Marc's Mortgage Matter's

Book Of Life & Life v/s Foreclosure!

October 9th, 2011 9:42 AM

HOW TO ENSURE THAT YOU WILL BE WRITTEN IN THE BOOK OF LIFE THIS COMING YEAR:

• Avoid riding in automobiles because they are responsible for 20% of all fatal accidents.

• Do not stay at home because 17% of all accidents occur in the home. (that's 37% already!)

• Avoid walking on streets or sidewalks because 14% of all accidents occur to pedestrians.(now that's 51%)

• Avoid travelling by air, trains or buses, 16% of accidents involve these forms of transportation. (that's 67%)

• Of the remaining 33 percent, 32% of all deaths occur in hospitals. Above all else avoid hospitals.

You will be pleased to learn that only 0.01 % of all deaths occur in a synagogue!

...and these are usually related to previous physical disorders. Therefore, logic tells us

that the safest place for you to be at any given point in time is in Synagogue. (study shows this will work in a Mosque or Church just the same!)

After slowing down in the first half of the year, the rate of homes entering foreclosure is rising again. First-time default notices were served on 78,000 homes in August, a 33 percent increase from July. A $1 billion federal program to help jobless and underemployed homeowners ended Friday. Foreclosure notices were filed against a record 2.9 million properties last year, and an additional 1.2 million in the first half of this year.

Foreclosure is not just a metaphorical epidemic, but a bona fide public health crisis. When breadwinners become ill, they miss work, lose their jobs, face daunting medical bills — and have trouble making mortgage payments as a result.

But that is only part of the story. A growing body of research shows that foreclosure itself harms the health of families and communities. In our 2008 survey of 250 people undergoing foreclosure in the Philadelphia area, 32 percent reported missing doctor’s appointments and 48 percent said they let prescriptions go unfilled, significantly higher rates than others in their community. A paper released last month by the National Bureau of Economic Research found that people living in high-foreclosure areas in New Jersey, Arizona, California and Florida were significantly more likely than those in less hard-hit neighborhoods to be hospitalized for conditions like diabetes, high blood pressure and heart failure.

More than one-third of homeowners in our study had symptoms of major depression. The N.B.E.R. study found significantly more suicide attempts in high-foreclosure neighborhoods. For every 100 foreclosures, it found a 12 percent increase in anxiety-related emergency-room visits and hospitalizations by adults under 50. Losing a home disrupts social ties to neighbors, schools, jobs and health care providers — ties that under better circumstances promote good health. Neighborhoods suffer, not just homeowners.

Most programs to stem the tide of foreclosures rely on mortgage counselors at nonprofit groups supported by federal grants, who work closely with homeowners and banks to try to find a financial resolution.

These counselors have become, of necessity, crisis counselors — in a national survey of 395 mortgage counselors we conducted in January, 37 percent said they had worked with at least one homeowner in the past month who was considering suicide — but they need to be trained to quickly and efficiently screen for illnesses like depression. In fact, health care should be part of a comprehensive approach to foreclosure prevention; for example, mental health caseworkers should be embedded in mortgage counseling agencies.

Screening and treatment may actually help some families keep their homes. Studies of unemployed people have shown that treating depression can improve the chances of landing a new job. Such treatment might also help homeowners undertake the daunting documentation and financial planning that foreclosure prevention programs demand.

In a time of fiscal strain and rising need, where will the money come from? For one thing, the settlement negotiations with the financial services industry over mortgage fraud and abuse should include money for health care. Millions of Americans are locked into mortgages they can’t afford. If we can’t help them stay in their homes, the least we can do is help them stay alive.

Craig E. Pollack is an assistant professor of internal medicine at Johns Hopkins. Julia F. Lynch is an associate professor of political science at the University of Pennsylvania.

Nearly one in four Florida homes sold last year went to an international buyer, according to a report by the National Association of Realtors.

The report found that South Florida was a top destination for foreign buyers, who accounted for nearly 25 percent of all home sales statewide. Nationally, non-U.S. residents made up only about 3 percent of sales.

Foreign buyers spent more than $12 billion on Florida real estate in 2010. Half of of the international buyers planned to use the home as a vacation home, while 21 percent planned to use it as an investment property, the report found. Four out of five used all cash for the purchase.

South Florida was the most popular destination in the state for buyers from Latin America and Western Europe.

In the President’s speech to Congress on Thursday, Sep 8, he referenced a new program that he would initiate to assist homeowners with their housing woes. Details of the proposal have not been released, but it is known that a draft of a proposal has been circulating in Washington. (The draft is by Alan Boyce, Glen Hubbard and Chris Mayer. Boyce is CEO of the Absalon Project; Hubbard is Dean and Russell Carson Professor of Finance and Economics at Columbia Business School; Mayer is Paul Milstein Professor of Real Estate, Finance and Economics at Columbia Business School and Visiting Scholar at the Federal Reserve Bank of New York.)

