Mortgage Comparison Shopping May Get Easier,

The Federal Reserve has proposed a new rule that may make it easier for prospective homeowners and those looking to refinance shop around before making a commitment.

The proposal, which was part of a 930-page document published mid-month in the Federal Register, would allow consumers to cancel mortgage applications within three days and get refunded for certain costs.

Things like application fees and appraisal fees would be refundable, while credit report fees would not.

Mortgage shoppers would be entitled to refunds if they canceled an application within three business days of receiving key disclosures, including the Good Faith Estimate and Truth in Lending Act statement.

The Fed believes such a rule would help consumers shop for the best deal, instead of being locked in with one mortgage lender for fear of losing any up-front costs.

But many lenders believe the rule will have little effect, as most already wait several days before charging any fees.

Others are concerned it could delay an already backed-up process, as there will be a waiting period before anything is acted upon or ordered.

Although, it’s not uncommon for a loan to be “on hold” until it makes it through underwriting and receives a formal decision.

It’s unclear how the rule would affect mortgage brokers, those who work on behalf of banks directly with consumers.

A recent study found that mortgage closing costs rose more than 36 percent this year, with loan origination fees rising nearly 25 percent and third-party fees jumping almost 50 percent.

Them Be Fightin’ Words: The Fight Over Foreclosure Fees, by PAUL JACKSON,

For the law firms that manage and process foreclosures on behalf of investors and banking institutions, what’s a fair legal fee? What’s a fair filing fee? Should fees to outsourcers be prohibited? And just how much money should it really cost to process a foreclosure?

As I write this, the answer to these and other questions are being fought out in the trenches, in an out-of-sight but increasingly heated battle involving Fannie Mae and Freddie Mac, the law firms that specialize in creditor’s rights, default industry service providers, and various private equity interests.

It’s a complex fight that many say will ultimately shape the way U.S. mortgages are serviced over the course of the next decade — and perhaps beyond. It’s also a debate that promises to spill over into how loans are originated and priced.

“No aspect of the U.S. mortgage business will go untouched by the outcome of this current debate,” said one attorney I spoke with, on condition of anonymity. “This is the single most important issue facing mortgage markets today, and will even determine how securities are structured in the future.”

How foreclosures are managed

Typically, a foreclosure involves legal and court filing fees — it is, after all, a legal process involving the forced transfer of a property from a non-paying borrower to secured lender. But the foreclosure process also typically involves a host of other associated fees, including necessary title searches, potential property insurance, homeowner’s association dues, property maintenance and repair, and much more.

Many of these fees are ultimately tacked onto the “past due” amounts tied to a delinquent borrower — and done so legally. Much like when a credit card becomes past due and the interest rate kicks into high oblivion, consumers looking to catch up on their delinquent mortgage payments must also make up the difference in additional fees in order to successfully do so.

Legal fees in the foreclosure business, however, aren’t what you might think. Instead of billing hourly for most work, as most attorneys in other fields would do, attorneys that specialize in processing foreclosures are paid on a flat-fee basis, using pre-determined fee schedules.

Thanks to the market-making power of the GSEs, Fannie Mae and Freddie Mac — both of whom publish allowable fee schedules for every imaginable legal filing and process in the foreclosure repertoire — the entire foreclosure process has been reduced to a set of flat fees.

And not even negotiated fees, at that. For firms that operate in the field of foreclosure management, the GSE allowable fees amount to a take-it-or-leave-it menu of prices.

“For us, it doesn’t matter who the client is, even if it isn’t Fannie or Freddie,” said one attorney I spoke with, under condition of anonymity. “We know we’re only going to be able to claim whatever that flat fee schedule they set says we can claim, since other investors tend to employ whatever the GSE fee caps are.”

Fannie and Freddie as housing HMOs? In the foreclosure business, that’s pretty much what it amounts to.

But beyond determining the legal fee schedule for much of the multi-billion dollar default services market, the GSEs also largely determine who gets their own foreclosure work. Both Fannie and Freddie maintain networks of law firms called “designated counsel” or “approved counsel” in key states marked with significant foreclosure volume — and they either strongly suggest or require that any servicers managing a Fannie or Freddie loan in foreclosure refer any needed legal work to their approved legal counsel.

Each state will have numerous designated counsel — sometimes as many as five law firms — but in practice, attorneys say, two to three firms end up with the lion’s share of each state’s foreclosure work. In states hit hard by the housing downturn and foreclosure surge, like Florida, the amount of work can be substantial.

“The GSEs can force a servicer to use their designated counsel, especially if timeline performance in foreclosure management is out of some set boundary,” said one servicing executive at a large bank, who asked to remain anonymous. “It’s usually easiest to simply use their counsel on their loans, even if we don’t see that firm as best-in-class.”

With the vast majority of the mortgage market now running through the GSEs, and much of what’s left of the private market following the guidelines Fannie and Freddie establish, it should come as no surprise to find that a few law firms in each state end up with the majority of the foreclosure work, sources say.

The rise of the ‘foreclosure mills’

Being designated as approved counsel by Fannie Mae and/or Freddie Mac does carry risk. Just ask Florida’s David Stern, who has seen his burgeoning operation pejoratively branded a ‘foreclosure mill’ by consumer groups, dragged through the press for both alleged and real consumer misdeeds, and facing numerous investor lawsuits surrounding the operation of DJSP Enterprises, Inc. (DJSP: 3.22 -1.23%) — the publicly-traded processing company tied to the law firm.

While Stern’s operation may win the award for ‘most susceptible to negative publicity,’ how the law firm operates is far from unique in the foreclosure industry.

When Buying A House In Portland Narrow Your Search + RMLS Email Updates, by Betty Jung, Re/Max Equity Group

Last weekend showing property it was brought home to me again how important it is to narrow your search.  I met with two separate buyers in different parts of town.  They knew exactly where they wanted to purchase and their search is contained within those areas.

