There are 3 options:

1. Pull the Fed rate subsidy and housing prices WILL fall further, the only question is exactly how high rates will go and exactly how low prices will fall.

2. Keep the Fed rate subsidy program going indefinitely. The price of housing measured in dollars will be higher, but measured in anything else, gold, gallons of gas, gallons of milk, or loaves of bread, it will be lower.

3. Pursue real pro-growth policy that leads to higher wages and allow those higher wages to drive up prices.

One thing the prior decade showed us is that asset appreciation brought about by financial engineering is unsustainable. The supports being offered now are merely financial engineering, be it on a much larger scale than Wall Street.

See his full comment here.

Do you agree that those are the only options? What do you want the Fed to do (or not do)?

Posted by Jamie Smith Hopkins at 3:29 PM | Permalink | Comments (5)
Categories: Comment of the day, Mortgage rates, Mortgages
        

Just sayin'.

What sort of mortgage-related spam has ended up in your inbox?

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (1)
Categories: Mortgages
        

By now you probably all know what a short sale is: a deal in which the lender allows a home to change hands for less than the balance on the mortgage, forgiving most or all of the difference.

For months, agents have said there are far more would-be short sales than closed deals. The lenders reject the offers, or they take so long to consider that buyers give up and move on. So I was curious to hear what Olivia Surge, who negotiates short sales on behalf of homeowners at the Law Offices of G. Russell Donaldson in Crofton, is seeing now.

Compared with 2007, when nine months could go by before lenders would even look at an offer, "things have gotten much, much better," she said. "But we're still slow and go."

Lenders are typically taking 30 to 90 days to acknowledge that they have an application for a short sale, she said. "They're so inundated," she said.

I talked to Surge for Sunday's story about the growing number of homeowners selling for less than their purchase prices. I only had space for a few of her observations in the article, but I've got all the space in the world here. And I think you'll be interested in hearing more of what she had to say about what works, who's eligible, whether lenders are forgiving all the debt and how frequently these deals are popping up.

Continue reading "Short sales" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (7)
Categories: Mortgages, The foreclosure mess
        

One recurring question from readers is about adjustable-rate mortgages, and how many have yet to "reset" -- to adjust upward for the first time after the temporary fixed period.

I went to First American CoreLogic for the answer. This is what the real estate information provider provided:

Most subprime ARMs in the Baltimore metro area have already reset -- 80 percent of them, to be exact. Most of the rest are due to reset by the middle of next year.

But many prime and "Alt-A" ARMs -- Alt-A referring to mortgages in the gray risk area between prime and subprime -- have not yet reset.

That's true for two-thirds of the Alt-A borrowers in the metro area with ARMs, First American says. Some are due for resets soon, but the biggest group -- 35 percent -- isn't scheduled to adjust until at least the middle of 2011.

Four out of every five Baltimore-area prime ARMs, meanwhile, haven't reset. Nearly half aren't due to reset until at least the middle of 2011, First American says.

A little bit of added perspective:

Half of the metro area's subprime mortgages are adjustable-rate. Many Alt-A loans are ARMs, too -- 44 percent. But just 7 percent of the prime loans in the metro area are ARMs.

All told, First American estimates, the reset clock is ticking down on about 30,000 ARMs in the Baltimore metro area.

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (13)
Categories: Mortgages
        

That's made some industry folks very nervous. In the "what goes up rapidly might reverse course and go splat" sense.

The Wall Street Journal reports today that rising defaults on FHA loans are endangering the agency's reserves:

Options for the agency could include politically unpalatable choices, such as asking for taxpayer funds to boost reserves or increasing the premiums borrowers pay for the insurance offered by the agency. Agency officials say if there is a shortfall, they don't have to do anything except report it to lawmakers. But some mortgage and housing analysts see trouble ahead. "They're probably going to need a bailout at some point because they're making loans in a riskier environment," says Edward Pinto, a mortgage-industry consultant and former chief credit officer at Fannie Mae. "...I've never seen an entity successfully outrun a situation like this."

Posted by Jamie Smith Hopkins at 8:53 AM | Permalink | Comments (14)
Categories: Mortgages, The foreclosure mess
        

One in four borrowers in the Baltimore metro area are under water on their mortgages, owing more than their homes are worth, according to estimates by real estate information company First American CoreLogic. That's not the sort of news to make anyone cheer -- anyone who isn't expecting to profit off short sales and foreclosures, anyway.

But at least we're not Las Vegas. Or Detroit. Or Tampa.

They're among the 14 metro areas with at least 40 percent of mortgaged properties in negative equity. Makes our 25 percent look -- well, a lot smaller than 25 percent of borrowers under water would normally look.