Overview from Report

75% of all home loans have an interest rate of 5% or greater. Current rates are in the low 4’s. The plan is to refinance these loans to lower rates, reducing monthly payments, and providing the homeowner additional cash to spend in the economy.
Homeowners are unable to refinance due to “Falling Home Values”, Low Appraisals, and Financing Costs. With this program, a homeowner can refinance underwater homes to any loan to value, provide no income documentation, and a complete disregard for credit scores, provided that the borrower is up to date on the mortgage and has been so for three months.
Only First Mortgage debt eligible. Second Mortgages cannot be refinanced into the new mortgage. Any second mortgage must be re-subordinated as a second mortgage.
The refinance program would only benefit loans held by Fannie, Freddie, VA, and FHA.

Inherent problems with this plan

Numerous problems exist with this plan, if it is the one that the White House appears to be considering.

The homeowners being considered for this program are NOT in default. They are paying their mortgages. They are being “rewarded” for meeting their financial obligations.
If a homeowner is in trouble financially but not in default, a 1% reduction in the interest rate will result in a monthly payment reduction of $119.
Income and debt ratios are being ignored for loan approval, though debt ratios and income are key elements for a borrower being able to repay a loan. If the housing payment is reduced by an insignificant amount, but the homeowner still has significant consumer debt, loan repayment is seriously jeopardized. Just lowering a monthly payment means little in and of itself.
Loan to value is being ignored. The assumption is being made that by reducing the monthly payment, loan to value is a “side issue” of little importance. Yet, the higher the Loan to Value, the greater the likelihood of default, especially for 125% and above loan to values. (FHA loans from 95% to 97.5% loan to value have a 16% greater risk of default than those under 95%. Imagine the default risk percentage of 125% or greater.)
Credit is not being considered. All a borrower needs to be is current on his home for three months. This allows any person with bad credit to refinance, no matter what their financial condition is. A borrower could have been in default four months previously, borrowed money from family to get caught up, made three months payments, refinance, and then start missing payments again.
125% loans would be sold to ?? whereby the exact conditions of the loans would be known. This may limit the pool of investors. An investor would not want to buy such loans with the elevated risk.
If there is a second mortgage on the property, the holder of the second mortgage must agree to “subordinate” into second place again. The assumption is that by lowering the monthly payment on the first mortgage, the second mortgage would be in a more secure position, due to the lower payment. This program seeks to ensure their cooperation by force – “either subordinate or we will never do business with you again”. Since seconds are held by banks, etc., this would be a very powerful “incentive”.
Homeowners delinquent on their mortgages would not be eligible. At this time, there are 6.8 million such homeowners. They are left with nothing but HAMP to turn to. We have seen how successful this is. HAMP is a HUMP!
Private Mortgage Insurers are being “asked” to reinsure these new mortgages, when such insurance existed previously. The loans were insured when the Loan to Value was from 80% to 95%. Now, the homes will be underwater. But according to the authors, since the monthly payment has been reduced, default risk has lessened, even taking into account the lack of equity in the loan.

A Mortgage Insurer would have no incentive to insure a loan whereby there had been no credible underwriting, unless the government threatens to no longer do business with them.

The Real Objectives and Outcomes

As with any new government program, we must look beyond the obvious to determine what the real objectives and outcomes of a program are. With this program, we don’t have to look far, because some objectives are readily admitted.

The report estimates that mortgage payments will fall by about $70 – $80 billion.. What this really means is that it is being undertaken as a “new stimulus” for the economy, under the disguise of mortgage refinancing.
Attempt to stabilize home values by refinancing to lower rates to keep people in homes. Finance underwater loans to avoid default. This will fail.
Bondholders to pay bulk of the costs of the program. Nearly all gains to homeowners come at the expense of the bondholders. (Total bondholder costs not given.)

In the end, this program will have little or no effect upon solving the housing crisis. It does not address the core issues of the crisis, which is a lack of real income growth in the US, excessively inflated home values, people who cannot afford the homes that they have now, those who cannot afford to buy a home at today’s prices, or the lack of private investors in the housing market.

Instead, the authors offer meaningless “solutions”. Homeowners who are not in financial trouble are offered the ability to refinance underwater loans at the expense of bondholders. The GSE’s, instead of being wound down, are allowed to further entrench themselves into the housing market. No attempt is made to entice private investors to return to home lending.

This is simply another “stimulus package” ready to fail. In short it sucks just like HAMP did diddly squat to help the average Joe Shmoe!

Moody's: Refinancing Is Key to Housing Market Recovery

If all of Fannie Mae’s and Freddie Mac’s borrowers paying interest rates that are higher than the median rate were to refinance at 4 percent, the savings would total $63 billion, according to Moody’s.

