I had to read the article below, to make sure I didn’t miss the punch line. I can’t fathom this thought process, that this is the thinking, but maybe it really is how the big banks think.

I took a mortgage application earlier this week. Rick was contacted by the bank that holds his mortgage (Wells Fargo), to find out if he was interested in refinancing. He presently is paying 5.5%, so the saving would be $350 per month, which is very nice.

He did the application and went through the process, 11 weeks and finally the loan was turned down. No calls, just a denial letter. When he called the loan officer, he was simply told, they couldn’t understand his income and tax returns. He asked if there was something he could explain to fix the outstanding issues. He was told, NO.

Rick ownes 2 investment properties, has a business and works full time for the state. OK, it’s not simple, but certainly a doable transaction. After spending 2 hours with him, ripping apart the tax returns, his debt ratio was under 30%, which make him well qualified to get him a new mortgage.

Personally, I’m glad that these so called big banks are out there, just better for me.

Good Customer Service Not Important?

By: Brad Finkelstein

Recently I came across a bank analyst research report that made my jaw drop. Richard X. Bove of Rochdale Research came to the following “logical” conclusion regarding Wells Fargo:

1. Wachovia provided excellent customer service, but ran into financial difficulties that drove it to the brink of failure and acquisition by Wells Fargo.

2. The Wells Fargo branch that Bove deals with provides lousy customer service, which is something he has extrapolated to the entire company.

3. He said there is not a better-run bank in the U.S. than Wells Fargo. Therefore, since Wells Fargo is lousy at service, customer service is quite likely “a detriment to success, not a source of it.”

In speaking with a customer service expert for an article I am working on, the expert said (and I agree) this attitude (if it is true) is good for Wells Fargo’s bottom line in the short term, but in the long term, it is customer relationships that will sustain a business of any size.

Even with the vastly reduced number of mortgage originators out there today, there is still too much competition on the street to take your customer for granted.

There is a postscript to this story. Bove said he was in the process of terminating his banking relationship with Wells Fargo because of the lack of customer service. One of the proverbial straws that broke the camel’s back—Wells Fargo solicited him for a mortgage refinance and then managed to botch it badly.

image:stuart miles/freedigitalphotos.net

Why would anyone work with a Lender that you were being told, to take a number. If one of the lenders, that I work with, told me to take a number, I would tell them to take a hike.

TAKE A NUMBER? TAKE A HIKE!

Lenders that have that kind of attitude don’t deserve your business and they lose a lot of future business. I just can’t picture, telling one of my referral partners, that I’m too busy. I can assure, they would think, they called the wrong number.

Fortunately for me, when these take a number lenders lose a client to someone like myself, they never go back. Good for me, but a pretty poor way too service their past clients.

Have you experienced anything like this?

Brokers Told to Take a Number by Certain Wholesalers?

By: Paul Muolo

Late last week we blogged about how certain wholesalers are telling their loan brokers to take a number when it comes to getting approvals (and processing) on purchase money mortgages. We heard from a handful of brokers who said their wholesalers were different and from a few wholesalers who said they can move things along quickly. But we also heard from several brokers who said the ‘take a number’ stories are true. Here’s one such note: “Every lender now is so slammed and just got more slammed with the Wells Fargo fallout. The loans don’t get touched for at least 4 weeks but more like 5 or 6. I absolutely need a 60-day lock but tell the clients we should float. Don’t forget the 3-day process just to review the GFE and if that gets rejected then it’s another 3 days so it could take one week before I can even order an appraisal which just added another week on to the 5-6 week turnaround time.”

image: stuart miles/freedigitalphotos.net

I’m sorry, even if I could, I wouldn’t. I actually got this call today. My first reaction was to just hang up, but decided to find out some additional information.

This guy lost his overtime and started falling behind on this credit card debts, $45,000 worth. Eventually, stopped making the payments on the cards all together, $1,900 per month.

OK, if you are not making payments on credit cards, then you must be able to make your mortgage payment without any difficulty. I did that for a while, but just stopped. I couldn’t believe, he actually told me that it just felt good not paying the mortgage either. WOW

So, I asked my final question, how much do you have available as a down payment? I couldn’t believe he said, “About $5,000”.

I had to be a little careful what I told him, as he was referred by an attorney, that sends me business all the time. Quite frankly, I just didn’t give a damn.

I told him, he didn’t deserve to ever own a home. Thanked him for calling and hung up.

The sooner we stamp out this kind of culture of handouts in this country, the better. The sooner we complete the backlog of foreclosures, the better.

New Crop of Foreclosures Is Coming

By: The NicheReport

(CNBC) — While fewer Americans are falling behind on their mortgage payments, the huge backlog of already delinquent mortgages is finally making its way through the banking system to foreclosure.

Total foreclosure activity rose in the first half of this year from the previous six months, according to online foreclosure sale site RealtyTrac, driven by a jump in new foreclosure actions by lenders.

“Those foreclosure starts are welcome news for prospective buyers and real estate brokers in many local markets where a shortage of aggressively priced inventory has been holding up sales activity. Markets with increasing foreclosure starts will likely see more distressed inventory for sale in the form of short sales and bank-owned properties in the second half of the year,” said Brandon Moore, CEO of RealtyTrac.

More than half of the 212 metropolitan areas RealtyTrac surveys saw increases in foreclosure starts, and of the top ten foreclosure rates in the nation, five of them were in California. Stockton still holds the dubious distinction of the nation’s highest metro foreclosure rate, at more than three times the national average. Despite their high ranking, however, all of the California metros in the top ten actually saw decreasing foreclosure activity overall. In fact, Atlanta was the only metro area with a top ten foreclosure rate to see increasing foreclosure activity in the first half of this year.

I got a call from a Realtor partner yesterday. “Joe I need your help.” He told me that he has a home on deposit that needs to close by the end of Aug, as this was part of 3 transactions, mine doesn’t close none of them close. So what is the problem?

Ralph told me that his client was working with one of the major banks. The client called the loan officer that did the preapproval and left a message that she had a home on deposit.

How long should you have to wait?

The client got the following message. “I cannot call you back for 4-7 days. When I call you, we’ll schedule an appointment in 4-7 days.” She did give her the heads up on what she needed to bring. She went on to say, the file would go into underwriting in 4-7 days. Once through underwriting, they would give her a list of conditions that the underwriter needs and once they were sent in, they would be reviewed…. you guessed it in 4-7 days. I wonder if this was a recording?

I promised Ralph that I would call his client, which I did. I spent a few minutes on the phone with her, qualified her, just to make sure, all was good, which it was. I went over the list of what she needed, which she emailed me within  a half hour. I can have most application done, before she comes in tomorrow. I’m going to make my referral partner very happy, plus everyone else in this transaction.

She thanked me, saying what a breath of fresh air. I asked her if there was anyone else that she knew that could use my help. She then asked me, if I handled refinances. I said of course. She told me to expect a call from her sister. Doesn’t hurt to ask.

The sad part, the other loan officer is going to collect a paycheck no matter what. If I don’t close the loan, I don’t get paid. That is where they get the question, “What’s in your wallet?”

The MegaBanks: Slowing Loan Originations on Purpose?

