Localism: Lane County, OR

Could Mortgage Interest Rates Drop to 4.5% with Treasury Intervention?

Thu, 04 Dec 2008 20:09:12 -0600

The latest rumor (anonymous comment) coming from our "tight lipped" bureaucrats in Washington is that Treasury Secretary Henry Paulson is considering a new plan to reduce mortgage rates in another bid to revive the U.S. housing market. The Treasury could, under this new plan, step up purchases of mortgage backed securities (MBS) to drive down interest rates on some loans to 4.5 percent, the official said on condition of anonymity. The possibility that this plan could change is enormous.

Mortgage applications surged by a record last week and the average rate on a 30-year fixed-rate loan dropped to 5.47 percent, the lowest level since June 2005, according to the Mortgage Bankers Association. So, what will this latest "news" do to the clients that have started application and (probably) locked their interest rate when they hear rates could drop another full percent?

Lowering mortgage rates to 4.5 percent might allow a lot of homeowners to refinance into a cheaper loan but some financial experts expect far fewer people will actually qualify for the lower rates. There are already a number of additions to rates due to credit score, loan to value and purpose of loan. With substantially lower rates, lender will probably tighten these requirements, even more.

I am not certain of what this announcement means to future business opportunities. One "expert" stated that he thought the lowering of the fixed rates to 4.5% could mean that 90% of the mortgages in existence could benefit from refinancing to the new, lower rate. If true, business could get quite brisk.

What are your feelings about having interest rates drop like this? Is it sustainable?

authored by Fred Chamberlin, senior mortgage consultant, Eugene/Springfield Oregon, 541-342-7576

"New York Federal Reserve Opens 'Pawn Shop' to Buy Up ABS Junk"

Thu, 04 Dec 2008 17:35:09 -0600

"On Wednesday, December 3, 2008 The New York Federal Reserve website reported that they will begin to purchase Asset Backed Securities (ABS) from failed mortgage giants Fannie Mae and Freddie Mac, as well as the Federal Home Loan Banks.

They also hinted that they will stop there - everything seems to be on the table now, officially. Treasuries and stocks may see direct effects, with outcomes mixed. Initially, the program will concentrate on non-callable, fixed-rate senior benchmark securities such as Mortgage Backed Securities (MBS), but there are indications in the language used that the program may expand to include other ABS such as privately issued MBS (non-GSE), bonds, stocks and other equities.

With this much unprecedented Government intervention in the markets, I find it difficult to apply any models effectively in a predictive fashion. In the long run, I believe will be inflation and devaluation of the dollar - combined with the aftermath of record writedowns, mergers, buyouts, and outright failures that we will see in 2009 - that will be the legacy of these efforts."

http://yourmortgageoryourlife.wordpress.com/2008/12/04/new-york-federal-reserve-opens-pawn-shop-to-buy-up-abs-junk/

Queen of all she Surveys

Wed, 03 Dec 2008 16:21:05 -0600

HUD Changes RESPA requiring different GFE disclosure for more informed consumers

Tue, 02 Dec 2008 17:48:19 -0600

Call me slow if you want to, but I have been trying to digest the "long-anticipated mortgage reforms that will help consumers to shop for the lowest cost mortgage and avoid costly and potentially harmful loan offers" announced by HUD on Nov. 12. It has taken some time, but I think I understand what has been done so far and how it will affect lenders and consumers after implementation.

According to HUD Secretary Steve Preston, ".... the mortgage crisis was fueled in part by people agreeing to mortgages that they ultimately could not afford. In some cases, people didn't understand or know that their mortgages could result in large payment increasesafter just two or three years. Others did not recognize the total costs that come with home ownership. And others paid higher loan origination and closing costs simply because they did not know about other affordable options." (emphasis added)

Because of this HUD unveiled new regulations under the Real Estate Settlement Procedures Act, or RESPA. According to Preston, HUD will require that mortgage brokers and mortgage lenders to provide consumers with a standardized description of terms called the Good Faith Estimate. (And here I thought we already did...silly me.) The GFE will be given to borrowers at the time an estimate is provided and will more clearly answer key questions consumers have when applying for a mortgage:

What's the term of the loan?
Is the interest rate fixed or can it change?
Is there a pre-payment penalty should the borrower choose to refinance at a later date?
Is there a potentially crippling balloon payment? (their words, not mine)
What are total closing costs?

The new Good Faith Estimate is supposed to offer more certainty about the loan they're agreeing to and to shop more effectively for the lowest cost loan. Changes to the HUD-1 settlement statement will include a reference to the relevant line from the GFE, allowing borrowers to easily compare their final loan terms and closing costs with those listed on their Good Faith Estimate.

There were 12,000 comments received during the comment period. According to HUD, significant modifications were made from the proposed rule issued in March. The new, final RESPA rule will take effect 60 days after publication, probably mid January. The new standard GFE and revised HUD-1 will be required on January 1, 2010.

"Millions of Americans go to the closing table each year," According to Preston, "most have little idea what's expected of them. Our goal all along has been to allow consumers to do what consumers do best - to shop for the more appropriate loan to meet their family's needs. HUD's new Good Faith Estimate treats everyone fairly - real estate agents, brokers, lenders, title companies and other settlement service providers. But it also extends that fairness to the very people we must all focus on - the consumer."

HUD estimates its new regulation will save each consumer an average of nearly $700 at the closing table.

Most industry commenters said HUD's proposed four-page GFE was too long. HUD shortened the GFE form to three pages including an instructional page to help borrowers understand their loan offer. HUD continues to believe that consumers need to be aware of the key aspects of their loan as well as associated settlement costs. Check out the new GFE.

Here are some excepts from the new GFE.

