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Virginia mortgage rates and industry news

Homebuyers and owners face hardship as tighter lending rules keep them from mortgages

March 26th, 2009 11:35 AM

Reprinted from RISMEDIA:

Even with interest rates at historic lows and billions of new government dollars flowing into the financial system, getting a mortgage isn’t as easy and smooth a process as it used to be. The difference between wishing for and actually getting a great deal on a mortgage can be a few dozen points on a credit score, or a few thousand dollars on an appraisal.

Where a credit score above 620 might have qualified a homebuyer for a competitive interest rate a couple of years ago, the magic number today is 740.“Obviously things are more restrictive than they were three, six or 12 months ago,” said Mike Monaghan, a mortgage adviser for Coldwell Banker Home Loans. “It’s a more thorough process today.”

Some in the business say these changes have returned an appropriate level of scrutiny - some would say sanity - to what had become the Wild West of lending. Others say the restrictions are too much, penalizing good borrowers and tossing common sense to the wind. “Has the pendulum swung too far? I think so.

Mortgage rates were already flirting with all-time lows when the Federal Reserve announced that it would pump another $1 trillion into the financial system, buying up $300 billion in long-term government bonds and $750 billion in mortgage-backed securities. This move cut another quarter point off 30-year mortgage rates, dropping them below 5% at some lenders - and low rates are likely to stick around for a while, experts said.

The hiccup is that only the best-qualified borrowers will be able to obtain the best rates. But that still leaves some less-qualified buyers the opportunity to get a mortgage at a rate slightly above the all-time lows.

Government-owned Fannie Mae and Freddie Mac, which buy mortgages from lenders, are looking MUCH more closely at credit scores and appraisals. Both agencies are charging fees - a percentage of the loan amount - for loans that entail more risk; those fees are being passed directly to borrowers. Interest rates on such mortgages also are likely going to be higher than on mortgages going to people with optimum credit scores and big down payments.

It’s no mystery why. During 2008, Fannie Mae lost $58.7 billion while Freddie Mac lost $50 billion.

“Fees are adjusted up and down based on market conditions,” said Brad German, a spokesman for Freddie Mac. “The better the credit, the less likely it is that the loan will end up in a loss.”

Anyone with a credit score below 740 could be hit with extra fees. For example, someone with a credit score between 700 and 719 who has a 20% down payment would pay a 0.75% fee - $1,500 on a $200,000 mortgage.

The credit-score equation has changed quickly. “Two years ago, it only mattered if your credit score was above or below 620”. “Eighteen months ago, top tier credit was anything above 660. Then it jumped to 680, 700, and now 740.” The situation is frustrating. “There’s no common sense anymore”. There’s nothing wrong with a 700 credit score. Every loan’s a battle, and everything is changing daily.”

Posted by Paul Thistle on March 26th, 2009 11:35 AMPost a Comment (0)

Obama Foreclosure plan for Virginia homeowners

March 5th, 2009 11:51 AM

Do you have questions about President Obama’s new $75 billion foreclosure plan? Most homeowners want to know what it means for them, whether they are likely to qualify, and what they need to do to obtain relief. Although the eligibility requirements and other details are likely to become clearer in the next few weeks, you can glean some information from the Homeowner Affordability and Stability Plan. Here, I highlight some of the key points mentioned in the plan.

The plan’s executive summary clearly states the problems that the Obama administration foreclosure plan is designed to address:

- Due to falling property values, many homeowners cannot refinance into mortgages with lower interest rates.
- Nearly six million homeowners are facing foreclosure, primarily due to the current recession.
- The foreclosure epidemic is further depressing property values, with each foreclosure reducing nearby property values up to an estimated 9%.
- The Homeowner Affordability and Stability Plan is designed to help nearly 9 million households restructure or refinance their mortgages to avoid foreclosure. The plan has three key components:
o Provide access to low-cost refinancing options for responsible homeowners suffering from falling home prices.
o A $75 Billion Homeowner Stability Initiative for at-risk homeowners.
o Supporting low mortgage rates by strengthening confidence in Government Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac.