By: Paul Muolo

You might say the megabanks – for now – are sitting in the catbird seat. They have more loan applications than they know what to do with – and they have no desire whatsoever to add more staff to handle the volume, because, well, that’s what happens when you have a cartel. (I’m sure there’s some unemployed LOs or underwriters out there who could use a job.) Perhaps, that’s a negative view of the megabanks, but there are plenty of hungry nonbanks out there eager to increase volume and their market share – and they’re hiring. Over the next three years the industry will hopefully see a shift in the cartel – but will it see the actual breakup of the Wells Fargo-JPMorgan Chase-Bank of America near-monopoly? Time will tell – but much of this will depend on how much power the Consumer Financial Protection Bureau winds up giving to the megabanks as it destroys the ability of brokers and nonbanks to make a living.

 image: David Castillo Dominici-freedigitalphotos.net

I know I don’t need to say, that anytime the government gets involved in any of our businesses, it only get worse from here.

It is unfortunate for all of us, that Dodd-Frank and the Consumer Financial Protection Bureau have created regulations that stymie growth and job creation. The stupidity here is the thought process, they think they are protecting the public, only to cost the public more money, jobs and unnecessary overhead to all businesses.

The sooner that Dodd-Frank get repealed, the sooner that more jobs get created and the lower the costs will be for consumers.

Would love the know your thought on this topic?

MBA Warns QM Rule Could Unduly Impede Lending

By: Krista Franks Brock

As the Consumer Financial Protection Bureau considers the best approach to the ability-to-repay rule under the Dodd-Frank Act, the Mortgage Bankers Association submitted its cautionary outlook on the proposed rule.

According to the MBA, the rule “is the most significant rule required by Dodd-Frank affecting mortgage lending.”

“How it is finalized – what it contains and how it is structured – will determine how many consumers have access to safe, affordable and sustainable mortgage credit for generations to come,” the trade group stated in its letter to the CFPB.

The MBA warned that “without lending, the economy will not recover,” and the ability to

repay/qualified mortgage (QM) rule has the potential to substantially restrict lending.

One serious consideration on the table for determining QMs is a set debt-to-income (DTI) ratio.

However, the MBA suggests this is not a good indicator of a borrower’s ability to repay, and thus “MBA does not believe that relying exclusively on DTI ratio is wise.” Ability to repay is affected by “multiple factors,” according to the trade group.

Instead, the MBA suggests an “emphasis on documentation and verification of income, assets, and employment.” The MBA suggests documentation is linked to loan performance, whereas DTI is not.

The MBA also suggests the CFPB should not create QM requirements for HUD, the Federal Housing Administration, the Department of Veterans Affairs, or the Department of Agriculture and Rural Housing Service.

In regards to litigation risks, the MBA believes once the QM rule is in place, lenders will be highly reluctant to originate non-QM loans, and therefore, there will be few lawsuits regarding ability to repay on non-QM loans.

However, the MBA did point out in its letter that “establishing the QM as a rebuttal presumption will invite litigation, increase costs and cut off credit to too many qualified borrowers.”

The high risk of potential claims will lead to higher priced loans for consumers, according to the MBA.

image:scottchan/freedigitalphotos.net

When I read this article, I had to laugh. Here these Federal agencies are strongly suggesting that lenders should loosen guidelines so more folks can qualify for a mortgage, which sure makes good sense. Yet, other Federal agencies are recommending that guidelines get tougher and keep saying that lenders should require higher down payments. You talk about a broken system.

20% of folks that contact me to get prequalified to purchase a home, can’t qualify. Not because they don’t make sufficient income, that don’t have good job history, but the credit scores don’t work.

Another problem that I am seeing often. Two borrowers looking to purchase a home, one has good credit, the other not so good. We need the income from both, to make a mortgage work.

Can you imagine, what the market would look like, if there were 20% more buyers?

Federal Agencies Pushing Lenders To Make It Easier To Get Mortgages

By: The Courant

Two federal agencies with far-reaching influence over the mortgage market are working on a problem that could affect the ability of many consumers to obtain a home loan: How to encourage private lenders to ease up on their underwriting restrictions that go beyond what the agencies themselves require for mortgage approvals.

Both the Federal Housing Finance Agency, which oversees giant investors Fannie Mae and Freddie Mac, and the Federal Housing Administration, which runs the low-down-payment FHA program, are considering steps they might take to persuade lenders to open the mortgage spigots a little wider. Together, Fannie, Freddie and FHA account for 90 percent-plus of all home loan funding. The focus of their little-publicized reform projects: the “overlay” rules many lenders have adopted that lump extra fees, larger down payments and higher credit-score requirements onto home loans than Fannie, Freddie or FHA actually require.

For example, Fannie and Freddie may accept FICO credit scores of 660 to 680, and FHA will approve applications with scores as low as 580. Yet lenders originating loans for them often want to see scores 100 points higher. Another example: FHA recently inaugurated a “streamline refi” program designed to encourage widespread refinancings for borrowers with good payment histories by offering low mortgage insurance fees, no appraisals and no credit checks.

Great idea, but lenders have clamped their own more stringent underwriting restrictions on the program, frustrating consumers. Some banks require full appraisals, credit checks and add-on fees. Other lenders have announced that they are limiting eligibility for the program to customers they already service, despite the fact that FHA allows borrowers to seek streamline refinancings from any FHA-approved lender.

Why are lenders making it tougher than necessary for creditworthy applicants to obtain a mortgage? Tops on the list: They are practicing what one prominent mortgage industry consultant describes as “defensive lending.”

“Defensive lending is the mortgage equivalent of defensive medicine,” where doctors run more tests than needed to reduce litigation risk, says Brian Chapelle, principal at Potomac Partners in Washington, D.C. “Rather than more medical tests, mortgage lenders are adding underwriting requirements and program restrictions to avoid overstepping a sometimes ambiguous line” that will trigger penalties from Fannie, Freddie or FHA.

Even minor technical infractions in underwriting or documentation can cause “buyback” demands by Fannie or Freddie when loans go into default, with costs per loan for the lender sometimes soaring to hundreds of thousands of dollars. Plus the Justice Department is putting pressure on major banks to pay millions of dollars to settle allegations of systemic flaws in their mortgage practices — settlements the banks consent to not on the merits but to avoid protracted litigation and hits to their stock prices.

On top of this, banks and other originators are uncertain about upcoming mortgage regulations that stem from the Dodd-Frank financial reform law that will spell out the rules for future lending.

In a nutshell, says Chapelle, government agencies and Congress have fostered a play-it-ultra-safe environment, where the pressure is intense to lend only on the most conservative terms, even if that means turning down creditworthy applicants.

What to do? The two agencies are mum about specifics but are expected to announce reforms sometime in the coming weeks. Lenders, on the other hand, know precisely what they’d like to see. Steve O’Connor, senior vice president of the Mortgage Bankers Association, says lenders want several key changes in current procedures, including clear, point-by-point guidance on how the agencies will define reasonable grounds for buybacks or indemnifications going forward. Lenders also need assurance that after an agreed-upon period of time — say, 24 to 36 months — they will not be blamed for deficient underwriting on a loan that goes belly up. Some mortgage companies have been confronted with buyback demands on loans that defaulted for economic reasons after seven or eight years of on-time payments — “That’s crazy,” said O’Connor.

image: jscreationzs/freedigitalphotos.net

I am always asked by prospective home buyers:

What price range home can I qualify for?

or

What mortgage payment can I qualify for?

