Banks Face Fight Over Mortgage-Loan Buybacks

While mortgage delinquencies are easing, banks are facing a new round of losses from loans made just before the financial crisis, and the fight to keep them off their balance sheets is intensifying.

Leading the charge to make originators repurchase their loans are Fannie Mae and Freddie Mac, the two government-owned finance agencies that guaranteed the mortgages. The firms are sorting through delinquent loans for signs of any violations of the representations and warranties, known as "reps and warranties." In essence, they are looking for lies made by borrowers or lenders in loan applications.
Freddie last week said it would begin taking tougher action against banks that drag their feet on buybacks as it renegotiates its contracts to renew loan-sales agreements from those banks. Freddie said it had received $2.7 billion from lenders on repurchases during the first half of the year, up from $1.7 billion in the year-earlier period. The number of repurchase requests that haven't yet been satisfied jumped to $5.6 billion at the end of June, up from $3.8 billion six months earlier.

While the company isn't likely to cut off its partners, it could use those renegotiations to force banks to settle up on repurchases.

Banks are pushing back. "It's a loan-by-loan fight," Bank of America Corp. Chief Executive Brian Moynihan told investors in March. "This will be a war that will go on for a while." On Aug. 6, Bank of America said it faces $11.1 billion in unresolved repurchase demands, up 46% in just six months.

The bounced loans are mounting fast as investors try to deflect losses back to their sources and put an end to the lingering aftereffects of the financial meltdown. When banks receive repurchase requests, they often try to force other banks that originated the loans to repurchase them.

Given the hundreds of billions in nonperforming mortgages at stake, "these battles could just go on for years," says Christopher Whalen, managing director for Institutional Risk Analytics. "We have at least two more years of misery."

Big banks may be getting close to facing the worst of their repurchase losses, since original buyers are currently scouring the worst years of underwriting, notably 2006 and 2007, says Gerard Cassidy, analyst at RBC Capital Markets.

"As the industry works these loans off," he said, "they're not being replaced with loans underwritten as badly."

The banks are marshaling lawyers and auditors to challenge loan put-backs and issue repurchase requests of their own.

They are also resolving disputes with mortgage insurers, which could help limit repurchase exposure. Mortgage insurers can rescind insurance coverage on loans, which typically prompts Fannie and Freddie to kick back loans. But some banks have begun paying insurers lump sums to avoid dealing with rescissions and triggering repurchase requests. Fannie warned it could face higher losses if insurers aren't rescinding loans, because that might yield fewer buyback opportunities for Fannie.

Banks also are complaining that Fannie and Freddie are kicking back loans that performed for two to three years if they can provide any pretext, such as undisclosed debt, faulty appraisals or bogus income, employment data or credit ratings.

A representative for Bank of America said the bank has "an established history of working with the [government-sponsored enterprises] on repurchase requests and has generally established a mutual understanding of what represents a valid defect."

A representative for Wells Fargo & Co. said the bank "continues to have an open and productive relationship with the agencies, including Freddie Mac, as we work together to mutually resolve repurchase requests as quickly as possible." A spokesman for Citigroup Inc. said, "We believe we are appropriately positioned for repurchases with our current $727 million of reserves for that purpose." J.P. Morgan Chase & Co. declined to comment beyond the company's regulatory filing.

Efforts to claw back loan losses took a more aggressive turn last month, when the agency that regulates Fannie and Freddie, the Federal Housing Finance Agency, threw its weight behind a wider effort to collect repayment on defective loans within the so-called private-label securities issued during the bubble without agency backing by Wall Street firms.

The FHFA sent out subpoenas to 64 issuers of mortgage-backed securities and other parties to probe for potential loan repurchases.

The Federal Reserve Bank of New York hinted earlier in August that it, too, could make some repurchase claims after reviewing investments it inherited through its 2008 rescues of Bear Stearns Cos. and American International Group Inc.

So far, repurchase demands have hit hardest at banks that acquired the bubble's leading subprime-mortgage lenders as they tottered and fell. For example, analyst Chris Gamaitoni of Compass Point Research & Trading LLC predicts the biggest agency-related pretax loss of as much as $21.8 billion at Bank of America, which acquired Countrywide Financial Corp. in 2008. He projects pretax losses of as much $6.9 billion at Wells Fargo, $6.6 billion at J.P. Morgan and $4 billion at Citigroup.

