via Short Sale Listing: 505 N BALDWIN ST Portland, Or. $235,000.

It’s not been publicized as a tax because it’s been identified as an increase in the agency’s “Guarantee Fee”. But the money does not go to the agency’s, it goes directly to the US Treasury. The fee is only 10bps(bps stands for “basis points” which means 1/100th of a percent, or .1%). But, when market factors come into play(like lock term, etc.), it will be more. The largest US mortgage lender said recently that some programs will be affected as much as 80 bps.

This will not be an additional fee on the Good Faith Estimate, but will be factored into pricing. Industry estimates conclude that the typical borrower will pay approximately $4,000 more during the life of their loan.

Let’s face it, this is a tax. A couple interesting thoughts come to mind when considering this new tax.

First, since Fannie Mae and Freddie Mac are now a funding source for the US budget this works against the goal of both parties to “wind them down”, or eliminate them and replace them with private funding sources.

Second, for those of you who will immediately jump on this as “liberal” spending….the “conservatives” were also in favor of this new tax, despite their signing of the “no new taxes” pledge.

Third, housing has led the economy out of recession historically. Housing is still hurting nationally. The Federal Reserve has kept interest rates low to stimulate the economy and just last week wrote a letter to Congress expressing the importance of housing in revitalizing the economy. It makes you wonder why all these “job creators” in Washington, D.C. are for this tax that will serve as an additional barrier to stimulating housing and create jobs.

It would appear that the Nation’s leaders have other priorities. What they are, who knows

Brett Reichel
Brettreichel.com

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• A Brief History of Fannie Mae and Freddie Mac (time.com)
• Fannie Mae CEO Exit Reveals Housing Policy Chaos (huffingtonpost.com)
• Bernanke Doubles Down on Fed Bet Defied by Recession: Mortgages (businessweek.com)
• Fannie, Freddie Turmoil Opens Market to Tough Mortgage Medicine (thestreet.com)
• The Fine Print – Home Buyers to Pay for the Payroll Tax Cut (legallyeasy.rocketlawyer.com)
• NCBA Applauds the GAO Recognition of the Cooperative Business Model as Solution for Restructuring Fannie Mae and Freddie Mac (prweb.com)
• What President Obama can do for the economy without Congress: Mass mortgage refinancing (dailykos.com)

via Short Sale Listing: 1337 SW LINNEMAN AVE Gresham, Or. $230,000.

via Short Sale Listing: 1212 NE 157TH AVE Portland, Or. $219,900.

Congressional Republicans, along with some Democrats — and even GOP presidential candidate Newt Gingrich — are renewing calls to craft an agreement to reduce the involvement of Fannie and Freddie in the nation’s mortgage market.

But without a broader accord, passage of any legislation this year is slim, housing experts say.

Jim Tobin, senior vice president of government affairs for the National Association of Home Builders, concedes that despite a mix of Democratic and Republican proposals, including a push by the Obama administration last year, congressional leaders probably won’t get far this year on a plan for Fannie and Freddie, the government-controlled mortgage giants.

Tobin said there are “good ideas out there” and while he expects the House to put some bills on the floor and possibly pass legislation, the Senate is likely to remain in oversight mode without any “broad-based legislation on housing finance.”

“We’re bracing for a year where it’s difficult to break through on important policy issues,” he said this week.

While the issue makes for a good talking point, especially in an presidential election year, congressional efforts are largely being stymied by the housing market’s sluggish recovery, prohibiting the hand off between the government and private sector in mortgage financing, housing experts say.

David Crowe, chief economist with NAHB, said that the market has hit rock bottom and is now undergoing a “slow climb out of the hole.”

The House has taken the biggest steps so far — by mid-July the Financial Services Committee had approved 14 bills intended to jump-start reform of the government-sponsored enterprises.

“As we continue to move immediate reforms, our ultimate goal remains, to end the bailout of Fannie, Freddie and build a stronger housing finance system that no longer relies on government guarantees,” panel Chairman Spencer Bachus (R-Ala.) said last summer.

Meanwhile, a number of GOP and bipartisan measures have emerged — Democrats and Republicans generally agree Fannie and Freddie are in need of a fix but their ideas still widely vary.

There are a handful of bills floating around Congress, including one by Reps. John Campbell (R-Calif.) and Gary Peters (D-Mich.), and another by Reps. Gary Miller (R-Calif.) and Carolyn Maloney (D-N.Y), which would wind down Fannie and Freddie and create a new system of privately financed organizations to support the mortgage market.

