Dennis' Mortgage Blog

PUMPKIN CARVING CONTEST! SEND IN YOUR PICTURES. PRIZES FOR KIDS AND ADULTS.  GO TO: www.DennisCSmith.com/pumpkin FOR RULES AND TO ENTER!

Question of the week:  What is the new mortgage program President Obama announced? Can I benefit from it?

Answer:  On Monday President Obama went to a housing tract in Denver and amidst foreclosure signs and homeowners who are upside down on their loans announced the Federal Housing Financing Agency (FHFA) who is the overseer of Fannie Mae and Freddie Mac was revising the criteria for the Home Affordable Refinance Program (HAPR). The new program is being dubbed HARP-II.

Also known as the Making Home Affordable Program or Refi Plus by Fannie Mae and Open Access by Freddie Mac, HARP was initiated in 2009 as a way to assist underwater homeowners take advantage of lower interest rates and refinance their mortgages they otherwise would not be able to due to lack of sufficient equity.  The program (which I last wrote about on September 9, 2011) allows for home owners whose mortgage is owned by Fannie Mae or Freddie Mac to refinance up to 125% of the value of their home.  The key components are the your mortgage must have been purchased by Fannie or Freddie prior to May 1, 2009, your mortgage must have been paid on time, and you must qualify for the mortgage with income to debt ratios, credit score and other standard criteria.

Lenders have the option to participate or not in the HARP program, and if they do they must represent and warranty the HARP loans funded that they sell to Fannie and Freddie, i.e. if there is something Fannie or Freddie do not like about a loan they can make the lender buy it back. Since a buy-back on an over extended mortgage puts the lender in hot water with government regulators who monitor their balance sheets lenders have fairly tight criteria, often tighter than Fannie or Freddie, on loan approvals.  Many lenders limit the loan to values they will fund under HARP to well below the 125% mark, especially for other lenders mortgages.

The only major change in the HARP-II product appears to be that value will not be a consideration, which is great for those who owe more than 125% of the value of their home and whose Fannie or Freddie mortgage was funded and purchased prior to May 2009.  But participation by lenders is still voluntary and lenders must still provide the same representations and warranties to Fannie and Freddie which will not loosen qualifying criteria in any way.

Through August there have been almost 900,000 HARP refinances funded, about 30,000 per month on average since 2009 when the program originated.  It is estimated that 11 million home owners owe more on their mortgages than their properties are worth.  HARP has assisted less than ten percent of upside down home owners lower their interest rates or convert from an ARM to a fixed rate.  I do not seeing HARP-II increasing those numbers too much.

Can you benefit from HARP-II?  Maybe.  If your loan is owned by Fannie Mae or Freddie Mac, if you funded it prior to about March 2009, if you qualify for the new mortgage, and if a lender is participating in the new no-valuation need HARP-II program.  As to that last criteria we will not know for several weeks the exact criteria and which lenders are participating and if they are to what guidelines.

Stay tuned and keep reading my Weekly Rate and Market Update to stay informed.

If you think you may be eligible for either the original HARP program or HARP-II please contact me.

Have a question?  Ask me!

Stocks big rally on Thursday combined with favorable growth in the Gross Domestic Product (GDP) for the third quarter pushed Mortgage Backed Securities to their lowest levels since late August (reminder lower prices for MBS means higher rates).  All the movement in stocks was solely due to what appears to be a deal, finally or again I don’t know which, in Europe on how to resolve the Greek sovereign debt situation.  As one observer put it, they don’t yet know what they have because all that has been agreed to is the box for the deal, not what will go in it.

Regardless of what is in the box stock markets loved the idea of a deal and bank stocks led the charge up in prices.  As money goes into stocks it comes out of bonds, and mortgages, causing rates to climb.

What about that GDP?  Surprising most pundits, the Commerce Department announced that the GDP for the quarter ending September 30^th grew by 2.5%, much better than the anemic growth in the 1^st and 2^nd quarters.  The news has caused some to comment that it shows the U.S. is not at risk to slip into double-dip inflation.  Part of this comes from the huge increase in consumer spending in the quarter, up 2.74% after rising less than one percent the previous quarter.  Tempering the enthusiasm is that consumer spending, which makes up 70% of our economy went up and savings went down as real wages adjusted for inflation dropped. 

Doing the math, consumer spending cannot continue to increase if wages are dropping and savings can only drop for so long.  The sharp decline in savings for the quarter is significant as Americans have been saving at a much higher rate than they were during the economic boom that drove up the real estate bubble.  This is a concern for future growth in the GDP if the increase in consumer spending was a one-time splurge for major items, back to school supplies and other necessities.  Personal savings dipped to its lowest level since the summer of 2007; high spending and low saving were strong precursors to the recession.  With consumer confidence still low and unemployment stubbornly fixed above 9% economic forecasters have reason to be surprised at the sudden surge in GDP.  Will it continue?  We’ll know in January when the 4^th Quarter GDP numbers come out.

Good news for housing this week.  Case-Schiller released their August price report that showed a modest rise in median prices across the country, the fifth month in a row.  The National Association of Realtors released September sales of existing homes that showed a decline in sales from August of 3%, which is not unusual as August is usually the highest number of sales in any given year.  What is encouraging about existing home sales nationwide is that sales were higher in September 2011 than September 2012 and the current pace of sales is up over 11% from a year ago.

Rates for Friday October 28, 2011: As stocks seem poised to have their biggest one month increase since 1987, up 12% for the month as I write this, Mortgage Backed Securities are having a very down month that has pushed rates up off their lows.  This week so big swings on Tuesday (rates improve) and Thursday (rates worsened) expanding the trading range leading to sideways charts and continued volatility.  Floating and waiting come with great risk and I see little upside vis-à-vis payment and rate savings for those waiting for rates to get back to late September numbers.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                               3.875%             Flat

30 year high-balance conforming           4.125%             Down 0.125%

30 year FHA*                                                   3.75%               Flat

30 year FHA high-balance*                   3.75%               Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. 

* Current rates include credit towards closing costs, call for quote on rate and credit.

We are conditioned to setting our clocks back from Daylight Savings Time in October, but not this year so you don’t lose that hour’s sleep until next Sunday. 

If your family is carving pumpkins this week don’t forget to take pictures and enter the Pumpkin Carving Contest  kids have their own contests so send in those pictures!

Favorite candy to get in your bag when you were a kid?  Mine was a Milky Way or Krackle bar.

Have a great week,

Dennis