Still, the rising level of repurchase activity hasn't cooled all analysts' enthusiasm. Betsy Graseck of Morgan Stanley, in a note published after BOFA's most recent repurchase announcement, says her estimates for its earnings already include $17 billion of "reps and warranty expenses" through 2014.

While large banks should weather the storm, their efforts to push repurchases down the chain could squeeze smaller, nonbank mortgage lenders, which don't have deposits or other ready sources of cash.

"It's become an epidemic," says David Lykken, a partner at Mortgage Banking Solutions, an Austin, Texas, consulting firm. "The choices are to negotiate, stand up and fight or go out of business."
—Randall Smith
and Marshall Eckblad
contributed to this article.

Write to Nick Timiraos at nick.timiraos@wsj.com and Aparajita Saha-Bubna at Aparajita.Saha-Bubna@dowjones.com
source: online.wsj.com

type your keywords in the box below and press 'search' button

Loading

recent update

Grab this Widget

N.Y. Fed: Households Continue To Reduce Debt

17 aUG, 2010 - Households continue to reduce their debt levels into the start of the summer, the Federal Reserve Bank of New York said Tuesday in a new report that offers a broad overview of the challenging financial conditions of the average American.

The bank reported that by the end of June, “households steadily reduced aggregate consumer indebtedness” for seven straight quarters. As of the end of the second quarter, total consumer debt was $11.7 trillion, down 1.5% from the prior quarter, and 6.5% from its peak in the third quarter of 2008. Total household mortgage and housing finance related debt was down 6.4% from its peak in the third quarter of 2008.
When mortgage and home equity related factors were taken out of equation, indebtedness fell by 1.5% from the prior quarter and was 8.4% below the peak seen in the fourth quarter of 2008.

As consumers have shed debt, the amount of money borrowed that is in arrears has fallen. The New York Fed said for the first time since early 2006 total consumer debt under some form of delinquency fell, moving from 11.9% in the first quarter to 11.4% in the second quarter. At the end of the second quarter, $1.3 trillion of consumer debt was deemed delinquent, and $986 billion was termed “severely derogatory.”

Still, it was a mixed picture, with the report noting “the number of people with a new bankruptcy noted on their credit reports rose 34% during the second quarter, considerably higher than the 20% increase typical of the second quarter in recent years.”

The New York Fed said in its report there are distinct variations in credit across the nation. “Arizona, California, Florida and Nevada all show markedly higher delinquency and foreclosure rates than average,” the report said, with Nevada having the highest foreclosure rate. Total consumer debt loads are highest in California and Nevada, at per capital levels of $78,000 and $73,000, respectively. The national per capita average is $49,000.

The drawdown in consumer debt loads caused the number of open credit card accounts to fall, with 272 million accounts closed in the second quarter versus 161 million accounts that were opened. Open credit card accounts in the second quarter were down 23.2% from their peak in the same period two years ago. However, in a positive sign, credit account inquiries rose in the recently ended quarter.
source: blogs.wsj.com

type your keywords in the box below and press 'search' button

Loading

recent update

Grab this Widget

Quarterbacks Get Out 'Hail Mary' Economy Passes

By JON HILSENRATH

July's dismal jobs report poses a dangerous dilemma for the country's officials.

The government has exhausted traditional measures to get the economy growing more briskly, having already cut interest rates to near zero and committed to more than $800 billion in fiscal stimulus. With conventional tools off the table, it might take a "Hail Mary" pass from policy makers to recharge the economy if an anemic recovery slows even further.

Most ideas have drawbacks. Infrastructure spending, for instance, has appeal in the Obama administration, because many of the nation's roads, bridges and tunnels need updating and because so many construction workers are dormant. But new spending would spark an outcry in the face of trillion-dollar budget deficits and no plan in place to reduce them. Republicans prefer tax cuts—permanent ones—but they also face deficit constraints.

Laura Tyson, a professor at University of California, Berkeley's Haas School of Business who served as President Bill Clinton's chief economic adviser, favors a big, long-term investment program funded through Build America bonds, federally subsidized taxable municipal bonds, and a national infrastructure bank, something President Barack Obama has proposed. The government would put in capital and the bank would raise its own debt to fund projects, sometimes partnering with private businesses. The catch: This also adds to government debt, only indirectly.

