Realtors have kicked off a campaign to keep legislators from approving a budget proposal that would reduce the amount of itemized deductions higher-income Marylanders could claim on their state taxes, a move they say would effectively cap the mortgage-interest deduction.

They're running ads, posting pieces online and organizing a rally in Annapolis Wednesday -- with transportation provided from locations across the state -- that they hope will draw homeowners as well as agents.

The proposal, part of the consolidated budget bill submitted on behalf of Gov. Martin O'Malley, would reduce by 10 percent the amount of itemized deductions that individuals and couples can take if they have adjusted gross income of more than $100,000 but no more than $200,000. Those with adjusted gross income of more than $200,000 would see their itemized deductions reduced by 20 percent.

The Maryland Association of Realtors says this would effectively limit the mortgage-interest deduction, a big piece of what people typically itemize, as well as deductions for property taxes.

"We think it makes it harder for homeowners to own their homes and to stay in their homes," said Mark Feinroth, director of regulatory affairs with the trade group. "It's very bad tax policy."

But Raquel Guillory, a spokeswoman for O'Malley, said 10 states -- including Pennsylvania and West Virginia -- have no itemized deductions for personal income taxes. Five others, plus D.C., limit them for some filers, she said.

"Under this plan, 8 out of 10 Marylanders will see no change in their deductions," she said in an email.

Continue reading "Realtors to rally against proposed change affecting Md. mortgage-interest deduction" »

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (16)
Categories: Mortgages
        

You may have heard homeowners underwater on their mortgages but not behind on the payments ask, "So where's my bailout?" (You may in fact have said it yourself.)

Some companies are answering, "Right here."

About 20,000 homeowners nationwide, including 500 in Maryland, are enrolled in the Responsible Homeowner Reward program, which pays borrowers incentives to stay current on their mortgage. The homeowners were offered the future cash payments by their mortgage servicer, mortgage owner or private mortgage insurer -- about a dozen companies are participating all told.

Frank Pallotta, managing partner of the Rumson, N.J.-based Loan Value Group, which created and administers the Responsible Homeowner Reward program, says participants include the PMI Group and GMAC Mortgage.

The dollar amounts vary, but the basic idea is this: Stay current on your mortgage, get a cash payment at an agreed-upon time -- when you refinance or sell, for instance. The program aims to prevent "strategic default" -- where borrowers who can afford the payments decide they're throwing good money after bad and simply walk away -- by offsetting some of the lost value.

"For years and years, the mindset was, people pay their mortgage because it was the moral thing to do," Pallotta said. "Well, it might have been, people pay their mortgage because they have equity. Once that equity is gone, you need to replace it or you will experience a higher default rate."

A borrower who's never missed a payment but owes 50 percent more on his mortgage than the home is worth "is as much a risk to the owner of that loan" as a more modestly underwater borrower who's two months behind, he contends. "The question becomes, 'Why am I going to make this payment? I'm so far underwater,'" he said.

Continue reading "A 'responsible homeowner' reward" »

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (0)
Categories: Mortgages, The foreclosure mess, Underwater
        

Industry players are calling it a technical clarification. Consumer advocates contend it's a much bigger and badder deal, weakening protections for mortgage borrowers.

What they're arguing over is legislation in the General Assembly about "table funding," a little-known -- and in Maryland, little-used -- type of mortgage lending.

Table-funded loans are made by mortgage-broker companies in their own name, rather than in the name of a lender, but are immediately sold to a lender who will provide the actual funding, according to HUD. That's different than typical mortgage brokering, where the loan is closed in the lender's name, and from cases where borrowers work directly with lenders that fund the loans themselves but sell them on the secondary market to Fannie Mae, Freddie Mac or others in the mortgage-backed securities business.

Marceline White, executive director of the Maryland Consumer Rights Coalition, said the state has long banned the practice of getting a mortgage broker "finder's fee" for table-funded loans. But legislation proposed in both the House and Senate would change that, she said.

Here's the Senate version, SB 451, and the House version, HB 674. 

"As a broker, you get a certain fee for finding a lender for the loan," White said. "But in this case, you're the lender. You shouldn't get a fee for finding yourself. ... There's an inherent conflict of interest if you're acting both as a broker and a lender. But the more alarming part is that it opens Maryland back up to table-funded mortgages, which really have not been happening as much in Maryland and have been really strongly linked to predatory lending."

Continue reading "Consumer advocates decry lending proposal" »

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (5)
Categories: Mortgages
        

If you're not in trouble on a mortgage and didn't lose your home to foreclosure in the last few years, you might think the national settlement between state attorneys general and big mortgage servicers has nothing to do with you.

But the settlement includes a 42-page directive intended to broadly improve mortgage-servicing practices, which critics contend are the pits.

Though the settlement applies only to the big players that signed on (Wells Fargo, Bank of America, Citigroup, JPMorgan Chase and Ally Financial/GMAC), the Maryland attorney general's office says the federal government could eventually make all federal institutions play by these servicing rules.

Here's a taste of what they require:

o Better handling of borrowers' payments. Servicers must "promptly" record payments and post them within two days. If a borrower makes almost all of a scheduled payment -- within $50 of the amount due -- then the servicer must apply it and at least one more such payment to the mortgage, rather than shunting it to a "suspense account" and letting interest and late fees mount.

Continue reading "What the robo-signing settlement means for all borrowers" »

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (5)
Categories: Mortgage servicing, Mortgages, The foreclosure mess
        

The Treasury Department is trying to get more mortgage servicers to reduce the principal of struggling borrowers by tripling the incentive it pays for such a move -- and offering to pay financiers Fannie Mae and Freddie Mac, too.

Fannie and Freddie are essentially government-owned. As you can imagine, this new twist strikes some as the equivalent of Uncle Sam tossing money from his left hand to his right.

Of course, calls by Congressional Democrats for more principal reduction have so far had no effect on Fannie and Freddie, never mind their ownership status. Their independent oversight agency insisted shortly before last week's Treasury announcement that "principal reduction never serves the long-term interest of the taxpayer when compared to foreclosure." (The Federal Housing Finance Agency said Friday that it will do another analysis to account for the new payments.)

The deal being offered: For every dollar knocked off a borrower's principal, Treasury will fork over between 18 and 63 cents.

A state task force recently recommended principal reductions in which homeowners, in exchange for no longer being underwater, would agree to share any profits if they sell or refinance during the following nine years. Shortly before Treasury made its announcement, I chatted with a local loan officer who thinks the financial industry will have to move in that direction.

Continue reading "More incentives for principal reduction" »

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (1)
Categories: Mortgages, The foreclosure mess
        

Got a mortgage held by mortgage-financing giant Fannie Mae? If you're trying to get help with it and you're not having any luck by phone, you now have a face-to-face option.

Fannie Mae last week opened a "Mortgage Help Center" in Greenbelt that's targeted at the Baltimore-Washington area. It's the 12th such center in the country, the company says.

Spokesman Andrew Wilson said Fannie Mae has worked with about 9,000 homeowners in the 11 that have already been operating, and 60 percent "have been able to stay in their home."

"Many of the others can achieve what we call a graceful exit, where they avoid foreclosure through a short sale or deed-in-lieu of foreclosure," he wrote in an email.

