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.

Losses for Wachovia

Wachovia has lost $.20/share or $350 million in the 1st quarter & in comparison it had earned $1.20/share in 1st quarter of 2007. The loss was mainly due to $2.1 billion in setting provisions against credit losses & asset write-downs to the tune of $2 billion.

Wachovia's problems started after it purchased a CA mortgage lender & bank - Golden West for $25.5 billion 2 years back. This acquisition exposed the company to aggressive lending practices & included more emphasis placed on Option ARMs & Interest Only mortgage loans. The bank apart from being hit by increased delinquencies in its mortgage loans mainly in CA, is also facing losses in its credit card, auto & home equity businesses.

Repayment schedule for a 6 year amortized mortgage

The following figure shows repayment schedule for a 6 yr. $1000 amortized mortgage loan having 9% interest for those who are interested in knowing the amortization schedule for such type of mortgages.

Sub prime mortgage loans yet to reset

According to statistics about $800 billion of sub prime mortgage loans are yet to reset -

Mortgage affordability

The following graph shows mortgage affordability as per borrower's income -

Housing Rescue Bill

This bill will help houseowners facing foreclosure. Some of the features of the bill are:

1. 
   New standard property tax deduction of $500 for individuals and double that for couples who do not itemize deductions.


2. 
   There will be a $7000 1-year tax credit for purchasing foreclosed homes.


3. 
   For use as low-income rentals or for buying foreclosed property for reselling, local government to get grants amounting to $4 billion.


4. 
   For refinancing sub-prime loans, local housing agencies would be able to avail $10 billion in tax exempt bonds & $100 million for expanding counseling for people who are at risk of default.


5. 
   FHA loans will have down payment requirement up at 3.5% from present 3%.

Fed Discount window for investment banks

Investment banks have borrowed $10.341 billion from Fed's primary dealer credit facility known as discount window. Dealers also borrowed $92.658 billion under TSLF, Term Securities Lending Facility.

U.S. Treasury Securities are lent which have a 28 day term by Term Securities Lending Facility to primary dealers using a auction process.

Home price decline continues

S&P/Case-Shiller Home Price Indices tracks 2 different indices, ten & twenty metropolitan statistical areas across the country & is released by Standard & Poor's. The report released in January indicates that nationwide price decline for existing family homes has continued into this year also. Sixteen of the twenty metropolitan statistical areas (MSAs) in the survey have reported record declines with 10 of them reaching double digits.

Both 20-City & 10-City Composite Indices now report annual declines exceeding 10%. The 20-City has reported a decline of 10.7% & the 10-City a record annual decline of 11.4%.

Just few months back also Miami & Las Vegas were the boom cities, now price-wise, are the weakest cities in January. Miami & Las Vegas have showed decline in prices year-over-year of 19.3% and Phoenix at 18.2% is closely following these two cities in price declines.

Some other metropolitan statistical areas having double-digit price declines include Los Angeles (16.5%), San Diego (16.7%), Detroit (15.1%), Minneapolis (10%), Washington (10.9%), Tampa (15%), & San Francisco (13.2%).

The base year used by the indices is 2000, & number 100 is assigned to year 2000. So, a present score of 150 will indicate a 50% appreciation in price in last 8 years. The score for 20-City Composite is 180.65 & the 10-City 196.06. With this long view of Home Price Indices data, homeowners in many metropolitan statistical areas are still counting their blessings as some of the worst hit cities as per the present performance are even now showing remarkable appreciation since year 2000, like Log Angeles (224.21), Miami (225.40) & Las Vegas (186.05).

In his remarks on survey results, David M. Blitzer, Chairman of the Index Committee at Standard & Poor's said;

Capital requirement for Fannie Mae & Freddie Mac lowered

In a recent development OFHEO (Office of Federal Housing Enterprise Oversight) announced increase in liquidity of the MBS (Mortgage Backed Securities) market by as much as $200 billion.

According to OFHEO, Fannie Mae & Freddie Mac will be allowed to invest a significant portion of the thirty percent capital surplus they have to maintain into mortgages & mortgage-backed securities. Reduction in capital requirements to 20% has been called as "appropriate" by Office of Federal Housing Enterprise Oversight & it may further reduce this capital requirement in future.

In combination with the increase of portfolio caps this reduction in capital requirement will allow the 2 GSEs (Government Sponsored Enterprises) to guarantee or purchase about $2 trillion in mortgage in this current year. This purchasing capacity will allow the 2 GSEs provide assistance in subprime refinancing, loan modification & also do more of jumbo mortgages, for which they have got permission now.

J.P. Morgan acquires Bear Stearns

J.P. Morgan Chase acquired the investment bank Bear Stearns with a price tag that was a real stunner; it has agreed to pay $2 per share for acquiring Bear Stearns. This purchase price will be paid fully in stock & includes company's forty five storey NY Office Tower. Before the announcement, the price that was talked about was $30 per share. But with $2 per share, the total value of the acquisition, roughly about $236 million is only a fraction of Bear Stearns market value - $3.5 billion.

According to The New York Times, Federal Reserve is providing $30 billion credit line to J.P. Morgan Chase which will be secured by Bear Stearns portfolio less-liquid assets like mortgage securities. In a situation these assets lose more value, Federal Reserve will be affected, not J.P. Morgan.

Bear Stearns was known as one of the biggest gamblers of mortgage securities business. It had provided large lines of credit to many subprime lenders & had underwritten Alt-A mortgages. By last month, foreclosure rate on such mortgage was at 15%, about twice to what was the industry average.

