Posts Tagged ‘Freddie Mac’

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Intero Insider: Help for Underwater Homeowners

By Gino Blefari | May 9th, 2012 0 Comments

Despite the recent bout of good news that’s spreading through some real estate markets in the U.S., the word “underwater” is still part of the vocabulary in many others. In fact, the problem is still so widespread that Freddie Mac, the U.S.-supported mortgage company, this week announced it will drop a fee associated with refinancing deeply underwater mortgage loans.

The fee drop signals that the government and its mortgage giants Freddie Mac and Fannie Mae are determined to make the Home Affordable Refinance Program (HARP for short) work. Freddie Mac said it will eliminate a fee of 0.5 percentage point, known as a “cash adjustor,” on home loans that are refinanced under HARP and have balances greater than 125% of the property’s current market value.

The move aims to help underwater homeowners refinance their mortgages, thus enabling them to stay in their homes (as opposed to foreclosing or walking away). Freddie Mac officials said that they hope the drop of the fee will encourage more homeowners to take advantage of HARP.

There were 11.1 million homes with negative equity at the end of the fourth quarter 2011, according to a report from CoreLogic. The number of homes with negative equity (or that were “underwater”) was up from 10.7 million the previous quarter, showing that the problem had not stopped growing at last tally.

Many underwater homeowners do wish to stay in their homes. Refinancing and taking advantage of HARP can help. But some good old motivational math can also help tremendously with moral, which is why I thought these calculators developed by HSH are interesting and potentially helpful:

  • KnowEquity When is a calculator that aims to help underwater homeowners answer the question, when will I be above water again?
  • KnowEquity How is a calculator that aims to help underwater homeowners what it will take to reach equity within a specified time frame.

Both calculators are helpful if you are trying to set a goal to stay in your home. Knowing what you need to do to get there is a powerful motivator.

Unfortunately, when looking at the numbers, underwater mortgages will not be disappearing anytime soon. While some markets are seeing values increase, it’s just not enough to offset the lost equity that spans 11.1 million home loans. So seeing a bit of positive news in the form of help and motivation on this front is worth flagging.

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Intero Insider: How to Save $67,960 on Your Next Home Purchase

By Gino Blefari | August 18th, 2011 0 Comments

Standard & Poor’s downgrade of the U.S. debt rating this month sparked speculation about what the effects would be on stock, bond and key interest rate markets. A lot of conversations centered around the prediction that interest rates for mortgages would increase dramatically, damaging an already delicate housing recovery.

So far, the opposite is true. We’re talking down, down and down again. In the tumultuous days following the S&P downgrade, rates on 30-year fixed-rate mortgages fell to 4.32%, according to Freddie Mac’s Primary Mortgage Market Survey.

I realize I’m the CEO of a real estate company so you’d expect me to say this: But, now truly is an opportune time to borrow money for real estate if your finances are in a solid, healthy state. Borrowers who lock in super low rates stand to save a substantial amount of money over the life of a mortgage.

Take this example: A borrower with a $450,000 30-year mortgage with a 4.3% interest rate would have a monthly payment of $2,227 and pay a total of $351,692 in interest. If their rate on their fixed-rate mortgage had been 5%, they’d pay $2,416 a month and $67,960 more in interest over the 30 years.

Substantial!

Could rates go even lower? Who knows? Seriously. We don’t know. However, S&P also downgraded Fannie Mae and Freddie Mac, which means borrowing could get more expensive for the mortgage giants. That increase likely gets passed on to consumers.

Even if you refinanced last year at an average 5.5%, a rate drop to below 4.5% is worth a check-in on the math of refinancing. When rates really do start moving up, you don’t want to look back and think “I wish I’d…”

Interest rates really do matter. So if you are on the fence or if you’re an agent with buyers who are on the fence, do some math to see your/your client’s total savings. It’s as good a time as any to borrow money. Talk to your mortgage advisor today!

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Intero Insider: Is It a Good Time to Refinance?