Robert Reich, who served as Mr. Clinton's labor secretary, proposes a payroll-tax holiday on the first $20,000 of workers' income, funded by a new social-security tax on workers' annual income of more than $250,000. Economic theory says low-income people are more likely to spend a dollar of added income than high-income people, so getting money in their hands gooses output.

"It could be done right away, immediately putting more money in the hands of consumers likely to spend it, and lowering the cost to businesses of new hires," Mr. Reich says. The catch: Because low-income people have so much debt to pay off, the theory might not apply.

Martin Feldstein, a Harvard professor who was President Ronald Reagan's chief economic adviser, wants to help small banks by making it easier for them to sell poorly performing loans to the U.S. Treasury's Public Private Investment Partnership by giving them extra time to write off the losses they would incur from these sales.

Because the deficit is an impediment to any proposal for the government to spend more or reduce taxes, Frederic Mishkin, a Columbia University professor and former U.S. Federal Reserve governor, says the real Hail Mary move would be taking concrete steps to address future deficits right now. If the Obama administration and Congress first come up with a credible plan to reduce the deficit over the long run, they will have more freedom to run deficits in the short run if needed.

"You want to set up a situation where there is flexibility," Mr. Mishkin says. "There really is a need for the Congress to get serious about long-run fiscal sustainability."

Addressing long-run budget deficits now, Mr. Mishkin adds, would give the Fed flexibility. The Fed could purchase more bonds to drive down long-term interest rates if the economy slumps back toward recession. It has already purchased $1.7 trillion worth of mortgage and government debt. One problem is the Fed is reluctant to buy government debt for fear of being accused of facilitating large government deficits, which could spark an inflation scare.

Mr. Mishkin notes that if Mr. Obama crafts a credible long-run deficit-reduction plan, the Fed would be less constrained by this worry and could buy government debt more freely. The hurdle is political: It requires Mr. Obama and lawmakers to sell hard choices to a skeptical public about controlling the long-run growth of Social Security and Medicare.

On Sunday, two former Treasury secretaries warned against introducing more federal stimulus. Former Clinton Treasury head Robert Rubin, appearing on CNN, said such a move would be "counter productive," and that policy-makers instead should craft a deficit-reduction plan that would go into effect by the end of President Barack Obama's term. Paul O'Neill, who helmed the Treasury under former President George W. Bush, said that the government should push for wholesale changes to the tax system. "I think that would give reassurance to the markets that we're coming back and we're creating the basis for capital formation and…savings as opposed to consuming everything in sight," Mr. O'Neill told CNN.

The Fed could take more radical steps if the economy enters a tailspin. When Japan fell into deflation in the 1990s, Mr. Bernanke, then a Princeton professor, urged the Bank of Japan to set an objective of 3% to 4% inflation. The reason: With interest rates pinned at zero, rising inflation would mean that the real cost of borrowing, which is nominal interest rates minus inflation, would be falling. In theory that would spur demand.

As Fed chairman, Mr. Bernanke has rejected that idea, in part because the U.S. doesn't have deflation now. But if deflation does set in, calls for inflation above the Fed's informal goal of 1.5% to 2% could become louder.

Other ideas are floating around. Bond markets have been buzzing lately about a Morgan Stanley proposal to loosen the mortgage-underwriting standards of government-owned Fannie Mae and Freddie Mac to encourage more refinancing and reduce monthly mortgage payments of homeowners. Morgan Stanley economist David Greenlaw says that could put $46 billion in the pockets of consumers.

He calls it "slam-dunk stimulus," but Treasury Department officials knocked the idea down. The catch: The government already has refinancing programs, such as the Home Affordable Refinance Program, which is open to borrowers with Fannie- and Freddie-backed loans. Moreover, bond investors and many bankers hate the idea because a refinancing boom would impose losses on them by reducing the value of their mortgage debt investments.

Bottom line: There are no slam dunks when it comes to solving this economic problem. Which raises what may be the biggest Hail Mary of all: Do nothing, and hope the economy heals itself.

Write to Jon Hilsenrath at jon.hilsenrath@wsj.com
source: www.smh.com.au">online.wsj.com

type your keywords in the box below and press 'search' button

Loading

recent update

Grab this Widget

BofA Mortgage Repurchase Requests Total $11.1 Billion

Bank of America Corp., the biggest U.S. lender by assets, said it has been dealing with a “very limited” number of requests to repurchase soured mortgages out of securities lacking government-backed guarantees.

