Dennis' Mortgage Blog

Question of the week:  Can I benefit from the settlement announced yesterday between lenders and the states?

Answer:  The cynical answer is probably not, the realistic answer is probably not.  What happened yesterday is another in a string of major announcements from the federal government that a policy/program/bailout has been initiated to assist home owners in need and save the country from further erosion of prices and confidence in the housing markets.  The settlement announcement yesterday, following negotiations that began a year ago, follows the Home Affordable Refinance Program, versions I and II, Home Affordable Modification Program, Making Home Affordable and the refinance program the President announced last week.  Despite all these programs there are home owners who continue to go into default on their mortgages, home owners who are upside down on their homes owing more on their mortgages than their homes are worth and challenges to home owners who have been making their mortgage payments on time but are unable to refinance to lower rates and payments due to either erosion of equity or income or tighter credit policies or a combination of all three.

Yesterday’s settlement affected only those borrowers who are, or were, paying one of only five lenders (Bank of America, JP Morgan Chase, Citi, Ally (formerly GMAC and 75% of which is owned by you the U.S. taxpayer via the U.S. Treasury as part of the bailout for General Motors), and Wells Fargo.  These five lenders agreed to pony up $25 billion for home owners in 49 states (Oklahoma cut its own deal), 45% of the money is to be directed to California.  Talks are continuing with nine other lenders to see if more funds can be squeezed out of them, but at this point the Big Five who control 55% of all mortgage servicing are the only ones to sign an agreement.

Like the mortgage industry’s backside where mortgages go after they are funded by the origination company and then moved through lender, secondary market, investors and mortgage payments are moved through the servicer, lender, investor trustee and investor, this settlement is pretty complicated.  As a result it will take several months, almost a year, just to put in place the necessary bureaucracy to track the payments and ensure the Big Five are following the agreement.  The agreement is only for three years so any action that is to take place needs to do so by 2015.

The agreement will provide $17 billion for mortgage modifications, principal reductions and short-sale workouts.  The banks stand to lose less if they modify or reduce principal on mortgages they own and service as opposed to loans they do not own but do service (the bulk of conventional loans which are owned by Fannie Mae and Freddie Mac) so we can anticipate their own portfolios will get the bulk of this fund.

Initiated to find a way to “fairly” compensate home owners who may have been improperly foreclosed upon, or whose mortgages were part of the “robo-signing” procedure, the settlement seems to have failed on this purpose as only $1.5 billion of the settlement money is going to those foreclosed on between January 1, 2008 and December 31, 2011.  This amounts to an estimate $2000 per household. 

Included in the agreement are new policies for mortgage servicing, new oversight mechanisms from the government and more disclosures and procedures for everyone from us at the beginning of the process in mortgage origination through the lender and servicers.  The big winner in this will undoubtedly be government regulators and attorneys who will have great job security following up on the agreement and resulting fall out of policies, procedures and regulations.

Will this settlement have the intended, and trumpeted, effect of stabilizing housing markets?  No.  For the next twelve months or so while the Big Five go through their borrowers seeking assistance to determine which of the numerous options to avoid foreclosure may be available to them foreclosures will remain slow.  After the initial wave of borrowers are processed and the banks are comfortable with the new rules and how to utilize the options available we can expect the pace of foreclosures to pick up pace as lenders look to off-load non-paying mortgages and assets from their balance sheets.  Something they must do since the myriad of other federal regulators who oversee banks, from the Federal Reserve to the Office of Thrift Savings, continue to carefully audit and scrutinize the banks to ensure they are stable and are not at risk of collapse due to too many non-performing loans and assets on their balance sheets.

You may qualify for a modification or principal reduction from this settlement, perhaps with a greater chance because you are in California instead of one of the other forty-eight states that are part of the agreement; you will need to contact your lender to see.  Keep in mind if you do engage in a modification of any sort on your mortgage your credit will be adversely impacted.