Here is the first question that I ask: What is your comfort level for a mortgage payment? This is different than what do I qualify for.

calculating a comfortable mortgage payment

I have seen too many folks get qualified for a mortgage and still get in trouble. Most of us know what our comfort level is for a mortgage payment, but when the payment that you qualify for is higher, there could be a false sense of being able to handle a payment that you may not really want.

I recently met with a couple that wanted to get prequalified to purchase a home. They told me that they already had a prequalification, but the realtor they were working with suggested they meet with me.

They told me they were prequalified to purchase a home up to $200,000. The rate they were quoted was fine, so what is the problem? They were interested in a home that was on the market for amount they were prequalified for, but the payment was much higher than they were comfortable spending.

Asking price $200,000, taxes $6,800, estimated homeowners insurance $700 and monthly mortgage insurance was $197. They were going to have a $1760 per month mortgage payment. The problem with this transaction was a nearly $600 monthly taxes payment. They told me their comfort level for a mortgage payment was $1,500, even though they would qualify for a higher payment.

Qualifying someone for their comfort level, has always made more sense to me. Tell me what you think?

The Three “C”s

By Theresa Furzland

CREDIT CAPACITY COLLATERAL:

When an underwriter is presented with a loan request package, their job is to determine whether the potential borrower will pay back the loan or not. There are many tools available to today’s underwriter and most of the determination is handled by complex computer programs that are designed to weigh the risk factors and make a decision based on impartial means.

The benefits of having this important decision making process is too fantastic to ignore, however as so often happens in our automated world, it is easy to forget the basics. These basics are not forgotten by the computers, they are the building blocks of every model designed. With credit scores and instant “pre approval” automated responses it is easy for us humans to lose track of these basics, so here is a short “Underwriting 101”

CREDIT:

This is a review of the customers past history in meeting their obligations. Not only have they paid their accounts on time, but how long have they had a history. This is one part of the automated system that has the highest potential for inaccuracy. With the emphasis on credit scores and the amount of incorrect information, fraud, and customer ignorance of their rights and responsibilities regarding their credit there is a large margin of errors in credit reports. Customers need to be educated to “watch dog” their credit and lenders need to allow customers the opportunity to “prove” themselves credit worthy when there are extenuating circumstances that can be documented.

CAPACITY:

Does the potential customer have the ability to repay the loan? This includes sources and likelihood of continuance of income, current level of debt load in comparison to new loan, amount of assets and equity in property.

COLLATERAL:

Is the property taken as security of sufficient value? The appraisal report is reviewed manually and generally the lender will also order an AVM (automated valuation model) report.

Each of these factors by themselves does not make or break the decision for a lender to make a loan. The balance between the factors will determine the overall decision. For example, a borrower with substantial equity in the home, excellent credit and large savings reserves may be able to qualify at a slightly higher payment than a customer lacking these other “compensating factors”.

This is the main reason that it is important to remember that no one situation can be summed up by a three digit number. The overall situation of the potential buyer must be diligently reviewed by an underwriter and the customer with the best balance of these three indicators will receive the best loan terms.

image: stuart miles/freedigitalphotos.net

I have to turn away, one out of five folks, I can’t refinance. Here are some examples:

1)  3 out of 10 clients that have a loan owned by Fannie Mae or Freddie Mac, that should all qualify under HARP 2, are denied. Not because of credit or income and no one can explain why?

2)  There are mortgages that folks have that are not owned by Fannie or Freddie, that have rates between 6-8%. That pay their payments perfectly, that have good credit and income, but they owe more than the value of the property. There is no mortgage program for them.

3)  There are many folks that have FHA loans that were done after June 2009, that have interest rates between 5 and 7%, that owe more than the value of the property, that we just can’t help.

We keep seeing that refinance applications are dropping, these are some of the reasons.

Mortgage Refinancing Levels Held Back by Strict Underwriting

By: The Niche Report

The strict credit and qualification guidelines that mortgage underwriters are directed to enforce on behalf of their banks have crushed the hopes of many American homeowners in the last few years. Should this rigid lending environment continue, mortgage lenders could find themselves without any borrowers left to refinance.

Mortgage interest rates in the United States are currently at levels that were last seen when Dwight D. Eisenhower was President and Elvis Presley was just starting his recording career. The average Annual Percentage Rate (APR) on the benchmark 30-year fixed mortgage is just a few basis points above 3.5 percent, and the 15-year fixed home loan is actually under 3 percent. Borrowers seeking to refinance their existing mortgages are well-aware of these record low rates, but few are able to take advantage.

For major banks and small mortgage brokerages, refinancing is the only type of mortgage activity taking place in their offices. Mortgage interest rates have been steadily dropping since the global financial crisis hit its peak with the fall of Lehman Brother on Wall Street back in 2008. Loan originators have looked at millions of applications for refinancing since then, but only a fraction have made it to the closing table.

Lenders are now concerned that they may actually be running out of qualified applicants to refinance. According to a recent report from the Mortgage Bankers Association, the early days of July marked the third week in a row that refinance applications have fallen at banks and lending shops around the country. Considering the ultra-low rates, this drop in applications does not bode well for the market.

More Legislative Action Needed

The sharp dip in refinancing activity comes in the wake of two government initiatives to shore up the ailing American housing market. In an attempt to keep the national economy afloat, government-sponsored mortgage investors Fannie Mae and Freddie Mac made changes to the Home Affordable Refinance Program (HARP), a federal initiative to save troubled borrowers from foreclosure. The Federal Housing Administration (FHA) also pitched in by allowing a streamline refinance process for existing FHA mortgages.

The two initiatives effectively eased up on the underwriting criteria and attracted many applicants. In both cases, there was a sharp increase in nationwide refinance activity, although it was short-lived. Legislators in Congress have introduced bills that are similar in scope to the changes that Fannie, Freddie and the FHA implemented earlier this year, but on a long-term basis. These proposals are now in the hands of Congress, but more immediate relief may come sooner in the form of an initiative by the Obama administration that would direct the FHA to significantly ease up on its underwriting and allow more borrowers to take advantage of the current low rates.

It is not the same answer for everyone. I carry on this conversation with every client. Here are some thoughts to decide if you should prepay your mortgage. Please know that these suggestion may be different if rates where higher than they are now.

If you had an additional $200 per month, here is the question you need to ask. Can I earn a higher rate of return, putting the money into an investment account that can earn more than the rate of interest that I am paying on my mortgage?

Another way to look at this, when you are paying a mortgage, you are paying what is called simple interest. When you are putting money into an investment account, the interest—dividend is compounding. Which means interest is paying interest on interest.

The average interest rate on mortgages in under 4%, my investment accounts in the last 5 years have earned nearly 6%, so for me the choice is clear.

Tell me what you think.

Why you may never want to pay off your mortgage

Here’s a look at the costs and benefits of continually refinancing your home loan.

By Erik Carter of Forbes

Given record-low mortgage rates, does it make sense to ever pay off your mortgage?

No, I don’t mean not making your mortgage payments, although even that can make sense under some limited circumstances. I’m referring to a strategy of refinancing your mortgage to a new 30-year loan every 10 years or so. You would then use the cash savings to pay down higher interest debt or invest for higher returns. This approach has been advocated (PDF) by financial guru Ric Edelman, but other financial gurus such as Suze Orman and Dave Ramsey recommend the opposite: paying your mortgage off as soon as possible.

