GSE Changes Could Ease Mortgage Concerns
The two secondary mortgage market giants Fannie Mae and Freddie Mac could help ensure stability in conventional mortgage markets if the government would temporarily lift a restriction on how much in mortgages they can hold in their portfolios, NAR told a federal regulator in a letter sent jointly with the National Association of Home Builders and the Mortgage Bankers Association.
The main function of the two government-sponsored enterprises is to ensure mortgage market liquidity by buying mortgages from lenders and bundling them into securities for sale to investors. But Fannie Mae and Freddie Mac also buy and hold a portion of the loans in their own portfolios.
The companies’ regulator, the Office of Federal Housing Enterprise Oversight, limits this portfolio activity to a combined $1.4 trillion. Easing that limit would send a powerful signal to lenders and borrowers that mortgage markets will remain flush with liquidity, NAR says.
The Financial Services Roundtable, which represents large financial institutions, has sent a letter to OFHEO, saying that easing the portfolio limit makes sense given recent volatility in capital markets. Fannie Mae CEO Daniel Mudd has suggested raising the limit by 10 percent.
For now, no cap hike is planned, although credit availability will be closely watched going forward, OFHEO Director James Lockhart said in a letter to Sen. Charles Schumer (D-N.Y.), who sits on the Senate Finance and Banking committees and has called for a cap hike.
— REALTOR® Magazine Online
The news is all over the place–from my lenders I get daily updates with program changes, rate changes and borrower criteria changes. Then I also hear– “bring us the mortgages anyway–we’ll get creative”. I’ll be honest with you–it is not as easy to get a loan as it used to be in recent years. So — OK — they’re more realistic now, and we won’t find ourselves two years later with an outlandish payment we can’t afford.
This blurb came to me from Realtor Magazine:
Borrowers with good credit but without 5 or 10 percent to put down are likely to be shocked at the rate they’re offered, if they’re offered a mortgage at all.
Lenders are eliminating certain products altogether as well as requiring higher credit scores and down payments, more extensive appraisals, larger savings accounts, and additional income verification.
To Washington state appraiser Bill Hanson, the shift is dramatic. He says lenders are “asking for unrelated information, such as permit numbers for remodeling work,” he says. “Before they would ask: ‘Is the home still there and does the roof leak?’”
“We thought the dust was going to settle, but instead, it just blew up,” says Mitchell Reiner, president of Mortgage Associates, a Los Angeles-based lender that does business in 48 states. “Everyone is being affected.”
Source: The Wall Street Journal, Jonathan Karp (08/14/2007)
This article came to me in a newsletter, and I share it with you:
Industry visionary Stefan Swanepoel speaks out
RISMEDIA, August 13, 2007–The public media this past week headlined the apparent surprise “mortgage meltdown” as many reported the filing for bankruptcy protection by the nation’s 10th-largest residential financer; American Home Mortgage Investment Corp., Melville, New York. Real estate, contradictory to its glamorous profile a year or two ago, was again headlined but this time as the big bad wolf. So is this the end of the real estate mortgage Merry-Go-Round? Probably not, as I haven’t heard “a certain lady sing yet!”
So what’s happened? The sub-prime mortgage meltdown has spilled over into other areas of the residential mortgage market, including the jumbo market. For example Wells Fargo, one of the nation’s biggest mortgage lenders, recently raised the interest rates on it 30-year, fixed-rate, non-conforming jumbo loans to 8%. Overall the interest rates on these so-called jumbo loans have risen nearly 25 basis points in the past week, and are up nearly 100 basis points over the last 90 days. Concerns are even entering the commercial arena as increasing speculation among the hedge fund fraternity notes that the greatest risk may be for mortgages issued at inflated price levels in the commercial real estate market.
Ah, so what do we have today? A “Mortgage Meltdown” as the media, both in print and TV, has labeled the fiasco. This is largely based on the fact that market conditions in both the secondary mortgage market and the national real estate market have deteriorated to the point that many mortgage businesses are no longer viable or as profitable as before.
But then maybe they should never have been in business or should be penalized for not preparing for a shifting market. Only the foolish could really have believed that the “gravy train” was going to ride in perpetuity. Numerous prominent blogs warned about the bubble. Yes some were a bit over the top but many spoke the truth; we were forewarned. In the 2007 Swanepoel Trends Report published back in January dedicated an entire chapter to what it titled “The Bubble, Exotic Loans, Fraud and Declining Commissions have created The Hangover.”
But just like in the new CBS reality program “The Power of 10,” greed on the side of home owners, and of course mortgage brokers, lured millions of homeowners with the promise of irresistible low monthly payments and the illusion of owning the “American Dream” – whether they where qualified for it, or not.