Las Vegas tops First American CoreLogic's list, with a whopping 69 percent of mortgaged homes under water. Second is Riverside, Calif., with 57 percent, followed by Phoenix, Ariz., with 56 percent. (Detroit is fifth-highest at 52 percent. Tampa is eighth with 51 percent.)

Baltimore is 33rd on the list, which ranks the 50 largest metro areas.

Fiftieth -- the best spot; this is a list you want to come in last on -- is Pittsburgh. Fourteen percent of its borrowers are under water. Including Pittsburgh, nine metro areas have less than 20 percent of borrowers in negative-equity positions.

Is your home worth less than you owe on it?

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (2)
Categories: Mortgages
        

Near the peak of the housing frenzy four years ago, 75 percent of homes sold in the Baltimore metro area went to buyers with conventional mortgages -- loans not guaranteed or insured by a government agency.

Now? Thirty-five percent.

The share of buyers turning to FHA-insured mortgages has increased tremendously in these post-bubble, post-subprime times. Forty percent of Baltimore-area buyers went FHA in July, according to Metropolitan Regional Information Systems. (That's up from 2 percent in July 2005. Yeah -- 2 percent.) It's such a turnaround that FHA-financed purchases jumped ninefold from four years ago, even though total home sales fell by almost half.

Also up: VA loans, assumptions -- where the buyer takes over the loan held by the seller -- and owner financing. Of course, owner financing deals only rose from 1 to 4, so I wouldn't call that a trend. (Though it is a 300 percent increase ...)

And even in these recessionary times, some people (267 in July, to be exact) do have the means to buy a house with 100 percent down. Fewer people than four years ago, granted, but they represent a greater share of total sales: 12 percent, up from 7 percent in July '05.

One Wonk reader recently got a USDA-backed mortgage. Those loans are for purchases in rural areas that aren't necessarily as rural as you might think -- a fair swath of the Baltimore suburbs is eligible.

Have a financing story? Do share.

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (4)
Categories: Mortgages
        

You still need a loan that was bought or guaranteed by Fannie Mae or Freddie Mac. (Don't know if it was? Ask your lender. Or check here for Fannie and here for Freddie.)

Zillow, the real estate information site, estimated yesterday that 29 percent of Baltimore-area homeowners are prime candidates for the program because they owe between 80 percent and 125 percent of their homes' value on their conforming first mortgages. That's 151,000 homeowners. But Zillow can't say how many meet the Fannie/Freddie requirement. (That's not publicly available information, the company says.)

These figures are up from the 113,000 (or 22 percent) of metro-area homeowners with conforming mortgages who owe between 80 and 105 percent of their home values.

The number of potentially eligible folks is higher nationwide: 36 percent of conforming-loan borrowers now and 26 percent under the original rules, Zillow estimates.

But apparently-eligible and actually-eligible are very different things, as the original rules of the program prove. Bloomberg reports that Fannie and Freddie have refinanced 80,000 mortgages under those guidelines, a tiny fraction of the participation the feds hoped for. And 60,000 of those had loan-to-value ratios of 80 percent or less. Mortgage professionals say it's tough for borrowers to qualify.

Has anyone out there tried to refinance under the older rules? I'm curious to know how it went.

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (5)
Categories: Mortgages
        

Enter "A Financial Analysis of Consumer Mortgage Decisions," a new report by the Research Institute for Housing America and the Mortgage Bankers Association. It discusses various mortgage choices and when it makes sense to get what, including a refinancing.

The authors' advice: Don't just consider interest rates. Look sharp at the closing costs.

Play around with this "Optimum Mortgage Refinancing Calculator," noted in the report, and you'll see how cosing costs can make a difference.

Say you've got a 6 percent interest rate on a mortgage with a balance of $250,000. You're contemplating a refi into a loan that has a 5.5 percent interest rate and 1 discount point.

If your closing costs add up to $2,200 and you roll that into your new mortgage along with the point, you'll save $137 a month over your old loan.

But what if you have $5,000 in closing costs, at the higher end of what LendingTree says the range can be?

Then your monthly savings are $121. That's $192 less a year than the savings with the cheaper closing costs.

Ah, you say, but a savings is a savings. Who cares about the closing costs if you can roll them into the mortgage amount and still pay $121 less a month?

Because, the authors say, you want to think about the "opportunity cost" of refinancing now only to see rates fall further. If you refinance now, it might not be in your best interest to refinance later as well.

"If closing costs are significant, say 3 percent of the remaining principal, and you refinance every time there is a 50 basis point drop in rates, you may never fully recover the cumulative closing expense incurred," they write. (And meanwhile your principal keeps growing. That's why the "serial refinancing" encouraged by some -- ah -- "helpful" folks in the mortgage industry isn't a good idea for a typical borrower.)