So who’s right? Well, as usual, it depends on your situation. Let’s take a look at some of the potential costs and benefits:

How much equity do you have?
Given the recent decline in home prices, you may not have as much as you thought. This could be a problem, since you usually need to have equity to refinance at all — unless you qualify for one of these programs. Also, you generally need to have at least 20% equity to refinance without having to pay private mortgage insurance. If you’re paying PMI, you may need to refinance your mortgage to get rid of it in the first two to five years, even if you have 20% or more equity, depending on the terms of your current loan. It’s even worse if you have lender-paid mortgage insurance, in which case you may need to refinance to get rid of it no matter how much equity you have or how long you’ve had it.

• What’s the best rate you can get on a home-equity loan?

How long will it take you to recoup any upfront costs?
There are several different costs to keep in mind here. First, check to see if your lender charges a prepayment penalty, generally one to six months of interest payments. If so, you may be able to get this waived if you refinance with the same lender. If not, it doesn’t necessarily mean you shouldn’t refinance. It’s just another cost to factor into your decision.

Read: Should you pay off your mortgage early?

Second, there are various closing costs that you’ll have to pay upfront. These can include an application fee ($75 to $300), a loan-origination fee (can be 1.5% or more of loan principal), points (generally up to 3% of loan principal), an appraisal fee ($300 to $700), an inspection fee ($175 to $350), an attorney review/closing fee ($500 to $1,000), title search and insurance ($700 to $900), and a survey fee (up to $400). You can sometimes get “no-cost refinancing,” but this just means that the lender will roll these costs into your loan or cover them and charge you a higher interest rate, so you’ll pay them one way or another.

Will you pay more or less in interest?
Of course, the main cost will be the interest rate you’ll pay on the new mortgage. Because rates hit historic lows the week of June 21, you could get a lower rate after refinancing if you have a 30-year loan and haven’t refinanced in awhile. However, if you’re refinancing a recent 15-year loan, or if your credit has taken a hit, you may pay a higher rate. It could still make sense, though, depending on what you’re using the extra cash for. This brings us to …

What would you do with the extra cash?
There are a couple of ways to free up money from a refinance. One is with lower monthly payments, either because the interest rate is lower or because you’re extending the loan term. The other is with a cash-out refinance, in which the mortgage company writes you a check for a lump sum.

Here’s how it works. Let’s say your home is worth $500,000, you owe $300,000 on it, and you refinance with a new loan for $400,000. Since only $300,000 is needed to pay off your old loan, you can take the remaining $100,000 in cash.

• MSN Money: Should you refinance?

Keep in mind that any cash you get isn’t free money. It’s essentially a loan at whatever interest rate your mortgage is. While that’s obvious in the case of a cash-out refinance, it can also be true whenever you extend the length of your mortgage.

So is it a good idea? That largely depends on what you do with the money. Let’s take a look at some examples:

• Paying down high-interest debt. If you use a cash-out refinance to pay off credit card debt, you’re probably saving a lot of interest, especially when you consider that the mortgage debt is tax-deductible. On the other hand, you’re replacing unsecured debt with secured debt. In short, if you don’t pay your credit card debt, your credit rating will be hurt, and there could be a small chance you’ll get sued. But if you can’t pay your mortgage, you could lose your home — so make sure you can afford those payments.
• Financing education expenses. One questioner wanted to use the extra money from lower payments to pay his daughter’s college bills. This has less of a benefit since student loans tend to have relatively low interest rates, although not generally as low as mortgage debt. However, the refinance would reduce his risk of default since his mortgage payments would be lower, and thus easier to pay, in an emergency.
• Increasing/preserving investments. Another questioner wanted to use the savings from lower payments to contribute more to his 401(k) in the few remaining years before his retirement and then be able to withdraw less from his retirement accounts during his retirement. He would essentially be borrowing from his home to invest in his 401(k). This can work well if you’re an aggressive investor and your investments perform within the historical average of 6% to 10% per year, but it also carries the risk of being stuck with additional mortgage debt, even if your investments perform poorly. The key is to make sure that you can afford your mortgage payments regardless of how your investment portfolio does.

What’s your tax bracket?
As you pay down your mortgage, a greater portion of your payments goes to principal and less goes to interest. The advantage is that it gets you closer to paying off the mortgage. The disadvantage is that you get less of a tax break, since only the interest portion is deductible. Refinancing lets you restart the clock and keep a bigger tax deduction. The higher your tax bracket, the more this benefits you.

image:ambro/freedigitalphotos.net

The lenders that we are talking to on a regular basis are telling us, they are not ready to ease mortgage underwriting standards, yet. They will most likely wait until this waive of refinances is over or another way to say it, once interest rates start moving up and none of them see that happening anytime soon.

Every lender is right out straight and have no shortage of business. There is no reason for any of the lenders to loosen any underwriting standard for the time being. I promise you, this will change in spite of every lender saying, that these tougher standards are here to stay.

credit standards for mortgages

Credit Expected to Improve Despite Tight Underwriting

The Office of the Comptroller of the Currency (OCC) released the findings of its 18th annual Survey of Credit Underwriting Practices, showing that credit writing standards were mostly unchanged from the year before.

The survey, which included federal savings associations for the first time, examined the underwriting standards of 87 banks with assets of $3 billion or more in the 12-month period ending February 29.

It showed that while the larger banks eased their standards for some retail and commercial products underwriting standards largely remained the same from the previous survey.

Seventy percent of OCC examiners reported no change in

underwriting, while 14 percent of banks eased their standards. Sixteen percent tightened their underwriting standards.

The most prevalent tightening occurred in commercial real estate (CRE) and international loans, while easing happened largely in leverage, asset-based, and large corporate lending.

OCC noted that national banks that loosened their standards tended to do so in response to changes in economic outlook, the competitive environment, and the bank’s risk appetite. Tightening was mostly due to product performance and a lower risk appetite.

Changes from bank to bank were caused by differing expectations about the future health of the economy, which also came into play for most banks when easing or tightening standards.

Tightening in small business banking underwriting practices decreased, with 82 percent of banks reporting unchanged standards from the last survey. Credit risk levels in small business loans were stable and are expected to stay that way over the next year.

Approximately 18 percent of commercial and retail loan products showed increased credit risk relative to the 2011 survey, while 32 percent indicated decreased risk.

Half of loan products showed the same level of credit risk. Over the next year, examiners speculate that credit risk will likely increase for 25 percent of loan products, decrease for 24 percent, and remain the same for 51 percent.

image:stuart miles/freedigitalphotos.net

They indicate that MANY don’t understand what they are doing. Reverse mortgages are an FHA product and through HUD, each person has to take an educational program, which explains every facet of the process. HUD created the education process, so if the consumer doesn’t understand what they are doing, then there is a problem with the education process.

Reverse Mortgage Education

Our company has been doing Reverse mortgages for many years and I’m not aware of any foreclosures that were done through our office. Many lenders have gotten out of the Reverse mortgage business, I am starting to understand why.

We spend a lot of time doing our own education and in many cases, we talk the clients out of doing a Reverse mortgage, it is not for everyone. There is no such thing as one size fits all.

Confusion Over Reverse Mortgages Linked to Higher Foreclosures

The Consumer Financial Protection Bureau (CFPB) released a report Thursday showing that although reverse mortgages are meant to help borrowers in retirement, they are in fact causing problems for many who don’t fully understand them.

