The Mortgage Brokers Association made a proposal last Wednesday to help the unemployed keep their homes. The proposal is for mortgage servicers to lower mortgage payments to 31 percent of household income for nine months. The amount of the reduction would be added to the end of the mortgage.
The Treasury would make loans available to the servicers to make up the amount of the reduction. This would keep the holder of the mortgage intact.
A concern is that nine months will not be sufficient as finding work in nine months is very optimistic.
Treasury needs to give it approval for this program to be implemented.
REALTOR.org printed an
article in which Todd Zywicki, a George Mason University law professor, argues that fraud was not the culprit of the housing meltdown. And his ideas are easily understood.
A simplified version of what happed is as follows;
- From 2001 to 2004 the Fed kept interest rates very low making adjustable rate mortgages very attractive.
- While these loans turned out to be risky, at the time homebuyers were making a smart decision to take advantage of these attractive, low cost loans.
- Once the Fed began raising interest rates, the adjustable rate mortgages began adjusting making it difficult for some home owners to continue making payments and they defaulted on their mortgage.
- As foreclosures increased, prices were driven down putting more people in an “underwater” situation.
This cycle of lower home values resulting in more defaults resulting in more foreclosures became perpetual, requiring extraordinary action to break the cycle.
Don Grafues
Resource: RALTOR.org
The Mortgage Bankers Association was underwater on its loan for their 10 story headquarters building in Washington, D.C. Utilizing a short sale they sold the building for $41.3 million after paying $70 million in 2007.
Many of the members of the Mortgage Bankers Association are credited with the bad lending practices that brought on the current crisis.
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Freddie Mac and Fannie Mae are working to strengthen their loan portfolios.
They are both reviewing loans they have and when they find improper documentation they force the original lender to buy back the loan.
So far Freddie has sold back loans worth $2.7 billion. Fannie won’t disclose sales but it is estimated that during the first nine months of 2009, they sold $4.3 billion.
It is good that Fannie and Freddie are strengthening their portfolios but there is a downside. Lenders, fearful they may have to buy back a loan, are now much tighter on buyer qualifications for a loan making it more difficult to get financing.
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We published two posts about the advantages of simply walking away from your mortgage if you are seriously “underwater.” Brent T. White, Associate Professor of Law at The University of Arizona made that recommendation in an article he published. Depending upon what state you live in, this may not be sound advice.
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Two new articles are published about the loan modification programs. The articles can be found in the right sidebar under “mortgages” and are titled “Making Home Affordable; Refinance” and “Making Home Affordable; Modification.”
These articles provide detail information on the two approaches to loan modifications; qualification requirements, how to apply and what to expect. There are numerous links to other sites with additional information as well as necessary forms.
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The cessation of the government program to buy mortgage-backed securities, set to end in a couple of months, will show whether the White House and Federal Reserve have effectively stimulated the lending market to the point that it is now on solid footing.
If you saw our post yesterday titled “Loan Sharks” you saw where builders of new homes are being quoted rates between 12 and 20 percent.
I have a fear that the market will not fare well at all if lenders don’t start making loans.
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If you are looking to buy a home and take advantage of the Home Buyer Tax Credit but are having trouble arranging credit you are not alone. Builders of new homes have traditionally turned to banks for financing. Today builders are finding that financing hard to get.
At The International Builders’ Show last week in Las Vegas builders met with lenders to (hopefully) arrange financing. Lenders were quoting rates from 12 percent to 15 percent. Some banks and funds quoted rates as high as 20 percent. A builder could find using a credit card to be more economical.
The availability of credit is a major deterrent to a housing recovery.
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If you are applying for a loan be certain to request a “Good Faith Estimate” (GFE) by name from your lender.
To circumvent HUD requirements some lenders are offering “worksheets” or “loan scenario forms” which have some of the information on a GFE but is not bound by HUD accuracy requirements.
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