“Every one of those approaches replaces them [Fannie and Freddie] with what they think is the best alternative to having a new system going forward that would really fix the problem and would really give certainty to the marketplace and allow housing finance to come back, and therefore housing to come back, as well,” Campbell said at a markup last month.

There’s another bill by Rep. Jeb Hensarling (R-Texas) and bills in the Senate being pushed by Sens. Bob Corker (R-Tenn.) and Johnny Isakson (R-Ga.).

Corker, a member of the Senate Banking Committee, made the case earlier this week for unwinding government support for the GSEs while promoting his 10-year plan that would put in place the “infrastructure for the private sector to step in behind it.”

“A big part of the problem right now is the private sector is on strike,” Corker said.

He has argued that his bill isn’t a silver bullet, rather a conversation starter to accelerate talks.

“So what we need to do is figure out an orderly wind-down,” Corker said in November. “And so we’ve been working on this for some time. We know that Fannie and Freddie cannot exist in the future.”

He suggested getting the federal government this year to gradually wind down the amount of the loans it guarantees from 90 percent to 80 percent and then to 70 percent.

“And as that drops down, we think the market will send signals as to what the difference in price is between what the government is actually guaranteeing and what they’re not,” he said.

Even Gingrich, who has taken heat for his involvement with taking money while doing consulting work for the GSEs, called for an unwinding during a December interview.

“I do, in fact, favor breaking both of them up,” he said on CBS’ Face the Nation. “I’ve said each of them should devolve into probably four or five companies. And they should be weaned off of the government endorsements, because it has given them both inappropriate advantages and because we now know from the history of how they evolved, that they abused that kind of responsibility.”

In a white paper on housing last week, the Federal Reserve argued that the mortgage giants should take a more active role in boosting the housing market, although they didn’t outline suggestions for how to fix the agencies.

The central bank did argue that “some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.”

Nearly a year ago, Treasury Secretary Timothy Geithner asked Congress to approve legislation overhauling Fannie Mae and Freddie Mac within two years — that deadline appears to be in jeopardy.

The Obama administration’s initial recommendations called for inviting private dollars to crowd out government support for home loans. The white paper released in February proposed three options for the nation’s housing market after Fannie and Freddie are wound down, with varying roles for the government to play.

About the same time last year, Bachus made ending the “taxpayer-funded bailout of Fannie and Freddie” the panel’s first priority.

While an overhaul remains stalled for now there is plenty of other activity on several fronts.

In November, the Financial Services panel overwhelmingly approved a measure to stop future bonuses and suspend the current multi-million dollar compensation packages for the top executives at the agencies.

The top executives came under fire for providing the bonuses but argued they need to do something to attract the talent necessary to oversee  $5 trillion in mortgage assets.

Earlier this month, the Federal Housing Finance Agency announced that the head of Fannie received $5.6 million in compensation and the chief executive of Freddie received $5.4 million.

Under the bill, the top executives of Fannie and Freddie could only have earned $218,978 this year.

Last week, Fannie’s chief executive Michael Williams announced he would step down from his position once a successor is found. That comes only three months after Freddie’s CEO Charles Haldeman Jr. announced that he will leave his post this year.

The government is being tasked to find replacements, not only for the two mortgage giants which have cost taxpayers more than $150 billion since their government takeover in 2008, but there is talk that the Obama administration is looking to replace FHFA acting director Edward DeMarco, the overseer of the GSEs.

In a letter to President Obama earlier this week, more than two dozen House members said DeMarco simply hasn’t done enough to help struggling homeowners avoid foreclosure.

The lawmakers are pushing the president to name a permanent director “immediately.”

Also, in December, the Securities and Exchange Commission (SEC) sued six former executives at Fannie and Freddie, alleging they misled the public and investors about the amount of risky mortgages in their portfolio.

In the claims, the SEC contends that as the housing bubble began to burst, the executives suggested to investors that the GSEs were not substantially exposed to sub-prime mortgages that were defaulting across the country.