To make an appointment at the Greenbelt center, call 866-442-9376, Wilson said. (You can check here to see if Fannie Mae owns your loan. But the company says anyone can call, and staffers will send homeowners without Fannie Mae mortgages to HUD-approved counseling agencies.)

Some mortgage servicers have been opening centers or holding convention-center-type events. If you've been to anything like this, weigh in -- did it work for you?

In other mortgage financing news, Fannie Mae just asked for $7.8 billion more from taxpayers to cover losses, the head of the agency that oversees Fannie and Freddie Mac (both in government conservatorship) is defending the bonuses paid to execs last year and Ginnie Mae -- the lesser-known mortgage-bond issuer -- is now bigger than Freddie.

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (0)
Categories: Foreclosure help, Mortgages, The foreclosure mess
        

FHA, Fannie Mae and Freddie Mac all dropped their loan limits in a variety of metro areas across the country as of Oct. 1. Result? Buyers (and would-be refinancers) in the Baltimore region can't borrow more than $494,500 from them. Everything above that amount is in "jumbo" territory with higher rates and -- in some cases -- much higher down payment requirements.

The Baltimore region had temporarily been bumped up to $560,000 in 2008 in reaction to the mortgage meltdown.

The downward push seems to have had an immediate effect on sales between $500,000 to $600,000, which dropped more than 20 percent vs. a year earlier. (Sales between $400,000 and $500,000, meanwhile, rose during the same period.)

Read more about it in today's story about October home sales.

And while you're at it, you might want to check out this piece about a mortgage fraud/Ponzi scheme conviction and this story about fallout from the ground rent ruling.

Posted by Jamie Smith Hopkins at 8:51 AM | Permalink | Comments (5)
Categories: Housing stats, Mortgages
        

There's nothing like 30-year mortgage rates near 4 percent and 15-year even lower to make homeowners daydream about refinancing. But not everyone would come out ahead if they did. And borrowers with little (or negative) equity are in a tight spot -- though changes to the federal Home Affordable Refinance Program announced this week are aimed at increasing their chances of getting approved.

Today's guest poster, Dave Skaff, wants to shed some light on the subject. He's an M&T Bank regional mortgage manager responsible for loan officer staff in the mid-Atlantic.

Take it away, Dave:

 ---------------------------------------------------------

Mortgage rates are at historic lows. For millions of Americans, now could be the right time to make a move to improve their monthly cash flow. But getting a home loan in today's mortgage world is not as easy as it once was. Declining values and stricter documentation guidelines make it challenging for many folks. For anyone who is interested in refinancing, there are several key points to consider:

1) A small drop of just 1 percent could make it worthwhile to refinance for someone with a large loan balance. A few hundred dollars per month could be saved on a $300,000 loan, for example. On a lower loan balance, the monthly savings could be outweighed by the costs involved. It is best to consult with a mortgage specialist to see if refinancing makes sense for you.

Continue reading "Dave Skaff: Time to refinance?" »

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (10)
Categories: Guest post, Mortgage rates, Mortgages
        

Nearly one in four Marylanders with a mortgage owed more on those loans than their homes were worth this spring, worse than all but six other states -- and a large number of homeowners who can't easily sell or refinance.

That's according to new figures from real estate data firm CoreLogic, which estimates that nearly half the states have fewer than 15 percent of their borrowers "underwater."

But the state's nearly 24 percent figure -- essentially unchanged from the first three months of the year -- remains much lower than the hardest-hit states. Sixty percent of Nevada's homeowners with a mortgage owe more than their homes are worth. Nearly half of Arizona's homeowners are in similar straits.

Several factors are contributing to states' negative equity: Falling home prices, low down payments and loans homeowners took out against their properties when the market was hot. 

One result is homeowners stuck in place, unable to sell unless they bring money to the settlement table or convince their lender to approve a short sale.

Continue reading "Md. has seventh-highest share of underwater homeowners" »

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (1)
Categories: Mortgages, Underwater
        

What's causing mortgage-servicing errors, from misapplied payments to double-charging for homeowners' insurance?

At least part of the reason seems to be that the records aren't managed in a way that allows servicers to see everything about a loan's history in one place.

Maryland's Department of Labor, Licensing and Regulation saw this type of record-keeping problem again and again after launching an examination of servicers in the wake of robo-signing last fall.  That inquiry is still in the works.

Anne Balcer Norton, deputy commissioner of financial regulation at the labor department, said the state found that piecing together the pre- and post-default story of even one borrower requires servicers to pull information from multiple databases, including some outsourced to other firms.

State examiners went back and forth with servicers for months to get documentation that could provide a full picture, she said. Some material was never provided, despite multiple requests, and "you have to assume it’s because it does not exist," Norton said.

She said the experience has been "very eye-opening."

"It really does call into question the accuracy of the record-keeping in general," said Norton, who emphasized that she was speaking specifically about the state's inquiry, not the overall effort by state attorneys general across the country. (That nationwide inquiry/settlement is still in the works, but you can see the leaked settlement proposal from March right here.)

Continue reading "State inquiry into mortgage servicers finds "eye-opening" problems" »

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (0)
Categories: Mortgage servicing, Mortgages, The foreclosure mess
        

Mortgage servicers and servicing critics agree on at least one point: The industry has made mistakes, and things should change. What's in dispute is the scope and type of problems -- and how often misbehavior plays a role.

David H. Stevens, president and chief executive of the Mortgage Bankers Association, a trade group whose members include servicers, talked with me for this week's story on the state of servicing and said he's supportive of the idea of nationwide mortgage servicing standards -- which seems likely to happen under the guidance of the new Consumer Financial Protection Bureau.

"Coming out with a common set of standards that applies to everybody, ideally applies to all states, would create a system in this country that would have integrity and protect consumers and be enforceable, and that's what we're lacking right now," said Stevens, former commissioner of the Federal Housing Administration. (He expressed concern about competing sets of rules, some in place, some in the works.)

On the subject of servicing problems, he said "mistakes were made, and they were made in a variety of different ways." He said servicers were caught off guard and overwhelmed by the extent of the housing crisis, though he said some companies were more adept than others.

The problems Stevens is talking about are the ones struggling borrowers are well acquainted with by now. He rattled off a list "from lack of trained resources, to being able to properly explain these new [assistance] programs that had been created, to operational challenges of handing off a borrower who calls a call center to someone knowledgeable about underwriting guidelines."

That all falls into the broad category of foreclosure-prevention assistance -- loan modifications, short sales and the like. Situations such as Lutherville doctor Anca Safta's -- where a servicer sent an intent-to-foreclose notice because it wasn't properly recognizing her on-time payments -- "would be an extreme rarity in the process," Stevens said. Loan-modification issues are "the more common challenges we have heard," he said.

Homeowner advocates say problems such as foreclosing on the wrong people, locking people out of their homes and throwing away their possessions when they weren't behind on any mortgage or weren't yet to the point of foreclosure auction, and charging inappropriate fees are more common than the industry acknowledges.