Re-reading this it is pretty cynical in tone, recognizing that I decided not to reformat or re-phrase anything because I feel cynicism is due.  The fanfare of the announcement and major coverage it has been given far outweighs the impact the settlement will have for the vast majority of home owners, for housing markets and for our economy.  In the end many of those who will get some type of relief may not deserve it due to the circumstances of their mortgage (i.e. several cash out refinances, overstated income, claiming ignorance of the program they sought with the lowest payment) while many home owners who have played by the rules, have made their mortgage payments on time and are unable to obtain even a simple refinance to lower their payments and rates ultimately end up paying for this settlement through higher bank fees and rates down the line.

You may be eligible for a more traditional refinance of your current mortgage to lower your rate, your payment or the term of your mortgage.  Contact me to discuss your situation and see if we can provide a more immediate benefit than may or may not be available as a result of the settlement announced yesterday.

Have a question?  Ask me!

Your privacy is for sale, credit reporting companies seem to be immune from federal privacy laws that prevent your personal contact information from being sold to creditors so they may solicit you.  We have received an increase in comments lately from clients who have been called by other lenders after we have pulled credit reports for their files soliciting their mortgage business—thankfully our superior service and competitive rates allow us to retain our clients!

OPT-OUT:  Go to this website and opt-out of having your contact information sold by the credit bureaus to mortgage, auto loan, credit card companies and other creditors who retain your name, address, phone numbers and emails in their databases:

 WWW.OPTOUTPRESCREEN.COM

Note two things: 1) opting out on-line is only for five years and you will need to renew 2) the combination of letters and numbers you need to repeat in the box is case sensitive….it took me about three attempts to correctly figure out whether O was O or 0 and if w was w or W!

Long time readers know international events have big impacts on domestic mortgage rates.  This week we saw swings in rates and stock prices as a result of, again, news on Greece getting another bailout, or not, and Greek politicians agreeing to austerity measures for pensions, salaries and vacations for Greek public employees, or not.  Not yet making big noise on the financial pages but something to keep a very keen eye on are the continuing developments in regards to Syria and Iran.  Either or both nations may become the focus of foreign military intervention to either stop the slaughter of citizens in the case of Syria or stop the production of weapon grade nuclear material in the case of Iran.  Such events will most likely cause stock markets to drop as well as interest rates on bonds and mortgages.

Economic news took a back seat to the big lender settlement announcement, but there were two tidbits for us.  Thursday weekly initial unemployment claims were announced at 358,000, a drop from the prior week.  Today the Michigan consumer sentiment number for February was released and it was lower than January, lower means less enthusiastic.  A primary cause for the drop in consumer sentiment was no doubt the continuing rise in gasoline costs since the beginning of the year.  Neither number did much to move the markets.

Rates for Friday February 10, 2012: True conforming limit rates dropped a bit for conforming and FHA from last Friday mostly on early in the week trading as there was some leaking going on Thursday and today.  Mortgage Backed Securities are moving in a tight sideways range, which usually means a break up or down is in the near future.  As always I preach caution and risk-avoidance and locking when you can to guard against an increase in your rate and payment if you miss the market or a dip.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                               3.50%               Down 0.125%

30 year high-balance conforming           3.875%             Flat

30 year FHA*                                                   3.325%             Down 0.125%

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.  Rates are based on 20% down (3.5% for FHA)  with 740 FICO score for purchase mortgages.

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

Many thanks to NFL Hall of Famer and form USC great Ronnie Lott for coming to Long Beach along with the great Sam Cunningham also of SC, Ty Willingham coach at Washington and ex-coach of Stanford and Notre Dame and organizer Daman Dunn a standout receiver at Standford before heading to the NFL this week.  At a luncheon raising money to ensure the continuation of middle school sports in the Long Beach Unified School District (all middle school sports funding has been cut as a result of the perpetual fiscal incompetence of our elected representatives in Sacramento) Lott goosed the fundraising by passing around his Super Bowl rings and announcing those in attendance could touch them for $5—every person in the place happily paid the fee to interact with something so rare.  Yes, rings, plural, as in four.  I was very excited to be able to hold what is part of sports history in America. 

Thanks to the four gentlemen for helping our community save a vital part of many young men and women’s lives.  School sports help keep kids in school and in class, our community needs to step up to ensure they continue at the middle school level.

Please help the effort to Save Middle School sports with a donation large or small by clicking the link:  Save Middle School Sports  Thanks in advance for your dontation!

Have a great week,

Dennis