A reverse mortgage is a type of home loan that lets older homeowners access the equity they have built up on their homes and defer loan payment until they sell the home, move out, or pass away.

The original purpose of reverse mortgages was to allow these homeowners to convert home equity into an income stream or line or credit to use in retirement.

Borrowers were largely expected to age in place with their loans, living in their current homes until they passed or needed skilled care.

Reverse mortgages require no monthly mortgage payments, but borrowers must still pay property taxes and homeowner’s insurance. The report showed that nearly 10 percent of reverse mortgage borrowers are at risk of foreclosure because they failed to pay those costs.

“Reverse mortgages are complex and have the potential to become a much more pervasive product in the coming years as the baby boomer generation enters retirement,” said CFPB director Richard Cordray. “With one in ten reverse mortgages already in default, it is important that consumers understand what they are signing up for and that it is the right product for them.”

The report found that many reverse mortgage borrowers do not understand how their loan balance will rise and their home equity will fall over time. In addition, the influx of new choices brought on by innovations and policy changes have made the matter too complex for many homeowners.

The bureau further found that the tools currently available to help consumers understand the risks and tradeoffs are not enough. The report called for improved methods for housing counselors to help consumers understand their choices.

There are many other problems with reverse mortgages as they currently stand, the report pointed out. Many consumers are getting reverse mortgages before the age of 70 (with the most common age for a new borrower being 62, the first age at which reverse mortgages are available), and some are even getting them before retiring.

“These borrowers will have fewer resources to pay for everyday and major expenses later in life and may find themselves without the financial resources to finance a future move-whether due to health or other reasons,” said the report.

Another problem is that 70 percent of borrowers are taking out the full amount of proceeds as a single lump sum instead of treating the payment as an income stream. As a result, these borrowers have fewer available financial resources later in life.

They may not be able to continue paying taxes and insurance on their homes, leading to potential foreclosure. The report found that borrowers who save or invest their money may earn less on the savings than they spend paying interest on the loan.

Finally, the bureau addressed the issue of deceptive or misleading marketing materials about reverse mortgages.

The report cited examples of mailers that depict reverse mortgages as a government benefit or entitlement program in the vein of Medicare and use images resembling government seals to entice consumers. It can be difficult for consumers to tell that a reverse mortgage is a financial product, not a government benefit.

In order to address these issues and help consumers better understand reverse mortgages, the CFPB has released a request for information.

image: stuart miles/freedigitalphotos.net

60% of loan modification default in first 18 months

We are all hearing that most loan modifications default within 18 months. The way I look at this math, that is 40% that work out the way they are supposed to. So if a million modifications were done, that means 400,000 folks do what they agreed to do and want to continue owning their homes. The others, stop screwing around, get these foreclosures done, take a deed in lieu of foreclosure or pay them to leave and get new home owners in place.

News Flash, there is no shortage of prospective home buyers. What are your thoughts?

Six in 10 Homeowners with Loan Mods Default Within 18 Months

By: Kate Berry

Six out of 10 homeowners who received a loan modification stopped paying their mortgage again after 18 months, but there may be a modest silver lining buried in the high recidivism rates.

A study by TransUnion has found that borrowers who received a mortgage modification performed materially better on new auto loans and credit cards than those who did not receive any help, an indication that some consumers who fall far behind on monthly bills are able to regain their financial footing.

“Once consumers have gone through a serious delinquency, there is still an opportunity to lend to them down the road,” says Charlie Wise, TransUnion’s director of research and consulting. “We’re going to see more and more consumers that had a loan modification and the mere presence of a modification, regardless of whether the borrower continues to pay, would indicate better performance” in paying other debts.

Researchers examined data on five million mortgages including 600,000 borrowers who received a modification between January 2008 and July 2011.

The study found that borrowers who had previously gone delinquent only on their mortgages—but not other loans—were better credit risks than borrowers who went delinquent on other loans as well as their mortgages.

Still, high recidivism rate are a concern since most of the borrowers will redefault within 18 months and are likely to end up in foreclosure. The study also found that nearly 42% of borrowers who received a loan modification stopped making payments within a year.

image: pixomar/freedigitalphotos.net

When I was growing up, I continually came up with different ideas to make money. From time to time I would pitch these ideas past my parents. What they must have thought, when I came up with what I thought were brilliant ideas.

One thing that my dad would always say to me, was “You have to succeed at what you know how to do best.” Yes, there are examples that just the opposite worked out, but that is the exception to the rule.

Many, before Discover Card, have waded into mortgages and most have failed. Discover has plenty of money and can afford to just chalk it up as a bad idea. Only time will give them the answer.

Let me know your thoughts.

Discover, Expanding Beyond Cards, Wades into Mortgages

By: Victoria Finkle

Discover Financial Services is finally getting its feet wet in the mortgage origination business, but the credit card lender isn’t jumping into the deep end anytime soon.

The Riverwoods, Ill., company closed its deal to purchase the Home Loan Center from Tree.com on June 6, and recently began originating mortgages.

“We closed our first loan here a couple of days ago,” chief financial officer Mark Graf said in an interview Tuesday.

He and other executives downplayed the potential risks and rewards associated with the mortgages business, saying during a conference call on Tuesday morning that Discover does not expect to see meaningful profits from its new home lending business immediately.

“We are entering this market in a sensible way, having acquired a platform at low cost without the complexities of [mortgage servicing rights] or legacy assets,” chief executive officer David Nelms said during the call, which was held to discuss Discover’s fiscal second-quarter earnings.

“We are going to have very have measured growth here,” Nelms added later on the call.

The credit card company also intends to quickly sell the mortgages, including servicing rights, to the secondary market.

“The goal is to clean out the warehouse about every 15 days, give or take,” Graf said on the call. “And obviously, cleaning out that warehouse on a 15-day basis does not result in us having any significant capital tied up in that business at any point in time.”

The mortgage business is viewed as a “low-risk fee based revenue stream,” he added during the interview.

Discover’s mortgages unit is expected to add about $35 million in operating expenses each quarter, and ramping up the business will “play out over the course of several years,” Graf said in the interview.

“While it’s playing out, the right way to think about it is that it will not be meaningfully accretive or dilutive to income,” Graf added. “There’s a lot of scalability…and ability to run a lot more volume than is passing through today.”

Analysts are also waiting to see what impact mortgage lending has on Discover’s business, but at least one was mildly optimistic about the potential long-term rewards.

Mortgages are “complementary to [Discover's] existing business model, to the extent they can cross-sell the model to their existing customers—so long as they don’t retain the servicing or credit risk associated with that loan,” says Sanjay Sakhrani, an analyst with Keefe, Bruyette & Woods.

Discover, which has been trying to broaden its banking services beyond its credit card roots, plans to build its mortgage business by targeting existing Discover customers and taking advantage of the continuing refi boom, Graf said.

“Our customers have been asking us to get into the mortgage origination market for some period of time,” he said during the interview, adding that Discover’s marketing of mortgages will “focus heavily on that universe” of existing customers.

“Origination volumes continue to be really strong right now, driven heavily by refinance activity, obviously,” he added. “During a period of extended low rates, we’d expect to see that strength in originations continue.”

Discover said Tuesday that second-quarter net income fell 11% to $537 million, from $600 million a year earlier, as the company set aside more money to cover future loan losses. The provision for loan losses was $232 million, up from $176 million a year ago.

