Wednesday, October 31, 2012

Fannie and Freddie becoming 'wards of the state'?

Provided By InmanNews.com


The government's failure to overhaul mortgage giants Fannie Mae and Freddie Mac is pushing the U.S. toward nationalization of the mortgage market, and would-be homeowners will be the losers if competition between private companies isn't restored.
That's according to Jim Millstein, the former Treasury Department official who oversaw the reorganization of American International Group Inc., who thinks the government will have to get into the business of reinsuring mortgages if it wants to restore the private sector's role in mortgage securitization, and reduce taxpayer exposure to Fannie and Freddie.
Millstein, the Treasury Department's chief restructuring officer from 2009 to 2011, says neither the Obama administration nor Congress has put forward a workable plan to lift mortgage giants Fannie Mae and Freddie Mac out of conservatorship.
Increasing the fees charged by the companies and taking all of their earnings threatens to make Fannie and Freddie "permanent wards of the state," Millstein argues in an editorial he co-wrote with Phillip Swagel, a professor at the University of Maryland School of Public Policy.
Four years after the takeover of Fannie and Freddie, they say, "the government now backstops 90 percent of all new mortgages and has no plan to reduce its market share, no plan to protect taxpayers against future losses on the trillions of dollars of mortgage credit underwritten since the firms were placed under government control."Millstein and Swagel have proposed legislation that would create a new government reinsurance program, and turn Fannie and Freddie into one of many private "first loss" insurers that would pay into it.
The Treasury Department's decision to claim Fannie and Freddie's earnings as dividends is intended to make sure that taxpayers recoup the $141 billion they're still owed from bailing the companies out (Treasury has invested $187 billion in the companies and received in $46 billion in dividends). But the government's "cash sweep" prevents Fannie and Freddie from building up capital reserves that would protect taxpayers against potential losses on $4.5 trillion in mortgage guarantees, Millstein and Swagel argue.
In a similar fashion, recent increases in Fannie and Freddie's guarantee fees mandated by the Federal Housing Finance Agency would seem "sensible and long-overdue," the two maintain. Fannie and Freddie, they say, "had grossly underpriced the insurance they provided on mortgages before the crisis, putting taxpayers at risk for the bailout that inevitably came and making it difficult for other private companies to compete with them."
But the fees are still "significantly below" what private companies would charge, and the increases are all going to the government, rather than helping Fannie and Freddie build up capital and reserves.
"With Washington hungry for revenue, there will be inexorable pressure to milk Fannie and Freddie's guarantee fees to support other government spending," Millstein and Swagel warn. "The losers will be potential homeowners, as mortgage availability will be determined by government regulators rather than by private firms competing for their business."
Ironically, they say, the quickest way to get Fannie and Freddie out of conservatorship and restore competition among private firms is for the government to get into the mortgage reinsurance business. Millstein and Swagel envision a system in which private mortgage insurers would take on a growing proportion of the first loss on bad mortgages before government reinsurance would kick in.
Fannie and Freddie would themselves be transformed into private, "first loss" insurers, and forced to compete with other private companies willing to pay the government for reinsurance.
With "strict regulation to ensure that community banks can originate and securitize mortgages on an even playing field with the giant banks," competition would breed new entrants in mortgage finance. Any of them, including Fannie and Freddie, could fail without the threat of a housing market collapse, Millstein and Swagel maintain.
A government reinsurance program will be a tough sell to conservatives, they acknowledge. But the government, having placed Fannie and Freddie in conservatorship, is already "creeping" toward nationalization of the mortgage market.
A government reinsurance program with private insurers ahead of the government is perhaps the only way, they say, to shrink Fannie and Freddie's portfolios, reduce taxpayer exposure, and jump start a competitive private market.
"Today, we're doing massive guarantees through the conservatorships of Fannie and Freddie," Millstein tells the Wall Street Journal's Nick Timiraos. "But it's a ham-fisted, convoluted way of delivering the guarantee. Taxpayers aren't being protected at all. There's no capital ahead of us."

Monday, October 29, 2012

Mortgage Rates Relatively Unchanged

Provided By Realty Times


In Freddie Mac's results of its Primary Mortgage Market Survey®, fixed mortgage rates moved slightly higher while continuing to remain near their all-time lows helping to support the housing market.


  • 30-year fixed-rate mortgage (FRM) averaged 3.41 percent with an average 0.7 point for the week ending October 25, 2012, up from last week when it averaged 3.37 percent. Last year at this time, the 30-year FRM averaged 4.10 percent. 
  • 15-year FRM this week averaged 2.72 percent with an average 0.6 point, up from last week when it averaged 2.66 percent. A year ago at this time, the 15-year FRM averaged 3.38 percent. 
  • 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.75 percent this week with an average 0.6 point, the same as last week. A year ago, the 5-year ARM averaged 3.08 percent.
  • 1-year Treasury-indexed ARM averaged 2.59 percent this week with an average 0.4 point, down from last week when it averaged 2.60 percent last week. At this time last year, the 1-year ARM averaged 2.90 percent.  
  • According to Frank Nothaft, vice president and chief economist, Freddie Mac:
    "Mortgage rates remained relatively unchanged this week and should continue to support the housing market and mortgage refinance. Existing home sales in September eased slightly to 4.75 million but was the second strongest annualized pace since May 2010. Moreover, new home sales rose to the most since April 2010. In addition, low rates and strong demand have already pushed the FHFA purchase-only home price index in August to its highest level (seasonally adjusted) since June 2010. And not surprisingly, the Federal Reserve in its October 24th monetary policy announcement acknowledged the further signs of improvement in the housing sector, albeit from a depressed level."
  • Saturday, October 27, 2012

    How Much Home Can I Afford?