Continue reading "Mistakes were made, servicers' trade group says (and Justice Dept. arm offers examples)" »

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (7)
Categories: Mortgage servicing, Mortgages, The foreclosure mess
        

Angela Cottrell regrets ever calling her mortgage servicer to ask about refinancing options. What Wells Fargo suggested she do ultimately increased her loan balance and ruined her credit, she said.

Cottrell, who bought a Charles County home with her husband in 2005, couldn’t take advantage of lower interest rates with a traditional refinance in 2009 because their home’s value had dropped below the mortgage balance. When she heard about an Obama administration program allowing certain “underwater” borrowers to refinance, she said, she contacted Wells Fargo.

She said staffers there looked over her financial documents and told her she qualified for lower payments — but through a modification, not a refinance. The company enrolled her in a trial plan, only to declare months later that she wasn’t eligible because she made too much money.

Continue reading "For Md. homeowner, a refinance request gone wrong" »

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (5)
Categories: Mortgage servicing, Mortgages, The foreclosure mess
        

When the brouhaha over foreclosure "robo-signing" hit last fall, mortgage servicers said the bogus court documents were just minor deviations from the rules and didn't change the fact that borrowers were way behind on their payments.

But it's increasingly clear now that servicing problems aren't limited to foreclosure documentation or to people who aren't paying.

Consider, for instance, Lutherville doctor Anca Safta, whose servicer threatened to start foreclosure proceedings this spring even though she'd never missed a payment. The company wasn't crediting her account because of an error in its records.

Or consider the Massachusetts couple whose Florida retirement home -- paid for in cash -- was broken into and cleaned out by a servicer's contractor last year in a case of mixed-up addresses.

You can read more in Sunday's story about mistakes and misbehavior. But there was lots of interesting stuff I couldn't fit in the story, and it seemed a shame not to share. For instance:

Borrowers (and some number of mortgage-less victims of the foreclosure crisis) aren't the only ones with complaints. Increasingly the pension plans, investment funds and other investors that bought loans as mortgage-backed securities are making it clear that they're unhappy with their servicers, too.

"As difficult as it may be to believe, many of the most sophisticated investors were as victimized and abused by the servicers and their affiliates as were many consumers," said Chris J. Katopis, executive director of the Association of Mortgage Investors, in May testimony to a Senate banking subcommittee.

Continue reading "Mortgage servicing woes" »

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (3)
Categories: Mortgage servicing, Mortgages, The foreclosure mess
        

Planning to get an FHA mortgage? Keep in mind that the annual mortgage-insurance premium for new loans is set to increase April 18 -- next Monday.

The extra charge comes to about $42 a month -- $500 a year -- for a $200,000 mortgage with a 30-year term.

This won't affect anyone who already has a loan, mind you, just folks taking out new ones. And if FHA assigns a case number to your loan application before April 18, you'll be under the current fee system. (Assuming I'm reading the FHA guidance to the mortgage industry correctly, you can get a case number early on in the loan application process.)

In other FHA news, U.S. Sen. Ben Cardin of Maryland says the agency is charging borrowers for a full month of interest when they pay off their mortgages by refinancing or selling even if they do so just a few days into the month, and he wants that stopped.

Syndicated real estate columnist Kenneth Harney says industry folks contend that borrowers get a small break on their initial interest rates in exchange for the back-end charge, while critics such as the National Association of Realtors argue that the back-end charge is a substantial one-time hit averaging more than $500 per borrower. People with conventional loans pay interest only up to the day that they're refinancing, selling or otherwise paying the mortgage off.

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (9)
Categories: Mortgages
        

A greater share of Marylanders benefit from the mortgage-interest tax deduction than residents in any other state. So there are probably a fair number of homeowners here -- not to mention real estate agents and homebuilders -- who really want to know what will come of a recommendation to give this supposedly untouchable tax break a major overhaul.

The National Commission on Fiscal Responsibility and Reform, which issued a raft of suggestions earlier this month in a report entitled "The Moment of Truth," favors a change that will increase taxes for folks with pricier homes while benefiting other homeowners.

Currently, you can deduct your interest on a primary residence and second home with mortgages up to $1 million if you itemize your tax return. You can also get the deduction on a home-equity loan of up to $100,000.

The commission, charged with helping the country balance the budget by 2015, recommends that the deduction be allowed only on a primary residence with a mortgage of $500,000 or less. So you can see how it would change the playing field. But the commission not only wants to taketh away, it also wants to giveth, allowing homeowners to get a 12 percent non-refundable tax credit for their mortgage interest whether they itemize or not.

I haven't seen any recent figures on the number of plus-sized mortgages in Maryland, but it's more than a handful. Back in mid-2007, about 11 percent of loan applications in the state were for jumbo mortgages of more than $417,000. That ranked Maryland behind just seven states and D.C.

Even so, the vast majority of buyers are borrowing a lot less. Half the homes sold in Maryland last month changed hands for less than $245,000. (Despite the nationally high level of mortgage-interest deduction takers here, the share of Marylanders who don't deduct still tops 60 percent.)

Continue reading "Fate of mortgage-interest deduction on the bubble" »

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

Maryland officials have been outspoken on the subject of foreclosure prevention, lecturing mortgage servicers to work with struggling borrowers and passing laws to try to make loan modifications more likely. But it wasn't until recently that the state's own mortgage program -- aimed at first-time homebuyers -- designed a modification option to lower monthly payments to an amount its borrowers in trouble could afford.

Three of those loan modifications have been approved so far. Four more have been OK'd by the state but are awaiting authorization from mortgage insurers. 

More here.

While we're on the subject of delinquencies and foreclosures, you might be interested in the results of a project by The Seattle Times and ProPublica that looked at three areas -- one of them Baltimore. Reporters there were frustrated by the lack of good information on the foreclosure crisis (amen to that) and compiled a random sample of foreclosure filings in Baltimore, Seattle and Phoenix from 2005 through 2008.

As you'd expect, the dataset shows "how the housing bubble and lower lending standards of the era reinforced each other, seducing many homeowners to get in over their heads." But there were significant differences by geography, the organizations wrote:

Continue reading "A late addition for Maryland Mortgage Program " »

Posted by Jamie Smith Hopkins at 10:50 AM | Permalink | Comments (2)
Categories: Foreclosure help, Mortgages, The foreclosure mess
        

A settlement agreement announced this week to resolve lending discrimination allegations reminded me of a report that found FHA interest rates varying by race.

The report, released by Communities United, said Baltimore residents getting FHA mortgages in 2008 were twice as likely to receive high-cost loans if they lived in minority neighborhoods than if they lived in white neighborhoods. But did the trend point to discrimination or the topsy-turvey environment of that year? Federal Reserve economists analyzing the data thought the latter.

But PrimeLending, a major FHA lender, has just agreed to pay $2 million to "resolve allegations that it engaged in a pattern or practice of discrimination against African-American borrowers between 2006 and 2009," the Justice Department said Wednesday.

Details from the announcement:

Between 2006 and 2009, PrimeLending charged African-American borrowers higher annual percentage rates of interest for prime fixed-rate home loans and for home loans guaranteed by the Federal Housing Administration and Department of Veterans Affairs than it charged to similarly-situated white borrowers. PrimeLending gave its employees wide discretion to increase their commissions by adding "overages" to loans, which increased the interest rates paid by borrowers. This policy had a disparate impact on African-American borrowers. The Justice Department for more than a decade has identified the charging of overages as a means by which lending discrimination can occur.