Total loans rose 8.6% from the prior year to $57.06 billion.

But even as Discover expands its loans portfolio, the company still faces mounting regulatory and litigation concerns surrounding its credit card payment protection plans.

The company said on Tuesday that it had added an additional $90 million to its litigation reserve during the quarter, largely related to an ongoing investigation by the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corp. into the marketing of the company’s credit insurance-like product.

“From a monetary settlement impact it doesn’t seem like it’s a material…It’s more about the unknown related to that,” says Sakhrani.

Graf said the conversation with regulators is moving forward.

“It’s not resolved at this point in time, but we’re engaged in a constructive, ongoing dialogue, and we’re hopeful it will get resolved soon,” he said in the interview.

Income from the company’s payment protection products fell to $101 million from $105 million a year earlier.

“What we have told the market in the past is that we have implemented a number of changes to our program, and we believe those changes result in substantial compliance with what the agencies to date have told us they are looking for,” said Graf.

“The net effect is they will have a dampening effect,” he added, noting that going forward the company expects revenue for the products to be “flat-ish or modestly down.”

Card sales volume on Discover’s network grew 5% from the prior year to $26.1 billion. Credit card loans rose 4% to $46.6 billion from the prior year.

The net charge-off rate fell to 2.42% from 4.42% a year earlier.

image:freedigitalphotos.net

Trish and Brian were referred by their friends’ mom, that works for a bank. Is this crazy or what?

I met with them and as many first time home buyers, they were extremely nervous, especially after being denied by a local credit union. They shared with me, that they had saved money over the last two years, not made any unnecessary purchases and really focused on paying all obligations on time. So what was the problem?

The credit union told them, that Trish’s credit scores were not high enough. They required a minimum credit score of 680 and she was a 677. They were not sure what type of loan the credit union had available, but were told they required 10% down, which they have.

They brought in all their income documentation, bank statements and tax returns, so I could verify all the information. The credit report did show her mid score of 677 and Brian was a 756. What a simple loan to do.

I immediately gave them a preapproval for an FHA loan, which required a 3.5% down payment. They couldn’t believe how easy this was. At this point, we discussed next steps and putting their team together. They said, we are in your hands and we’ll go with your recommendations.

Mortgage Preapproval for couple in Manchester, CT!

I referred them to a Realtor, Home Inspector, Insurance Agent and Attorney. They are on their way to home ownership! No fence for these guys!

image: ambro/freedigitalphotos.net

I don’t really buy the results. I am contacted everyday by individuals that want to get prequalified for a mortgage. The biggest reason for not being able to qualify someone, is CREDIT, not down payment. My sense is this question was not really addressed.

I must have over 100 clients that I am working with them on credit issues. Some issues take longer than others and in many cases, they were not aware of what the credit actually looked like.

This couple was referred to me the other day. I met with them to do a prequalification. During our meeting they told me that they went to a credit union a few months ago and were told, that one of them had credit scores that were too low. After I reviewed the credit scores and income, I gave them a preapproval, as they qualified beautifully.

They were also told they needed 10% down, but they didn’t quite have that either. They shared that they had their eye on a home, that had been on the market for a few months. This home happened to be in a town, that will qualify for a USDA loan, which requires “NO MONEY DOWN”.

Their monthly payment, with no money down was $1,109. They are presently spending $1,250 for rent, what a waste of money. They could have already owned this home for months, but were told that the credit was a problem. This goes on all the time.

Have you seen anything similar?

Down Payment Biggest Barrier to Homeownership: Study

Feelings about homeownership remain positive in the face of a diminished market, but an uncertain economy and increasing down payments are keeping Americans from making purchases, a report from Integra Realty Resources (IRR) said.

Wednesday’s report detailed results from an IRR-commissioned survey of non-homeowners ages 22-50 in 11 major markets. While 85 percent of potential buyers indicated that market conditions are favorable for purchasing a home, unemployment and job instability make many respondents reluctant or unable to buy a home.

According to the study, 21 percent of respondents are not planning to buy a home due to an uncertain economic outlook, while 24 percent are afraid of making a bad investment.

Thirty-one percent are not planning to buy a home because of a lack of a down payment. As banks and lenders have become more stringent, down payments have escalated to a point where many Americans can’t afford to make the investment.

“Some respondents feel that purchasing a home may be too risky in the near future,” said Benjamin Loughry, MAI, MRICS, managing partner at IRR-Dallas/Fort Worth. “The down payment conundrum continues to suppress demand with no easy resolution in sight. For this reason and the continuing foreclosures is why the homeownership rate is decreasing. This segment of the population will be turning to rental housing instead, which will further boost the rebounding multifamily sector.”

Responses tended to vary according to different areas. Respondents in Detroit are least likely to purchase a home in the next 12 months (69 percent abstaining from purchases). Respondents in Miami were the most unsure about their home buying future, with 36 percent saying they were uncertain.

More than three-quarters (76 percent) of those planning to buy a home who are age 30 or older cited “I have always dreamed of owning my own home” as their reason to buy. While that enthusiasm may be shared by some non-buyers, the ability to act on it remains out of reach.

“Clearly, the American dream of homeownership lives on,” said Jeffrey Rogers, FRICS, JD, MBA, president and COO of IRR. “But if you go deeper into the research, this may be only in a fantasy not to be realized in the current economy.”

image:vichie81/freedigitalphotos.net

Mortgage regulations have definitely put a chill to lending. There is absolutely no reason for a loan closing to take as long as they do. Time and time again, there are delays getting loans closed. Many times there is a hold up at the end and the lenders all tell me, regulations are killing us.

Regulations on top of already existing regulations. OK, some rules are certainly important and necessary, but we have gotten to the point of crazy.

I was doing a mortgage for a client that was a short sale property. The transaction needed to close by 5/31. This loan required mortgage insurance, which the lender was arranging. The lender told us, it would take 24 hours to get the approval. It was submitted on Friday the 25^th, the approval by the MI company didn’t happen until the 31^st the day the transaction was supposed to close. Lots of unhappy people. So, instead of the MI company taking 1 day, they took 5 days. No need for this kind of stuff happening.

With protection like this for the consumer, they sure don’t need any enemies. Tell me what you think?

Bank Critic Goodman Sees Lending Chill in Mortgage Regulations

Laurie Goodman

(Bloomberg) — Laurie Goodman, who says no analysts have been more critical of bank mortgage practices than her team at Amherst Securities Group LP, is siding with lenders when it comes to a flurry of new rules intended to protect homebuyers.

“We’re piling tighter standards on top of already tight credit standards, and because you have so many different entities responsible for making these rules no one is really looking at the interaction,” said Goodman, who’s based in New York and is a member of the Fixed Income Analysts Society’s Hall of Fame. “The combined effects could be devastating.”

The U.S. Consumer Financial Protection Bureau, Securities and Exchange Commission and Department of Housing and Urban Development are among regulators trying to reshape mortgage lending after poor underwriting contributed to a housing crashthat triggered the worst financial crisis in seven decades. The proposals include new tests on borrowers’ ability to repay, guidelines for servicers and rules on origination fees.

Lenders already have been tightening credit standards even as borrowing costs fall to record lows. With the housing market showing signs of stabilizing, after home prices plunged more than 35 percent from a 2006 peak, banks are opposing some of the proposals on the grounds that it will make it harder for them to extend loans.