By Gino Blefari | June 22nd, 2011 0 Comments

Despite doom-and-gloom reporting, not every homeowner in the U.S. has negative equity right now. And with interest rates still hovering near record lows, those with equity are likely asking themselves whether it’s a good time to refinance. Well, is it? Let’s take a look:

  • Average interest rates on 30-year fixed-rate mortgages fell to 4.51% a week ago (according to the Mortgage Bankers Association’s latest survey), the lowest level since last fall.
  • The average outstanding home loan carries an interest rate of about 6% (Freddie Mac’s Chief Economist Frank Nothaft told The New York Times last week).

So if you took advantage of low rates last fall or in 2009, you probably won’t see much savings by refinancing now. But if you haven’t yet refinanced since 2008, you might want to check in and see what kind of savings refinancing might afford you.

Cashing out: What’s enough equity?

Refinancing used to almost always mean the owner was taking some cash out in the process. That’s because values had climbed pretty steadily (and steeply in many areas) for several years in a row – so most homeowners could afford to cash out to maybe send their kid to college, work on a new addition to the house or remodel. But today, the story is much different.

Even if you have equity, it may not have climbed enough for cashing out to make sense. In fact, the NYT reports that some owners are even putting cash in to up the equity on their homes.

So what’s enough equity by today’s standards? Times have changed and 20% is once again a magic number. Many lenders aren’t even going to allow you to cash out if it means dipping below that.

Refinance options for the equity starved

OK, but what if  you have less than that? Can you still refinance to take advantage of low rates?

The good news is that there are some programs out there that may make this possible. If you have little or no equity, you can ask your lender about the Home Affordable Refinance Program. If you have an FHA loan, you can check out FHA Streamline Finance, which may make sense for you.

So even if your equity is pretty low, there are options. Point is, with rates this low, it’s a good time to sit down and discuss whether refinancing would improve your loan situation. We all know that rates are fleeting and what’s here today may be gone tomorrow.

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Why the Fed’s Role in Housing is Important

By Gino Blefari | May 3rd, 2011 0 Comments

The big debate in the housing industry this year is over the federal government’s role in the mortgage finance system. Our biggest industry group, the National Association of Realtors, favors a continued federal presence. But, others do not. What is this debate all about and why is it important?

As we’ve noted before here, a couple of issues that are on the Congressional table would have a direct impact on home buyers and homeowners:

  1. The mortgage interest deduction
  2. Government backing conventional mortgage securities through Fannie Mae and Freddie Mac

The mortgage interest deduction is a tax boost many homeowners enjoy. It enables those who itemize their deductions to deduct the interest they pay on their mortgages from their income tax bill. For many years, it’s been a great selling point for many homeowners, saving them money and offering a small break on the costs of ownership.

Congressional groups have been eying the deduction as a possible source of instant revenue for the nation, and have talked about putting restrictions on it or doing away with it altogether.

I think the government’s role here is critical, and taking away this benefit of homeownership at a time when Americans are struggling and the housing market is still trying to recover is a big mistake.

What about Fannie Mae and Freddie Mac? Does the government need to continue to prop up these financiers? And if so, at what cost?

Fannie and Freddie’s role thus far has been two-fold: buying mortgages, securitizing them and selling them to investors in order to free up funds for more home buyers; and setting underwriting standards.

There’s no doubt that these two entities cannot continue operating the way they were during the boom and bust. But without a federal role in backing mortgage finance, there’s always the chance that the private market would freeze up in tough times, leaving no available money to the nation’s borrowers who are willing and able to become homeowners.

In that case, a bad situation gets worse. Fewer and fewer people are able to buy homes without the 30-year mortgage that’s historically played a vital role in boosting home ownership.

I don’t know what the answer is for how to structure a new system for the government to be involved in backing mortgage finance, but it’s clear to me that it’s important. Homeownership continues to be a source of economic stability for the majority of owners out there – despite the recent years of record foreclosures.

And as we’ve seen in recent surveys, the majority of Americans still have faith in home ownership. We need the federal government to show its faith too, and stay involved without getting in the way – a difficult dance we’ll be discussing more in the months to come.