Several years ago I had a buyer who was interested in purchasing in Portland.  He told me he wanted to look in Clackamas, Washington, and Multnomah counties – pretty much half the state, or thereabouts.  It was extremely difficult for him to narrow down where he wanted to live because his search parameter was way too large in scope. I kept encouraging him to narrow his choices.  As a result, he thought a house in one part of the State looked extremely appealing when in fact compared to other areas and factors, it wasn’t a good deal at all.  It was like comparing apples to oranges.

That’s not to say you shouldn’t look at several areas, but the sooner you zero in on the location you would rather live in, the easier it is on you, the buyer.

One thing I tell my buyers is that I would hate for them to look on one side of the road and never having looked on the other side. When you first start looking for a house, of course, your parameters may not be as narrow.  It’s actually good if you start with a larger area and then narrow it down if you don’t know where you want to live.  But, that’s not to say you should include half the state of Oregon.  The sooner you know where you want to live, the sooner you will find your “dream” home.

For email updates of property listings direct from our RMLS,™ please click on this link and fill out the form to start receiving them.

Betty Jung

Another Home Buyer Tax Credit?, by Diana Olick, CNBC

Just when I thought the housing market was finally being left to correct on its own, I’m starting to hear talk regarding yet another home buyer tax credit. From HUD to the hedge funds, it sounds as if it is gaining steam yet again. This one could involve not just first time/move-up buyers, but a credit for buyers purchasing foreclosed properties or short sales (when the bank allows you to buy a home for less than the value of the outstanding mortgage).

HUD Secretary Shaun Donovan, appearing on CNN’s State of the Union this weekend, didn’t rule out another tax credit. He did say it’s “too early to say,” but then added that “we’re going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.”

After that several Congressional candidates in Florida threw their voices behind the possibility, and Florida Gov. Charlie Crist then chimed in on the same show, saying that another tax credit, “would stimulate the economy. It would increase home sales in Florida.” He finished with: “I would absolutely encourage the president to support that because it would certainly help my fellow Floridians.”

So of course then I went the official route and followed up with a HUD spokesperson who responded:  “No news here…there are no discussions underway to revive the credit.”

Is it all political? And is another tax credit the answer?  “I don’t think it’s all political,” says housing consultant Howard Glaser. “I think they are panicked that the economy/housing got away from them.” Glaser doesn’t sound convinced the tax credit is really on the table.  “They can do a lot off budget with the GSE’s and FHA with no Congress.”

I know a lot of you out there would argue that a housing market correction, as painful as it is, is necessary for housing to truly find its footing again and recover for the long term. Another artificial stimulus could just prolong the agony and set us up for the same drop off in sales and prices that we’re seeing right now.  

But it could also move some inventory quickly. With inventories of new and existing homes dangerously high, and the shadow supply of foreclosures pushing that volume even higher, more stimulus could be a necessary evil. I liken it to what I’m doing with my lawn this week. All summer I fought the weeds, pulling them, using the organic sprays and repellents, spreading mulch to deprive them of any air.  And then I gave up.  I called the lawn service and told them to bring every chemical in their arsenal.  Shock the overgrown mess into submission once and for all, so that I can start fresh again and reseed this fall.

Obama Plans Refinancing Aid, Loans for Jobless Homeowners, HUD Chief Says, by Holly Rosenkrantz, Bloomberg

The Obama administration plans to set up an emergency loan program for the unemployed and a government mortgage refinancing effort in the next few weeks to help homeowners after home sales dropped in July, Housing and Urban Development Secretary Shaun Donovan said.

“The July numbers were worse than we expected, worse than the general market expected, and we are concerned,” Donovan said on CNN’s “State of the Union” program yesterday. “That’s why we are taking additional steps to move forward.”

The administration will begin a Federal Housing Authority refinancing effort to help borrowers who are struggling to pay their mortgages, and will start an emergency homeowners’ loan program for unemployed borrowers so they can stay in their homes, Donovan said.

“We’re going to continue to make sure folks have access to home ownership,” he said.

Sales of U.S. new homes unexpectedly dropped in July to the lowest level on record, signaling that even with cheaper prices and reduced borrowing costs the housing market is retreating. Purchases fell 12 percent from June to an annual pace of 276,000, the weakest since the data began in 1963.

Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery.

House Sales Plummet

Purchases plummeted to a 3.83 million annual pace, the lowest in a decade of record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed last week. Demand for single-family houses dropped to a 15-year low and the number of homes on the market swelled.

U.S. home prices fell 1.6 percent in the second quarter from a year earlier as record foreclosures added to the inventory of properties for sale. The annual drop followed a 3.2 percent decline in the first quarter, the Federal Housing Finance Agency said last week in a report.

Donovan said on CNN yesterday that it is too soon to say whether the administration’s $8,000 first-time homebuyer credit tax credit, which expired April 30, will be revived.

“All I can tell you is that we are watching very carefully,” Donovan said. “We’re going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.”

Reviving the tax credit would “help enormously” in the effort to fight foreclosures and revive the economy, Florida Governor Charlie Crist said on the same CNN program. Florida has the third-highest home foreclosure rate in the country, with one in every 171 housing units receiving a foreclosure filing this year.

To contact the reporter on this story: Holly Rosenkrantz in Washington

Flipper Cash Propping Up Housing Market, Brett Neely, NPR

It was a bleak week for anyone looking for signs that the housing market is recovering. New home sales in July were at the weakest levels since the government began keeping records 47 years ago. Existing home sales weren’t much better.

But in all that news, there’s a number that jumps out: Almost one-third of the home sales were in all-cash deals. Before the housing bust, less than 10 percent of sales were in all cash, according to the National Association of Realtors.

Who buys houses with a big stack of cash? Often, people like Craig Fuhr. He’s been investing in real estate around Maryland for the past seven years. The license plate on his SUV defines his style of investing. It reads: “flippin.”