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• Can anyone save Fannie Mae and Freddie Mac? (money.cnn.com)
• CEO who led Fannie Mae after government seizure to quit (usatoday.com)
• SEC Sues Former Fannie Mae And Freddie Mac Executives For Fraud (huffingtonpost.com)
• Fannie Mae CEO steps down during troubled times (agbeat.com)
• Fannie Mae CEO Steps Down, Despite Having “Long Way to Go in Housing” (inquisitr.com)
• The Future of Fannie Mae and Freddie Mac (money.usnews.com)
• Fannie, Freddie CEOs Took Millions, Far More Than Gingrich (pjmedia.com)
• Lawmakers slam Fannie Mae, Freddie Mac CEOs over pay and bonuses (latimesblogs.latimes.com)

Greenspan image tarnished by newly released documents, by Zachary A. Goldfarb, Washington Post: The leaders of the Federal Reserve went around the room saluting Alan Greenspan during his last major meeting as chairman of the central bank Jan. 31, 2006. …

Some six years later, Greenspan’s record — sterling when he left the central bank after 18 years — looks much more mixed. Many economists and analysts say a range of Fed policies contributed to the financial crisis and resulting recession. These included keeping interest rates low for an extended period, failing to take action to stem the bubble in housing prices and inadequate oversight of financial firms.

The Thursday release of transcripts of Fed meetings in 2006 shows that top leaders of the Fed — several of whom continue to hold key positions today — had a limited awareness of the gravity of the threat that the weakness in the housing market posed to the rest of the economy. And they had what turned out to be an excessive optimism about how well things would turn out. …

A Fed economist reported in a 2006 meeting that “we have not seen — and don’t expect — a broad deterioration in mortgage credit quality.” That turned out to be incorrect.

 

http://economistsview.typepad.com/economistsview/

 

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• Documents show how Fed missed housing bust (seattletimes.nwsource.com)

via Short Sale Listing: 2926 NE 65TH AVE Portland, Or $269,000.

Why do many complain about mortgage insurance?  Because it’s expensive, and sometimes difficult to get rid of when it’s no longer necassary.  If that’s the case, why do I say it’s good for buyers and the economy?  Because it’s a tool that allows people to buy a home with less than twenty percent down.

Mortgage insurance insures the lender against the risk of the buyers default on the loan.  It does NOT insure the buyers life, like many people think.

The single biggest hurdle for home buyers is accumulating an adequate down payment.  Lenders want buyers to put twenty percent down for two reasons.  First, a buyer with a large down payment is less likely to quit making their payments.  Second, if a buyer does default, the more the buyer put down usually means more equity in the house when the lender forecloses, which means the lender loses less money.

But, if a buyer wants to buy a $200,000 and has to put up a twenty percent down, that will equal a $40,000 down payment!  Hard to save up, for most buyers.  BUT, with the use of mortgage insurance, that buyer might be able to put as little as $6,000 down!  A lot easier to save.

So, mortgage insurance can be a very benficial tool.

With that being said, don’t let your lender shoehorn you into only considering monthly mortgage insurance.  There are other options such as single premium mortgage insurance, or “split” mortgage insurance.  These programs can be more expensive up front, but sometimes much less expensive over time.  They don’t work for everyone, but they certainly should be looked into.

Brett Reichel
Brettreichel.com

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• Mortgage Insurance Premium Deduction (MIP) Reminder (doraldigs.wordpress.com)

1. Your credit score: The most vital fact that is taken into consideration by the mortgage lenders is your credit score. You’re entitled to take out a free copy of your credit report from any of the three credit reporting agencies and by doing this you can easily take the steps to boost your score before applying for a home mortgage loan. With an exceptionally good credit score, you can grab the best mortgage loan in the market and thereby save your hard-earned dollars.

2. The amount of loan you can afford: This point is to be taken into consideration by you so that you don’t overstretch yourself while getting yourself a mortgage loan. Take out a loan within your affordability so that you don’t have to burn a hole in your pocket while repaying the loan. Consider all the other factors needed to determine the amount of loan that you can afford.

3. The total income earned by you in a month: The gross monthly income that you earn in a month is another important document that is checked by the lender so that he can determine whether or not you can repay the loan on time after managing all your other debt obligations that you owe. If you want to secure a lower interest rate on the home mortgage loan, you should boost your income in a month and then apply for the loan.

Apart from the above mentioned factors, the mortgage lenders take the debt to income ratio into account as they also need to see whether or not the borrower can make timely payments on the home mortgage loan. Manage your personal finances so that you don’t have to opt for refinance in the future.