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Intero Insider: What the New Budget Proposal Means for Home Buyers

By Gino Blefari | February 16th, 2011 0 Comments

The Obama Administration’s new budget proposal came out last week. The one loud message I took away for would-be home buyers? Loans are cheaper today than they’re likely to be in the future.

That means if you’re thinking of buying a home this year or in the near future, now is the time to get going.

A lot of the proposed changes have to do with the future of Fannie Mae and Freddic Mac – the two mortgage finance giants that are backed by the government to keep a steady flow of funds available for the nation’s home buyers. While their fate is still being worked out, there are some related changes that could go into effect this fall that would impact home buyers. They are:

1. The maximum size of mortgages backed by Fannie and Freddie will be smaller come October. Currently, the limit in high-cost areas like San Francisco is $729,750 for a single-family home. That amount will drop 14% to $635,500 when the current limits expire. What this means is that a substantial number of homes in San Francisco county, for example, (10%, according to the California Association of Realtors) will become ineligible for financing backed by the two finance companies.

2. Bigger down payments are on the horizon. We discussed some of the other measures on the table a few weeks back that are outside of any Fannie/Freddie discussions. But now, in the government’s attempts to shrink Fannie and Freddie, some new proposals for the mortgages backed by these companies would mean that borrowers would face a requirement of 10% down with mortgage insurance – up from 5%. Not a lot of details are available about any of these proposals as of today, but we’re expected to know more by April.

3. Fees, fees fees. The Federal Housing Administration in November could begin raising annual mortgage insurance premium fees by 0.25% for all borrowers, according to the proposals. Basically, that means an extra $250 per $100,000 of loan per year.

As I’ve noted before, this is the year of big changes in housing regulation – many of which are aimed at protecting consumers and the American public from another collapse in mortgage finance. However, the consequence is looking more and more like higher costs to borrowers. So if you’re going to buy, you might want to speed up your decisions before a lot of these things start to take effect.

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Intero Insider: Housing Issues to Watch in 2011

By Gino Blefari | January 5th, 2011 0 Comments

Well, we made it through 2010 – a good year for some, a bad year for others in the housing industry. Some lucky home buyers were able to secure a house at rock-bottom interest rates, lower-than-average prices and with a nice home buyer tax credit to boot. But some unlucky sellers had to sell at a loss or worse, foreclose or even walk away.

What’s in store for 2011? I’ve already discussed my market predictions here. What I want to get into in this post is more the things outside of housing that will play a key role in how we end the year.

1.     Federal deficit: As the deficit problems loom, the administration rightly goes looking for places to find more cash to put on the books. In 2010, we saw some talk about big reductions in the mortgage-interest deduction – one of the most often talked about incentives for buying a home, and also a big cash cow for potential tax revenue if reduced or eliminated altogether.

As I’ve said before, this type of change will not happen quietly nor without a fight. But I’m guessing we will see more discussion as Congress looks for ways to fix our budget woes.

2.     Jobs: Yes, this is obvious, but it is worth mentioning yet again. Without a solid job outlook, housing markets will suffer. It’s difficult to sign for a mortgage when you’re unsure of your job security or worse – unemployed! Any good news on the job front will bode well for real estate markets so watch this issue closely for clues.

3.      Lending regulations: The Obama administration doesn’t seem to be finished looking at more regulations for the lending industry. In fact, one of the first things on the agenda this year is to look at how to restructure Fannie Mae and Freddie Mac. Regulators are also looking at rules about how banks must retain some of the risk when selling off mortgage-backed securities.

4.     Other administrative tactics: Think Home Buyer Tax Credit. Will the administration step in and try to create another incentive program to boost sales? Will it try to incite banks to do more short sales or loan modifications to keep more homeowners out of foreclosure? Will it create tax incentives for investors looking to rehabilitate some areas in desperate need? Of course, no one can predict these things. But we’ll need to pay attention. Some analysts are already saying 2011 is likely to be another “worse” year on record for housing. With that in mind, it is highly likely that Congress will try to take some action to keep the market moving or to save more Americans from foreclosure.

These are the main issues I think we’ll need to pay attention to this year. Through it all, I think it will be important to focus on our single situations and whether it’s the best time for us to buy or sell – regardless of all the outside influences. It still comes down to the buyer and seller of a single transaction.