The concerns raised by Goodman should be taken seriously because she’s not overly sympathetic to the banks, said Representative Brad Miller, a North Carolina Democrat who’s on the Financial Services Committee. Regulators should make sure that requirements intending to protect consumers against abuses don’t make credit unavailable to people who ought to get a mortgage and could afford a home, Miller said.

Proposed Piecemeal

“I don’t think we have to go back to Ozzie and Harriet mortgages of 20 percent down payment, 30-year fixed rate,”Miller said, referring to a television show that aired in the 1950s and 1960s.

“Everything is being proposed piecemeal and in isolation of other rule makings, so there’s massive amounts of uncertainty,” said Rod Alba, senior regulatory counsel for the mortgage markets division of the American Bankers Association.“What we fear is that pushing everything through the door at once is going to create massive burdens and confusion and is going to create the need to come back and fix a lot of the regulations.”

 image: sdmania/freedigitalphotos.net

When I sit with my clients to review rates and the cost to do different mortgage products, the conventional mortgage was usually my number one direction, as it was always best for the client. Well, not so much today. It is now, not always the best option.

When I do the math, they lose 10% of my business on a regular basis. If something doesn’t change, that will continue to happen.

Is anyone else seeing the same trend?

Fannie Mae’s Mortgage Portfolio, Book of Business Shrink in April

Following the news that its total mortgage portfolio shrank, Fannie Mae revealed Thursday that its own gross mortgage portfolio also contracted in April at a compound annualized rate of 13.8 percent.

According to the GSE’s monthly summary, its gross mortgage balance fell with a decrease in sales and purchases. The 13.8 percent rate of decline was greater than March’s 7.3 percent and the highest since January, when it was 14.3 percent. The negative growth rate year-to-date in April was 10.3 percent.

The gross mortgage end balance in April was $683 billion, a $63.6 billion drop from April 2011. The balance has fallen steadily every month for the year in between, with the decrease between March and April 2012 being the largest since the drop between April and May last year.

The end balance of mortgage-backed securities (MBS) in portfolio slid down to $204 billion, owing largely to decreases in sales and purchases. Securitizations were $13.5 billion, down from March but comparable to April 2011.

Further declines in mortgage loans and both agency and non-agency mortgage securities contributed to the overall decline of the gross mortgage portfolio.

Fannie Mae’s MBS and other guarantees also fell to $2.66 trillion, the first decrease since November 2011. The negative compounded growth rate in April was 8.2 percent, compared to March’s positive growth of 11.7 percent.

The loss comes from a large decrease in MBS issuances and a moderate decrease in liquidations. Guaranteed securities and mortgage loans were valued at $3.1 trillion, more than $20 billion down from March.

These falling values led to shrinkage in Fannie Mae’s book of business, with an annualized rate decrease of 8 percent for April. This was a marked fall from March’s positive 9.3 percent growth and brings the year-to-date rate growth to negative 0.3 percent.

Single-family serious delinquency rates totaled 3.63 percent in April, continuing the trend of falling delinquency rates. The same was true for multifamily rates, which fell to 0.35 percent.

Fannie Mae completed 12,552 loan modifications in April, bringing the year’s total so far to 59,223.

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Six months ago clients came to me, asking for some advice. They told me they had gotten behind on their mortgage and didn’t know what to do. I asked them if they had contacted the servicer, they answered no. They told me, they didn’t know what to say. I asked them if they had attempted to get a modification done, they said yes, but where denied. I asked why they said, they didn’t know. I asked them why they didn’t reapply, they were not aware they could.

My advice to them was simple, they immediately needed to contact the servicer and immediately reapply for the modification. They did just what I advised. Two weeks ago, they closed on the modification. Their interest rate when from 6.75% to 4% and all of their back payments were added to the end of the loan. Their monthly payment was reduced by $450.

The moral of the story, communicate as soon as there is a problem, actually before there is a problem.

Overdue Owners Still Reluctant to Ask for Help

By:Amilda Dymi

Only 26% of the 1,019 homeowners surveyed by Money Management International in April said they would first seek help from their lender.

Housing counseling or mortgage relief programs rank last at 13%.

And a top reason why borrowers continue to be intimidated by the prospect of facing their lender-servicers is fear they will be taken advantage of.

At 50%, the largest percentage of the respondents would first seek help from family or friends indicating that despite certain progress in reaching out to distressed homeowners, more efficient efforts appear to be necessary.

An astonishing 63% of those who sought help did so when one to three months behind on their mortgage payments, while 22% did so when they were four to six months behind, while 4% were seven or more months behind before they sought help.

Survey participants expressed concern about the resources and options for mortgage assistance available. Scams and fraudulent services topped the list for 53% of those surveyed, followed by fear that assistance cost would be unaffordable at 51%.

Another concern that has been a staple for the mortgage industry for decades is a borrower’s ability to understand the mortgage lending process. At 45%, almost half find the process confusing and are afraid they would choose “a solution they did not fully understand.”

One’s financial wellbeing plays a crucial role. Up to 57% of the survey participants said they would seek help only after a job loss, 35% if they knew they would miss at least one mortgage payment and 27% if they already had missed one mortgage payment.

The national nonprofit that since 1958 has been providing full-service credit-counseling and debt management assistance by appointment in its branch offices and 24/7 by telephone and Internet said the goal was to inquire “how homeowners would act if they were struggling with mortgage payments.”

These concerns are real and worth considering, said Jo Kerstetter, MMI’s vice president of education and community relations, since millions of homeowners still face possible foreclosure and need to be aware of the fact that free, quality help is available from HUD-certified housing counselors nationwide.

image: renjith krishnan/freedigitalphotos.net

Many of the challenges that lenders experience are turning into opportunities for us. Many of the lenders have limited the loan to value. Many are only going up to 105% of the value of the property, which kills a lot of transactions. I have a number of lenders that will go up to 150%, which is a huge difference. There continues to be talk of higher than 150% loan to value that will be coming in the near future.

In the first couple of weeks that the program came out, two transactions came to me after they were turned down by the original lenders they went to. Not 100% sure why they were turned down, but both will be closing over the next couple of weeks.

Competition Heating Up for HARP 2.0?

By: Kate Berry

Competition is heating up among banks in the government’s revised Home Affordable Refinance Program, which has helped spark a refi boom and contributed to strong mortgage profits at most banks.

“We’ve been pretty aggressive” with direct mail solicitations and newspaper ads, says Bob Lewis, a senior vice president and the head of mortgage lending at Fifth Third Mortgage. His loan officers also are combing through files and encouraging past customers to refinance if they haven’t already.

The unit of $117-billion-asset Fifth Third Bancorp in Cincinnati was the sixth-largest HARP lender in the first quarter. Refinancings through HARP 2.0 now make up 49% of the bank’s total refinancing volume, Lewis says.

The bank’s first-quarter originations resulted in gains of $174 million on mortgages sold to Fannie and Freddie, a 180% increase from gains of $62 million in the first quarter a year earlier.

Lenders were given plenty of sweeteners to participate in HARP 2.0, and critics have argued that rather than offering the lowest interest rates possible, these lenders are raking in outsized profits.

Lewis says the program has been quite profitable for lenders, but that this reflects the vagaries of the market.

“Everybody’s stealing it,” Lewis says, referring to gain-on-sale margins. “Several things go into that activity. Rates have moved around over the last six months, in a 50 basis point range, and that can create opportunities when you’re selling to the secondary market.”