At a time when the housing market is so anemic that it threatens to send the economy back into a recession, Fuhr is a reminder that there are still people who make money investing in real estate.

And they tend to be very serious about it.

Turning $63,000 Into $250,000

Fuhr paid $63,000 in cash for a boarded-up, four-bedroom house on Diller Avenue in the Beverly Hills neighborhood of Baltimore. It’s a pretty neighborhood with lots of big trees and houses from the 1920s, but it’s no Southern California.

Inside, there’s debris everywhere from where Fuhr’s contractors have ripped out drywall. Once the place is fixed up, Fuhr thinks he and his investors may be able to get $250,000 for it.

Potential rewards like these are drawing investors into the real estate market right now, says Kenneth Wenhold of the real estate research firm Metrostudy.

“When you’re putting all cash into a particular transaction, it’s an indication that you believe that this is a good price for this home,” Wenhold says, “and [that] you don’t think it’s going to depreciate more, and you’re willing to bet a considerable amount of money that it’s going to start to appreciate again.”

In cities across the country, there are investors like Fuhr taking advantage of depressed housing prices to snap up dozens of properties on the cheap. When they’re not flipping those houses, they’re turning them into rentals.

Cash Is King When There’s No Credit

Cash sales have become a big part of the market because banks are issuing fewer mortgages. House flippers like Fuhr could once rely on bank loans to finance their deals. But no longer, Fuhr says. Now he has a group of investors who bankroll him.

“The big hurdle that everyone has these days is just finding the money to purchase and rehab. You know, not everybody has $150,000 sitting around, and the problem is … that no banks right now are lending,” he says.

Fuhr got into the real estate business at a time when banks lent to anyone with a pulse.

“You could do every single thing wrong and still make money. You could purchase the house for way too much. You could take way too long to rehab it. You could rehab it poorly and still sell it on the back end and make money,” he says.

A lot of house flippers got burned by the bubble — but Fuhr’s still flipping.

“You know, if you’ve been doing this as long as we have, you know that you make your money when you purchase the house — not when you sell it,” he says.

With banks still unloading their huge portfolios of foreclosed properties, houses remain very cheap these days.

Fuhr says he may spend close to $100,000 renovating the home he bought for $63,000. Even if the house doesn’t fetch the $250,000 he thinks it will, Fuhr isn’t worried.

“The market could literally correct itself $50- or $60,000, and we would still break even.”

Which means even if housing prices stay weak, investors like Fuhr could have plenty of chances to keep making money.

Lenders won’t have to run a second full credit check before closing on mortgage, by Kenneth R. Harney, Washington Post

Despite earlier reports to the contrary, it turns out that your mortgage lender will not have to pull a second full credit report on you hours before closing on your home purchase or refinancing.

In a clarification of a policy announced earlier this year, mortgage giant Fannie Mae now says that applicants will need to come clean about any debts they have incurred since they submitted their mortgage application — or debts they never disclosed on the application. But a formal pre-closing credit report will not be mandatory to confirm creditworthiness.

Instead, loan officers can use other techniques to verify that you haven’t financed a new car, taken out a personal loan or even applied for new credit in any amount that might make it more difficult for you to afford your monthly mortgage payments.

Among the techniques Fannie expects lenders to use on all applicants: commercial or in-house fraud-detection systems are capable of tracking applicants’ credit files from the day their loan request is approved to closing.

Although Fannie made no reference to specific services in its recent clarification letter to lenders, some commercially available programs claim to be able to monitor mortgage borrowers’ credit activities on a 24/7 basis, flagging such things as inquiries, new credit accounts and previous accounts that did not show up on the credit report that was pulled at the time of initial application.

One of those services is marketed by national credit bureau Equifax and dubbed “Undisclosed Debt Monitoring.” Aimed at what Equifax calls “the quiet period” between application and closing — often one month to three months — the system is “always on,” the company says in marketing pitches to mortgage lenders.

Home loan applicants failed to mention — or loan officers failed to detect — “up to $142 million in auto loan payments” during mortgage underwriting in first mortgage files reviewed by Equifax last year alone, according to the credit bureau. Those loan accounts had average balances of $361 per month — more than enough to disqualify many borrowers on maximum debt-to-income ratio standards required by Fannie Mae, Freddie Mac and major lenders.

Why the sudden concern about new debts incurred after mortgage applications? It’s mainly because Fannie and others have picked up on a key type of consumer behavior that has helped trigger big losses for the mortgage industry in recent years: Some buyers and refinancers hold off on creating new credit accounts until they have cleared strict underwriting tests on the debt-to-income ratios and have been approved for a loan. Then they splurge.

Additional debt loads can run into the tens of thousands of dollars, executives in the credit industry say. Had those new accounts been in their credit files during the application process, borrowers might have been turned down for the mortgage, required to make a larger down payment or charged a higher interest rate.

Fannie’s new policy puts the burden of detecting these debts squarely on lenders or loan officers. Whether they pull additional credit reports — still an option allowed under the revised policy — or use some form of monitoring service, lenders must guarantee that the debt loads stated in any mortgage package submitted for purchase by Fannie Mae are scrupulously accurate as of the moment of closing. If not, the lender probably will be forced to endure the most painful form of punishment in the financial industry: a forced “buyback” of the entire mortgage from Fannie Mae.

Billions of dollars in buybacks have been demanded by Fannie Mae and Freddie Mac this year alone — a fact that is likely to make lenders even more eager to conduct some type of refresher credit check or continuous monitoring of all new loan applicants.

What does this mean if you’re planning to finance a home purchase or refinance your existing mortgage into a new loan with a lower interest rate? Tops on the list: Be aware that sophisticated credit surveillance systems are now being used in the mortgage industry.

Next, try not to inquire about, shop for or take on new credit obligations during the period between your application and the scheduled closing. If you seriously want that new loan, keep your credit picture simple — no significant changes, no additions — until you settle on the mortgage.

