mae, led to sharp drops in their share prices since May and legislation this week to provide emergency financial backstops from the U.S. Treasury.
Delinquencies on loans guaranteed by Freddie Mac more than doubled in the year through May to 0.86 percent. The most recent national delinquency rate calculated by the Mortgage Bankers Association is 6.35 percent, Freddie Mac said.
Compensation to loan servicers that negotiate new payment plans and loan contracts will double to $500 and $800, respectively, Freddie Mac said. For a servicer that completes a so-called short-sale, in which Freddie Mac accepts a sale price on a home below the balance of the mortgage, payments also double, to $2,200. Accepting short sales can result in lower losses for lenders by ending the delinquency period and preventing ownership of the property through foreclosure.
Among new incentives, Freddie Mac said it will reimburse servicers for the cost of door-to-door programs — in which services seek out troubled borrowers in person to discuss renegotiating their loans — if they result in the borrower contacting the servicer.
Servicers have also been hurt since they must advance payments to investors even if the loan is in arrears, and as they hire more skilled workers to negotiate with borrowers and re-underwrite loans.
Servicing companies, often units of major lenders, this week said they increased the number of mortgages they have modified to more affordable terms last quarter.
Source: Reuters 2008
Freddie Mac, a government-chartered company, will also increase the time it gives mortgage servicers to negotiate with delinquent borrowers in Washington, D.C., and 20 states to 300 days from a range of 120 to 299 days, a spokeswoman said. The states are those with relatively fast foreclosure processes, Freddie Mac said.
Freddie Mac is struggling to contain billions of dollars in losses sustained since mid-2007 as the housing slump deepened more than expected. Speculation that losses will severely pinch capital positions at the company and rival Fannie Mae, led to sharp drops in their share prices since May and legislation this week to provide emergency financial backstops from the U.S. Treasury.
Delinquencies on loans guaranteed by Freddie Mac more than doubled in the year through May to 0.86 percent. The most recent national delinquency rate calculated by the Mortgage Bankers Association is 6.35 percent, Freddie Mac said.
Compensation to loan servicers that negotiate new payment plans and loan contracts will double to $500 and $800, respectively, Freddie Mac said. For a servicer that completes a so-called short-sale, in which Freddie Mac accepts a sale price on a home below the balance of the mortgage, payments also double, to $2,200. Accepting short sales can result in lower losses for lenders by ending the delinquency period and preventing ownership of the property through foreclosure.
Among new incentives, Freddie Mac said it will reimburse servicers for the cost of door-to-door programs — in which services seek out troubled borrowers in person to discuss renegotiating their loans — if they result in the borrower contacting the servicer.
Servicers have also been hurt since they must advance payments to investors even if the loan is in arrears, and as they hire more skilled workers to negotiate with borrowers and re-underwrite loans.
Servicing companies, often units of major lenders, this week said they increased the number of mortgages they have modified to more affordable terms last quarter.
Source: Reuters 2008
Monday, September 22, 2008
Monday, September 15, 2008
Gov Takeover Of Fannie and Freddie
What the Government Takeover of Fannie Mae and
Freddie Mac Means to the Housing Industry
Click Here To See Article
Below is a statement issued by the National Association
of REALTORS® on the Department of
Treasury takeover of mortgage giants Fannie Mae
and Freddie Mac. It is important that Minnesota
REALTORS® have information about the action
and how this step might influence the housing
marketplace. Your clients and consumers may
have questions about how this action will impact
their housing decisions. In the next few weeks,
Minnesota REALTORS® will have additional contact
with Minnesota housing consumers through
the Fall Parade of Homes event. Some may have
questions or concerns about the conservatorship
and you should have some knowledge about the
actions and where consumers can find more information.
On the MNAR website, www.mnrealtor.com, you
will find two additional pieces of information
about the conservatorship, including a broad Q
& A. There is a document from Federal Housing
Finance Agency Director James Lockhart discussing
why the Treasury Department took these
steps to shore up Fannie Mae and Freddie Mac.