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Intero Insider: Out of the Ashes Rises the Phoenix…Or At Least A Parakeet

By Gino Blefari | May 25th, 2010 0 Comments

I love finding the silver lining in things.

No matter how desperate a situation might look, there is almost always something positive, glimmering no matter how faintly, beneath the surface.

I have long postulated that the Federal Government’s stoppage of investment in mortgage-backed securities could result in rising interest rates. And I still believe that to be the case.

We seem, however, to have found a silvery lining in the specter of that cloud.

As you are likely aware, our friends in Europe are going through a bit of a financial crisis of their own. Greece is deeply in debt and has no earthly idea how to get out. The rest of the European Union doesn’t want to help them out, but Greece’s troubles are having a crippling effect on the, until now, untouchable Euro, whose value is dependent on the economies of all of the countries that use it.

The result? International investors, now wary of stockpiling their cash in European markets, have sent the U.S. an unexpected windfall in the form of mortgage rates that are now at near 50-year lows.

How low, do you ask?

Freddie Mac, on Friday, the 21st, said that rates averaged just 4.84% last week. Far from shabby, that’s the lowest since December 2009. In fact, I’ve heard reports of mortgage officers locking in loans with rates as low as 4.25% — fixed — which is as low a rate of which I’ve ever heard.

Did you miss out on the Homebuyer Tax Credit? As I mentioned a couple of weeks ago, it’s OK if you did. In the long run, that $8000 won’t take most people all that far. But a mortgage interest rate of below 5%? Now that is something that’ll save you some big money. A one-percentage-point decline in mortgage rates can save you hundreds of dollars each month. Over a 30-year period, that could translate into a lot of money. Real savings.

Also, lowered interest rates will increase buyers’ spending power. For each percentage point mortgage rates decline, buyers can spend about 10% more on a home. The extra bedroom or bump-out for which they’d been hoping might now be within their reach.

Take heed, though. It’s tougher now to qualify for a mortgage than it has ever been. Underwriting standards are tough. Not everyone is going to qualify, I’m afraid.

How long will things stay this way?

That’s a great question, and unfortunately one which has no answer. But I can tell you this: it’s unlikely that these rates will last for very long. If you have questions, contact your mortgage lender, your financial advisor, or your Intero real estate professional. They can point you in the right direction. If you’re looking to buy a home (or to refinance your current mortgage), it would seem that there is no time like the present.

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With Rates at Historic Lows, What’s Next?

By Russ Boyd | January 19th, 2010 0 Comments

You already know that what the Federal Reserve does with interest rates has a huge impact on the housing market.   I’m Russ Boyd and what you might not know is that the Fed influences housing prices in another significant way—through its purchasing of mortgage-backed securities (MBS)—and now the question is that when the Fed stops buying those securities in the near future, how will it affect the housing market?
Some background will help explain what is going on. Let’s start with a definition. An MBS is a group of mortgage loans that are pooled together and sold as a bond.

Part of a Pool

It is easy to understand how MBS come about and how they work. When you go to a bank or mortgage broker to borrow money to purchase a home, the home is collateral, and your mortgage—the promise you’ll pay principal and interest each month—is the anticipated cash flow the lender receives from you.
That bank or broker then sells your loan to an entity that aggregates your loan with a bunch of other loans into a big “pool” of various types of loans with various maturity dates (fixed, adjustable rate, one-year, 30-year, good credit, bad credit, etc.) The aggregator then issues these pooled mortgages as bonds, the MBS, which promise investors an attractive stream of interest payments.
Who are these aggregators?
They are government sponsored entities (GSEs). One large group is the Federal Home Loan Banks (FHLB), a private corporation made up of 8,100 member banks. All of the member banks must own stock in FHLB in order to participate in its loan program.  Other GSEs, which have become household names are Fannie Mae, Freddie Mac, and Ginnie Mae
To recap,  an MBS is a pool of home loans sold as a bond. And we know who issues them: government sponsored enterprises such as Freddie and Fannie, etc. So, how does this help us understand where real estate prices are going?