While such an option would not bring the total $63 billion in savings to fruition, Moody’s chief economist, Mark Zandi, says “even a fraction would be a big plus.”

In a recent release, Zandi states, “Policymakers should consider taking additional steps to support the housing and mortgage markets.”

He adds, “The most efficacious policy step that could make a meaningful difference quickly is to facilitate more mortgage refinancing.”

The Obama administration enacted the Home Affordable Refinancing Program (HARP) in 2009 to facilitate refinancing for Fannie Mae and Freddie Mac borrowers paying above-market interest rates. However, after its original forecast of helping 4 million to 5 million homeowners, the program has facilitated 800,000 refinances.

HARP’s major obstacle, according to Zandi, is the loan level price adjustments Fannie and Freddie impose with the refinance option.

While loan level price adjustments are typical components of a refinance, “this standard practice is weakening HARP,” Zandi says.

Also, because Fannie and Freddie bear the risk for these loans, a loan level price adjustment may not be necessary.

Refinancing more loans through HARP would mean less interest income for Fannie and Freddie as well as investors.

However, the GSEs and the taxpayers “would be made substantially whole” because increased refinances would translate to decreased defaults, according to Zandi.

The economic news wasn't quite so bleak this week, and we passed the end of the quarter. This pulled some money out of hiding, and the stock market had a little better time of it for at least the time being. To the extent that things aren't getting economically worse at the moment suggests that rates might stabilize at bit. After a small upward blip last week, mortgage rates sported a small downward blip for this one.

Although the economic data out this week couldn't easily be characterized as "great", the collective tenor of the available reports was arguably the most solid in some time, lending at least a little hope that we will not slide into recession as we close 2011. The improving economic news will tend to put at least some upward pressure on interest rates, and the influential 10-year Treasury was solidly over 2% by the close of business Friday. Still, even upward pressure on rates will keep them near record lows.

Sales of new vehicles rose to a 13.1 million (annualized) rate of sale in September, adding a million units to August's pace. That was the strongest reading since April of this year and suggests that consumers are starting to perhaps become more willing to spend after a rather slow period over the spring and summer months. In turn, that may serve to keep factories humming to a greater degree and push the economy forward as we move along.

The job market is of course first and foremost in the minds of most people. How could it not be, with unemployment over 9% now for an expended period of time? It goes without saying that it's going to be very hard to get the expansion to a greater level of speed if we don't start adding some jobs. How disappointing, then was Wednesday's report from the outplacement firm of Challenger, Gray and Christmas, whose report for September told of over 115,000 announced layoffs for the month? Digging deeper, though, the sizable jump to the worst levels in more than two years was almost solely due to military reductions and the Bank of America mass-layoff announcement which is expected to take several years to complete. Outside of those, relatively few job cuts were announced, so the weakness at least was widespread.

It was already clear that consumers pulled in their horns in August, but the $9.5B reduction in outstanding consumer credit was was rather unexpected. Revolving lines of credit (aka credit cards) sported a decline of $2.3B, while installment lending (things like auto, furniture and student loans) saw a $7.2B drop. Perhaps the focus on finances provided by the Washington mayhem over the budget produced a renewed focus on fiscal sanity and getting one's finances in order. We won't know if that's the case for at least a couple of months, but a hopeful 10-month string of mild upticks in consumer borrowing came to an end.

Could we be at the cusp of an uptick in the economy? September's data seems to suggest that things have at least stopped getting worse, and with lower gasoline prices, lower interest rates via the Fed's new emphasis and even a little bit more hiring in the mix, we just might be. What does that mean for mortgage rates? As we've noted here before, mortgage rates just love bleak economic news, and we've certainly had plenty over the last couple of months. That the data suggest some economic stabilization would also serve to stabilize rates, but there's likely to be a long slog ahead of us yet until we get to the point where the economy no longer needs extra supports just to gin up a little growth.

For the moment, though, mortgage interest rates may tick up a couple of basis points over the next week. Investor enthusiasm at even a series of "better" reports will probably not last, given that all they've really confirmed is that things remain pretty lousy, and we're working in a period of time when lackluster gains seem outsize.

PING: Contact me if your rate is over 5% and we have not spoken in the last 120 days. My office is closed this Thursday and Friday for religous observances - Chicago based processing and underwriting remain open.

Dan was a single guy living at home with his father and working in the family business.
When he found out he was going to inherit a fortune when his sickly father died, he decided he needed to find a wife with whom to share his fortune.
One evening, at an investment meeting, he spotted the most beautiful woman he had ever seen. Her natural beauty took his breath away.

"I may look like just an ordinary guy," he said to her, "But in just a few years my father will die and I will inherit $200 million".
Impressed, the woman asked for his business card and three days later, she became his stepmother.

(Women are so much better at financial planning than men.)

Posted by Marc (Moshe) Preger on October 9th, 2011 9:42 AMPost a Comment (0)