The second piece is a detailed question and answer
sheet about conservatorship and what it
means to the financial giants. ....
Click Here To See Article
Freddie Mac Means to the Housing Industry
Click Here To See Article
Below is a statement issued by the National Association
of REALTORS® on the Department of
Treasury takeover of mortgage giants Fannie Mae
and Freddie Mac. It is important that Minnesota
REALTORS® have information about the action
and how this step might influence the housing
marketplace. Your clients and consumers may
have questions about how this action will impact
their housing decisions. In the next few weeks,
Minnesota REALTORS® will have additional contact
with Minnesota housing consumers through
the Fall Parade of Homes event. Some may have
questions or concerns about the conservatorship
and you should have some knowledge about the
actions and where consumers can find more information.
On the MNAR website, www.mnrealtor.com, you
will find two additional pieces of information
about the conservatorship, including a broad Q
& A. There is a document from Federal Housing
Finance Agency Director James Lockhart discussing
why the Treasury Department took these
steps to shore up Fannie Mae and Freddie Mac.
The second piece is a detailed question and answer
sheet about conservatorship and what it
means to the financial giants. ....
Click Here To See Article
Wednesday, September 10, 2008
NAR Statement about Fannie Mae & Freddie Mac
NAR Statement:
What the Government Takeover of Fannie Mae and Freddie Mac Means to Housing Industry
In short-term, home sales should improve as mortgage rates fall.
Washington, D.C. (September 8, 2008) — The federal government's takeover of secondary mortgage giants Fannie Mae and Freddie Mac should cause a drop in mortgage rates in the short term that benefits home buyers, but the long-term outlook is too early to call. NAR fully supports the action of the U.S. Treasury and the Federal Housing Finance Agency.
The federal government had no choice. The capital situation of the tow companies was not enough to handle the fallout from rising mortgage defaults in the near future. In addition, investors who purchase Fannie Mae and Freddie Mac debt have lost confidence in the two.
In a statement, NAR commended the Treasury's action, announced yesterday, to bring stability and continued liquidity to the mortgage market. "The plan will help restore confidence in the secondary mortgage market," said NAR President Richard F. Gaylord. "We appreciate the steps taken to calm the market, make mortgages more widely available and protect taxpayers. We look forward to working with the administration and Congress to ensure the continued vibrancy of the secondary mortgage market."
Summary of what the Treasury actually did and what it means:
In the takeover, Treasury placed the GSEs into a conservatorship — similar to a Chapter 11 bankruptcy — which fully protects taxpayers from conflicts of interest between taxpayers and shareholders or current management.
The federal government is authorized to take up to an 80 percent stake in the companies, will review their financial condition quarterly, and inject money into the operations as needed. That means the market for GSE securities will be treated more like Treasury obligations, which should push mortgage interest rates down. That in turn, is expected to speed up home sales and help stabilize home prices.
The GSEs will be allowed to increase their mortgage funding over the next year and a half to help stabilize markets. Starting in 2010, the plan calls for them to reduce their portfolios.
The heads of Fannie Mae and Freddie Mac have been relieved of their duties. Treasury selected HErbert Allison, former Merrill Lynch vice chairman, to lead Fannie Mae and David Moffett, former U.S. Bancorp CFO, to guide Freddie Mac.
Talking Points
NAR, as the leading advocate for homeownership and housing issues, has closely monitored the market turmoil affecting the stock and debts of the two government-sponsored enterprises (GSEs) - Fannie Mae and Freddie Mac. Their mission is crucial to the economy to make fair and affordable mortgages available to home owners and home buyers. That mission must not be interrupted.
Fannie Mae and Freddie Mac play a vital role in the U.S. economy by making fair and affordable mortgage loans available for home buyers and owners. That must not be interrupted. Treasury Secretary Henry M. Paulson Jr. and James B. Lockhart III, director of the Federal Housing Finance Agency that regulates Fannie Mae and Freddie Mac, have issued strong statements assuring the public that credit will continue to flow over the next 12 to 18 months.