So now, or soon, as millions of homeowners experience the clutches of the financial vice-grip tightening we have a market that is in a quandary. The result will most likely be a continuing rise in the number of delinquencies and foreclosures, particularly among low-income borrowers in conjunction with a declining housing market in many areas across the county.
With an estimated $130-billion in mortgages that have payments being reset this year, the adjustable-rate mortgage, once a solution, is now a ticking time bomb. These homes seemed affordable when house prices soared and home equity credit lines were the ticket to luxury cars, swimming pools and overseas trips.
But now the Pied Piper has come to collect. You can’t live in “Never-Never Land” forever. Borrowers are now getting a lesson in what the words “adjustable,” “deferred” and “balloon” really mean. The resulting ripple-down effect is placing even more pressure on declining property values.
However, what is surprising is that in those areas where housing prices have already stalled or fallen, many people appear to be truly flabbergasted and shocked; looking for someone to blame. Valid or not, Realtors as well as mortgage brokers may carry the proverbial “bulls-eye” on their back as many search for a scapegoat.
Realistically of course, house prices had to come down. It is simple economics 101 - supply and demand. If there are more sellers than buyers the market will be flooded with homes that simply won’t sell until prices drop and they become affordable again for the early phase speculators and opportunists.
According to Allen Fishbein, director of housing policy for the Consumer Federation of America, “What happened in a lot of expensive real estate markets is that first-time home buyers who felt they could not afford a home otherwise, took on a loan that had lower monthly payments than a traditional mortgage would have.” That means borrowers who can’t afford their payments can’t count on being able to sell their homes, while lack of price appreciation means many don’t have the equity in their homes they need to refinance at a good interest rate. Both factors make foreclosures more likely.
But maybe it’s not all that bad as the doomsayers say it is. According to the Mortgage Bankers Association, overall, 4.41 percent of mortgages are delinquent, up from 4.34 percent a year ago, but lower than they were three years ago. So, that means 96 percent of mortgages are being paid on time. That’s not too bad – we are still far from a real “Meltdown” as the media painted our industry this past week.
Good it’s not -but a meltdown it isn’t. Let’s just say we are in a much needed correction for a real estate and mortgage market. Markets that have been too strong for too long. At the same time, however, the market creates numerous opportunities to grow a business and gain market share. As with any trend or change, knowledge is the key and being pre-warned is also strategically smart.
- The next time you order checks, omit your first name and have only your initials and last name printed on them. If someone takes your check book they will not know if you sign your checks with just your initials or your first name, but your bank will.
- When you are writing checks to pay for your credit card accounts, DO NOT put the complete account number on the “for” line, but only the last 4 digits. The credit card company knows the rest of the number and anyone who might be handling your check as it passes through all the payment processing channels won’t have access to it.
- Put your work phone number on your check instead of your home phone. If you have a P.O. box, use that address instead of your home address.
- NEVER put your social security number on your checks. You can add it if it’s totally necessary, but if you have it printed, anyone can get it.
- Photocopy both sides of all of the contents of your wallet–credit cards and ID cards, etc. You will remember what you had in your wallet, and have all the account numbers and contact numbers to call and cancel them or order replacements. Keep the photocopies in a safe place. Also carry a copy of your passport when you travel at home or abroad.
What to do if your purse or wallet is stolen:
- We have been told that we should cancel our credit cards immediately. The key is having the toll free numbers and your card numbers handy so you know whom to contact. Keep that information in a safe place.
- Immediately file a police report in the jurisdiction where the theft occured. This proves to credit providers that you were diligent and is the first step toward an investigation (if there is one).
- Call the three national credit reporting organizations immediately to place a fraud alert on your name and Social Security number. Thieves can make a credit application over the internet just like you can. The alert means that any company checking your credit knows that your information was stolen and they must contact you by phone to authorize new credit. There will be records of all the credit checks initated by the thieves purchases.
Important numbers:
- Equifax: 1 800 525 6285
- Experian: 1 888 397 3742
- Trans Union: 1 800 680 7289
- Social Security Administration (fraud line): 1 800 269 0271
Interest and Tax Deductions
If you itemize deductions on your federal income tax returns, you may be able to deduct all the interest you pay on your mortgage loan. (We are not tax professionals. Please consult one for your own situation.) I have created a table that shows actual interest rates you may be paying on your mortgage and the effective interest rate based on your tax bracket. For example, you have a 7% mortgage rate and your tax bracket is 15%, then your effective rate is actually 6% after interest deductions.
Link to Table