During the heady days of the housing boom, nobody was looking for debt add-ons before closings. Now they are scanning for them all the time.

The War on Housing, Posted by Vince, Realtor Magazine

There is a “war on housing” brewing in Washington.  Homeownership seems to be under attack.  As 2010 NAR First Vice President Moe Veissi pointed out in his recentblog, ill-informed views on homeownership are appearing more and more in the media.

Last week, industry leaders, executives and policy makers gathered in Washington, D.C., for a housing conference sponsored by the Treasury to discuss the future of the housing finance system and the fate of Government Sponsored Enterprises (GSE’s) Fannie Mae and Freddie Mac.

The conference featured panels moderated by Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan, as well as breakout sessions that focused on topics from the “Role of the Private Sector and the Government in a Reformed Housing Finance System” to “Managing the Process of Transition to a New Financial System”.

I was assigned to participate in the breakout session entitled, “Aligning Private Market Incentives in the Housing Finance Chain”, moderated by FHA Commissioner Dave Stevens.  In recent weeks, long-term fixed rate mortgages have come under increasing pressure from pundits who believe this product is partly the crux of the nation’s housing finance problem.

During the session, I had the opportunity to briefly share NAR’s views regarding the importance of maintaining the 30-year fixed rate mortgage, which is an extremely safe mortgage product.

While some at the conference, advocated the need to support a mortgage market for all types of housing, in all market conditions, other speakers questioned the level of government support for the housing industry. 

What did they say? 

They asserted that taxpayer money is better spent on other industries with the greater promise of job growth and productivity for our economy.

The debate we’re starting to see over the government’s role in housing touches on many issues:  over-housed citizens, the deficit, tax incentives (MID andcapital gains) the GSE’s, and other public incentives.  

Homeownership is not for everyone, surely.  But if you are prepared for its responsibilities, it’s an excellent way to invest your money and receive financial and social benefits in return.

At the conference, Secretary Geithner stated that: “Fixing our housing finance system is one of the most consequential and complicated economic policy problems we face as a country”.

REALTORS® know this to be absolutely true.  We recognized this early on.  In late 2008 we started formulating a reformation plan for the GSE’s.

While there is no clear consensus in Washington as to what needs to be done to fix Fannie Mae and Freddie Mac, participants at the conference generally advocated a need for some level of government support for the housing finance sector for the foreseeable future.

So as the Administration focuses its attention on the future of housing finance and the GSE’s, NAR-together with your support-will continue to espouse the virtues of homeownership and of providing a mechanism to ensure that qualifiedbuyers have access to the capital they need to become homeowners.  This is how we will respond to the “war on housing.”

While we face one of our greatest industry challenges, it does provide us with a tremendous opportunity to energize and engage homeowners and prospective homeowners in this housing debate.  Vince Malta, 2010 Vice President and Liaison to Government Affairs

5 Reasons to Stop Worrying About Home Prices, by Eric Schurenberg,

The New York Times more or less pronounced the single family home dead as an asset this week. Data from the National Association of Realtors and theFederal Home Financing Agency hammered some nails into the coffin. But come now, folks. Let’s apply a little perspective:

  1. The pessimistic scenario isn’t all that pessimistic One downbeat economist quoted by the Times predicted that housing will rise at the rate of inflation for the foreseeable future. The rate of inflation happens to be roughly the long-term return on residential real estate over the past century, according to Robert Shiller, the Yale economist and real estate historian. So the bubble of 2000 to 2006 was the anomaly, not the “grim” long-term future foreseen by the Times. (Speaking of anomalies, Shiller in this interview warns against over-reacting to the lousy housing numbers that came out this week since they were skewed by the expiration of Uncle Sam’s homebuyer’s credit.)
  2. You can still make money on a house, even if the pessimists are right. If you put 20% down on a home and it rises by the rate of inflation, your equity appreciates at five times the rate of inflation. There’s no guarantee that there will be any appreciation at all–that’s the risk–and maintenance and taxes will take away some of your return. But you don’t need a bubble to be rewarded for taking the risk.
  3. You still get plenty of value from owning a home, even if you don’t make a killing. As my colleague Charlie Farrell points out, paying down a mortgage allows you to accelerate your single biggest housing expense into your peak earning years when you can best afford it. Once you’ve paid it off-at retirement, presumably-you’ve significantly pared your living expenses. And as my colleague Linda Stern points out, you also get a place to call your own for all that time-which is really the point, after all.
  4. If history is any guide, the Times story is a buy signal. These are the kinds of stories that tend to appear on front pages at market bottoms. Yes, the weak economy is keeping home buyers off the market. Yes, foreclosures are clogging the market, and smart people like Barry Ritholtz believe that homes have further to fall. There are dozens of reasons no one will ever buy a home again. But that’s how it always looks at a bottom.
  5. At some price, people will still buy. A house in a reasonably viable neighborhood is not an AIG bond or a share of Lehman Brothers. It has an intrinsic value. People need somewhere to live, and prices have been falling faster than rents. The National Association of Home Builders Affordability Index is near record levels. The CoreLogic home price to rental ratio, which compares prices and rents, shows that the rents and ownership costs are coming back into line, even if they’re not historically cheap yet. But at some price, a home becomes so attractive compared to renting that it becomes foolish not to buy. That price may not be what you hoped. It may well be even lower than today’s price. But your home’s price now is far closer today to that intrinsic value than it was in 2007. Why wasn’t theTimes calling the housing market dead then?

Jumbo Mortgage Rates Continue to Fall, by Rosemary Rugnetta,

Just as conforming mortgage rates continue to be unpredictable, the same can be said for the jumbo mortgage rate market. As the housing market continues to correct itself, mortgage rates across the board continue to get lower. Purchasing and refinancing higher priced homes just got a little easier as jumbo mortgage ratescontinue to fall to record lows at 5%.