Low-Cost Refinancing

The Homeowner Affordability and Stability Plan recognizes that many homeowners cannot take advantage of historically low interest rates, because their loan-to-value (LTV) ratios are too high for them to qualify for a refinance loan. Most lenders want to see an LTV of 80% or lower before they will consider approving a refinance loan; that is, homeowners must owe no more than 80% of the current value of their property (for example $80,000 or less on a $100,000 home).

Given the fact that property values have dropped as much as 25% or more in some areas of the U.S., many homeowners have seen their LTV’s rise above the 80% cut off. Obama’s foreclosure plan is designed to “help as many as 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac refinance through those two institutions.”

By refinancing into a loan with a lower interest rate, homeowners can save hundreds of dollars per month and thousands per year - perhaps enough to protect their homes from foreclosure. On a $200,000 30-year mortgage, a reduction from 8% to 6% drops the monthly payment $268.43 - an annual savings of $3,221.16.

$75 Billion Homeowner Stability Initiative

The $75 billion homeowner stability initiative targets at-risk homeowners, many of whom are stuck in adjustable-rate mortgages (ARMs) and have seen their house payments rise to 40 or even 50% of their monthly income. The program offers cash incentives to lenders and borrowers for working out loan modification agreements that result in reasonable, affordable monthly mortgage payments and enable the homeowners to keep their homes. Following are some key points about this component of the plan:

- The primary goal of the initiative is to reduce homeowners’ monthly payments to sustainable, affordable levels.
- Real estate investors need not apply. This initiative is available exclusively to help homeowners retain possession of their primary residence.
- The plan covers households “at risk of imminent default despite being current on their mortgage payments.” In other words, you can qualify even if you haven’t yet missed a house payment.

Under the initiative, the lender is responsible to lower the interest rate so that the homeowners’ monthly mortgage payment is no higher than 38% of their monthly gross income. If the payment is still not affordable at that level, the initiative matches “further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31%.” Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.

The lower interest rate must remain in place for five years, at which time it can gradually be stepped up to the conforming loan rate in place at the time of the loan modification.

Servicers receive an up-front incentive of $1,000 for “each eligible modification meeting guidelines established under this initiative” plus a monthly incentive up to $1,000 per year for three years as long as the borrower remains current on the loan.

Borrowers receive an incentive of up to $1,000 per year for five years, as long as they stay current on their loan. The money is applied to pay down the balance on their loan; it is not given directly to the homeowners to spend as they wish.

Servicers receive a $500 incentive, and mortgage holders receive a $1,500 incentive for modifying at-risk loans before the borrowers fall behind. This is intended to provide early assistance to borrowers - before they default on their loans.

Mortgage holders receive an additional insurance payment, linked to declines in the home price index, on each modified loan. This is designed to discourage mortgage holders from foreclosing now out of fear that property values will fall even further if they wait to foreclose.

As part of the plan, the Treasury will develop uniform guidelines for loan modifications across the mortgage industry. All financial institutions that receive Financial Stability Plan financial assistance will be required to adhere to the guidelines.

Strong government oversight will be in place to monitor performance and ensure compliance with the plan’s guidelines.

The plan allocates $1.5 Billion in relocation and other forms of assistance to renters displaced by foreclosure and $2 billion in neighborhood stabilization funds.

Low Mortgage Rates

The third major component of the Homeowner Affordability and Stability Plan is to “support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.” To accomplish this goal, the plan calls for the following:

- Increasing the Treasury Department’s funding commitment to Fannie Mae and Freddie Mac to ensure security of the mortgage market. Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
- To promote stability and liquidity, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities.
- Treasury will increase the size of the GSEs’ (Government Sponsored Enterprises’) retained mortgage portfolios by $50 billion to $900 billion along with corresponding increases in allowable debt, so Fannie Mae and Freddie Mac can facilitate financing for the mortgage industry.
- The administration will work with Fannie Mae and Freddie Mac to support the efforts of state housing finance agencies in serving homeowners.

For additional details, check out the “Help for homeowners” Q&A post on the White House Blog.

Posted by Paul Thistle on March 5th, 2009 11:51 AMPost a Comment (0)