Unresolved mortgage-repurchase requests from all investors and insurers totaled about $11.1 billion on June 30, the Charlotte, North Carolina-based bank said today in a filing with the Securities and Exchange Commission. That included $33 million from so-called private-label mortgage-backed securities transactions, compared with $5.6 billion from government- sponsored enterprises such as Fannie Mae, $4 billion from bond insurers and $1.4 billion from other investors, the bank said.
“The corporation and its legacy companies have very limited experience with private label MBS repurchases as the number of repurchase requests received has been very limited,” Bank of America said. The company bought Countrywide Financial Corp., the largest U.S. home lender, in 2008 and Merrill Lynch & Co., the largest brokerage, at the start of 2009.

Debt owners and guarantors in other parts of the mortgage market may be finding it easier to reduce losses by forcing repurchases and rescinding insurance than investors in private- label, also called non-agency, mortgage securities, leading the latter bondholders to begin to seek greater action.

A group with more than $500 billion, coordinating through a Dallas lawyer, last month sent letters to bond trustees seeking their help. The Federal Reserve Bank of New York also said Aug. 4 it is trying to exercise “our rights as investors” after taking on debt through its bailouts of Bear Stearns Cos. and American International Group Inc.

Conflicts of Interest

Bondholders are concerned that the conflicts of interest of mortgage servicers, which must help identify claims on their behalf and are often owned by lenders, “can cloud the prospect that the interests of investors will be aggressively represented as required,” the Association of Mortgage Investors, a trade group, said in a July 31 comment letter on proposed changes to SEC regulations.

On Dec. 31, Bank of America’s unresolved repurchase requests were $7.6 billion, including $3.3 billion from GSEs, $2.9 billion from financial guarantors, $1.4 billion from other investors and $30 million from private-label mortgage-bond transactions, according to the filing.

The company’s liability, or reserves, for its potential losses on sold or insured mortgages totaled $3.9 billion on June 30, up from $3.5 billion on Dec. 31, according to the filing.
source: www.bloomberg.com

type your keywords in the box below and press 'search' button

Loading

recent update

Grab this Widget

Paying down debt makes sense

The age-old financial dilemma of whether you should use any excess cash to contribute to your RRSP or pay-down your mortgage has gained renewed relevance in the aftermath of the financial crises.

Canadians are learning to save more, invest more conservatively and de-risk their retirement account. So, despite what your personal conclusion might have been last time you thought about the smack-down between RRSPs vs. mortgages, the economic equation has recently tilted in favor of paying down debts vs.

building up assets, but only for those of you with low tolerance for any investment risk.

As you probably noticed, despite recent moves by Mark Carney and the Bank of Canada to nudge the numbers upward, the interest rate being earned from GICs, term deposits and government bonds remains pathetically low.

For those risk-averse savers who abhor the volatility of the stock market, money is earning 3 per cent - if they are willing to lock in for a few years—and less than 1 per cent on demand deposits and savings accounts. Hey. Did you ever hear of the rule of 72? Guess how long it takes money to double if your retirement’s nest egg is earning 1 per cent per year? Yes. You guessed it. 72 years.

I have a better idea.
Do the math. If you are paying 6 per cent, 5 per cent or even 4 per cent on your mortgage – which is on the liability side of your personal balance sheet – but your financial assets are (only) earning 1%, 2% or 3%, then you are effectively destroying wealth. It’s the debt equivalent of constantly buying high and then selling low in the stock market. Once you think about for just a few seconds, you realize it’s dumb.

Here is how to think about the tradeoff between paying down your mortgage versus saving in your RRSP or TFSA. Every dollar you don’t contribute to your investment portfolio will earn the mortgage rate you are not paying on that dollar. If your mortgage is costing you 5 per cent, then every dollar you don’t invest but instead use the money to pay-down debt will earn the said 5 per cent. If the debt clock is ticking at 10 per cent or 15 per cent like many credit cards, the argument for raiding your retirement accounts to eliminate the debt is even stronger.

Of course, if your investments – RRSPs and the like – are invested aggressively under the hope and expectation that they will earn more than mortgage rate you are paying or current bond yields, then you can justify not paying down your mortgage. After all, borrowing at 5 per cent makes sense if you expect to earn much more.