Jumbo loans are those mortgages that are above the conforming loan limit of $417,000 and are not backed by Freddie Mac and Fannie Mae. This conforming lending limit is higher in some high cost areas around the country. With jumbo loans popular in locations such as New York and California, the current low jumbo rates are making it an opportune time for many borrowers to refinance. In some areas where regular sized homes cost above $750,000, the low jumbo mortgage rate is spurring up home sales and refinances, thus bringing life to a stalled market.

Just a little over a year ago, jumbo mortgage rates were approximately 1.5% higher than today. With record low jumbo mortgage rates, many borrowers throughout the country are finding that this is the opportunity they have been waiting for to refinance from a higher interest jumbo loan. By refinancing a jumbo loan to the current lower rate, borrowers are saving hundreds of dollars each month. Most of these people will often reinvest these savings back into the economy which will help the economic recovery get off the ground. At this time, lenders are finding that the availability of money has improved while, at the same time, the price of that money has also improved. If banks continue to gain confidence with their lending in the jumbo mortgage market and do well with their returns, they may begin to ease up their lending in the remaining tighter markets.

Although jumbo mortgage rates continue to fall opening up new life to this niche housing market, qualifying still remains stricter than in the past. These large loans carry more risk to the banks than conforming loans. August 26, 2010 ( – Those who wish to qualify for a jumbo loan will need excellent credit scores with the minimum score being at least 720. and sufficient income, relevant to the loan, that needs to be documented for at least 2 years. New purchases require a minimum of 20% down payment while refinances require a minimum of 20% equity in the existing home. After all of the calculations have been done, most jumbo loans require that the monthly mortgage payment not exceed more than 38% of income.

For anyone who can meet these qualifications, now is a good time to trade up to a bigger home that requires a jumbo mortgage or to refinance an existing one. By doing so, these borrowers will appreciate the savings by attaining a jumbo mortgage at such low rates for many years to come. Since no one can predict when the trend will stop and rates will start to rise, it’s time to get the process in motion as jumbo mortgage rates continue to fall and the jumbo loan business heats up.

New Low Cost Reverse Mortgage Product Coming in October says HUD, Reverse Mortgage News Daily

During a conference call with industry leaders on Thursday, the Department of Housing and Urban Development said it hopes to roll out a new reverse mortgage product on Oct. 4, 2010.

The new “HECM Saver” will be a low cost reverse mortgage product insured by the Federal Housing Administration.  Unlike the standard HECM, which has a 2% upfront Mortgage Insurance Premium (MIP), the HECM Saver lowers the cost of entry for borrowers by charging only 0.01% upfront MIP.  The product will also have an annual MIP of 1.25%.

Offered as both a fixed and adjustable rate, the HECM Saver will have principal limit factors roughly 11-23% lower than the standard product.  While it doesn’t provide as much in proceeds to borrowers, it’s designed as low cost alternative to a home equity line of credit (HELOC).

During the call, HUD described the HECM Saver as “merely a different pricing option,” noting the rest of the product will remain the same as the HECM standard.  However, many in the industry see it as a big opportunity to broaden the appeal of reverse mortgages by offering a low cost product to consumers.

HUD said a Mortgagee Letter describing the HECM Saver should be out before September 14th.

Redefault Rates Improve for Recent Loan Modifications, Conference of State Bank Supervisors,


State Foreclosure Prevention Working Group August 2010

Memorandum on Loan Modification Performance

Introduction and Summary of Key Findings For over two years, the State Foreclosure Prevention Working Group,

Our data indicate that some recent loan modifications are performing better than loan modifications made earlier in the mortgage crisis. Loans modified in 2009 are 40 to 50 percent (40% – 50%) less likely to be seriously delinquent six months after modification than loans modified at the same time in 2008. This improvement in loan modification performance suggests that dire predictions of high redefault rates may not come true. This positive trend suggests that increased use of modifications resulting in significant payment reduction has succeeded in creating more sustainable loan modifications.

In addition, recent modifications that significantly reduce the principal balance of the loan have a lower rate of redefault compared to loan modifications overall. The State Working Group believes that servicers should strategically increase their use of principal reduction modifications to maximize prospects for success. Only one in five loan modifications reduce the loan amount; in fact, the vast majority of loan modifications actually increase the loan amount by adding servicing charges and late payments to the loan balance.

Finally, while loan modifications have consistently increased over time, the numbers of foreclosures continue to outpace loan modifications. Nearly three years into the foreclosure crisis, we find that more than 60% of homeowners with serious delinquent loans are still not involved in any loss mitigation activity. Furthermore, with the significant overhang of seriously delinquent loans, the State Working Group anticipates hundreds of thousands of foreclosures will occur later this year absent additional improvements in foreclosure prevention efforts.

1 has collected delinquency and loss mitigation data from most of the largest servicers of subprime mortgages in the country. This memorandum looks at trends in loan modifications of nine non-bank mortgage companies servicing 4.6 million loans across the country as of March 2010. 


This memorandum analyzes data submitted by nine servicers providing longitudinal data on loan modification performance. Since the inception of monthly data collection in October 2007, these nine servicers have completed over 2.3 million foreclosures as compared to 760,000 loan modifications. As of March 31, 2010, these servicers report 778,000 borrowers seriously delinquent (60+ days late on mortgage payments).

Impact of HAMP Program on Loss Mitigation Pipeline

As shown in Chart 1, permanent loan modifications dipped in the Spring and Summer of 2009 as servicers transitioned to the federal Home Affordable Modification Program (HAMP). The HAMP program requires a three month trial period. Accordingly, loans that would have been modified immediately in the middle of last year were instead placed into trial repayment plans, which should have become permanent after three months of successful payments from homeowners. For a variety of reasons, servicers have struggled to transition trial plans into permanent loan modifications. As shown in Chart 2 below, it appears that servicers have begun to work through the backlog of trial plans needing conversion to permanent modifications, but servicers’ conversion ratio is still far short of pre-HAMP levels.