Only you can shop for the best loan for you. Compare this GFE with other loan offers, so you can find the best loan. Use the shopping chart on page 3 to compare all the offers you receive.

Shopping for your loan:

Your initial loan amount is $_________
Your loan term is _______ months
Your initial interest rate is _______%
Your initial monthly amount owed for principal,interest, and any mortgage insurance is $_______
Can your interest rate rise? Y or N
Even if you make payments on time, can your loan balance rise? Y or N
Even if you make payments on time, can your monthly amount owed for principal, interest, and any mortgage insurance rise? Y or N
Does your loan have a prepayment penalty? Y or N
Does your loan have a balloon payment? Y or N
The interest rate for this GFE is available through ______ After this time, the interest rate, some of your loan Origination Charges, and the monthly payment shown below can change until you lock your interest rate.
This estimate for all other settlement charges is available through _____
After you lock your interest rate, you must go to settlement within _____ days (your rate lock period) to receive the locked interest rate.
You must lock the interest rate at least ____ days before settlement.
Our origination charge $______. This charge is for getting this loan for you.
Your credit or charge (points) $______ for the specific interest rate chosen
You receive a credit of $______ for this interest rate of ____%.
This credit reduces your settlement charges.
This charge (points) increases your total settlement charges.
The tradeoff table on page 3 shows that you can change your total settlement charges by choosing a different interest rate for this loan.

I have only highlighted a portion of the new GFE, please reveiw the entire form and don't rely on this for your decision making process. I am just trying to show the new things to expect in 2010. Of course, since we are dealing with a government agency, this can and may change prior to it becoming effective.

Personally, I like the new form and would like to see it in use sooner, rather than later. I believe that easy to follow, frank discussion of fees and rates are paramount to good mortgage lending. Real Estate loans should not be a mistery to those taking them out. Loan officers should be willing and able to explain and defend their costs to a client.

Authored by Fred Chamberlin, senior loan consultant, Eugene/Springfield Oregon, 541-342-7576

The Financial Industry Takes Too Much and Gives Too Little

Tue, 02 Dec 2008 15:13:33 -0600

The Wall Street Bailout is quickly reaching into the the trillions-of-dollars, and many analysts are speculating as to the current running total of the outlays thus far, while other financial experts like John Bogle, the founder of the Vanguard Group, are questioning the legitimacy and impact of the costs to maintain this overly-complicated system even when economic conditions are good.

Henry Paulson today presented his latest in a series of bewildering press conferences, each of which seems to be orchestrated to reveal - in only an incremental fashion - the true extent of the damage to our financial system.

Today's installment from Paulson in summary: Things are really bad, and they will get worse. Whatever we told you our plan to stop the markets from further hemorrhaging was last time, we have since changed our mind. We will let you know when we change our minds again.

In the mean time, the Dow dropped enough to more or less erase the gains realized in trading the last two weeks, posting the third worst point drop in history with the DOW closing down nearly 680 points.

So what are the mounting costs of the bailout to the public in total? Some estimates would have the bailout costs as high as $8.5 Trillion Dollars, while more conservative estimates are a mind-boggling $4.6 Trillion Dollars.

But these costs only represent the liquid assets the Federal Government has pumped into the system in the last few months through FDIC insurance payouts, FHA loan guarantees, Federal Reserve cash injections, the direct Treasury bailouts of public and private firms, and the equity stakes taken in others.

What about the non-bailout costs? What do we as consumers, as private companies, and as taxpayers actually pay on an annual basis to support this system? How much have businesses and consumers already given to the Financial Industry that now demands we put our grandchildren into debt to save their Golden Parachutes today?

John Bogle illustrated in his recent book Enough: True Measures of Money, Business and Life, the damage to, and dangers inherent in, today's financial industry.

Continued: The Financial Industry Takes Too Much and Gives Too Little

Localism: Lane County, OR

Could Mortgage Interest Rates Drop to 4.5% with Treasury Intervention?

authored by Fred Chamberlin, senior mortgage consultant, Eugene/Springfield Oregon, 541-342-7576

"New York Federal Reserve Opens 'Pawn Shop' to Buy Up ABS Junk"

Queen of all she Surveys

HUD Changes RESPA requiring different GFE disclosure for more informed consumers

Only you can shop for the best loan for you. Compare this GFE with other loan offers, so you can find the best loan. Use the shopping chart on page 3 to compare all the offers you receive.

Shopping for your loan:

Your initial loan amount is $_________

Your loan term is _______ months

Your initial interest rate is _______%

Your initial monthly amount owed for principal,interest, and any mortgage insurance is $_______

Can your interest rate rise? Y or N

Even if you make payments on time, can your loan balance rise? Y or N

Even if you make payments on time, can your monthly amount owed for principal, interest, and any mortgage insurance rise? Y or N

Does your loan have a prepayment penalty? Y or N

Does your loan have a balloon payment? Y or N

The interest rate for this GFE is available through ______ After this time, the interest rate, some of your loan Origination Charges, and the monthly payment shown below can change until you lock your interest rate.

This estimate for all other settlement charges is available through _____

After you lock your interest rate, you must go to settlement within _____ days (your rate lock period) to receive the locked interest rate.

You must lock the interest rate at least ____ days before settlement.

Our origination charge $______. This charge is for getting this loan for you.

Your credit or charge (points) $______ for the specific interest rate chosen

You receive a credit of $______ for this interest rate of ____%.

This credit reduces your settlement charges.

This charge (points) increases your total settlement charges.

The tradeoff table on page 3 shows that you can change your total settlement charges by choosing a different interest rate for this loan.

Authored by Fred Chamberlin, senior loan consultant, Eugene/Springfield Oregon, 541-342-7576

The Financial Industry Takes Too Much and Gives Too Little

You receive a credit of $__ for this interest rate of %.