However, you have to be able to look yourself in the mirror and say: “Yes, I think my assets will earn more than my liabilities are costing me.” Remember, even the most delusionary deflationary pundit doesn’t forecast a 5 per cent gain on your Government bnd, or GIC or cash that is only earning 3 per cent per year interest.

Just to make sure I am crystal clear here, I personally have a mortgage and will not be paying down debt. Instead, I plan to contribute the maximum to my RRSP this year – but it is all going into the stock market. Yup. I can handle the risk, but I fully understand if you can’t. Indeed, if that is your case, there is nothing wrong with investing your precious nest egg in bonds. But my main point is that I have an even better bond for you, it’s paying down your own mortgage and all the other high-interest debt you are carrying.

Don’t take my word for this. A recent article by two economists at the University of California at Berkeley made the same point, albeit with reference to a U.S. audience. They examined more than 15,000 household financial records and determined that over a quarter of those households should completely abandon equity market participation or stock ownership because of the high interest rates they are paying on their large portfolio of debts.

To quote their words in a scholarly journal called the Review of Financial Studies, “Households with high interest debt have a reduced benefit to equity participation and in many cases should not own any stocks…repayment of outstanding debt almost always yields a higher rate of return than many of the safe (investment) assets.”

This might be quite obvious to some – pay down your credit card debts, duh! - but the fact 25 per cent of their sample isn’t doing it right is downright shocking. Yet I suspect the percentages of sub-optimal behaviors might even be higher in Canada.

Remember now, mortgage interest is not tax-deductible (compared to the U.S.) which means that your Canadian debt is costing you even more compared to the U.S. consumer. The 5 per cent you are paying on your mortgage is 5 per cent after taxes. The higher your tax bracket the more painful is the lacxk of interest deductibility.

Many Canadians might be better-off forgoing the immediate tax deduction from the RRSP contrinution – which will eventually have to be paid back – and instead pay down their high interest debt. An even stronger case can be made against TFSA contribution, again, if your debts are ticking at high rates but you assets are growing (or even shrinking) at low rates.

Ok. Here’s the bottom line. It’s time to look at both sides of your personal balance sheet at the same time. Add up all your debts and compare the interest cost of all your liabilities against the interest you will be earning on your retirement investments, based on your current asset allocation mix between stocks and bonds.

If the former is greater than the latter, it’s time to pay down some debt and forgo the investment plan contribution. Oddly enough, not contributing to your RRSP or TFSA might make you wealthier in the long run.

Moshe A. Milevsky is a professor at York University’s Schulich School of Business. His latest book, Pensionize Your Nest Egg, will be published in September.
source: http://www.thestar.com

type your keywords in the box below and press 'search' button

Loading

recent update

Grab this Widget

How Would Forgiving Mortgage Debt Affect Obama and the Midterms?

The Internet has been abuzz today with rumors of a plan by the Obama administration to order Fannie and Freddie to forgive some debt on underwater mortgages (in which homeowners owe more than the value of their homes), reported--meaning the Wall Street rumor of which was reported--by Reuters' James Pethokoukis.

Given that we're in the territory of rumors, it's time for some rumor-based speculation. The question on which to speculate is obvious. How would all this affect the midterm elections?

The first time President Obama lent a hand to struggling homeowners, he and his party endured enormous political backlash.

In February 2009, Obama announced his mortgage-relief plan, the crux of which was to 1) allow the holders of underwater mortgages backed by Fannie and Freddie to refinance those mortgages at lower rates and 2) incentivize banks to let homeowners refinance under a set of guidelines the banks would have to follow if they were to receive government assistance.

In response to that plan, CNBC's Rick Santelli politely suggested that he didn't want to pay for his "loser" neighbors' mortgages, and that bad mortgages should be tossed into lake Michigan, a la the Boston...Tea Party. I've typed the words "tea party" enough times since February '09 that I won't belabor the consequences of that rant, but I will say this: that mortgage plan was the straw that broke disgruntled conservatives' backs, following the Bush/Paulson-led TARP bailout, Obama's stimulus, and the multi-step auto bailout that began in 2008. It catalyzed and gave form to a movement that probably would have happened anyway, but it catalyzed and gave form to it nonetheless.

So we know how measures to help mortgage-holders, banks, and automakers play with voters in this era. Those efforts are appreciated by the left, and they are scorned with fire and brimstone by their more enthusiastic critics.