Despite the increase in trial modifications, more than six out of ten (62.5%) seriously delinquent borrowers were not involved in any form of loss mitigation efforts. The biggest failure of foreclosure prevention efforts continues to be the inability to engage homeowners in meaningful loss mitigation efforts in the first instance. Beyond the usual factors driving borrower non-response, some reasons for the low involvement of struggling homeowners include mixed messages communicated to struggling homeowners regarding foreclosure and loss mitigation opportunities, a lack of transparency in loss mitigation options and process, inconsistent and confusing information provided to homeowners during the process, poor customer service delivery, and long delays in the modification process.

Type of Modification

The vast majority of loan modifications now involve some reduction in the homeowner’s monthly payment. Of loan modifications tracked by the State Foreclosure Prevention Working Group in the first quarter of 2010, 89.3% involved some reduction in payments, including 77.6% that significantly decreased payments (i.e. decreased by more than 10%). This data is consistent with data for the large national banks covered by the OCC and OTS mortgage metrics report.

While payment reduction is now commonplace, the State Working Group remains concerned over the absence of loan modifications significantly reducing outstanding loan balances. In the first quarter of 2010, only 13.7% of all modifications reported to the State Foreclosure Prevention Working Group involved principal reductions greater than 10%; in fact, 70.4% of loan modifications

increased the unpaid principal balance.3 With home price declines of 30% since 20064 and almost 25% of all homeowners with a mortgage owing more than their home is worth,5 the failure to meaningfully reduce principal limits the success of current foreclosure prevention efforts. The HAMP program has recently introduced a principal reduction alternative to its standard waterfall to give servicers the option of prioritizing the reduction of principal; however, we believe the optional nature of this alternative and its inapplicability to GSE loans will likely significantly limit its impact in the HAMP program.


A loan modification does not guarantee that a borrower will be able to remain current on the mortgage. Even the best-designed loan modification has some risk of redefault; however, a loan modification that fails to address the borrower’s repayment ability and the factors underlying the default may set the homeowner up for failure. Redefault expectations are incorporated into the servicer’s decision whether or not to even offer a loan modification to a struggling homeowner. Therefore, loan modification performance is very important both for the long-run efficacy of the program as well as a factor in determining the universe of eligible borrowers. Some analysts have predicted redefault rates of 65% to 75%.


6 The State Working Group is more optimistic. The reason for our optimism is that loans modified in 2009 are performing substantially better than those modified in 2008, as shown by Chart 4 on the next page.


7 For example, 30.8% of loans modified between August and September in 2008 were seriously delinquent after 6 months, but only 15.3% of loans modified in August and September of 2009 were seriously delinquent after 6 months.8 That amounts to a 50% reduction in the redefault rate.9 The OTS and OCC report a similar reduction. In recent mortgage metrics reports, the OCC and OTS report that 48.1% of loans modified in the third quarter of 2008 were 60 or more days delinquent 6 months after modification,10 but that redefault rate fell by more than 40 percent (to 27.7%) for loans modified in the third quarter of 2009.11

A comparison of five reporting servicers


12 demonstrates how the improvement in redefault rate is evident even when controlling for the type of loan modification. For instance, the redefault rate at six months for loans with significant payment reductions fell from almost 31.4% for loans modified in August to September of 2008 to just 11.8% for loans modified in August to September of 2009, a more than 62% reduction. Similarly, the redefault rate for loans with significant principal reductions fell from 35.4% to 12.9%, over a 63% reduction. While there is understandable fear that loan modification programs may be overused and that they may become less effective in the effort to reach the maximum number of borrowers, our research suggest that servicers’ loss mitigation offers are becoming more successful for those borrowers that are able to secure a loan modification.


While servicer performance is still short of what is needed and the HAMP program has not been a silver bullet, we find that there has been some improvement in foreclosure prevention efforts.

Loan modifications have increased, significant payment reduction is the norm, and loan modification performance is improving. The improved performance of recent vintages of loan modifications validates the policy of offering sustainable loan modifications. We encourage servicers and the Treasury Department to monitor this trend and to adjust redefault expectations in their models as evidence permits. If experience reflects lower redefaults than anticipated, revised adjustments will enable the HAMP and non-HAMP loan modification programs to reach more struggling homeowners.

Despite the progress noted in this memorandum, the number of seriously delinquent loans moving toward foreclosure remains at near all-time highs. As servicers pass through the initial wave of successful HAMP-eligible borrowers, the State Working Group is concerned that many of the currently delinquent loans will accelerate into foreclosure in the second half of the year. The State Working Group believes that unnecessary foreclosures will occur without further efforts and resources of servicers to reach homeowners, and, where appropriate, to offer loan modifications with significant principal reduction. These unnecessary foreclosures will be a needless drag on the recovery of the housing market and will continue to delay a broader economic recovery.



 1. The State Working Group is more fully described in our first report from February 2008, available at: The State Working Group currently consists of representatives of the Attorneys General of 12 states (Arizona, California, Colorado, Florida, Illinois, Iowa, Massachusetts, Nevada, North Carolina, Ohio, Texas, and Washington), three state bank regulators (Maryland, New York and North Carolina), and the Conference of State Bank Supervisors. Data analysis and graphs for this memorandum were prepared by Center for Community Capital, University of North Carolina at Chapel Hill.

2. For the first quarter of 2010, the OCC/OTS reports that over 87% of all loan modifications involve a payment reduction, with 72% reducing payment by more than 10%.


