The Obama Administration on Wednesday signed a bill that attempts to inject some hope into the housing rescue program–called Hope for Homeowners.
The original program asked banks to reduce mortgage balances voluntarily to 90 percent of a home’s current market value. The loan would then be refinanced into an FHA mortgage.
The program didn’t work because it forced lenders to sell short with no chance of an upside, says Tom Kelly, a spokesman for JP Morgan Chase.
The new version of Hope sweetens the pot by paying lenders $1,000 for every Hope-refinanced loan and easing the amount they have to write off by allowing loans of up to 93 percent of the market value.
But the most important change is that it allows the U.S. Department of Housing and Urban Development, FHA’s parent agency, to share home-price appreciation with investors, up to the appraised value of the property when the existing loan was first issued.
This bill originally included cramdown legislation that would have allowed bankruptcy judges to modify the first mortgage, but that portion of the legislation was defeated in the Senate.
Source: CNNMoney, Les Christie (05/20/2009)
Potential home buyers in search of a mortgage are wary of all kinds of adjustable rate loans these days, but hybrid ARMs can be really good deals even in these times of historically low interest rates, some lending experts insist.
Hybrids are “a great product at a great rate,” says Christopher Cruise, a mortgage broker in Silver Spring, Md.
Currently, starting rates are under 4 percent, generally a full percentage point lower than traditional, 30-year, fixed-rate mortgages. Hybrids are locked in at that starting rate for five, seven, or sometimes even 10 years, then they adjust—usually a maximum of 2 points a year with an overall cap of 6 or 8 points.
In the meantime, the savings on a hybrid ARM can be thousands of dollars and make sense for a buyer who doesn’t expect to be in a home for more than five or six years.
Even if they stay in the same house, it’s likely they’ll have an opportunity to refinance. “Seven years for a mortgage is an eternity these days,” Cruise says.
He recommends that buyers do the math, considering the worst-case scenario. In many cases, particularly with jumbo loans, the savings will still be substantial even if the loan adjusts to the maximum for a couple of years.
Source: United Features Syndicate, Lew Sichelman (05/03/09)
The Obama administration is announcing incentives today for mortgages servicers to modify home equity loans and other second mortgages.
Servicers must agree to modify second mortgages when the first mortgage has been modified. They must extend the term of the second mortgage and match the rate of the first mortgage. Then the government will share the cost with the servicer of cutting the rate to 1 percent for amortizing loans and 2 percent for interest-only loans.
Under the program, the government will pay mortgage servicers $500 upfront and $250 a year for three years for the modifications. Borrowers will receive payments of up to $250 a year for five years if they stay current on the modified loan.
There will also be a schedule of incentives for holders of second liens to drop their claims altogether.
The Department of Housing and Urban Development and Treasury will make the announcement jointly.
Bank of America, Wells Fargo, and JPMorgan Chase have already agreed to participate in the program.
A separate announcement will include changes to the Hope for Homeowners program, which helps homeowners refinance into more affordable government-backed loans. To get this program moving, the administration is announcing a $2,500 upfront payment to servicers. Lenders will receive $1,000 a year for three years if the loan stays current.
Source: The Wall Street Journal, Jessica Holzer (04/28/2009)
The commercial real estate market is the “one domestic factor that keeps me up at night,” Federal Reserve Bank of Atlanta President Dennis Lockhart told the Association for Financial Professionals meeting Monday in Orlando.
Lockhart told the group that $400 billion of commercial real estate refinancing was hanging over the market and could slow the country’s economic recovery, which he expects to be clearly underway in the second half of 2009.
He also said he believed many of the predictions for the timing of the end of this downturn to be too pessimistic. “Economic forecasts will tend to be overly optimistic as the economy goes into a recession, but overly pessimistic as the economy comes out of recession and begins its expansion phase. Perhaps, we should take some comfort from that,” he said.
Source: Reuters News, Alister Bull
I would hope that fewer cash-outs mean that home owners are realizing that they should not take anything out right now, and not that they couldn’t due to the decline in value. But, see below:
Fewer Home Owners Take Home Equity
The number of cash-out refinancings fell to a three-and-a-half-year low, Freddie Mac said Friday.
Cash-out refinancings totaled $37.8 billion in the fourth quarter of 2007, down from $77 billion in the same time frame a year ago.
“This is real evidence of the upset in the mortgage credit markets as well as the impact of the decline in home values that occurred late in the year,” Amy Crews Cutts, Freddie Mac’s deputy chief economist, said in a statement.
“Research conducted by Fed economists suggests that consumers are more sensitive to changes in their home equity than to changes in stock market wealth,” Cutts said. Less home equity will likely have a dampening effect on spending, she added.
Source: Reuters News (02/08/08)