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This house really caught my eye from the moment I stepped on the front porch. Here is a photo gallery of pics I snapped with my phone while I toured the house with Joe:

The owners have taken great care in restoring and remodeling this house, with a great mix of classic and modern elements. Joe even told me how much time he spent filling the original posts on the porch, and it is a lot!

Financing for 5775 Ne Garfield

There are a range of home loan options available for this property. As I said in the video, it does qualify for FHA financing, which has flexible credit guidelines and financing for up to 96.5% of the home’s value. To learn more about financing this property, or any other in Oregon and Washington, feel free to contact me at 503.799.4112 or email jason@mypmb.us

You can learn more about this great home at the following website:

http://www.5775negarfield.com

Contact the listing broker,

Michael Rysavy
Oregon Realty
503.860.4705

Thanks for taking a minute to check out this property!

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Mortgage insurers were pummeled by claims in the first half of the year, losing $2.4 billion in the six months through June–$618 million in the first quarter plus another $1.7 billion in the second quarter. The third-quarter numbers are not yet available; however, with no sign of significant improvement in the economy for the remainder of the year it appears that 2010 losses will be matched in 2011.

Gavin Magor, senior financial analyst at Weiss Ratings, has more than 25 years of international experience in credit-risk management, insurance, commercial lending and analysis. He leads the firm’s insurance ratings division and developed the methodology for Weiss’ Sovereign Debt Ratings.

http://weissratings.com/news/articles/mortgage-guaranty-insurance-market-collapsing-insurers-next/

Given the state of the mortgage guaranty market, will the insurers even be there to support these loans, or more broadly, any loans?

The mortgage guaranty industry is dominated by six insurance groups.  Subsidiaries of MGIC Investment Corporation (NYSE: MTG), Radian Group (NYSE: RDN), Genworth Financial (NYSE: GNW), PMI Group (NYSE: PMI), American International Group (NYSE: AIG) and Old Republic International Corporation (NYSE: ORI) wrote 93% of the $4.4 billion of premiums in 2010 with just five companies writing 80% of the total.

These same companies also recorded $1.7 billion or 71% of the combined $2.4 billion losses.  United Guaranty Residential Insurance Co (an AIG subsidiary) is the only large insurer that recorded a profit during 2010 and for the first two quarters of 2011.  Mortgage Guaranty Insurance Corp (MGIC) recorded a profit in 2010 after reserve adjustments.

Mortgage Insurance Companies of America, a group representing the major mortgage insurers, reports that new insurance written increased each month from April through August. It is this business that reflects an improved borrower profile according to the insurers and is expected to perform better than the pre-2008 policies.

On the downside, it reports that primary defaults have increased each month since March and the cure rate, reflecting the resolution of defaults, has declined as many months as it has improved, but the trend is down. A report from RealtyTrac on October 13 reported that first-time defaults rose 14% between July and September 2011 over the prior quarter.  Consequently, in-force insurance declined on a month-by-month basis, since February, down a total of $27.1 billion or 4.4% to $598.6 billion at the end of August.

Earned premiums dropped 7.9% during 2010, with the larger insurers dropping 9.1%.  With $3.5 billion out of the $4.4 billion of premiums earned by the largest insurers, only Radian Guaranty Inc experienced a rise in premiums, increasing 3.5%.  The remainder experienced declines anywhere from 6.4% to 21.6%.  

Capital and surplus reported by mortgage insurers dropped 7% from the first to second quarters of 2011, and $1 billion or 13% since December 2010. Assets declined $608 million or 2.3% between March and June.

Two substantial groups, PMI and Old Republic, wrote 24.6% of 2010 earned premiums but were forced to effectively withdraw from the market at the end of the third quarter of 2011. Two PMI subsidiaries were placed into receivership by the state insurance regulator.  One, PMI Mortgage Insurance Company, recorded 11.6% of the total mortgage premiums earned in 2010.

The market for mortgage guaranty paper has therefore shrunk. The line of business is not profitable at this stage for the majority of insurers. The concern is that the losses will continue to grow and, with limited growth in real estate sales requiring mortgage insurance, there will be additional withdrawals from the market and or potential failures.

Two of the largest mortgage insurers are Mortgage Guaranty Insurance Corporation (MGIC), a subsidiary of Mortgage Guaranty Insurance Corp. and Genworth Mortgage insurance Corporation (Genworth), a subsidiary of Genworth Financial Inc.  These two companies, ranking first and third respectively in market share, hold 35% of the market with Radian sandwiched in between. 