Short term, the takeover will result in government money driving down interest rates, which is expected to spur an increase in home sales.
Long term, the action will lead to a major reorganization of the two GSEs as privately owned models. The brunt of that work will fall to the new administration and new Congress. NAR will help shape that process and the association is already working on a plan to do that.
The action taken by Treasury and FHFA, which regulates GSEs, makes clear the government will not let the deteriorating conditions of the GSEs disrupt the flow of capital to the housing sector, or harm the national and international financial system.
The GSEs guarantee more than 40 percent of the nation's mortgages and own or guarantee more than $5 trillion in mortgages. Since the credit crunch began in August 2007, the private sector mortgage securitizatation market has virtually disappeared and the market share of the GSEs has jumped to about 70 percent.
NAR will continue to follow events closely and develop recommendations on the future of the GSEs' mission to ensure there will be a robust secondary mortgage market in all markets.
For detailed information about this issue, visit
www.realtor.org/gapublic.nsf/pages/gses_conservatorship?OpenDocument
What the Government Takeover of Fannie Mae and Freddie Mac Means to Housing Industry
In short-term, home sales should improve as mortgage rates fall.
Washington, D.C. (September 8, 2008) — The federal government's takeover of secondary mortgage giants Fannie Mae and Freddie Mac should cause a drop in mortgage rates in the short term that benefits home buyers, but the long-term outlook is too early to call. NAR fully supports the action of the U.S. Treasury and the Federal Housing Finance Agency.
The federal government had no choice. The capital situation of the tow companies was not enough to handle the fallout from rising mortgage defaults in the near future. In addition, investors who purchase Fannie Mae and Freddie Mac debt have lost confidence in the two.
In a statement, NAR commended the Treasury's action, announced yesterday, to bring stability and continued liquidity to the mortgage market. "The plan will help restore confidence in the secondary mortgage market," said NAR President Richard F. Gaylord. "We appreciate the steps taken to calm the market, make mortgages more widely available and protect taxpayers. We look forward to working with the administration and Congress to ensure the continued vibrancy of the secondary mortgage market."
Summary of what the Treasury actually did and what it means:
In the takeover, Treasury placed the GSEs into a conservatorship — similar to a Chapter 11 bankruptcy — which fully protects taxpayers from conflicts of interest between taxpayers and shareholders or current management.
The federal government is authorized to take up to an 80 percent stake in the companies, will review their financial condition quarterly, and inject money into the operations as needed. That means the market for GSE securities will be treated more like Treasury obligations, which should push mortgage interest rates down. That in turn, is expected to speed up home sales and help stabilize home prices.
The GSEs will be allowed to increase their mortgage funding over the next year and a half to help stabilize markets. Starting in 2010, the plan calls for them to reduce their portfolios.
The heads of Fannie Mae and Freddie Mac have been relieved of their duties. Treasury selected HErbert Allison, former Merrill Lynch vice chairman, to lead Fannie Mae and David Moffett, former U.S. Bancorp CFO, to guide Freddie Mac.
Talking Points
NAR, as the leading advocate for homeownership and housing issues, has closely monitored the market turmoil affecting the stock and debts of the two government-sponsored enterprises (GSEs) - Fannie Mae and Freddie Mac. Their mission is crucial to the economy to make fair and affordable mortgages available to home owners and home buyers. That mission must not be interrupted.
Fannie Mae and Freddie Mac play a vital role in the U.S. economy by making fair and affordable mortgage loans available for home buyers and owners. That must not be interrupted. Treasury Secretary Henry M. Paulson Jr. and James B. Lockhart III, director of the Federal Housing Finance Agency that regulates Fannie Mae and Freddie Mac, have issued strong statements assuring the public that credit will continue to flow over the next 12 to 18 months.
Short term, the takeover will result in government money driving down interest rates, which is expected to spur an increase in home sales.
Long term, the action will lead to a major reorganization of the two GSEs as privately owned models. The brunt of that work will fall to the new administration and new Congress. NAR will help shape that process and the association is already working on a plan to do that.