See OCC and OTS Mortgage Metrics Report, First Quarter 2010 (Jun 2010) at p. 33, available at:




This is generally consistent with results from the OCC/OTS metrics report. The OCC and OTS report that only 2% of modifications in the fourth quarter of 2009 involved principal reduction, while 82% included the capitalization of missed payments and fees, thereby increasing the amount owed. See OCC and OTS Mortgage Metric Report, infra note 2, at p. 26. The State Working Group notes with some surprise the decline in the percentage of loan modifications with principal reduction for the large national banks and thrifts between 4th quarter 2009 and 1st quarter 2010 (from 7% in 4Q 2009 to 2% 1Q 2010).



The S&P/Case-Shiller National House Price Index fell 32% from its peak in the second quarter of 2006. See S&P/Case-Shiller Home Price Indices: 2009, A Year In Review (January 2010).



First American CoreLogic estimates that more than 11.3 million, or 24%, of all residential properties with mortgages, were underwater at the end of 2009. See Media Alert: Underwater Mortgages On the Rise According to First American CoreLogic Q4 2009 Negative Equity Data (February 2010), available at:


U.S. RMBS Servicers’ Loss Mitigation and Modification Efforts Update II, Fitch Ratings (Jun 16, 2010)

7 For purposes of this memorandum, redefault is defined as 60+ days late or foreclosed.

8 Due to limited data availability, August and September are the only months for which we have overlapping redefault rates specifically for 6 months after origination; however, a decline is evident with other cohorts. For example, the redefault rate at 9 months for loans modified in May and June fell from 37.4% in 2008 to 26.7% in 2009, a 29% reduction.

9 The decline in default rate has been broadly consistent across all nine servicers. The range of redefault rates six month after modification was 17-46% for loans modified in August and September of 2008 and only 10-25% for those modified at the same time in 2009.


OCC and OTS Mortgage Metrics Report, Fourth Quarter 2009 (Mar 2010) at p. 34, available at:


OCC and OTS Mortgage Metrics Report, infra note 2 at p. 36. 12 Note that the redefault rates of loan modifications with payment and principal reductions are based on the 5 (out of the 9 total) servicers who provided performance data on all types of modifications. The overall redefault rate for loans modified in August and September by these 5 servicers was 32.3% in 2008 and 15.2% in 2009.


Conference of State Bank Supervisors

Procrastination on Foreclosures, Now ‘Blatant,’ May Backfire, by Jeff Horwitz and Kate Berry, American Banker

Ever since the housing collapse began, market seers have warned of a coming wave of foreclosures that would make the already heightened activity look like a trickle.

The dam would break when moratoriums ended, teaser rates expired, modifications failed and banks finally trained the army of specialists needed to process the volume.

But the flood hasn’t happened. The simple reason is that servicers are not initiating or processing foreclosures at the pace they could be.

By postponing the date at which they lock in losses, banks and other investors positioned themselves to benefit from the slow mending of the real estate market. But now industry executives are questioning whether delaying foreclosures — a strategy contrary to the industry adage that “the first loss is the best loss” — is about to backfire. With home prices expected to fall as much as 10% further, the refusal to foreclose quickly on and sell distressed homes at inventory-clearing prices may be contributing to the stall of the overall market seen in July sales data. It also may increase the likelihood of more strategic defaults.

It is becoming harder to blame legal or logistical bottlenecks, foreclosure analysts said.

“All the excuses have been used up. This is blatant,” said Sean O’Toole, CEO of, a Discovery Bay, Calif., company that has been documenting the slowdown in Western markets.

Banks have filed fewer notices of default so far this year in California, the nation’s biggest real estate market, than they did 2009 or 2008, according to data gathered by the company. Foreclosure default notices are now at their lowest level since the second quarter of 2007, when the percentage of seriously delinquent loans in the state was one-sixth what it is now.

New data from LPS Applied Analytics in Jacksonville, Fla., suggests that the backlog is no longer worsening nationally — but foreclosures are not at the levels needed to clear existing inventory.

The simple explanation is that banks are averse to realizing losses on foreclosures, experts said.

“We can’t have 11% of Californians delinquent and so few foreclosures if regulators are actually forcing banks to clean assets off their books,” O’Toole said.

Officially, of course, this problem shouldn’t exist. Accounting rules mandate that banks set aside reserves covering the full amount of their anticipated losses on nonperforming loans, so sales should do no additional harm to balance sheets.

Within the last two quarters, many companies have even begun taking reserve releases based on more bullish assumptions about the value of distressed properties.

Now there is widespread reluctance to test those valuations, an indication that banks either fear they have insufficient or are gambling for a broad housing recovery that experts increasingly say is not coming.

Banks did not choose the strategy on their own.

With the exception of a spike in foreclosure activity that peaked in early-to-mid 2009, after various industry and government moratoriums ended and the Treasury Department released guidelines for the Home Affordable Modification Program, no stage of the process has returned to pre-September 2008 levels. That is when the Treasury unveiled the Troubled Asset Relief Program and promised to help financial institutions avoid liquidating assets at panic-driven prices. The Financial Accounting Standards Board and other authorities followed suit with fair-value dispensations.

These changes made it easier to avoid fire-sale marks — and less attractive to foreclose on bad assets and unload them at market clearing prices. In California, ForeclosureRadar data shows, the volume of foreclosure filings has never returned to the levels they had reached before government intervention gave servicers breathing room.

Some servicing executives acknowledged that stalling on foreclosures will cause worse pain in the future — and that the reckoning may be almost here.

“The industry as a whole got into a panic mode and was worried about all these loans going into foreclosure and driving prices down, so they got all these programs, started Hamp and internal mods and short sales,” said John Marecki, vice president of East Coast foreclosure operations for Prommis Solutions, an Atlanta company that provides foreclosure processing services. Until recently, he was senior vice president of default administration at Flagstar Bank in Troy, Mich. “Now they’re looking at this, how they held off and they’re getting to the point where maybe they made a mistake in that realm.”

Moreover, Fannie Mae and Freddie Mac have increased foreclosures in the past two months on borrowers that failed to get permanent loan modifications from the government, according to data from LPS. If the government-sponsored enterprises’ share of foreclosures is increasing, that implies foreclosure activity by other market participants is even less robust than the aggregate.

