Fannie Mae & Freddie Mac takeover

Last week Barons as well as The New York Times reported that the 2 GSEs were under considerable pressure to bring in additional capital. In just last week, total losses in value for Fannie Mae was 45% & 30% for Freddie Mac & both have reported $11 billion in losses in the last couple of months. The New York Times reported that if their problems continued Bush administration was taking into consideration plans of their take over and placing them in a conservatorship.

If any of them is placed in conservatorship, its stock value will be next to nothing and the losses on mortgage loans they guarantee or own will be paid by taxpayers. Right now both companies guarantee or own $5 trillion of debt and about one-half of all residential mortgage loans.

The 2 GSEs are facing difficult situation. If they go for new stock issue for raising capital, they would be diluting shareholder's equity. Right now borrowing costs for both of them have increased as their viability is being reevaluated by debt markets.

Regarding conservatorship, any of the 2 GSEs can be placed into conservatorship if their regulator which is Office of Federal Housing Enterprise Oversight (OFHEO) finds that the GSE is ctitically undercapitalized.

Subprime portfolio by year of issue

In the following chart we see the percentage of subprime portfolio issue in the last few years. As can be seen from the chart, the maxmimum percentage issue has been in year 2004 followed by year 2006.

CIT Group selling home lending business

Recently CIT Group announced that it is selling its manufactured housing division as well as home lending business.

The home lending business with total assets at $9.3 billion & its servicing operations will be taken over by Lone Star Funds for about $1.5 billion. Alongwith it they will also assume debts of CIT Group to the tune of $4.4 billion. The manufactured housing division will be acquired for about $300 million by Vanderbilt Mortgage & Finance, Inc.

From April CIT sold its assets in excess of $2 billion & also secured long term financing of $3 billion from Goldman Sachs. CIT Group also declared that it was expecting to report pretax losses of around $2.5 billion in the second quarter in its home lending business.

Chairman & CEO of CIT Group, Jeffrey Peek has said that -

Nationwide Mortgage Licensing System Expanding

From July 1st, 2008 when another 6 states start using the Nationwide Mortgage Licensing System, the NMLS will be in use in total by 14 states. According to Conference of State Bank Supervisors (CSBS) & American Association of Residential Mortgage Regulators (AARMR), the 6 states that are starting to use the NMLS are -

1. North Carolina
2. Vermont
3. Connecticut
4. Mississippi
5. New Hampshire
6. Louisiana

At present forty two state agencies that represent forty states have confirmed their future participation. The eight other states that are presently using the NMLS are -

1. Iowa
2. New York
3. Washington
4. Nebraska
5. Idaho
6. Massachusetts
7. Rhode Island
8. Kentucky

The Nationwide Mortgage Licensing System is a web based system which is used by state-licensed lenders, loan officers & brokers to apply online for license and amend, update or renew it for all the participating state run agencies through only one set of uniform applications.

Right now NMLS is managing following licensed mortgage brokers & lenders -

1. 3557 Branch Locations
2. 16,867 Loan Officers
3. 5145 Companies

This licensing system is used by mortgage regulators to accept & process applications for license and also renewal forms developed by states. Through this system, license holders can manage a single record to apply for, renew, amend & surrender their licenses with any of the state residential mortgage regulators.

Increase in annual home foreclosures

According to a report by RealtyTrac, home foreclosures have grown by seven percent in May & have increased by forty eight percent annually and in total there were 261,255 foreclosure filings in May.

Nevada was in the forefront with highest monthly foreclosure rate & 9009 filings. This was a twenty four percent increase from last month & a seventy two percent increase annually.

With 11% monthly foreclosure rate growth , California is next to Nevada and the annual increase was at 81%. Next was Arizona with 12% monthly foreclosure rate growth over last month & a 119% increase annually.

Another important point highlighted in the report is that the bank repossessions have continued their climb & had a double-digit percentage increase as compared to last month. As a result, bank inventories have swelled to over 700,000 homes.