The action taken by Treasury and FHFA, which regulates GSEs, makes clear the government will not let the deteriorating conditions of the GSEs disrupt the flow of capital to the housing sector, or harm the national and international financial system.
The GSEs guarantee more than 40 percent of the nation's mortgages and own or guarantee more than $5 trillion in mortgages. Since the credit crunch began in August 2007, the private sector mortgage securitizatation market has virtually disappeared and the market share of the GSEs has jumped to about 70 percent.
NAR will continue to follow events closely and develop recommendations on the future of the GSEs' mission to ensure there will be a robust secondary mortgage market in all markets.
For detailed information about this issue, visit
www.realtor.org/gapublic.nsf/pages/gses_conservatorship?OpenDocument
Sunday, September 7, 2008
Fannie / Freddie Article at foxbusiness.com
Here is an article I found at Fox News.
"Government Seizes Fannie Mae, Freddie Mac
The U.S. government seized control of the mortgage giants Fannie Mae (FNM: 7.04, +0.62, +9.65%) and Freddie Mac (FRE: 5.10, +0.15, +3.03%) on Sunday, placing the liabilities of more than $5 trillion worth of mortgages onto the backs of the U.S. taxpayer.
Both companies have been now been placed into a government conservatorship under the recently created Federal Housing Finance Agency, under a plan announced by Treasury Secretary Henry Paulson and FHFA Director Jim Lockhart.
The chief executives of the mortgage companies – Dick Syron of Freddie Mac and Daniel Mudd of Fannie Mae – have stepped down, but will continue stay on temporarily to oversee the transition, Paulson said. Herb Allison, former chairman of TIAA-CREF, will take over as CEO of Fannie, while U.S. Bancorp (USB: 32.74, +1.09, +3.44%) Chief Executive David Moffett will become CEO of Freddie.
“Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” Paulson said, speaking at a press conference in Washington D.C. on Sunday morning. “A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance."
The Sunday announcement and themes of "too big to fail" brought stark reminders of the government’s March intervention of Bear Stearns, which came within hours of filing for bankruptcy.
It also brings both Fannie Mae, which was created by Congress during the Great Depression to help with home ownership, and Freddie Mac, created in 1970 as a competitor to Fannie Mae, back into the fold of the government after a multi-decade attempt at privatization.
As part of the plan, both Fannie and Freddie’s day-to-day operations will be under the direction of Lockhart. Officials provided no indication of when the government conservatorship will end – that will be up to the health of the U.S. housing economy as well as the next administration.
"Conservatorship will give the enterprises time to restore the balances between safety and soundness and provide affordable housing and stability and liquidity to the mortgage markets," Lockhart said.
As part of the government's plan of taking over the companies, and to protect taxpayers, Paulson said the Treasury will receive $1 billion in senior preferred stock, with a yield of 10% a year, in both Fannie and Freddie, and will also receive "warrant for the purchase of common stock of each company representing 79.9% of the common stock of each company on a fully-diluted basis at a nominal price."
The government’s plan will close to wipe out any worth that common or preferred stock holders have in the two mortgage companies. All dividends for Fannie and Freddie will be eliminated, Paulson said.
All company political lobbying efforts will cease as well.
While under the direction of the government, the two companies will then take additional mortgage-backed securities to help stabilize the mortgage markets through the end of 2009, Paulson said. As the market begins to recover in 2010, both Fannie and Freddie will reduce the size of their mortgage portfolios at a rate of 10% a year.
The ultimate goal is to reduce the size of Fannie and Freddie's mortgage holdings -- around $1.5 billion altogether -- to about $250 billion each.
Now because the government controls the liabilities of Fannie and Freddie, it could potentially cost the taxpayers billions of dollars in losses. However, Paulson emphasized that, because of the long-term value of these securities, the taxpayer would have “a large stake in the future value of these entities.”
"The ultimate cost to the taxpayer will depend on the business results of (Fannie and Freddie) going forward," Paulson said.