Posted by Jamie Smith Hopkins at 6:00 AM | Permalink | Comments (20)
Categories: Mortgages
        

If you qualify for an FHA-insured mortgage, you're supposed to get basically the same rate no matter what your credit score, how much you're borrowing and the like.

But a study released this week by a new community-organizing group says that Baltimore residents getting FHA mortgages in 2008 were twice as likely to get high-cost loans if they lived in minority neighborhoods than if they lived in white neighborhoods. And residents in low-income neighborhoods were three times more likely to get high-cost FHA loans than residents in upper-income areas.

"Because of the nature of FHA lending, this disparity cannot justifiably be attributed to the risk factors of different borrowers," says the report, released by Communities United, a new group with chapters in Maryland, D.C. and Ohio formed in part by people who used to be involved with the now-defunct ACORN.

But there's an X-factor in all this: the year in question.

A lot of really unusual things happened in 2008, from the problems that led to the country's financial meltdown to the ripple effects of that crisis. An earlier Federal Reserve analysis of the dataset Communities United relied on suggests that this roller-coaster ride threw more FHA loans into the "high cost" category in the later part of 2008 because the benchmark they were measured against took a dive, not because borrowers were taken advantage of.

Continue reading "Study raises questions about disparities in FHA loans" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (0)
Categories: Mortgages
        

If your credit score is under 620, don't expect to get a mortgage until your financial situation improves.

Zillow, the real estate site that also runs a "mortgage marketplace," says few would-be homebuyers with a score in that subprime category get even one loan quote in response to their requests. That's true "even if they offered a relatively high down payment of 15 to 25 percent," the company says.

It analyzed 25,000 loan quotes and purchase requests made on the mortgage marketplace in the first half of September.

Here's how quoted rates varied for people with higher credit scores:

Continue reading "Got a credit score under 620? Good luck getting a loan, Zillow says" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (9)
Categories: Mortgage rates, Mortgages, Resources for new buyers & owners
        

Olynn, a reader who moved to Baltimore for work, is stuck with a house in Michigan because it's more than halfway underwater. Olynn, who's renting that house out and leasing a place here to live in, has a question:

"How open are lenders to a second mortgage? I have excellent credit and minimal debts."

It's been a while since I've talked to mortgage folks about this issue. I'm guessing it's pretty tough these days, but perhaps someone with day-to-day knowledge on the topic could weigh in?

Posted by Jamie Smith Hopkins at 8:40 PM | Permalink | Comments (4)
Categories: Mortgages
        

Many homeowners behind on their mortgages stopped paying because they simply didn't have the money. A growing number, though -- one in eight, by some counts -- defaulted on purpose.

They're generally far underwater on their mortgages and want their lenders to foreclose because they want out. When stories started popping up several years ago, they were all anecdotal because no one was attempting to count. Now researchers are finding that these walkaway borrowers are pretty numerous -- and debate is raging about whether it's a reasonable reaction to a difficult situation or a selfish move that damages neighborhoods.

I thought you all would like to get to know a walker. What triggers such a decision? What is life like afterward?

Wallace Farmer, who left his home in Baltimore this summer, agreed to share his experience. He's part of the community of commenters here, so some of you already know a bit of his story.

Boiling a complicated situation down, he came to the city five years ago with plans of living as an urban pioneer and owning one rental on the side as a long-term investment. He left with savings shot, credit ruined and not one or even two but rather three mortgages defaulted.

How he ended up with two investment properties when he only intended to have one, and why he cut ties with a home he loved, is a boom-and-bust tale. You'll find the story here.

Posted by Jamie Smith Hopkins at 8:24 AM | Permalink | Comments (19)
Categories: Mortgages, The foreclosure mess, Underwater
        

If you're struggling to pay your mortgage, the best help -- of course -- is a job with a good income. Failing that, homeowners often seek loan modifications or other assistance from their lenders, but many have complained that the process is Kafkaesque.

If this describes your life, see if one or both of these options might help:

Mediation. Owner-occupiers in Maryland can ask for court-supervised mediation with their lender if their foreclosure case started on or after July 1, when the new state law went into effect.

HOPE LoanPort. The web portal lets participating housing counselors and mortgage servicers nationwide trade loan-modification information electronically. The promise there is no more faxing the same paperwork over and over and over in the hope that it might actually reach someone who will put it in your file.

Here's what you need to know about each program:

Continue reading "Things looking up for struggling Md. homeowners?" »

Posted by Jamie Smith Hopkins at 9:38 AM | Permalink | Comments (10)
Categories: Foreclosure help, Mortgages, The foreclosure mess
        

New figures from the Mortgage Bankers Association offer hope that the foreclosure mess is easing, as well as reasons to be anxious that the worst is yet to come.

It's that kind of economy.

Good news: Fewer Marylanders were behind on their mortgages during the spring than in the winter. And the number wending their way through foreclosure proceedings dropped for the first time in four years.

Bad news: The number of newly delinquent borrowers rose -- and both the job market and housing market worsened after the spring.

Borrowers trying to avoid foreclosure do have two new options available.

There's the state's mediation law, which went into effect July 1 and requires that lenders sit down with borrowers if the borrowers request it. And there's HOPE LoanPort, a system that lets participating housing counselors and mortgage servicers trade loan-modification information electronically -- meaning no "we never received your faxed paperwork" excuses.

More details on both in a bit.

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

A New York Times story about lenders leery of extending mortgages to couples expecting a baby has created such a furor, the U.S. Department of Housing and Urban Development weighed in last night to declare that it's launching "multiple investigations."

Turning a prospective borrower down for a loan based on the current usage status of her womb is illegal, HUD says.

"Lenders have every right to ascertain the incomes of families to determine whether they are eligible for a mortgage loan but they have no right to use a pregnancy or a short-term disability as a cause to deny that family a mortgage they would otherwise qualify for," HUD Secretary Shaun Donovan said in a statement. "Having a child should be a time for a family to celebrate and must not be a cause for unfair lending practices."

Lenders offering mortgages insured by FHA, the Federal Housing Administration, can't ask about future maternity leave. "If a borrower is on maternity or short-term disability leave at the time of closing, lenders must document the borrower's intent to return to work, that the borrower has the right to return to work, and that the borrower qualifies for the loan taking into account any reduction of income due to their leave," HUD says.

Some dissenting voices are saying pregnancy ought to be part of the equation.

Continue reading "Borrowing while pregnant?" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (11)
Categories: Fair Housing, Mortgages
        

Fannie Mae wants people who walk away from their mortgages to pay -- in more ways than one.

Last month the mortgage financier said so-called "strategic defaulters" will be ineligible for a Fannie Mae-backed loan for seven years, and it vowed to pursue them for the amount owed if the home is in a state that allows deficiency judgments. (Maryland is one of them.)

Wonk reader Josh thought this would make an interesting jumping-off point for discussion. Should homeowners, or rather ex-homeowners, pay a penalty for sending their keys back to their lender and saying "so long"?