KAMCO to purchase defaulted mortgages in US

Korea Asset Management Corp. has planned to purchase defaulted mortgages in US. KAMCO which is a state-run asset management company was created to settle bad debts of companies which were rescued by government at the time of Asian Financial crisis in 1997-98.

KAMCO has plans of establishing 1 trillion funds in cooperation with financial institutions & local pension funds for investing in US bad debts. It recently sent a group of official with the aim of examining country's debt market & also meet officials of banks run by ethnic Koreans, mortgage lenders & investment banks in LA, NY & FL.

New GFE and changes in RESPA by HUD

A proposed mortgage reform package was recently released by HUD Secretary, Alphonso Jackson for helping borrowers clearly understand terms of mortgage loan they want to take. If enacted, the changes will reform the GFE & thirty year old RESPA, but before that it has to go through a mandatory period of public comment.

One of the main changes is a proposal that lenders & brokers provide borrowers with a standard GFE. The standard GFE when used will enhance disclosure of major aspects of mortgage loan such as,

a.Interest rate & monthly payments
b.Whether mortgage contains balloon payment or prepayment penalty
c.Whether rate & principal balance can go up, if yes, by how much

The new proposals also specify charges which can & cannot change at settlement and if any fee changes, there will be a limit on the amount by which it can change. Another significant feature in the GFE being proposed is that lender payments to brokers known as yield spread premiums will have to be disclosed.

HUD has also proposed legislative changes in RESPA which will give it authority of imposing penalties if some specific sections of RESPA are violated.

The specific sections for which HUD will have authority would be those which deal with:

a.Loan servicing
b.Referral & unearned fees
c.Prohibition against kickbacks
d.Good faith estimate
e.Settlement cost booklet
f.Title insurance
g.Escrow accounts

HUD also wants that

• Secretaries of State as well as other regulators are allowed to seek equitable & injunctive relief if RESPA regulations are violated.
• HUD-1 be delivered to borrowers 3 days before closing
• A uniform statute of limitations be established which would be applicable to both private as well as governmental actions under RESPA.

On why he wants implementation of these proposals, Alphonso Jackson, Secretary of Housing and Urban Development (HUD) has commented that -

HomeSaver Advance program from Fannie Mae

HomeSaver Advance program has been announced by Fannie Mae for helping homeowners delinquent on their mortgages and will be available to all Fannie Mae servicers by April 15, 2008. This program is part of Fannie Mae's larger HomeStay initiative & is an excellent solution for borrowers who are in trouble due to temporary events like medical emergencies.

This program is for borrowers who are capable of continuing their mortgage & would be able to resume normal payments if the arrearage is brought current.

Through HomeSaver Advance program the corporation authorizes its servicers to provide unsecured personal loans which can enable borrowers to recover from payment defaults on Fannie Mae securitized or owned mortgage loans. This unsecured personal loan will have fewer up-front costs & could be put in place quickly.

HomeSaver Advance program will provide funds for payment of past due balances of PITI & also up to 6 months (in some instances twelve months) of HOA fees. Advances for attorney fees & escrow advances are also covered but late fees & few other costs are not eligible under this program.

For getting the funds, borrower has to sign a promissory note payable over a fifteen year term with five percent fixed rate of interest. Additionally, no payments are necessary during first 6 months nor does interest accrue in that 6 months period, so the HomeSaver Advance is amortized over a period of 14.5 years.

A delinquent borrower can get lesser of $15,000 or fifteen percent of the original unpaid balance. This amount is directly applied to arrearage & the borrower does not receive the funds in hand. The cost for the borrower will be the $600 workout fee which is to be paid to servicer.

Proposal to ban use of appraisals arranged by brokers

In a memo distributed to lenders Fannie Mae has proposed ban on use of appraisals arranged by brokers and by a lender's employees.

What this means is that Fannie Mae will not authorize its lending partners to use any appraiser who is an employee of a wholly owned subsidiary. The restrictions will be applicable for mortgage loans which are acquired after Sept. 1. This memo also has reference to setting up of an appraisal clearinghouse to be used for assigning appraisers to any project.

This step is in response to investigations by NY's AG Andrew Cuomo in November last year when Cuomo filed lawsuit against parent company of country's largest appraisal management companies, First American. In the lawsuit they were charged with relaxing their norms under pressure from WaMu, who was a major client & used those specific appraisers who were providing property valuations acceptable by Washington Mutual.

In the original suit Washington Mutual was not included but AG demanded that the 2 GSEs (Freddie Mac & Fannie Mae) appoint independent examiners for reviewing mortgage loans (as well as the underlying appraisals) that they had purchased with emphasis on the ones purchased from Washington Mutual.

Retraining for laid-off mortgage employees

California Governor Arnold Schwarzenegger has proposed initiatives which will utilize various federal & state funds inclusive of $5.6 million federal grant for retraining banking & mortgage workers who were laid off because of mortgage subprime crisis (there has been 8,400 layoffs since last July).

Money for training will be arranged from National Emergency Grant of U.S. Department of Labor. The funds from National Emergency Grant can be used by Department Secretary when unforseen events create urgent need for assistance for unemployed workers & such assistance is beyond state's handling capacity.

Governor recently also awarded $73 million for forty housing projects to help 1,611 families rent or purchase houses in 26 California cities.

Some other projects have also been undertaken to negate the housing slump such as loans with low interest from Proposition 1C housing bonds for $69.5 million, $1.2 million public awareness campaign for homeowners on options which can be used in avoiding foreclosure, and providing assistance of $72 million to first time house buyers from funds available from federal HOME IPP (Investment Partnership Program).