Despite the apparent similarities, they could not have more disparate approaches and confidence in the mortgage guaranty market. Both companies write only one line of business and both increased their market penetration in 2010, but the similarities end there.  MGIC represents 72% of the assets of its parent while Genworth only represents 2.5% of its parent and thus  is not the major focus of the group. This difference in relevance within each group is demonstrated in the contrasting approaches to the current market difficulties.

1. MGIC slightly increased its market penetration during 2010, from 22.9% to 23.1%, despite a 7.3% fall in earned premiums from $1.1 billion to $1.02 billion. This increase did not translate into profits however. Only a $619 million release ofclaims reserves prevented a loss in 2010.  It’s noteworthy though that MGIC was profitable for each of the “Great Recession” years of 2007 to 2009.
2. Although MGIC recognizes that the loan origination market is not growing, it contends that it is positioned to operate in the restricted market and that it is sufficiently capitalized to take advantage of the better quality business now available.
3. Like MGIC, Genworth slightly increased its market penetration during 2010, from 11.7% to 11.9%, despite a 6.4% fall in earned premiums from $558.2 million to $522.6 million. Unlike MGIC it recorded losses in each of the years from 2008 to 2010.
4. On the other hand, Genworth sees that the future of the mortgage insurance market lies in the regulatory and legislative actions taken to change the real estate market. It recognizes that there could be some industry consolidation.

What these two insurers appear to be demonstrating clearly is that whether the mortgage guaranty business is core to a group or not the odds are currently stacked against them because of the legacy business. 

Mortgage insurers have traditionally, like most property and casualty insurers, earned substantial income from investments. A drop in investment income should be expected to continue based on the current interest rate environment and bond pricing, drying up this revenue source

The investment dilemma is a challenge for all P&C insurers.  There is a growing reliance on investments for profits; at the same time there are reduced yields in the current investment environment. With unsustainable underwriting losses, insurers must navigate among undesirable alternatives:  1) seeking higher investment returns by purchasing riskier securities; or 2) increasing premiuns at the risk of dampening demand for mortgages

This is another area where MGIC and Genworth have differed. Genworth has increased its junk bond investments from 1.7% of its total portfolio in 2008 to 3.4% in 2010.  This is in line with the general trend among all P&C insurers. MGIC has, on the other hand, reduced its junk holdings which has resulted in an annualized decline of 21% in investment income putting additional pressure on the profitability of the main underwriting business.

Something has to give and, as we saw in the third quarter, both PMI and Old Republic International Corp were forced to stop writing new policies due to insufficient capital.  PMI is on the brink of collapse, and two subsidiaries were seized by the regulator in September. Despite opportunities to write more, and presumably profitable, business with a smaller competitive field it seems reasonable to assume that there will be additional insurers that withdraw from the market, are seized by regulators, or are sold. 

Genworth appears to be a prime example of a company in the wrong place at the wrong time and it could be jettisoned by its parent sooner rather than later.  MGIC on the other hand IS the business and appears to be girding its loins for the fight ahead, hoping that it will be able to successfully get through the unprofitable pre-2008 book of business and emerge stronger, with a profitable book of new business and positioned to take advantage of future recoveries in the housing market.

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• MGIC, Radian Rally on New Policy Sales as Rivals Falter (businessweek.com)
• Genworth Continues to Disappoint (fool.com)
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• Genworth Shares Plunged: What You Need to Know (fool.com)
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The HARP program, which was rolled out in 2009, is designed to help. Those who are “underwater” on their homes and owe more than the homes are worth. So far, The Post reported, it has reached less than one-tenth of the 5 million borrowers it was designed to help. Here’s a quick breakdown of what you need to know about the changes.

What was announced? The enhancements will allow some homeowners who are not currently eligible to refinance to do so under HARP. The changes cut fees for borrowers who want to refinance into short-term mortgages and some other borrowers. They also eliminate a cap that prevented “underwater” borrowers who owe more than 125 percent of what their property is worth from accessing the program.

Am I eligible? To be eligible, you must have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac, sold to those agencies on or before May 31, 2009. The current loan-to-value ratio on the mortgage must be greater than 80 percent. Having a mortgage that was previously refinanced under the program disqualifies you from the program. Borrowers cannot not have missed any mortgage payments in the past six months and cannot have had more than one missed payment in the past 12 months.