Giving people free money is usually a good way to win an election. President Bush promised everyone a modest, $300 tax rebate if they voted for him in 2000. It worked. But now, perhaps more than ever, free money is criticized quite loudly.

Obama's approval rating now sits at 44.5%, vs. 51.5% who disapprove, on average. That approval rating was forged through the difficult process of writing and passing a massive health care law, not through the early days of the stimulus, mortgage plan, and auto bailouts, when the new president remained wildly popular.

So it may not change his approval, and it probably won't change the difficulty of going to swing districts where he isn't popular, to campaign for his fellow partisans. In close House races, it will probably be labeled another "bailout" by Republican candidates and generate some noisy opposition, while Democrats support it as a sensible measure to help working people.

It will resurrect a debate from early 2009, but its net effect may be zero.
source: www.theatlantic.com

type your keywords in the box below and press 'search' button

Loading

recent update

Grab this Widget

Club votes to buy Crows' mortgage

09/08/2010 - The embattled New Plymouth RSA will go to war with the Crow brothers one last time in a desperate attempt to rid itself of debt and get its clubrooms back.

At a special meeting held at the weekend, RSA members voted overwhelmingly to purchase the Crows' defaulted $375,000 mortgage on its former premises in Devon St East. The club plans to sell the high- value property, pay its many creditors and move into new premises at the Pukekura Raceway with a clean slate.


However, Steve Crow says the executive's plan will leave the RSA further in the red than ever.

The Auckland porn baron and his brother David became involved in the RSA in 2008 when they bought the clubrooms for $1.9 million.

To do so, they took out two mortgages, one of $375,000 from a finance company and a second of $1.525m provided as vendor finance by the RSA itself.

Although the brothers' initial aim was to help the struggling organisation, the relationship quickly broke down, culminating in the club walking out of the clubrooms in February.

A court case to solve the problems had been set down for August, then put off while the parties negotiated.

Those negotiations had already fallen over by Saturday, however, with the RSA executive telling the 158 gathered members that ridding the club of the Crows was the best way forward.

"If we buy that first mortgage it will put us in a very strong position," welfare chairman Reg Trowern said.

Mr Trowern said the RSA would take out a loan to buy the $375,000 mortgage, held by finance company PMIT.

"If we own that mortgage I am confident we could then get the title to the land."

If the RSA executive's plan works out, it will use the money from the sale of its clubrooms to first pay back wages owing to its former employees, then the money it owes its creditors, including the Crows, and then the $738,000 it owes its own welfare arm.

It will then set up a new company with a clean slate and move into a renovated clubrooms in the Tuson stand at the Taranaki Raceway.

During the meeting, Steve Crow accused the executive of misleading the members with its figures.

In turn, the meeting's chairman warned Mr Crow about speaking on behalf of his company 435 Devon, as he has been banned from directing or managing any company for four years.

Mr Crow's figures showed that after the club had paid real estate agents, rates, legal fees, the welfare arm and its creditors, it would be $522,000 in the red. Those figures were based on a valuation of $1.2m.



"We have no objection to them selling the building but the wealth just isn't there that they think it is," Mr Crow said.

"And that's why they want to make a new company, to escape their creditors."

Mr Crow said the club owed he and his brother $318,000.

"And we are not going to take a financial bath from this so they need to know there is a lawsuit if they don't sort something out."

Mr Crow said he had wanted to warn the members about the perils of their impending decision, but because of the way the meeting was run he wasn't given a chance.

He is now threatening to lay a complaint with the Companies Office about the meeting.

Despite Mr Crow's misgivings the RSA members voted 139-16 in favour of buying the mortgage, then 146-11 in favour of selling the clubrooms.

RSA spokesman Steve Bone said it was the first step towards starting afresh.

"It will be a long proceeding but one that will end in the RSA owning its own clubrooms and putting the past behind us," he said. "We are going to honour our creditors no matter what the Crows say."

The club will now begin the legal proceedings into buying the mortgage and continue working with the Taranaki Thoroughbred Racing Club on plans for renovating the Tuson stand.

In the meantime, the racing club has offered its premises as a meeting place for members.
source: http://www.stuff.co.nz

type your keywords in the box below and press 'search' button

Loading

recent update

Grab this Widget

Mortgage Refinancing Rises Among Lower-Rate Loans, Prepayment Data Show

Mortgage refinancing likely rose last month only among borrowers with lower rates, showing reduced home prices and tighter credit standards are keeping some property owners from taking advantage of record-low interest rates, bond prepayment data show.