The plan was endorsed and planned in cooperation with the Federal Reserve and Congress, including House Financial Committee Chairman Rep. Barney Frank, D-Mass.
“These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets,” said Fed Chairman Ben Bernanke in a statement.
Rating agency Standard & Poor's affirmed Fannie and Freddie's long-term AAA credit rating.
"We believe the government has now clearly reinforced its support of (Fannie and Freddie)," said S&P's credit analyst Victoria Wagner, in a statement.
Democratic Presidential Candidate Sen. Barack Obama, D-Ill., said "given the substantial role that Fannie Mae and Freddie Mac play in our housing system, I believe that some form of intervention is necessary to prevent a larger and deeper crisis throughout the entire economy."
The implications to consumers and taxpayers are not immediately clear. Unlike the bailout of Chrysler in the early 1980s or the Airlines after 9/11 where the amount of money loaned to Corporate America was clear, the U.S. government could be on the hooks for potential losses that could linger for years. Paulson could not provide an estimate of how much the plan would cost taxpayers.
Mortgage rates are expected to be unaffected in the short-term."
"Government Seizes Fannie Mae, Freddie Mac
The U.S. government seized control of the mortgage giants Fannie Mae (FNM: 7.04, +0.62, +9.65%) and Freddie Mac (FRE: 5.10, +0.15, +3.03%) on Sunday, placing the liabilities of more than $5 trillion worth of mortgages onto the backs of the U.S. taxpayer.
Both companies have been now been placed into a government conservatorship under the recently created Federal Housing Finance Agency, under a plan announced by Treasury Secretary Henry Paulson and FHFA Director Jim Lockhart.
The chief executives of the mortgage companies – Dick Syron of Freddie Mac and Daniel Mudd of Fannie Mae – have stepped down, but will continue stay on temporarily to oversee the transition, Paulson said. Herb Allison, former chairman of TIAA-CREF, will take over as CEO of Fannie, while U.S. Bancorp (USB: 32.74, +1.09, +3.44%) Chief Executive David Moffett will become CEO of Freddie.
“Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” Paulson said, speaking at a press conference in Washington D.C. on Sunday morning. “A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance."
The Sunday announcement and themes of "too big to fail" brought stark reminders of the government’s March intervention of Bear Stearns, which came within hours of filing for bankruptcy.
It also brings both Fannie Mae, which was created by Congress during the Great Depression to help with home ownership, and Freddie Mac, created in 1970 as a competitor to Fannie Mae, back into the fold of the government after a multi-decade attempt at privatization.
As part of the plan, both Fannie and Freddie’s day-to-day operations will be under the direction of Lockhart. Officials provided no indication of when the government conservatorship will end – that will be up to the health of the U.S. housing economy as well as the next administration.
"Conservatorship will give the enterprises time to restore the balances between safety and soundness and provide affordable housing and stability and liquidity to the mortgage markets," Lockhart said.
As part of the government's plan of taking over the companies, and to protect taxpayers, Paulson said the Treasury will receive $1 billion in senior preferred stock, with a yield of 10% a year, in both Fannie and Freddie, and will also receive "warrant for the purchase of common stock of each company representing 79.9% of the common stock of each company on a fully-diluted basis at a nominal price."
The government’s plan will close to wipe out any worth that common or preferred stock holders have in the two mortgage companies. All dividends for Fannie and Freddie will be eliminated, Paulson said.
All company political lobbying efforts will cease as well.
While under the direction of the government, the two companies will then take additional mortgage-backed securities to help stabilize the mortgage markets through the end of 2009, Paulson said. As the market begins to recover in 2010, both Fannie and Freddie will reduce the size of their mortgage portfolios at a rate of 10% a year.
The ultimate goal is to reduce the size of Fannie and Freddie's mortgage holdings -- around $1.5 billion altogether -- to about $250 billion each.