How do I take advantage of HARP?According to the Federal Housing Finance Agency, the first step borrowers should take is to see whether their mortgages are owned by Fannie Mae or Freddie Mac. If so, borrowers should contact lenders that offer HARP refinances.

When do the changes go into effect?The FHFA is expected to publish final changes in November. According to a fact sheet on the program, the timing will vary by lender.

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MERS. I am addressing this issue at the beginning, primarily to get it out of the way.  I for one am suffering from “MERS Fatigue,” which is a malady afflicting many of us who watch and wait for something new to occur on this front.

It’s important to understand that MERS, which is the catchy acronym for the “Mortgage Electronic Registration System”, was never a creature of statute.  It was born and bred by the lending and title industries in the late 1990s, for reasons that most people already know.  But because of its national scope – affecting approximately 60% of all home mortgages – MERS bears mentioning here.

Despite all the national attention, the MERS controversy is really one that can only be resolved on the local level, since real estate recording and foreclosure statutes occur on a state – not national – level.  In Oregon, although there have been several federal court rulings, MERS’ legality is still up in the air.  This is because the local federal judges, who are supposed to follow Oregon law, have no binding Oregon appellate court precedent to follow when it comes to MERS.  The result is that there have been divergent federal court rulings.  And, the topic is so contentious at the Oregon legislature that there is little political appetite to tackle the problem, since few can agree on a solution.

So, the news is that there is no news.  It will take months for the one state court case currently on appeal to find its way to the Oregon Court of Appeals or Supreme Court.  And, although there is a slight chance of a breakthrough in the upcoming session, 2012 does not appear to be a year in which we will see a legislative answer.

Fannie and Freddie. Since the fall of Lehman Brothers in 2008, these two Government Sponsored Enterprises or “GSEs” have come under government ownership and control.  For a summary of the issues from the Congressional Budget Office, go to  the link here.  Since the private secondary mortgage market effectively disappeared between 2007-2008, this means that today, there is no viable buyer of residential loans except the federal government. To some observers, depending on their political bent, this is a good thing; but to others, it’s bad.

One thing is certain; as long as the federal government, through Fannie and Freddie, dictate borrower qualifications, LTVs, and conforming loan limits[2], the conventional mortgage market will continue to be tight.  This does not bode well for higher end homes, especially.  Unfortunately, we don’t have to go back very far in time to remember what happened in the “private label” secondary mortgage market (i.e. non-GSE market) where home loans were handed out like party favors, and those who should never have qualified did.

While there is much talk about doing away with Fannie and Freddie, it is unlikely any time soon.  However, what is occurring, albeit slowly and somewhat quietly, is a move to shift some of the GSEs’ loans to the private sector, where the risk would not be backed by the federal government.  If this works, perhaps more will follow.  While there may be some investors for such loans, it is likely that without a governmental safety net, the nascent private secondary market will demand a higher rate of return to offset the higher risk.

In the meantime, the loans of choice appear to be through the FHA.  While the paperwork may be daunting, the LTVs are good and the bar to borrower qualification is much lower and more flexible than conventional loans.

The Consumer Finance Protection Bureau. In recognition of Wall Street’s role in the credit and mortgage meltdowns, Congress established the Consumer Financial Protection Bureau (CFPB) through the Dodd-Frank Wall Street Reform and Consumer Protection Act. On July 21 of this year, it was opened for business. This is no ordinary federal agency.  It is a super agency, responsible for regulating many, many areas of consumer finance and mortgage loans.[3]

Elizabeth Warren, a Harvard law professor and Presidential Advisor, was the driving force behind the Agency’s creation.  She was a zealous advocate for the consumer.  Unfortunately, the political reality was that she may have been too zealous.  Instead of being appointed director, Richard Cordray, former Ohio Attorney General, was appointed to head the agency.  However, his nomination is currently tied up in Congress, and he may not be confirmed.  Many Republicans oppose the idea of so much power being wielded by a single person rather than a board of Senate-confirmed appointees.  So as it stands, the CFPB – this mega agency that was created to oversee so many aspects of consumer law – has a website, is hard at work making manuals and processing paperwork, yet has no director to oversee enforcement of anything.