Fannie Mae, in case you're wondering, defines the borrowers it intends to go after as those "who walk-away and had the capacity to pay or did not complete a workout alternative in good faith."

Continue reading "Strategic penalties for strategic defaulters" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (21)
Categories: Mortgages, The foreclosure mess
        

Interest in mortgages to purchase a home, which plummeted after the April 30 deadline for the home buyer tax credit, is on the rise again -- at least a bit.

The Mortgage Bankers Association's newest survey shows mortgage applications for home purchases increasing 7.3 percent last week, compared with the week before. That's the first upward movement in six weeks.

But the level is still more than 30 percent below where it was a year ago, when the tax credit was in effect and enticing buyers. The May downturn sent applications tumbling to 13-year lows.

"While it is clear that purchase applications in May dropped sharply as a result of the tax credit induced increase in applications in April, it is unclear whether we are seeing the beginnings of a rebound now," said Michael Fratantoni, the trade group's vice president of research and economics.

We'll just have to wait and see. It's that sort of year.

May was a bad month for another housing indicator: new home starts, which fell 10 percent compared with April, according to the Commerce Department's latest estimates. But starts were still up vs. a year earlier.

By the way, you all have been having a lively discussion this week about the state of the housing market.

For instance, Wonk reader westside writes, "The fact that the Baltimore area market didn’t fall off a cliff like others now seems a mixed blessing. It was great we didn’t see the disaster scenarios that played out in Vegas, Orlando and other boom towns, but I almost wonder if falling off a cliff wouldn’t have spared some of those now barely treading water the uncertainty of being stuck in the current limbo. When your house drops 50% in value almost overnight you have no choice but to make peace with the fact that you’ll never find a conventional buyer and you either have to stay put or let it go into foreclosure. When you lose a few percent here and a few percent there every few months over the course of a couple years, as we have around here, the options aren’t as clear."

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

Mortgage applications are continuing to show the impact of life A.T.C. -- After the Tax Credit, specifically the $8,000 incentive for first-time home buyers and the $6,500 incentive for repeat buyers.

"Purchase applications are now almost 40 percent below their level four weeks ago," Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association, said in a statement Wednesday.

People wanting to refinance accounted for nearly three-quarters of the mortgage applications in the last full week of May.

Mark Vitner, a senior economist with Wells Fargo, wrote in a report last week that the numbers -- which had already fallen significantly at that point -- seemed to be sending a message:

"The slide in purchase applications has been sharper and more immediate than it was last fall, suggesting the pullback in sales and new construction could be greater than many currently expect," he wrote. "Purchase applications have tumbled a cumulative 36.3 percent over the past three weeks, falling to their lowest level since 1997. By contrast, purchase applications fell around 34 percent last fall."

Vitner's forecast: a "modest recovery gradually taking hold during the latter part of this year" in terms of housing starts, but home prices falling "a little further over the course of 2010, with a bottom being reached in either late 2010 or early 2011."

The mortgage stats and Vitner's thoughts are both national, not local. What's your local perspective? What strikes you as good measures of the expired-tax-credit effect?

Next week, we'll see one useful stat -- how many buyers signed contracts on homes in the Baltimore metro area in May. That will be part of Metropolitan Regional Information Systems' report on multiple-listing service activity.

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (5)
Categories: First-time buyer tax credit, Mortgages, Repeat buyer tax credit
        

Wonk reader Josh, an attorney who lives in Howard County, was hoping to refinance his first and second mortgages into one FHA "conforming jumbo" loan and enjoy lower monthly payments. But he can't -- and it has nothing to do with his home value or his credit score.

The trouble is that he needs a $590,000 loan. The limit in Howard County, like all of the Baltimore metro area, is $560,000.

But Josh is within walking distance of Montgomery County, where the limit is just under $730,000. That's true everywhere in the D.C. metro area, including Prince George's County, where typical homes go for a lot less than in Howard.

This makes no sense to him.

"Metropolitan Maryland is arbitrarily divided," he said in an email to me. "I live in Howard County, about one mile from the MoCo line and 14 miles from the DC border. I am about 25 miles from Baltimore, but my home is lumped into the Baltimore market."

The difference a mile makes: $400 a month. That's how much he could lower his payments if he could go from a first mortgage with a 6.25 percent interest rate and a second mortgage at 7.5 percent into a single loan with a 5 percent rate.

"I assume a lot of homeowners in Howard and Anne Arundel are in the same predicament. Can anything be done?" he asks. "Why not just combine Baltimore-DC into one FHA district?"

Continue reading "FHA loan limits leave borrower out in the cold" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (10)
Categories: Mortgages
        

Mistakes were made in the run-up that ended with the housing market falling off a cliff -- that we know. Many mistakes by many people.

The Mortgage Bankers Association, aware that the finger of blame is often pointed toward its industry, commissioned Cliff Rossi with the University of Maryland to lay out the key lending problems in hopes that they don't get repeated down the road.

Rossi, managing director of UM's Center on Financial Policy and Corporate Governance, was once chief credit officer at Washington Mutual and chief risk officer at Countrywide Bank -- which both crashed headlong into the foreclosure crisis -- so he can speak from experience. Before that, he worked for Freddie Mac, Fannie Mae, the Treasury Department and the Office of Thrift Supervision.

He argues in the new report that the trend toward selling off the loans you originated, happily divesting yourself of any cares about the results, was not by itself to blame for "fueling excessive risk taking."

"The fact that many large mortgage portfolio lenders expanded their held-for-investment portfolios and retained large positions in senior tranches of mortgage securities before the crisis, and afterward experienced heavy credit losses suggests that other forces were at work beyond the originate-to-distribute model," he writes in the study.

Continue reading "CSI: Mortgage banking" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (10)
Categories: Mortgages, The foreclosure mess
        

Marylanders get good use out of the federal tax deduction for mortgage interest. Thirty-eight percent of taxpayer returns from the state claimed it in 2008 -- the largest share in the nation, according to the Tax Foundation.

The average nationwide, by contrast, was 27 percent. North Dakota residents were at the other extreme, with just 15 percent of taxpayers claiming the sweetener for borrowers.

The average amount deducted by Marylanders getting the tax break was nearly $14,200, fifth highest in the nation. (The U.S. average was $12,200, but nearly half the states were below $10,000 -- the average was pulled up by the higher-deduction places.)

Tax Foundation Chief Economist Patrick Fleenor wrote in the new report that high-income states tend to have higher deductions.

"In those states, people leverage their incomes to take out huge loans for expensive homes," he wrote. "The large monthly mortgage payments that result are, with frequent refinancing, mostly interest payments, not payments on principal. This maximizes the amount deducted, and since these same high-income people are thrust into a higher marginal tax bracket by the federal income tax's progressive rate structure, the deduction saves them substantially more."

Continue reading "How Md. benefits from the mortgage-interest deduction" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (10)
Categories: Mortgages
        

You didn't need to wait long for a sign of what the end of the home buyer tax credit program means: Mortgage applications by buyers fell 27 percent last week -- following a 10 percent drop the week before -- to their lowest level in 13 years.

"The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season," Michael Fratantoni, the Mortgage Bankers Association's vice president of research and economics, said in a statement this week.