The constant prepayment rate for Fannie Mae 30-year fixed- rate notes with 5 percent coupons, backed by loans with average rates of about 5.5 percent, rose to 20, from 16.5, JPMorgan Chase & Co. said in a note to clients, based on data released today. The CPR, or the share of debt that would be retired in a year at the current pace, for bonds with 6.5 percent coupons, with loan rates of about 7 percent, fell to 21.7, from 23.4.
Mortgage bonds backed by loans with higher rates fell today on reports the government was set to create a new mortgage-aid program, and then partially recovered. Fannie Mae-guaranteed 6.5 percent securities declined to as low as 109.5 cents on the dollar, from 109.78 cents yesterday, before rising to 109.72 cents as of 5 p.m. in New York, according to data compiled by Bloomberg.

“We repeat our view that the possibility of something drastic happening in the near term is low, given the political climate and the lack of success in recent government programs,” Jeana Curro, a mortgage-bond strategist at RBS Securities Inc. in Stamford, Connecticut, wrote today in a note to clients.

President Barack Obama’s administration isn’t considering a new program allowing Fannie Mae and Freddie Mac to forgive residential mortgage debt that exceeds the current market value of a property, according to a Treasury Department spokesman.

“The administration is not considering a change in policy in this area,” Andrew Williams, the spokesman, said today.

The average rate on a typical 30-year mortgage fell to a record low 4.49 percent in the week ended today, down from this year’s high of 5.21 percent in April, according to Mclean, Virginia-based Freddie Mac. Rates averaged about 4.74 percent in June; loans usually close a month or two after applications.

Mortgage-bond prepayments are driven by refinancing, home sales and purchases of delinquent debt out of the securities by Fannie Mae and Freddie Mac, the government-supported mortgage- finance companies.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.

source: www.bloomberg.com

type your keywords in the box below and press 'search' button

Loading

recent update

Grab this Widget

Mortgage rates low; few qualifying

By Lauren Swanson
Newton Kansan
Aug 07, 2010 @ 08:00 AM

Mortgage rates are reaching historic lows and have been on a steady decline for nearly two months.

While it may seem like the perfect time to buy a home or refinance, the pool of qualified borrowers has been shrinking just as fast as the rates fall.
Early this month, a 30-year fixed-rate mortgage was available at 4.54 percent, down .02 percent from the previous week. At the same time last year, the same mortgages were at 5.25 percent. During the life of a mortgage, those fractions of a percent can mean thousands saved for the borrower.

But home sales in June slowed, even with the declining mortgage rates, according to Freddy Mac, which tracks statistics on mortgages, home prices and sales.
The slump in sales is being attributed to the inavailability of credit. More potential buyers are being shut out of the market, not by too-high prices and rates, but because lenders are using heightened scrutiny in determining who qualifies for home mortgages.
Melvin Schadler, executive vice president and lead real estate mortgage loan officer at First Bank, said he’s seen an increase in new loan applications and refinance applications from homeowners hoping to take advantage of low rates.

“That’s the majority of activity — refinance activity,” Schadler said, adding by his guess, about 90 percent of the applications the bank has received in recent weeks are for refinancing.
He said he thinks the low rate of new loan applications is due to more stringent qualifications for first-time buyers and to low confidence in the economy.
Though not all potential borrowers are qualified, he said the bank has rejected surprisingly few applications. Even though the criteria for loan approval has gotten more stringent, he said more potential borrowers are removing themselves from consideration before submitting an application.

That awareness is attributable to an increase in transparency in the lending industry, which allows borrowers to determine up front if they are likely to qualify, Schadler said.
Schadler also said modifications to the lending system also have changed who will qualify for different rates. The higher a borrower’s credit score, the better rate that person can qualify for.
“It may not make great sense for somebody with a 620 to refinance because they’re not going to get the same rate as someone with an 840,” he said.

Though rates have been on a downward slope for weeks, Schadler said he hopes they will level out.

“I would hope its bottoming out, not because I don’t want people to get good deals,” he said, “but because it is a sign the economy is not recovering.”
Copyright 2010 The Newton Kansan. Some rights reserved
source: www.thekansan.com

type your keywords in the box below and press 'search' button

Loading

recent update

Grab this Widget