Operation Malicious Mortgage

The DOJ & FBI in a press conference have announced that they have arrested more than 400 real estate industry persons for incidences of mortgage fraud. These arrests were in Atlanta, suburban Maryland and Chicago among other locations & people arrested included loan originators, borrowers & real estate agents.

With this sweep, code named "Operation Malicious Mortgage" FBI has estimated that about $1 billion of losses resulted because of the fraud schemes that were employed. In these cases the most common type of mortgage frauds that were used were; forgery of documents, misstatement of assets or income, inflated appraisals & misrepresentation of mortgage buyer's intention of using the house as his primary residence.

Good credit score and mortgage savings

In the following figure we see how much can be saved in mortgage payments if we have good credit score. The last column reflects the amount a person can save over the full term of the mortgage loan if credit score is 760 or higher. The values shown are for national average mortgage rates on a 30 yr frm for a loan of $165,000.

Reward credit cards

Many people wonder about what reward credit cards are, so in this article we will look at some important facts about such cards.

Use your credit card and be rewarded for it, this is what basically rewards credit cards offer. But such cards have few aspects which consumers should know if they would like to increase benefits on their cards. Some of the important things to keep in mind are, choose the right card, know about the promotional rates, whether rebates are given on daily purchases, & interest rate on such rewards cards.

Selecting the right card is important & nowadays almost all such credit cards offer similar benefits with nearly 95% of such cards offering one percent cash back on your spendings be it by way of points, miles or cash. While selecting a card one has to select a credit card that will offer cash back greater than 1%. Another thing is that it takes a bit of time to earn rewards that can be redeemed for anything valuable so selecting a card which provides rebates on daily purchases is important.

Rewards plastics always have higher rates of interest so in case anyone has to pay interest charges for even 1 month , it will easily wipe off all rewards that might have been earned on the card. So, at the time of applying for such rewards cards one should make sure that he would be able to pay it in full each month.

While searching for more information about such reward cards I found a good site explaining the various merits & demerits of such rewards on credit cards - Benefits of excellent Credit Report. People looking at such rewards cards should go through the article on this site to develop an understanding of how these rewards cards work & what they should be aware of.

Mortgage delinquency rate at 29 year high

According to National Delinquency Survey by MBA, mortgage delinquency has jumped fifty three basis points in the 1st quarter of this year to 6.35% of all the outstanding mortgage loans from what it was in the previous quarter. More importantly, from 1 year ago, it has increased by 151 basis points.

The report has been developed on the basis of a sample of more than forty four million mortgage loans serviced by commercial banks, credit unions, mortgage companies, thrifts & others.

It has now become the highest delinquency rate ever recorded for the index with the previous high being 6.07%, recorded in 1985.

Jay Brinkmann, who is Vice President, Research & Economics at MBA said that magnitude of this nationwide increase in delinquency rate is driven by certain states & certain mortgage loan types. Brinkmann also added that increase in foreclosure rate has been led by those states which have seen largest decline in prices in the last 2 years.

As per the report total rate of delinquencies rose -

1.For prime rates to 3.71% which was 3.24% in last quarter and
2.For subprime rates to 18.79% which was 17.31% in last quarter.

Also, the total foreclosure rate increased to 2.47%, which was 2.04% in the last quarter.

Credit rating agencies to change core business practices

As per a press release from New York Times, 3 of country's largest credit rating firms, Moody's Investors Service, Fitch Ratings and Standard & Poor's, are going to have an agreement with NY AG, Andrew M. Cuomo to change few of their core business practices because of which these firms were under scrutiny from New York Attorney General's office.

These 3 firms had played a critical role which caused the mortgage securities mess by awarding certain type of security packages Triple-A ratings allowing investors like insurance companies & pension funds to purchase them.

According to the present procedures banks are allowed to shop for suitable ratings as they have to pay only if the rating is acceptable to them. For some years now charges regarding conflict of interest have been raised as investment banks were paying for the credit ratings but earlier, those who were purchasing the mortgage loans, the investors, used to hire & pay for the credit rating services.

According to the proposed agreement, credit rating agencies would be required to stage their fees for all the steps leading up to the credit rating as well as for the credit rating itself. In addition to it, every 3 months the credit rating agencies will have to report on all deals that they were given to rate & all that they actually rated.