The mortgage calculator I linked to above attempts to take all this into account and tell you whether -- given your potential interest rate and costs -- it's a great, OK or bad idea to refinance. Its opinion on the refi opportunity with $5,000 in closing costs: Pass. It dubs the one with $2,200 in closing costs "OK, But Not Optimal." (What would be optimal in this case? Closing costs under $1,250. Or $2,200 in closing costs with a 5.4 percent interest rate rather than 5.5 percent.)

The authors dub this "refinancing efficiency."

What do you think of this way of looking at refinancing options?

And something to consider in today's environment: Does it make sense to hold off refinancing on the chance that rates could go lower when the prevailing expectation is for increases?

Posted by Jamie Smith Hopkins at 8:39 AM | Permalink | Comments (1)
Categories: Mortgage rates, Mortgages
        

Several Maryland companies were on the list, which also includes lenders hit by fines and other HUD actions. One "failed to comply with HUD/FHA housing counseling referral requirements." But the list also includes a lot of lenders that are no longer allowed to participate in FHA because they didn't send in their yearly fee for recertification.

Posted by Jamie Smith Hopkins at 3:52 PM | Permalink | Comments (2)
Categories: Mortgages
        

It's not surprising that a lot of people are thinking of refinancing with mortgage rates as low as they are. That got me wondering, though--in this world of tightened standards, how many of them can? For the answers, I turned to Tim Higgins, a home loan consultant with Patuxent Funding, a correspondent lender in Ellicott City.

Here's what he had to say last week about refinancing, buyer options and the housing market.

Q: Are standards continuing to toughen?

Underwriting guidelines have tightened. And then the extreme layer of bad news is property values. ... I have had probably 200 conversations in the last 60 days [about refinancing] and I have locked in one person at 4 ½ percent. One person. Now, I've locked in other people at higher rates, but I've locked in one person at 4 ½ percent. That's because that guy, he was borrowing $300,000, his home appraised at a million, he had an 800 credit score, his debt ratio is a 12, and he is what the banks consider a perfect risk. And therefore there's no additional overlays on his rate lock.

Q: Do you have to be perfect to avoid add-on fees?

Continue reading "Q&A: Tim Higgins, home loan consultant" »

Posted by Jamie Smith Hopkins at 1:13 PM | Permalink | Comments (11)
Categories: Mortgages
        

Two pieces of recent mortgage-default news I thought you might want to know about:

First, the travails of FHA, the go-to place for borrowers with small down payments. The Federal Housing Administration insures FHA mortgages, which means it's on the hook if those loans go bad. Now its market share has shot up to about 30 percent -- thanks in large part to the death of subprime and no-money-down options -- and it's being swamped with problem loans. Some borrowers are missing payments immediately.

As The Wall Street Journal reports, this has raised the specter of another taxpayer bailout -- or changes for future borrowers:

If defaults drain the FHA's insurance fund, the Obama administration will have to decide whether to ask Congress for taxpayer money or raise the premiums it charges to borrowers. That decision will be spelled out in President Barack Obama's 2010 budget, Housing and Urban Development Secretary Shaun Donovan told lawmakers.

The other news: a glimpse into what works when lenders modify mortgages to try to keep borrowers from ending up in foreclosure.

The Office of the Comptroller of the Currency and the Office of Thrift Supervision, which track two-thirds of U.S. mortgages in quarterly reports, said "re-default rates" on modified loans last year "were consistently lower for modifications that resulted in lower monthly payments."

When modifications decreased monthly payments by more than 10 percent, only about 23 percent of the loans became seriously delinquent six months later. By contrast, some 51 percent of the loans in which payments remained unchanged were seriously delinquent after six months. The comparable number for loan modifications in which payments increased was 46 percent.

Posted by Jamie Smith Hopkins at 9:06 AM | Permalink | Comments (5)
Categories: Mortgages, The foreclosure mess
        

In the Baltimore metro area -- the city plus Anne Arundel, Baltimore, Carroll, Harford, Howard and Queen Anne's counties -- you'll be in the conforming range with a loan as big as $560,000. (In the Washington metro area, the limit is $729,750 -- that's as high as it goes in the U.S.)

These limits mean that fewer buyers or refinancing homeowners will need "jumbo" mortgages, which have higher interest rates. The federal government says 250 counties have limits above $417,000.

You can see all the conforming limits at the Federal Housing Finance Agency. The limit in the early 1970s, the agency notes by way of comparison, was $33,000.

Posted by Jamie Smith Hopkins at 4:37 PM | Permalink | Comments (0)
Categories: Mortgages