The purpose of HARP 2.0 was to expand access to refinancing so underwater borrowers with loan-to-value ratios greater than 125% could take advantage of low interest rates and lower their monthly mortgage payments, reducing the potential for strategic defaults.

Still, Lewis framed the issue as one in which banks are simply doing their part to aid the housing recovery.

“We see it as an opportunity to help the communities in our footprint and help consumers maintain homeownership in a challenging environment,” he says. “I don’t know if it’s helping the housing market recover but if borrowers get more affordable payments, there will be fewer foreclosures and the glut of inventory on the market will decline.”

Volume of HARP 2.0 refinancings has been so high that some large lenders, lacking capacity to handle so many requests, are tightening underwriting just to keep from being inundated. For example, Wells Fargo has capped loan-to-value ratios at 105% for loans it does not service itself.

Fifth Third is bucking that trend. It accepts borrowers with LTVs as high as 150% LTVs—and may go even higher.

“We’re confident at 150%,” says Lewis. “We selected 150% as a starting point and will evaluate this continually and explore it going forward.”

image: sira anamwong/freedigitalphotos.net

I hear such bad information out there when it comes to how soon someone can get a mortgage after a foreclosure, short sale or bankruptcy. Yes, there are excepts, but I would follow the guidelines below.

I am referred many clients after a they have gone through one or more of these events. I immediately start the process of educating them regarding rebuilding credit. Just because these time periods have gone by, but if they haven’t handled their credit, they still won’t qualify for a mortgage.

I have gotten mortgages for folks prior to the recommended guidelines, but these situations are the exception than the rule. A couple of these exceptions are medical or death of a bread winner. These have been the only two extenuating circumstances, that I have been able to get exceptions.

FHA
3 years after Foreclosure Completion
3 years after Short Sale or Deed In lieu of Foreclosure
2 year After Chapter 7 BK (Discharge date)
1 year After Chapter 13 BK

VA-
2 years after Foreclosure Completion date
2 years after Short Sale or Deed In lieu of Foreclosure
2 year After Chapter 7 BK (Discharge date)
1 year After Chapter 13 BK

Conforming
7 years after Foreclosure Completion date
2 years after Short Sale or Deed In lieu of Foreclosure (80% Max LTV)
4 years after Short Sale or Deed In lieu of Foreclosure (80% to 90% LTV)
7 years after Short Sale or Deed In lieu of Foreclosure (90% LTV or higher) – FNMA only
4 years After Chapter 7 BK (Discharge date)
2 years After Chapter 13 BK

image: stuart miles/freedigitalphotos.net

I spoke to a banker this morning that has been sending me business for many years. Carole was referring a client that her bank couldn’t help. These folks were buying a $500,000 home and putting $150,000 down. After giving me all the details, I told her that I could assist them and got all their contact information.

Yes, this was a great referral, but not the important part of our conversation. She told me that that she was getting very tired of telling perfectly good mortgage clients that she couldn’t do a mortgage for them. She was considering, as she put it, “coming over to the other side”. Would I consider hiring her?

I told her, I would in a New York second. I have a lot of respect for Carole and the work she has done for so many years. She had always done great work for clients that I had referred to her.

She had already started the licensing process, so over the next few months would be make the transition. I hear this type of story more and more.

Is Wholesale Mortgage Lending Hot?

By; Paul Muolo

The other day a mortgage recruiter made a blunt statement to us: “Wholesale lending is really hot right now.” Of course, given what’s happened to the mortgage business the past few years and all the blame being placed on brokers for crappy loan quality, such a statement might be taken with a grain of salt. But it’s safe to assume that all the bad actors have been forced out of the loan brokerage industry – although the same may not be said of retail LOs working for depositories. Anyway, lenders today (of all stripes) are constantly searching for the most efficient and cost effective way to fund loans – a strategy that should include brokers. Still, according to the Quarterly Data Report, brokers only account 10% of the origination market compared to 30% four years ago. Still, a recovery in the channel is underway but how far that recovery will go is up in the air – thanks to new CFPB and other regulatory proposals.

It is amazing to me, that any bank that would leave you a message, that they will communicate back with you in 60 to 90 day, to begin the application process. How the hell are they still in business? I hear this type of story all the time, from clients that are referred to me. It is not like these banks have any product that we as mortgage brokers don’t have, so why does anyone use them at all? It is not like their interest rates are any better and their service surely is not. I wish I knew.

I suppose I should just be happy, they are around and as a result, they continue to grow my business.

Borrowers Face Big Delays in Refinancing Mortgages

By NICK TIMIRAOS And RUTH SIMON

When Craig Foyer called Bank of America Corp. in March to ask about refinancing the mortgage on his Oconomowoc, Wis., home, a saleswoman told him the company was “swamped with business” and that it would

call him back in 60 to 90 days, he says.

The HARP program isn’t asking the lender to take a principal reduction, just an interest rate reduction. The majority of these homeowners have paid their mortgage on time, but their real estate values dropped. These homeowners didn’t cause the values of their homes to drop and they want to continue owning the properties. Why make this refinance process as difficult as it is? If these folks obtain an interest rate that drops, they have more dollars to spend every month, that will help the overall economy.

Right now, I am getting 7 out of 10 transactions closed. I am being told by the lenders that that is a great ratio. Why is that a great ratio? Let’s make the process easier for these homeowners.

HARP Means Savings, Less Debt for Homeowners: Freddie Mac

By: Ryan Schuette 05/11/2012

More homeowners continue to reap benefits from the newly modified Home Affordable Refinance Program (HARP), with 79 percent of homeowners with government-backed mortgages either keeping the same level of mortgage debt as before or reducing it over the first quarter.

Of those homeowners, Freddie Mac found recently, 79 percent held onto the same level of debt for first-lien home mortgages, while 21 percent of homeowners shaved off dollars from their principal balance.

The mortgage company said that the share of borrowers keeping their original loan amounts hovered at the highest level in the 26-year history of the survey.

“The enhancements to HARP announced in October, such as removing the maximum loan-to-value limit, are beginning to show up in additional refinance

volume during the first quarter,” Frank Nothaft, VP and chief economist with Freddie Mac, said in a statement.

He said that HARP loans amounted to 20 percent of Freddie Mac’s refinance funding during the first quarter, with borrowers drawing down their interest rates by 1.5 percent on average.

“On a $200,000 loan, that translates into saving about $2,900 in interest during the next 12 months,” he added.

Freddie Mac also found that “cash-out” borrowers – those who increased their loan balances by at least 5 percent – accounted for 21 percent of refinance mortgages.

For those who reduced their 30-year loans, the median interest rate reduction amounted to 1.5 percent, representing roughly 27 percent in savings on interest rates alone, the largest such share in 27 years for Freddie.

Net dollars of convertible home equity translated to an inflation-adjusted low, a bottom for the company in about 17 years of analysis. Refinancing homeowners cashed out with about $5.3 billion in net home equity during the first quarter, down from $7 billion in the fourth quarter.

The latest numbers arrive as the Obama administration and lawmakers considers new modifications to HARP, with the president set to address the issue with a Nevada family interested in refinancing.

HUD Secretary Shaun Donovan indicated in a teleconference call with reporters Friday that the administration stands ready to back one of three bills currently before Congress that would expand HARP.”

 image: stuart miles/freedigitalphotos.net