Risk Retention, Skin in the Game, and the QRM. Mindful of the risks created when banks used their own safety net capital to trade in high risk loans, known as “proprietary trading,” the 2010 Dodd-Frank Act enacted Section 619, which placed severe restrictions on the ability of banks to use their funds to place risky bets (known as the “Volker Rule”).  Billions of dollars of these bets failed in 2008, leading up to the massive government bailouts that taxpayers funded.  What is the status of the Volker Rule today?  It’s still out for public comment, with banks arguing that the Rule will reduce their revenues and thereby force them to increase the cost of loans to borrowers. Given that big banks are still suffering the reputational fallout from the bailouts, the Volker Rule -with most of its teeth – may actually become law. When? Who knows.[4]

Also mindful of the risks created through sloppy underwriting of securitized loans, Dodd-Frank sought to require that banks retain a 5 percent interest in the risk of loss on those loans. This risk retention rule has been referred to as “skin in the game,” and was intended to require banks to share a portion of the risks they securitized to others.  Instead of investors taking on the entire risk of a slice of securitized loans, banks would have to hold back 5% on their own balance sheet.

However, the law made a major exception; it provided that through rule making, a standard be set for certain loan types with statistically lower default rates for which risk retention would be unnecessary.  This exception became known as the “Qualified Residential Mortgage” or “QRM.”  The QRM rules were intended to impose high standards for documentation of income, borrower performance, low debt-to-income ratios and other quality underwriting requirements.  Although they were to be the exception, not the rule, today, most lenders want these standards to be flexible rather than inflexible, so that there is more wiggle room for their loans to qualify as QRMs and thereby remain exempt from risk retention.  The argument in favor of looser loan standards is the fear that an inflexible QRM exemption will impair access to home loans by low and moderate income borrowers. This debate continues today, and there is some reason to believe that these rules will be substantially diluted before becoming law.

PCQ Editorial Comment: It was not so long ago that certain banks criticized borrowers of 100% home financing as creating “moral hazard” – i.e. they took risks because they had no financial risk of default since they had no down payment to lose.  Today, the concept of “moral hazard” seems to have been forgotten by those same banks opposing risk retention rules.  They now expect their borrowers to have “skin in the game” – hence the higher down payment rules – but deny the need to do so themselves.  “Pot meet Kettle.”

Conclusion. So, notwithstanding the fact that this country teetered on the brink of disaster in 2008, the politicians’ rush to legislate has continued to move at a snail’s pace.  Query:  Is the American consumer really better off today than in 2008?

Related articles

• Higher Fannie, Freddie Loan Limits – Back From the Dead? (blogs.wsj.com)
• Fair Game: Fannie Mae and Freddie Mac, Still the Socialites (nytimes.com)
• U.S. may require more mortgage insurance Obama, FHFA outline possible help for underwater borrowers, by Ronald D. Orol, MarketWatch (oregonrealestateroundtable.com)
• Higher Mortgage Caps – Back from the Dead? (blogs.wsj.com)
• Fannie and Freddie Will Let Mortgage Servicers Hire Own Attorneys (legaltimes.typepad.com)
• How Do I Know If My Mortgage Loan Is Fannie Mae or Freddie Mac? (thinkup.waldenu.edu)
• How Do I Know If My Mortgage Loan Is Fannie Mae or Freddie Mac? (thinkup.waldenu.edu)
• How Do I Know If My Mortgage Loan Is Fannie Mae or Freddie Mac? (thinkup.waldenu.edu)
• How Do I Know If My Mortgage Loan Is Fannie Mae or Freddie Mac? (thinkup.waldenu.edu)

In fact, I have a video that’s less than 90 seconds long if you’re in a hurry:

Loan-to-value

So, just to recap what I said in the video, your loan-to-value is the percentage of your home’s value that you finance with your home loan.

Whether you a purchasing a home, or refinancing your existing mortgage, LTV is an extremely important factor in making an educated decision about your home loan.

I’ll give you an example:

FHA – When purchasing a home using an FHA home loan, you can finance up to 96.5% of the appraised value of the property. If you are refinancing, you have two options: “rate & term” or “cash-out”. Rate & term means you are refinancing to lower your rate or change the length of your loan. A rate & term refinance is capped at a 97.75% LTV for FHA. Cash-out FHA refinances are limited to 85 per cent of the value of your home. If your current mortgage is an FHA loan, you can refinance with an FHA streamline, which does not have an LTV limitation.

