Owner-occupier

No End in Sight: Mortgage Loans Harder in High-Foreclosure Areas by Brian O’Connell, Mainstreet.com

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NEW YORK (MainStreet) — Here’s another bitter pill for homeowners to swallow: If you live in an area with a high foreclosure rate, the chances of someone getting a loan to buy your house significantly decreases.

The news comes from the Federal Reserve’s latestreport, in which it concluded that mortgage lending was dramatically lower in communities and neighborhoods where foreclosures were surging, using data from the Neighborhood Stabilization Program (NSP) and from the Home Mortgage Disclosure Act (HMDA).

“Home-purchase lending in highly distressed census tracts identified by the Neighborhood Stabilization Program was 75% lower in 2010 than it had been in these same tracts in 2005,” the report said. “This decline was notably larger than that experienced in other tracts, and appears to primarily reflect a much sharper decrease in lending to higher-income borrowers in the highly distressed neighborhoods.”

The Fed uses the term “highly distressed” in place of the word “foreclosure”, but the message is clear: Banks and mortgage lenders are taking a big step back from lending to buyers who want a home in a high-foreclosure neighborhood.

It’s the same deal for borrowers who want to actually live in a home and buyers who want to purchase the property as aninvestment, as neither party seems to be having much luck in getting a home loan in a highly distressed neighborhood, according to the Fed. The lack of credit extended to investors could really hurt neighborhoods crippled by foreclosures.

“In the current period of high foreclosures and elevated levels of short sales, investor activity helps reduce the overhang of unsold and foreclosed properties,” the Federal Reserve says.

Overall, the Fed reports that 76% fewer mortgage loans were granted to “non-owner occupant” buyers in 2010, compared to 2005.

The Fed’s report reveals some other trends in the mortgage market:

  • Mortgage originations declined from just under 9 million loans to fewer than 8 million loans between 2009 and 2010. Most significant was the decline in the number of refinance loans despite historically low baseline mortgage interest rates throughout the year.  Home-purchase loans also declined, but less so than the decline in refinance lending.
  • While loans originated under the Federal Housing Administration (FHA) mortgage insurance program and the Department of Veterans Affairs‘ (VA) loan guarantee program continue to account for a historically large proportion of loans, such lending fell more than did other types of lending.
  • In the absence of home equity problems and underwriting changes, roughly 2.3 million first-lien owner-occupant refinance loans would have been made during 2010 on top of the 4.5 million such loans that were actually originated.
  • A sharp drop in home-purchase lending activity occurred in the middle of 2010, right alongside the June closing deadline (although the deadline was retroactively extended to September). The ending of this program during 2010 may help explain the decline in the incidence of home-purchase lending to lower-income borrowers between the first and second halves of the year.

All in all, the report offers a pretty bleak – but even-handed and thorough – review of today’s home-purchase market.

Read more about the continuing effects of the housing crisis at MainStreet’s Foreclosure topic page.

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PMI to pay underwater borrowers to stay put by by Jacob Gafney, Housingwire.com

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Private mortgage insurer PMI Group (PMI: 1.34 -11.26%) will offer cash incentives to some homeowners in negative equity to help prevent mortgage defaults.

PMI subsidiary, Homeowner Reward is working with Loan Value Group, to administer the pilot program, called Responsible Homeowner Reward.

The program launched Monday and will start in select real estate markets where falling house prices left borrowers owing significantly more on their mortgage than what the property is worth.

Participation in RH Reward is voluntary and there is no cost to the homeowner, according to PMI. The cash will come after a lengthy period of keeping the mortgage current, generally from 36 to 60 months. According to PMI, the reward will be between 10 to 30% of the unpaid principal balance.

The Loan Value Group works “to positively influence consumer behavior on behalf of residential mortgage owners and servicers,” according to its website.

LVG programs already delivered more than $100 million in cash incentives to distressed homeowners. However, those programs focus on turnkey solutions such as cash for keys, with an aim to avoid principal forgiveness. The Homeowner Reward program is taking a different path.

“We continue to seek creative and effective loss mitigation strategies,” said Chris Hovey, PMI vice president of servicing operations and loss management. “PMI is especially supportive of homeownership retention efforts in states that are facing unprecedented housing challenges.”

Write to Jacob Gaffney.

Follow him on Twitter @jacobgaffney.

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