Mortgage debt growth

The following chart shows the total mortgage debt that is outstanding & the steep rise in the outstanding balance we have seen in the last few years which is quite alarming.

Hurricane coverage may fall victim to mortgage crisis and credit crunch

Mortgage crisis has created concerns which can impact houseowners. A.M. Best Company, a credit rating organization working for financial industries has speculated that mortgage crisis & credit crunch can affect ability of coverage of claims by insurers & re-insurers which result from coastal disasters.

A.M. Best Company has issued a special report in which it has been mentioned that investors are showing less appetite towards capital market offerings which are designed for raising cash to meet claims payments in case any major hurricane strikes the coastal regions.

In the report it has also said that insurers are usually exposed to properties foreclosed by lending companies or abandoned because of the crisis in hurricane-prone regions. According to estimates, over one-half million properties exist in costal regions from Maine to Texas & Florida alone has more than 100,000 properties which are in foreclosure.

State-backed insurance pools which exist in some states such as Texas, Florida & Louisiana can be at more risk. Florida's state-backed reinsurer & its largest insurer are dependent on bond sales after any disaster for coverage of any shortfall & they may not be able to pay all claims arising from any major disaster immediately.

Coastal regions had a respite as there have been no major storms for 2 years, so private insurers were able to rebuild surpluses & capital, particularly in states like Florida. Florida Hurricane Catastrophe Fund is trying to find other ways of building its reserves but if FHCF has trouble raising money then insurers can incur credit risk for reinsurance recoverables which are tied to Florida Hurricane Catastrophe Fund & there can be delay in meeting claims payments for policyholders.

A.M. Best Company in its report also warned that it may be required to rely on federal & state funds if state backed insurers are not able to pay claims.

Acquisition of Bear Stearns by JPMorgan

Federal Reserve Bank of NY has announced that it is going to complete the financing of Bear Stearns's acquisition by JP Morgan by the end of next month (recently shareholders of Bear Stearns have approved investment bank's sale to JP Morgan for $2.3 billion) & also finish portfolio valuation of the investment bank.

NY Fed is making operational arrangements which will be necessary for successful transfer of the portfolios. The portfolio of assets will be properly managed so that recovery value is maximized & disruption in financial markets is minimized.

Monthly savings & low APR credit cards

Before taking a mortgage borrowers have to evaluate how much loan they are capable of taking considering the fact that they also have other monthly obligations.

One large portion of our expenses are related to credit card debts and if correct card types are selected having low annual percentage rate (APR) then borrowers can have larger share of their income available for investing in mortgage debt.

Borrowers with good credit scores have more chances of being approved for Low APR credit cards but due to competitive market situations borrowers with average to moderate credit history also stand a chance of being approved for good low apr cards.

One online resource providing more detailed explanation of various low rate credit cards available in the market with their features and also the option to apply online is "http://www.allaboutcredit.net/Low-Rate-Credit-Cards-991373-page.php". Borrowers who really want to streamline their monthly expenditures by reducing how much they pay on their cards & have more savings that can be used in repaying their mortgage debt should go through the details provided in this website.

Mortgage recovery would be aided by stronger banking regulations

Fed Governor Randall Kroszner has commented that slowly the mortgage market will recover & the main key factor to the recovery will be better risk management.

Kroszner asked banks to take measures to limit the present foreclosure crisis, with less complexity in instruments of credit & greater transparency. According to him partial blame has to borne by investors who got attracted to these structured securities but had no knowledge of underlying risk profiles.

He said that -

New Fannie Mae Program to help underwater borrowers

This program is for borrowers who owe more on the mortgage loan than its underlying security (the home) is presently worth.

Under this program existing lenders will not be required to write-down mortgage loans to such a level where refinancing would be feasible. Instead Fannie Mae will refinance new mortgages which would be adequate to cover the existing mortgage debt & refinance will be up to 120% LTV.

This program will cover mortgages which are paid to date & Fannie Mae insures or owns them.