So your needs define your loan-to-value, which helps define what home loan program you are going to apply for.

If you would like to learn more about loan-to-value, other mortgage terminology, or home loans in Oregon and Washington, I invite you to visit my site or contact me. I am long on answers and short on sales pitches

Thanks for taking a minute to read this post!

Jason Hillard - homeloanninjas.com

Mortgage Advisor in Oregon and Washington MLO#119032

Pinnacle Mortgage Bankers

a div of Pinnacle Capital Mortgage Corp

503.799.4112

jason@mypmb.us

1706 D St Vancouver, WA 98663

NMLS 81395 WA CL-81395

Equal Housing Lender

Related articles

• What the heck does “loan-to-value” mean? (oregonrealestateroundtable.com)
• The Boogeyman, Loch Ness Monster, and Custom home loans (oregonrealestateroundtable.com)
• The Home Loan Application, by Jason Hillard , Homeloanninjas.com (oregonrealestateroundtable.com)
• Refinancing your Underwater Fannie Mae home loan (oregonrealestateroundtable.com)
• Real Estate News On The National Scene, by Phil Querin, Q-Law.com (oregonrealestateroundtable.com)
• Fha Home Loans Requirements (themortgagepot.com)
• FHA Clarifies Annual MIP on 15 Year Loans Less Than 78% LTV (fhaloanadvice.com)
• FHA Mortgage Insurance for Kentucky Mortgage Loans (louisvillemortgageguide.com)
• Help for first-time buyers (confused.com)
• Will lenders add to reverse mortgage requirements? (hsh.com)

It’s no wonder they are confused.  Every other article where leadership of the National Association of Realtors is quoted, every press release they issue usually has the quote that “tight lender guidelines are hurting the real estate market”  or “buyers need to have 20% down and be perfect to accomplish a purchase” or some words like that. 

Unfortunately, these types of statements are blatantly untrue in most markets, and are very damaging to the real estate market at large and to home buyers and sellers everywhere. 

It’s true that lenders are giving loan applications MUCH greater scrutiny than they have in any time since 1998.  Rampant mortgage fraud on the part of borrowers, Realtors, lenders, and mortgage originators have required lenders to check and recheck everything represented in a loan application.  Unfortunatley, until we get everyone to realize that the “silly bank rules” they are breaking consititutes a federal crime we are stuck with the extra scrutiny.  Fortunately, the new national loan originator licensing and registration systems should make loan officers everywhere realize the seriousness of this issue and root out fraud before it get’s to the point of a loan being funded.  The safety of our banking and financial systems is too important to allow the kinds of games that have been played over the last few years. 

The National Association of Realtors is right about appraisals.  Appraisals remain a very serious issue.  Pressure from Fannie Mae and Freddie Mac on lenders results in pressures by lending institutions on appraisers to bring in appraisals very conservatively.  It’s common for appraisers to use inappropriate appraisal practice due to the Fannie Mae/Freddie Mac form1004mc, which results in innacurate appraisal (see previous posts).

It’s also true that underwriting guidelines are stricter than they were during the golden age of loose underwriting (1998 thru 2008).  What people don’t realize that underwriting guidelines are easier now than they’ve been in any previous time frame.  In fact, it’s a great time to buy for many folks who have been priced out of markets previously.

How can I make that type of claim?  Because I remember the “bad old days”…..Prior to 1997-1998, debt-to-income ratio’s were much stricter than they are now.   A debt-to-income ratio compares your total debt to your total income.  In the old days, if you put 5% down on a conventional loan, you couldn’t have more than 36% of your total income go towards your debt.  Now?  If you’ve been reasonably careful with your credit, have decent job stability, and a little savings left over for emergency it’s pretty easy to get to a ratio of 41%!  With only 5% down!  On FHA loans, it’s really easy to go to 45% DTI with only 3.5% down!   In fact, there are times that we go even higher.

Is that obvious in the mass media?  No.  They paint a dire picture based, in part, on the statements of NAR. 

So, if you are a Realtor, press NAR to paint a more positve picture of financing.  Nothing that is “puffed up”, just reality.  If you are a buyer, don’t be fooled by what you read in the mainstream press.  Talk to a good, local, independent mortgage banker.  They’ll give you a clear path to home ownership and join the ranks of homeowners!