It's been mostly downhill for new-purchase mortgage applications since 2005, as this chart shows, but the figures did spike last fall (when the credit was originally set to expire) and again more recently.

Refinance applications did rise nearly 15 percent last week as homeowners tried to take advantage of dropping mortgage rates. (Refi requests accounted for two-thirds of all applications.) The average interest rate for a 30-year fixed rate mortgage was about 4.8 percent that week.

As columnist Eileen Ambrose notes, experts are thanking/blaming fears about financial instability in Greece for the low U.S. mortgage rates. Investors, seeing U.S. Treasuries as a safer bet than European debt, are parking their money there, "and the demand pushed down long-term interest rates that influence the 30-year fixed rate mortgage," Ambrose writes.

Financial publisher HSH Associates says the downward trend has continued: "After setting 2010 lows last week, mortgage rates managed another downshift this week and are once again near historic -- approximately 50-year -- lows."

Any deep thoughts to share on rates or the pipeline of future buyers?

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (3)
Categories: First-time buyer tax credit, Mortgage rates, Mortgages, Repeat buyer tax credit
        

The other morning I got an alarming call from my insurance agent. He said my homeowner’s policy was 10 days away from being canceled. Why? Because the mortgage company hadn’t paid the premium, something I thought was an automatic process that didn’t require any action, or thought, on my part. Needless to say, I had to get this straightened out right away.

As soon as my agent shared the news, a little light bulb went off. My mortgage had been bought a few months earlier by another mortgage company. Maybe, I figured, there had been an oversight in the handover. Indeed, that’s more or less what happened. I raced home, where I happened to have a cancellation letter waiting in the mail. Then I called the new mortgage company and to my surprise got a human being on the line in seconds. She told me there was no automatic provision for the premium to be paid. Apparently, my new mortgage company’s “welcome letter” told me this, but I had neglected to read that letter.

Fortunately this was an easy problem to fix. The woman at the mortgage company gave me a fax number where the agent could send the insurance bill, and my agent sent off the fax. The woman at the company assured me the premium would be paid well before the cancellation date. (I’ll be checking.) And not to worry, she said, my property tax payments would be paid automatically.

To me the obvious lesson is this: Double-check that the mortgage company pays the homeowner’s premium (and property taxes) from escrow, particularly if the mortgage trades hands, as commonly happens these days. And take a minute to read all welcome letters, no matter how boilerplate-y they seem.

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (8)
Categories: Mortgages
        

The number of people in Maryland who owe more on their mortgages than their homes are worth appears to be stabilizing. So says CoreLogic -- the real estate information firm formally known as First American CoreLogic -- in its latest report on the country's underwater-borrower problem.

About 23 percent of borrowers in the state were upside down on their mortgages in March, same as in December, the company said this week. The share of folks who are close to underwater also remained steady at about 5 percent.

Maryland ranked ninth-highest in the country for its percentage of homeowners with negative equity, a slight improvement over the end of last year. (Idaho worsened, overtaking us and Virginia for seventh place.)

Like Maryland, the country's negative-equity situation remained essentially unchanged overall.

"As house prices grow again and borrowers pay down their mortgage debt negative equity levels will begin to diminish," Mark Fleming, CoreLogic's chief economist, said in a statement. "The typical underwater borrower is likely to regain their lost equity over the next five to seven years."

Maryland might be in the top 10 for negative equity, but it's a far cry from the underwater leaders. Here's the list:

Continue reading "Underwater-borrower numbers stabilizing" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (0)
Categories: Mortgages, The foreclosure mess, Underwater
        

Some of you took issue with the recent suggestion by several economists that low interest rates, razor-thin down payments and gone-to-lunch lending standards are only to blame for part of the run-up in home prices during the last decade, with John Q. Homebuyer on the hook for some part as well.

Here's part of Wonk reader (and mortgage broker) Josh Dowlut's comment:

From an economic analysis and policy standpoint, it matters not that droves of people full of irrational exuberance were willing to bet it all on housing. It only matters what made those bets possible. In other words, what opened the flood gates, not why did people choose to run through them.

To that answer:

1. The Financial Modernization Act of 1999 and

2. The Commodities Futures Modernization Act of 2000, undid long-standing depression era safeguards and turned the banking industry into a casino (literally, the CFMA 2000 actually referenced state and federal gaming law).

These two bills of which no one is seriously talking about undoing worked together to create a system where the person and company who decided whether or not to make a loan could lay off the longterm risk on another party. That shirking of risk is what created your option ARMs, no down payment loans, and stated income loans which opened the floodgates to allow both fearful ("if I don't buy now I'll be priced out forever) and greedy (I'll leverage a 10% appreciating asset) buyers to run through.

Frank Rizzo wrote a long comment too. Here's a taste: "There is plenty of blame to go around. The financial institution, mortgage broker, real estate agent, and the appraiser all played their part. ... If banks were required to hold the loans themselves in their portfolio, you would have to think the majority of those loans NEVER would have been approved in the first place."

Mr. Raven offered a helping of blame to the Federal Reserve under Alan Greenspan and successor Ben Bernanke: "Someone has to print the money and guaranty the income or debt. These guys thought they had tamed the business cycle and could manage expectations by just printing more money."

"Little Debbie," meanwhile, wrote up a laundry list of everyone you could possibly think of and then some, tongue decidedly in cheek, with this coda: "Here's the answer: whatever ideology I spout (due, most likely to my socioeconomic circumstances) is the culprit."

Here's a question to get beyond blame: Has the system -- everything that affects the housing market -- been changed to the point that we're unlikely to end up with another housing bubble down the road? Or are we as much at risk as we were before? (Or -- gulp -- more so?)

If you could make one structural change, what would it be?

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (16)
Categories: Mortgages, Quote of the day
        

If you're a Maryland homeowner struggling with your mortgage, you might be curious -- extremely curious -- about the state's newly passed foreclosure mediation law. It takes effect for foreclosure cases filed on or after July 1.

Raymond A. Skinner, the state's secretary of housing and community development, offered details in a recent interview.

Question: What will change for homeowners and lenders?

Answer: What we’re trying to do is to put in place a process which is really kind of the last step before foreclosure can proceed. And it gives the homeowner a chance to sit down face to face with their lender or servicer with a neutral third party to see if something can be worked out before actually going to foreclosure. The law builds on what we had done in 2008, when we changed the foreclosure process and added more time and more notice for borrowers.

Q: What steps does the law add?

A: When the lender ... sends the notice of intent [to foreclose] to the borrower, they’ve got to include some additional things now under this new law. They must include a loss-mitigation application with instructions for how to complete it and where to send it. ... They also have to include information about various loss-mitigation programs, including the federal Home Affordable Modification Program -- the HAMP program -- and also specific information about the lender’s loss-mitigation programs. … In addition, they've got to send information about the state programs -- our HOPE program with the HOPE hot line number and the website.

Q: What comes next?

A: Before they can file an order to docket [a foreclosure case in the court system], they’ve got to file a loss-mitigation analysis. And basically, it’s an affidavit where the lender certifies that they’ve exhausted all loss-mitigation procedures or processes, and they could not find a way to give this particular borrower any kind of relief. And they’ve got to explain the reasons why they could not provide any relief.

