Archive for January, 2010

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Mortgage that Matters: Happy New Year from the US Government

By Rick Soukoulis | January 8th, 2010 0 Comments

When I first got in the Business in 1981 I met someone wearing a little button on his lapel with these letters, EGBAR. He told me it stood for “Everything’s Going to Be All Right”.  At the time interest rates were 18.5 % and 4 points… That’s how I feel about the government’s latest policy pronouncements about Fannie Mae and Freddie Mac.

As you might know, the federal government on Christmas Eve made the announcement that the U.S. Treasury would essentially provide these two agencies with as much capital as they might need.

Originally, there has been a cap on how much money the government would provide, but the administration said that they will now do whatever is necessary to keep these Agencies alive and well.

There’s almost unanimous opinion by analysts that these two agencies won’t need additional monies, but housing experts still applauded the move.  And I’m one of them. Their view is that by saying they will stand behind Fannie and Freddie, even if such a statement is not necessary, it would provide a calming influence to investors in the agencies’ debt.

Let me explain something.  There are two types of securities at issue, (1) Fannie Mae and Freddie Mac Mortgage Backed Securities, and (2) bonds issued by these two entities.  The first category is and always has been backed by the full faith and credit of the U.S. government.  Investors know that if they buy a mortgage backed security they will not lose any principal.

The bonds issued by Fannie and Freddie are another thing, however.  They have never been backed by the U,.S. government.  Interestingly, many people thought so, but it simply wasn’t the case.  By offering unlimited support, investor around the world can safely buy Fannie or Freddie bonds.

People opposed to this support say it provides Fannie and Freddie with a blank check.  And from a literal point of view, they’re precisely right.

However, broader public policies are at play here, and the real issue is that such a “blank check” will probably never be cashed, but the fact that it exists will provide stability and predictability to our housing markets.

Right now, with such a fragile economy and difficult housing environment, stability and predictability are precisely what the market needs.

I applaud what the government did.

I think it will help get things back to normal.

EGBAR

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Intero Insider: Making Sense of Loan Modifications

By Gino Blefari | January 5th, 2010 0 Comments

Losing one’s home is a gut-wrenching experience. It’s something no one should have to go through. Now, sadly, many, many people are having to do just that. In many cases, however, there is another answer.

The Home Affordable Modification Program, or HAMP.

Part of the Federal Government’s economic stimulus plan, HAMP is an option that has yet to pick up a head of steam. It’s possible that it hasn’t gotten the necessary publicity, which is a shame, because keeping homeowners in their homes is vital not just to their well-being, but to the well-being of our economy.

Here’s how HAMP works:

Not a refinance, which replaces your loan with a brand-new mortgage, a loan modification happens when your lender reworks the terms of your existing loan. Generally speaking, this lowers payments and makes the home more affordable for you. Often, the lower payments are the result of a lower interest rate, an extension in the loan term, a reduction in principal, or any combination thereof.

If your home is your primary residence and the balance of your first mortgage is less than $729,750, then you may qualify for the program. Additionally, you’ll have to demonstrate that you’re facing hardships that are affecting your ability to make payments on your mortgage. From there, your lender will ask for documentation about your income, bank statements, as well as other financial data. You’ll also be asked to complete a Hardship Affidavit, in which you’ll describe extenuating circumstances with which you’re dealing.

“I’m doing just fine with my mortgage payments. Why is this important for me?”

Why? I’ll tell you why. The prospect of tens of thousands (yes, that many) homes suddenly appearing on the market is a pretty gruesome specter for our economy. Part of the problem of “shadow inventory” that we mentioned several weeks ago – a tidal wave of foreclosed homes entering the marketplace – would be a crushing blow to a real estate market that is only just showing signs of recovery.

Also, unoccupied homes are blights on communities. Too many can splinter a neighborhood, driving down everyone’s property values — not just those that are empty. And make no mistake: this isn’t just a problem of lower-income communities. No. Foreclosure is just as much of a problem in higher-end neighborhoods.

As Bloomberg reported late December – Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate. This brings the rate of default for these considerable loans up to a skyrocketing level of 12 percent as of September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages. This is quite a jump from the year prior where the rate for default on the $1 million dollar plus mortgages as only 4.7 percent.

So, take a look at HAMP. HAMP is offering distressed homeowners a second chance. A chance to keep a roof over their family’s head. A chance to keep the sense of pride instilled by owning your own home.

It’s not a cure-all. But it’s a place to start.

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