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Mortgage rates are still near historic lows yet hardly any applicants actually qualify for those rates due to a variety of additional points and fees that we’ve covered in this space before.  This effect is masked, to some extent, by the fact that these additional costs are generally NOT mentioned in the weekly report of average mortgage rates issued every Thursday by Freddie Mac.  Those rates — as low as 4.48 percent in the last report for a 15-year fixed mortgage — generally show just the core rate and not the various adders.  So you can have great credit and qualify for that 4.48 rate, but actually GETTING it is something else altogether.

There is also a fight brewing between the government, banks, and mortgage security holders over provisions in new legislation that would immunize loan servicers from lawsuits by investors in mortgage-backed securities.  The government wants to encourage loan modifications, allowing these to happen almost automatically in cases of bankruptcy, where they were traditionally not allowed.  To date all mortgage modification programs have been aimed mainly at those current on their loans which includes an entire class of homeowners who don’t really need loan modifications to stay in their homes.  So the government is doing the right thing, so to speak, but with typical governmental lack of finesse.

The banks hated this idea until they figured out that it would allow them to reconfigure $441 billion in second mortgages THEY hold.  Citibank was the first to see this logic.  So the banks can improve their positions as loan holders, can improve their positions as loan servicers, but of course the mortgage security investors hate this and the government sits in between.  The result of this conflict will only be more delay and confusion in the marketplace, neither of which is good for homeowners.  Sorry.

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Two months after Treasury Secretary Timothy Geithner began talking about new programs to help holders of federally insured mortgages who have lost all their equity in the housing bust and are now under water, rules for the new programs are finally starting to appear. But like most of the other federal homeowner initiatives described to date, early details suggest the Making Home Affordable Program will be of little practical help to those with low-to-negative equity and less-then-perfect credit scores.

The new programs for mortgage refinancing and modification sound ideal on paper, often requiring no mortgage insurance and allowing loan-to-value ratios as high as 105 percent and requiring no specific credit rating at all as long as homeowners have remained current to date on their mortgage payments. But the devil is in the details and looking into the conforming rate sheets just published by major lenders we see new risk-based pricing adjustments (generally called “loan level pricing adjustments” in the mortgage industry) that can add up to four basis points to the mortgage principal for homeowners with LTV’s above 95 percent and credit scores below 620 – the very heart of the homeowner group in the greatest trouble.

While the government claims the programs can help 7-9 million homeowners, that doesn’t seem likely under the current rules.

On top of other pricing adjustments for property type and loan amount these new programs can add thousands to the loan balances of homeowners with low equity and less-than-perfect credit, with the increased costs often enough to price many homeowners out of the programs entirely.

A homeowner trying to refinance a loan with a 100 percent LTV and poor credit, for example, might easily see the required risk-based points take that loan beyond the 105 percent LTV limit. While it is possible to take the points from savings or investments rather than roll them into the loan, most homeowners in this group don’t have such savings or investments available.

While the new programs are good for homeowners with credit ratings above 680 and LTVs in the 80s or lower, this does not describe most of today’s conforming mortgage holders who truly need a refi or modification.

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The Obama plan to help U.S. homeowners to avoid foreclosures and lower their cost of home ownership is available to about half of U.S. homeowners.  Those still out in the cold include:

• Loans not owned or guaranteed by Fannie Mae or Freddie Mac
•  Jumbo loan amounts greater than $417,000 ($729,000 in some markets).
•  Option ARMs.
•  Wachovia Pick-A-Pay Mortgages.
•  Sub prime Loans.
•  Credit Union shelved, (Serviced by the Credit Union).
•  Any bank portfolio product lines that are non-conforming.

Mortgage experts are recommending a wait-and-see attitude for these groups, saying that there is likely to be further action from the Obama Administration, especially for the large groups of homeowners in Arizona, California, and Florida left out of this week’s plan.

cringely News Add new tag, fannie mae, foreclosure, freddie mac, mortgage, News, Obama, plan

U.S. President Barack Obama announced on Wednesday a complex $275 billion plan to help American homeowners avoid foreclosure by adjusting existing mortgages or refinancing with Federal help.  Final rules for the program will be coming in two weeks, the President said.

According to the President, the Obama plan is aimed at two distinct groups of homeowners: an estimated 3 million or 4 million distressed homeowners who are in danger of foreclosure; and a potentially much larger number of people who are not in immediate distress but are paying rates higher than available to credit-worthy borrowers now and who would likely be resentful about bailouts going to others.

To help distressed homeowners, Mr. Obama will create a $75 billion program to subsidize loan modifications that would reduce a family’s monthly payment to as little as 31 percent of his or gross monthly income.

As envisioned, a mortgage lender would have to first make enough concessions to reduce a borrower’s payments to 38 percent of monthly income. The government will offer a series of financial incentives to encourage lenders to make the concessions. At that point, the government would match, on a dollar-for-dollar basis, additional reductions to bring the payment as low as 31 percent of monthly income.

The changes could be accomplished in several ways, from stretching out the repayment period of a loan to reducing the interest rate or reducing the outstanding principal.

But the plan would not prevent all foreclosures, because lenders could still decide whether to make concessions. If a lender decides that the cost of the concessions is higher than the cost of foreclosing, even with the government subsidies, then a borrower would probably still lose the property.

Incentives in the plan for mortgage-servicing companies include a $1,000 fee for each mortgage they restructure as well as up to $1,000 a year for the next three years if the borrower remains current. In addition, the government would pay up to $1,000 a year to reduce the size of a homeowner’s mortgage, if the borrower remained current.

Another part of the plan is aimed at homeowners who are not behind on their payments, but who owe more than their home is worth in the present market. For this group, Obama’s plan would make it much easier to refinance their homes and take advantage of the low interest rates now available.

The plan applies only to homeowners with loans owned or guaranteed by Fannie Mae and Freddie Mac. Anybody with such a mortgage would be allowed to refinance at today’s rates without needing a 20 percent down payment.

Normally, Fannie Mae and Freddie Mac require that such borrowers pay private mortgage insurance, which can add hundreds of dollars to a monthly payment. In effect, the government would be taking on the added risk, at no charge, that comes from lending to people with no financial stake in their house.

The third component of Obama’s plan is aimed at propping up the mortgage market by having Fannie Mae and Freddie Mac step up their purchases of mortgages and mortgage-backed securities. The Treasury Department will use its authority under a housing bill passed last year to provide up to $200 billion to each company to expand the size of their mortgage portfolios, ostensibly acting as a downward force on future mortgage rates.

Final rules for the program will be released in two week, Obama said.

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