Easier to Get a Home Loan

Well, most banks have neither enough money, nor any desire, to hold a large number of home loans for an extended period of time. Absent a place for the banks to sell them, as many of us found out over the last year, it then becomes difficult for us to get a new loan. Thus, the MBS market is currently providing us all with an important means of loan supply, albeit indirectly via our bankers and mortgage brokers. The easier it is for banks to sell our loans to MBS aggregators, the easier it is for us to get a home loan. The more difficult it is, the harder (and more costly) it is for us to get a mortgage.
When the entire financial system found itself on shaky ground the housing market was affected big time. Anticipating a big increase in homeowners defaulting on their mortgages, investors no longer wanted to own their existing MBS, let alone buy newly issued MBS.
With no buyers for those securities, the GSEs couldn’t sell them or issue more. As a result, the supply of mortgage loans all but came to a screaming halt.
To the rescue came the Fed. Last November, as part of its efforts to get the economy moving again, the Fed announced it would buy $500 billion in mortgage-backed securities. In March of this year it raised its target to $1.25 trillion, and it has followed through on its pledge.  These purchases have undoubtedly provided much needed liquidity to the MBS market and helped keep the long-term mortgage rates at historic lows.

Behind the Higher Rates

O.K., let’s get back to the original question: What’s next? Well, just as it has been with interest rates, the Fed has been transparent about its intentions toward MBS. It has said it will stop buying MBS once it fulfills its commitment of buying those $1.25 trillion worth of bonds. It will complete that purchase sometime during the first quarter of next year.
That means that, sometime within the next five months, the Fed will be withdrawing a prop under the housing market.
What remains to be seen is how other investors react as the Fed slows—and then eliminates—its purchase program.
My expectation: As the Fed pulls out, private investors will demand a higher interest rate for such securities—to compensate for their concern people will continue to default on their mortgages—and thus long-term mortgage rates will rise. The real question is how fast and how high.

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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: Sweeping Changes Coming to the HVCC

By Gino Blefari | December 23rd, 2009 0 Comments

While we’ve all been focused on the Homebuyer Tax Credit and the effect that foreclosures have had on the real estate market, Congress has been hard at work, trying to right some unintended wrongs.

For some time now, the home buying process, already strained by the desperate straits of our nation’s economy, has been made more difficult than necessary as a result of unofficial “rules” put in place by Fannie Mae & Freddie Mac. These “rules”, known as the Home Valuation Code of Conduct, were put in place to reduce abuse by appraisers, who’d been under pressure from lenders, real estate professionals, sellers … you name it, to make sure that a particular house appraised for a certain amount (whether that amount had any basis in reality or not).

But while paved with good intentions, the HVCC’s road was littered with potholes.

The HVCC put the onus on lenders to order appraisals. It also required that lenders stay out of the process; that they not exert any influence over the appraisal. This has led to the use of appraisal management companies, which, for lack of a better description, are like brokers for individual appraisers. The AMC (appraisal management companies) gets an order for an appraiser, then assigns someone to take care of the job. The big problems here are that, more often than not, appraisers are being assigned to value homes in communities and neighborhoods with which they are wholly unfamiliar. Also, the use of the management companies requires the splitting of appraisal fees, causing appraisers to cut their rates and putting many experienced appraisers out of business.

Complaints about the HVCC have run the gamut from inaccuracy in valuation, “lowball” appraisals, to inexperienced appraisers (not to mention a host of other complaints). As a result, many sales have been adversely affected.

It looks like that may be about to change.

The US House of Representatives has been hard at work on its financial and mortgage industry reform bill. It has voted to terminate use of the HVCC, pending the initiation of a new Consumer Financial Protection Agency. The House’s bill, now on its way to the Senate, requires the director of this agency to implement national sales rules and standards that will cover all transactions.

Once the new standards are in place, Fannie Mae & Freddie Mac will be barred from using their much-maligned rules.

How the Senate will handle the creation of this new agency (if it goes along with it at all) remains to be seen, but the House bill is a clear signal that the HVCC is all but dead in the water.

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