For borrowers this may result in reduced payment due to reduced rate of interest, slightly extended amortization period or a fixed interest rate and it has been estimated that 150,000 homeowners will get help from this program.

FHA Housing and Homeowner Retention Act

Federal Housing Administration's bill, H.R. 5830 named as FHA Housing and Homeowner Retention Act was passed by House Financial Services Committe of the House of Representatives recently. This Act will result in availability of around $300 billion for borrowers who are facing foreclosure in the form of federally insured mortgages.

According to this Act, Federal Housing Administration would guarantee a new mortgage for borrowers facing foreclosure if the present lender agrees to accept short payment as full repayment of the mortgage. The new mortgage can be for up to 90% LTV & should have terms that borrower can afford.

After taking the new mortgage if borrower refinances or sells the home, from profits made he will have to pay a declining % of any net proceeds which are related to house appreciation (from 100% in year 1 to 50% in years 4 & beyond) or an exit fee which is equal to 3% of the original amount of the mortgage, whichever is larger.

It is estimated that because of this new Act almost 1.5 million borrowers who are facing trouble with their present mortgage will be benefitted.

Barney Frank (D-MA), who is the Chairman of House Financial Services Committe, targetting mortgage loan servicers said -

New rules for lenders proposed by FTC and FED

Federal Trade Commission & Federal Reserve have proposed new rules under which lenders would be required to inform borrowers about changes or unfavorable developments in loan terms.

Under the new regulations, lenders will be provided with the option to divulge borrower's credit risk rating.

In a press release from FED it has ben mentioned that -

Home improvement loans

Some great deals are available on home improvement loans these days and the money you receive can be used for countless home improvements.

David Ness, a roofing contractor in Boston says he's seen a large increase in his customers taking on large projects with the help of home improvement loans.

Whether you decide to install central air conditioning, remodel a kitchen, or replace a roof this type of loan is a fantastic way to accomplish the work and take advantage of affordable repayments.

Take the time to compare all of the different home improvement loans out there to make sure that you get the best deal for what you would like to achieve. The better the offer, the less your repayments will be and the more you will be able to borrow to make sure the work gets done right.

ARM loan reset schedule

The following graph shows the different type of ARM loans (both securitized as well as non-securitized) due to reset in the coming one year. As can be seen in the graph, in the coming couple of months bulk of ARM resets to happen are for sub prime mortgage loans.

Prevent more foreclosures

For prevention of more homes going into foreclosure, Randall Kroszner, Fed Governor has said that lenders need to lower interest rates on mortgages & also lower the principal amount for home owners where home prices have gone down below loan value on their loan.

At the time of testifying before HFSP (Home Financial Services Panel), Governor Kroszner urged Congress to take immediate steps for reconciling & enacting FHA modernization legislation which would allow Federal Housing Administration to increase its scale & improve upon management of risks that exists for the government. He also said that GSEs can do more in this regard by increasing their capital & imphasized the need for the government to move ahead with legislation on GSE reform and creation of regulator for GSEs.

Can a credit card affect your mortgage approval?

There is no doubt that mortgage market is very unstable right now & lenders are very strict on whom they approve for a mortgage. If you are looking for a mortgage, your credit score and debt to income ratio need to be good.

I have seen many people spoil there credit score by unplanned use of credit cards, taking too many credit cards and not keeping payments current on them. For lenders your payment capacity as well as payment history is important and such irresponsible use of credit card debt can ruin your chances of getting approved for a mortgage.

Before applying for a credit card there are many things to look into and decide which would be the best option to select. Various websites offer information and guidance on which type of card to select and also the best credit offers presently available in the market.

One such site is www.low-interest-rate-visa-credit-cards.com which has a discussion board named, Immediate credit card care service, where people can post there queries and get answers. There are answers in their databank to plenty of common question that one should be aware of before applying for credit plus the option of posting there own questions if the existing replies do not answer there specific questions.

I spent some time in that section and the answers given there are quite descriptive, not like one liners found in many card help forums. People wishing to get some knowledge about credit cards & the offers presently available should visit this site.