“The math doesn’t bode well for what is ultimately going to occur on the real estate market,” said Herb Blecher, a vice president at LPS. “You start asking yourself the question when you look at these numbers whether we are fixing the problem or delaying the inevitable.”

Blecher said the increase in foreclosure starts by the GSEs “is nowhere near” what is needed to clear through the shadow inventory of 4.5 million loans that were 90 days delinquent or in foreclosure as of July 31.

LPS nationwide data on foreclosure starts reflects the holdup: Though the GSEs have gotten faster since the first quarter, portfolio and private investors have actually slowed.

“What we’re seeing is things are starting to move through the system but the inflows and outflows are not clearing the inventory yet,” he said.

Delayed foreclosures might be good news for delinquent borrowers, but it comes at a high price.

Stagnant foreclosures likely contributed to the abysmal July home sales, since banks are putting fewer homes for sale at market-clearing prices.

Moreover, Freddie says a good 14% of homes that are seriously delinquent are vacant. In such circumstances, eventual recovery values rapidly deteriorate.

Defaulted borrowers were spending an average of 469 days in their home after ceasing to make payments as of July 31, so the financial attraction of strategic defaults increases.

One possible way banks are dealing with that last threat is through what O’Toole calls “foreclosure roulette,” in which banks maintain a large pool of borrowers in foreclosure but foreclose on a small number at random.

O’Toole said the resulting confusion would make it harder for borrowers to evaluate the costs and benefits of defaulting and fan fears that foreclosure was imminent. Updated Notice of Default Lists was updated today (August 24th, 2010) with the largest list of Notice Defaults to date. With Notice of Default records dating back over 2 years. documents the fall of the great real estate bust of the 21st centry. The lists are of the raw data taken from county records.

It is not a bad idea for investors and people that are seeking a home of their own to keep an eye on the Notice of Default lists. Many of the homes listed are on the market or will be.

All listings are in PDF and Excel Spread Sheet format.

Multnomah County Foreclosures

Post-Mortgage Meltdown, Where Do We Go Now?, National Public Radio (NPR)

For more than 20 years, the mantra in Washington has been “more, not less” when it comes to Fannie Mae, Freddie Mac and the expansion of homeownership.

But in light of the financial crisis and Fannie and Freddie’s near-collapse, policy leaders are also rethinking the government’s role — and many Americans are starting to question whether homeownership is the only path to the American Dream.

Fannie and Freddie function by buying, bundling and then stamping a government guarantee on mortgages. Then they sell them to investors. It keeps the banks happy because it keeps capital flowing, and it keeps consumers happy because it makes low, fixed-rate mortgages possible.

At least that how things were supposed to unfold. But the two mortgage finance giants “made astonishing mistakes,” Raj Date, executive director of a financial policy think-tank called the Cambridge Winter Center, told NPR’s Audie Cornish.

‘It Has All Come Back To Haunt Them’

“As normal people everywhere in the country realized that housing prices seemed to be growing straight into the stratosphere, instead of becoming more conservative about lending against those ridiculously high values, Fannie and Freddie just continued to make the same kind of loans and indeed made more aggressive loans during that period of 2005, 2006, 2007,” Date said. “And it has all come back to haunt them.”

So instead of rationally-priced credit, he said, the country wound up with a $6 or $7 trillion bubble in housing values. And all of Wall Street and most of the country’s banks made the same sort of mistakes, Date said.

Policy makers are at a bit of a crossroads, said Date, who was among a number of industry leaders who huddled with Treasury Secretary Timothy Geithner this week to figure out a new way forward on housing.

Fannie and Freddie have dramatically scaled back their level of aggressiveness in underwriting credit, Date said. But, he added, “the fact of the matter is that on average and over time, Fannie and Freddie represent an economic subsidy from the public at large to middle and upper middle-income homeowners.”

Despite talk on Capitol Hill of dismantling the two organizations, it might be tough to get rid of them. That’s because Fannie and Freddie, along with the Federal Housing Administration, are responsible for some 95 percent of the mortgages in the country today, Date said.

“If you think that the fall of 2008 was calamitous, believe me, you haven’t seen anything yet if you were just somehow to turn off the lights on Fannie and Freddie today,” he warned. “That said, I think the policy makers are trying to be thoughtful about the right long-term answer is for housing finance more broadly, and that involves revisiting some issues that have been treated as sort of untouchable for quite some time.”

Ultimately, Date said it might be time to rethink homeownership as an American ideal.

The White Picket Fence Reconsidered

“The world we live in today is not quite the world that existed in 1950,” he noted. “The nature of households and the rate at which they dissolve and reform, the nature of work and its transient nature across geographies are all things that suggest that maybe, just possibly, a middle-class American shouldn’t stake themselves to an illiquid, very large, concentrated, leveraged asset —- that is to say, a house.”

Alyssa Katz, author of Our Lot: How Real Estate Came To Own Us, also thinks America needs to reconsider the American Dream.

“Homeowenership has gone from being pretty much an unmitigated good — something that would provide stability — and instead has thrown a huge cloud of doubt over the value of homeownership for a lot of people.”

Even so, there also are downsides to renting, she said.

“Some of the common beliefs about renting are absolutely true,” Katz said. “Being a renter has very little security. They don’t have any promise they’ll be able to live in the apartment or home for more than a year or two. Renting is also perceived as something that really divides Americans by class. So I think for a lot of potential renters, or people who own and are thinking of making that transition to renting, they have to overcome this sense that they are giving up a sense of status.”

That’s a tough thing to shake for many Americans, she said.

If more people rent, the benefits of homeownership will only increase for those who own homes because the pool will shrink, Katz said.

“Those who have access to homeownership and the benefits that it brings, as a result of policy, will be even more privileged than they are now.”