Q: They have to be specific?

Continue reading "Q&A: Md.'s foreclosure mediation program" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (6)
Categories: Foreclosure help, Mortgages, Q&A, The foreclosure mess
        

Do you know how much mortgage you can afford? Are you sure you know?

Tom Champion has been in the mortgage business for years, first as a loan originator and now as regional manager in Maryland, Virginia and D.C. for Mortgage Loan Inspection. He thinks people should know that qualifying for a loan isn't the same thing as being able to afford it, even though we're several years past the era of super-lax requirements.

Here's what he had to say when we chatted for a Q&A:

Question: You drew up an example budget: $226,550 loan for a family making $62,900 a year. Is that typical? What’s the problem with this scenario?

I drew that up because I wanted to show you what the qualifications under the guidelines for FHA would be for that property.... They are qualified under FHA guidelines to purchase, no problem. However, if you review the budget, they have less than $100 left over with nothing being contributed to their saving, 401(k) or [children's] education fund. They have no options if there is a problem with employment or sickness in the family. ...

When you walk into an originator to say, "Can we afford this," the originator is going to apply the guidelines for that particular agency, be it Fannie Mae, Freddie Mac, or FHA or a private lender. Under those guidelines, that's the minimum requirements. That makes you feel good, and you [say], "Oh my gosh, we're better off than I thought."

But then you have to stop, detach from the emotion and look at your current budget, and look at the possible increase you may feel over the next three years, look at the possible expenses you may incur. ... If I'm further from my work, am I going to have to replace the car? Am I going to spend more gas? It's back to thinking it through the rest of the way and applying numbers.

In the budget I gave you, you can see that these people are what I call "house poor."

Q. What should people do to figure out how much mortgage they can comfortably afford?

Continue reading "Q&A: Mortgages" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (11)
Categories: Mortgages
        

Hello, higher interest rates?

Maybe not, says Reuters. At least not right away. What one arm of the government taketh away, the other giveth back.

Fannie Mae and Freddie Mac, the mortgage financiers operating under federal conservatorship, will be buying out $200 billion in delinquent loans, putting "about $140 billion of cash into private investors' hands" for reinvestment into the market.

But Mark Zandi, chief economist at Moody's Economy.com, does expect that rates will go from the current 5 percent or so to over 5.5 percent by the end of the year. 

Rates matter because they play a significant role in how much house buyers can afford -- and how much sellers can get. Low-low rates help increase home prices (i.e. the aughts housing boom), or at least remove a reason for them to fall faster.

Where do you see mortgage rates going?

Are you anxiously rate-watching because you're hoping to buy (or sell) soon?

And when do you think the government will actually scale back its involvement in the housing market?

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (14)
Categories: Mortgage rates, Mortgages
        

As personal finance columnist Eileen Ambrose notes, you could be setting yourself up for trouble down the road:

Indeed, in Maryland and the majority of states, walking away is no guarantee that mortgage debt won't come back to haunt you. These are so-called recourse states, where a lender can pursue you for any shortfall after it sells the house. So if you walk away from a $400,000 mortgage and the lender turns around and sells the house for $300,000, you can still be on the hook for $100,000.

The lender might not come calling to collect right away, but there's time -- generally three years afterward, and sometimes more.

The same is true of short sales, unless you negotiate with your lender not to come after you for the difference.

Do you have a debt forgiveness -- or lack of forgiveness -- tale?

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (3)
Categories: Mortgages, The foreclosure mess
        

If you've bought a house or refinanced a mortgage, you signed a lot of paperwork. Did you understand every word? (Did you even read it?)

Civil Justice, a Baltimore nonprofit that offers legal help to people on real estate matters, has found the answer is a resounding no. Even among the well educated and high income.

Now it has a grant from the Governor's Office of Crime Control & Prevention to try to change that.

The new Maryland Mortgage Fraud Prevention Project will match eligible buyers and refinancing homeowners with pro bono attorneys, who will look over documents, explain them and help folks figure out whether it's actually a good idea to sign them.

"We know from the foreclosure crisis, and from all our representation over the years of people ... who get into bad loans or buy a house and it was property flipping, for example, that nobody had consulted an attorney who was going to be looking out for their best interests," said Diane Cipollone, manager of the project and an attorney with Civil Justice.

Her goal is broader than just getting some buyers and refinancing owners free legal assistance. She wants to change everyone's mindset, so the people who can afford to pay an attorney to look over mortgage documents and home-purchase contracts will do so.

"This is a legal document," she said. "This is a binding agreement. ... I think if we can change the way people think about this, we can avoid many future defaults."

The project is in the early stages. Civil Justice trained more than 90 attorneys (in person and by webinar) at the Federal Reserve Bank of Richmond's Baltimore branch last Friday. (UPDATE: Actually, it trained 54 attorneys. Not everyone who registered could make it.) It hopes to start pairing attorneys and clients in mid-April.

Here's who will qualify:

Continue reading "Anti-fraud help for home buyers, refinancing owners" »

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

If you're among the 17 percent of Baltimore-area borrowers underwater on a mortgage, you want to know when your home will be worth more than the debt on it.

First American CoreLogic suggests you settle in for a while:

For the typical underwater borrower in the U.S. it will take until late 2015 or early 2016 for negative equity to disappear. In certain markets, it will take another five to 10 years or even longer to return to positive equity. For example, Detroit is not projected to recover even by 2020, because of its depressed economy.

First American has forecasts for several metro areas. Baltimore isn't among them, but Washington is. The firm expects the D.C. area will emerge on the earlier side -- 2015.

Pittsburgh and Lancaster, Pa., on the other hand, are both on the 2020 end.

First American expects that the average loan balance will fall by an annual rate of 3.3 percent over the next 10 years as borrowers pay down principal, while it forecasts that prices will rise by 3 percent annually over that period. That suggests that getting your head above water is a bit more about monthly payments than about appreciation.

When I asked you all about your mortgage situation, 30 percent said your home value is a lot higher than what you owe and an additional 5 percent owned outright with no mortgage. (Always a good feeling.)

But more than half were either close to being underwater or all wet. Twenty percent of you say your home's value is a lot lower than your mortgage balance.

Economists say homeowners are more likely to walk when they get far underwater, so you'll see that I'm not changing the subject when I mention that Bank of America has agreed to lower principal amounts for Countrywide Financial borrowers. (Countrywide was acquired by Bank of America.)

Continue reading "For underwater homeowners, waiting to inhale" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (9)
Categories: Mortgages
        

What's the difference between 3.5 percent down payments and 5 percent down payments? More than 300,000 home sales, the head of the Federal Housing Administration is telling Congress.

FHA-insured mortgages currently require the lesser percentage, but some leaders -- anxious to avoid another bailout -- think the agency would be on stronger footing if it upped the down payment to 5 percent. FHA Commissioner David H. Stevens responded Thursday that this would lead to plagues of locusts o'er the land.