Now because the government controls the liabilities of Fannie and Freddie, it could potentially cost the taxpayers billions of dollars in losses. However, Paulson emphasized that, because of the long-term value of these securities, the taxpayer would have “a large stake in the future value of these entities.”
"The ultimate cost to the taxpayer will depend on the business results of (Fannie and Freddie) going forward," Paulson said.
The plan was endorsed and planned in cooperation with the Federal Reserve and Congress, including House Financial Committee Chairman Rep. Barney Frank, D-Mass.
“These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets,” said Fed Chairman Ben Bernanke in a statement.
Rating agency Standard & Poor's affirmed Fannie and Freddie's long-term AAA credit rating.
"We believe the government has now clearly reinforced its support of (Fannie and Freddie)," said S&P's credit analyst Victoria Wagner, in a statement.
Democratic Presidential Candidate Sen. Barack Obama, D-Ill., said "given the substantial role that Fannie Mae and Freddie Mac play in our housing system, I believe that some form of intervention is necessary to prevent a larger and deeper crisis throughout the entire economy."
The implications to consumers and taxpayers are not immediately clear. Unlike the bailout of Chrysler in the early 1980s or the Airlines after 9/11 where the amount of money loaned to Corporate America was clear, the U.S. government could be on the hooks for potential losses that could linger for years. Paulson could not provide an estimate of how much the plan would cost taxpayers.
Mortgage rates are expected to be unaffected in the short-term."
Tuesday, September 2, 2008
Mortgage Rates Improve Despite Strong Data
This is a blurb from a newsletter I received from one of my lenders. Hope you find it as interesting as I did.
Mortgage Rates Improve Despite Strong Data
This week's economic data showed higher than expected levels of economic growth and inflation. A weaker dollar has boosted the manufacturing sector and overall economic activity over recent months. Revisions made to second quarter Gross Domestic Product (GDP) showed stronger than expected growth of 3.3%, far above the original reading of 1.9%. Durable Orders and the Chicago PMI national manufacturing index also far exceeded the consensus forecasts. The dollar has risen against other currencies this month and many foreign economies are slowing, so investors expect exports to fall later in the year. Investors seem to have focused on the outlook for lower future readings, rather than this week's unexpectedly strong data, and mortgage rates improved during the week.
The story is similar for inflation. The July Core PCE price index, the Fed's preferred inflation indicator, rose to a 2.4% annual rate. The Fed would like to see this reading drop below 2.0%. With slowing worldwide economic growth and the recent drop in oil prices, many investors believe that this will happen. This week's release of the Fed minutes from the August 5 meeting confirmed that Fed officials expect inflation to moderate as well.
In the housing market, the news was mixed. July Existing Home Sales rose 3%. For several months now, activity levels have held above the recent lows. Inventories of unsold homes climbed to a record high, however. July New Home Sales fell slightly.
Mortgage Rates Improve Despite Strong Data
This week's economic data showed higher than expected levels of economic growth and inflation. A weaker dollar has boosted the manufacturing sector and overall economic activity over recent months. Revisions made to second quarter Gross Domestic Product (GDP) showed stronger than expected growth of 3.3%, far above the original reading of 1.9%. Durable Orders and the Chicago PMI national manufacturing index also far exceeded the consensus forecasts. The dollar has risen against other currencies this month and many foreign economies are slowing, so investors expect exports to fall later in the year. Investors seem to have focused on the outlook for lower future readings, rather than this week's unexpectedly strong data, and mortgage rates improved during the week.
The story is similar for inflation. The July Core PCE price index, the Fed's preferred inflation indicator, rose to a 2.4% annual rate. The Fed would like to see this reading drop below 2.0%. With slowing worldwide economic growth and the recent drop in oil prices, many investors believe that this will happen. This week's release of the Fed minutes from the August 5 meeting confirmed that Fed officials expect inflation to moderate as well.
In the housing market, the news was mixed. July Existing Home Sales rose 3%. For several months now, activity levels have held above the recent lows. Inventories of unsold homes climbed to a record high, however. July New Home Sales fell slightly.
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