Or, rather, the housing-market equivalent:

FHA evaluated the loan files of a large sample of past endorsements to identify the number of borrowers who had sufficient assets at time of loan application to contribute the additional 1.5 percent of equity at closing. ... Such a policy change would reduce the volume of loans endorsed by FHA by more than 40 percent, while only contributing $500 million in additional budget receipts. This translates to more than 300,000 fewer first-time homebuyers and would have significant negative impacts on the broader housing market -- potentially forestalling the recovery of the housing market and potentially leading to a double-dip in housing prices by significantly curtailing demand.

As the Associated Press notes, the agency is -- on the one hand -- under pressure from Republicans to avoid overreaching financially, but also -- on the other -- from Democrats who don't want lots of would-be homeowners unable to get mortgages.

Where do you come down on the debate? Would higher down payment requirements be a good idea or bad?

Should we be concerned that so many buyers are so stretched that 5 percent down is apparently impossible? 

Change of some sort seems inevitable. FHA is itself proposing a 10 percent down payment requirement for anyone with a credit score between 500 and 579, with no loans extended to anyone with lower scores. It's also planning to up the upfront mortgage insurance premium and -- most significantly, some say -- to reduce allowable seller assistance to buyers from 6 percent to 3 percent.

FHA financing accounted for nearly four in every 10 home sales in the Baltimore metro area last month, according to Metropolitan Regional Information Systems.

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (19)
Categories: Mortgages
        

Pick four mortgaged homeowners at random in Maryland, and chances are that one of them owes more on his or her loan than the home is worth. Twenty-three percent -- very close to one in four -- are in that "underwater" state, according to a new report from First American CoreLogic.

That's higher than all but seven other states. (We've been high up the list for a while, alas.)

Underwater is a lousy place to be. If you need a bigger place, a smaller place, a place in another state where your employer is transferring you, etc., you'll need to bring money to the table -- or become a landlord -- to move on. If you're trying to move because you can't afford your mortgage payments, escaping foreclosure involves an often tortuous process of trying to get your lender to approve a short sale.

If you're not planning on going anywhere and can afford your mortgage payments, then an underwater mortgage could be nothing more than an annoyance. But get too far upside down, and some homeowners will walk, economists note.

"Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners," Mark Fleming, chief economist with First American CoreLogic, said in a statement. "Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come."

One bit of good-ish news: The underwater problem isn't quite as bad in the Baltimore area as it is statewide. Just under 17 percent of Baltimore metro area homeowners with mortgages are upside down.

The state that's worst off is Nevada, where First American CoreLogic estimates that a whopping 70 percent of borrowers owe more than their homes are worth. Where do you stand?

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (8)
Categories: Mortgages, The economy, The foreclosure mess
        

A new report looking at delinquent subprime mortgages in Maryland and nearby states finds that foreclosure is still the go-to solution for lenders -- or at least it was through the middle of last year, when the report's dataset ends.

Loss mitigation and loan modification were "much less frequently pursued" than foreclosure, says the report, prepared for the Baltimore Homeownership Preservation Coalition.

Why? Much has been written about that. The report's authors, J. Michael Collins of the University of Wisconsin-Madison and Christopher E. Herbert of Abt Associates Inc., note that financial incentives -- and disincentives -- are one of the barriers.

Servicers, they say, "are reimbursed by investors for missed payments and actions taken in pursuit of a foreclosure, but not for costs associated with loss mitigation activities."

In recognition of these costs, Fannie Mae, Freddie Mac, and the Federal Housing Administration have long offered servicers incentive payments to encourage servicers to pursue these remedies, but investors in private label mortgage backed securities do not provide such incentives. The lack of income from loss mitigation activities may also lie behind the fact that many servicers lack the capacity to handle the workload associated with elevated requests for loan workouts. Absent incentive payments, servicers do not have a financial incentive for adding to their organizational capacity for these functions.

You can read the full report here.

So: What about the servicers who signed an agreement with the state to "to create a streamlined and transparent loss mitigation process for distressed Maryland homeowners"?

Continue reading "What happens when a borrower gets behind" »

Posted by Jamie Smith Hopkins at 7:00 AM | Permalink | Comments (8)
Categories: Mortgages, The foreclosure mess
        

Nearly 1,000 attorneys have joined a Maryland pro bono effort to offer free help to borrowers facing foreclosure, figuring legal advice and negotiating prowess could keep more people in their homes.

I've got a story on the effort today and figured you might like to know more about how it works, from a "how do I get this free help?" perspective (as well as "how do I volunteer?").

If you're a homeowner, you'll need to first connect with a HUD-approved housing counseling agency participating in the effort. Organizers recommend doing so by calling the state's HOPE hot line, 877-462-7555.

The pro bono attorneys are offering one-on-one advice to homeowners at foreclosure-prevention workshops, and anyone can take advantage of that. Find a list of events here, along with details about how to prepare (scroll down the page).

If you want an attorney to represent you on a volunteer basis, you'll need to meet income requirements. A three-person household in the Baltimore area, for instance, can't make more than $40,720. UPDATE: Actually, the income guidelines are slightly higher for this program than the usual cap for free legal aid. Here's the correct breakdown for the Baltimore metro area:

Attorneys wanting to volunteer can call the Pro Bono Resource Center of Maryland, 410-837-9379, or go to www.probonomd.com/foreclosure.html.

Posted by Jamie Smith Hopkins at 1:00 AM | Permalink | Comments (0)
Categories: Foreclosure help, Mortgages
        

Karl-Henri Gauvin said several of his clients walked away with loan modifications because representatives have the authority to approve them on the spot if the borrowers qualify.

"You cut through all the red tape," said Gauvin, a Baltimore attorney who was named volunteer of the year in September by the Maryland Consumer Rights Coalition.

The event -- also open to Wachovia borrowers -- is set to run until 7 p.m. today at the Baltimore Convention Center, One West Pratt Street. More details on the original post.

Did you go? Was your experience good, bad or neutral?

Posted by Jamie Smith Hopkins at 1:36 PM | Permalink | Comments (1)
Categories: Mortgages, The foreclosure mess
        

The Consuming Interests blog is asking a question that homeowners and economists alike are wrestling with: Is it ever the right decision to walk away from your home and your mortgage?

In a New York Times magazine piece, Roger Lowenstein argues that corporations default on loans for business reasons, so why not Joe Schmoe?

Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.

It's a hotly debated issue, as you can imagine. What do you think? You can take the Consuming Interests poll here.

Posted by Jamie Smith Hopkins at 10:10 AM | Permalink | Comments (1)
Categories: Mortgages, The foreclosure mess
        

Wells Fargo is putting on a mortgage-help event in Baltimore next week for struggling borrowers, including people with loans from Wachovia, which it acquired about a year ago. Here are the details:

The company says you'll "meet with a Wells Fargo representative who will confidentially discuss your financial concerns and options," including whether you're eligible for a loan modification through the federal Home Affordable Modification Program.

The event is 10 a.m. to 7 p.m. Jan. 11, 12 and 13 -- next Monday through Wednesday -- at the Baltimore Convention Center, One West Pratt Street. Go to level 100, hall F.

You can walk in, but Wells Fargo recommends registering at www.wfhmevents.com/leadingthewayhome by the end of the day today. The registration page notes this, but remember to bring a letter explaining your situation, a list of your assets and expenses, and recent pay stubs, bank statements and tax returns/W2s.

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

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 (2)
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