    Provided By Realty Times

    Are you gearing up to buy a home? Now is a great time to make a move in the real estate market. Interest rates are at historic lows. Compare today's 30-year fixed-rate average of between 3 and 4 percent to the 13 to 18 percent rates of the 1980's and you'll see why everyone is buzzing about the great deals to be had!


    Additionally, homes are now at their most affordable on record. This is because home values have dropped across much of the nation. There is also a huge supply of distressed properties on the market which sell for steep discounts.

    With all these great deals it's easy to get carried away, but the lesson learned by millions of foreclosed homeowners is to buy within your means. Just because you're approved for X amount doesn't mean you should spend that much.

    So, how much home can you really afford? Consider the following.

  • What is your monthly income?If you have a salaried job, this can as simple to calculate as looking at your paystubs, but if you work on commission and tips, it's important you consider both high income and low income months.

  • What is your monthly debt load?Consider the monthly cost of child support, alimony, student loans, credit cards payments, car loans, and other debts that must be paid each month.

  • Is your job stable?
  • Today's job market is still a little shaky. While the unemployment rate has improved, many still struggle to find jobs. What would happen if you were to lose your job? Would you still be able to pay your mortgage?

  • What are your monthly expenses?This is different than your monthly debt load. These are extra expenses including: cable, internet, cell phone, gas, food, entertainment, clothes, travel, etc.

  • How long will you be staying put?Homes just aren't appreciating at the rate they used to. You will probably need to stay put for at least five years before you would break even on a sale.

  • How much do you have saved?Lenders expect for today's buyers to have at least 20 percent to put down in addition to closing costs. A $200,000 house will require a $40,000 down payment. Do you have this money in addition to an emergency fund? If not, you might want to consider a less expensive house or waiting to buy.
  • Friday, October 19, 2012

    Quiz: Moving Up


    Provided By Realty Times

    Attractive interest rates and bottomed-out home prices have many homeowners wondering if now is the time to make a move. Is the climate right for purchasing that dream home? It all depends on your personal needs, finances, and of course, the state of your local housing market. Find out if now's the time to make a move by taking this quick quiz.

  • How much do you owe on your home? Many homeowners today find themselves owing more than their homes are worth. These owners should think long and hard before selling homes at a loss.
  • What are your housing needs in the decade to come? Are you a new couple expecting to expand your family? Today's market presents great deals that can facilitate you moving up to a bigger home.
  • Are you nearing retirement age? While it may be appealing to buy the dream McMansion you've had your eye on, it's important to remember that bigger homes require bigger maintenance, something many seniors look to avoid.Still other families are moving up to bigger homes that have the room for multiple generations.
  • Are you willing to take on a larger mortgage? Even though interest rates are low, a larger home will not only cost more in taxes and utilities, but you could also find yourself with a steep mortgage payment.
  • Do you have an 8-month emergency fund? There is still much uncertainty in the job market. Every household should be sure to saved back at least 8 months worth of cash for an emergency fund.
  • How are your retirement savings? The same line of thought applies to number five. Housing isn't turning out to be quite the booming investment it once was and while home prices are starting to rebound, a home is never a substitute for a solid retirement plan that is in full swing.
  • Why are you buying? Is it for more space, a better school district, or to take advantage of today's screaming deals? These can all be admirable pursuits. Are you instead buying for the status and prestige of a neighborhood? Homeownership is still a hefty responsibility, even with low interest rates and high levels of affordability. It should never be entered into lightly.
  • How quickly are homes selling? Most households cannot afford to carry two mortgages, so be sure that you are able to sell your home first before buying that dream home. Talk to your local real estate agent about the current market conditions, such as how long a home is taking to sell, sale prices, etc.
  • What do you need? This last question is more philosophical and may take some extra time and thought. After the 2009 recession, many consumers are asking themselves, “What do I really need?” Wants versus needs are sometimes a hard pill to swallow in a consumer-driven society, but many families are finding that they are happier with smaller homes and more family time.There are great deals to be had in today's market. If your family is ready, financially and emotionally, for a move up, then be sure to contact your local real estate agent for more details on the condition of your local market and for some of today's hottest listings.
  • Monday, October 15, 2012

    Buying a Short Sale


    Provided By Realty Times


    An ailing economy has had far-reaching effects. Homeowners nationwide have struggled to manage ballooning mortgage payments in the aftermath of layoffs and long unemployment lines. They've seen home values plummet, all while becoming upside down in their loans.
    Foreclosure rates remain high and account for one-third of all home sales. Some homeowners have found relief in the form of short sales.

    A short sale is a sale where the home sells for less than the seller owes, but the lien holder (bank, etc) agrees to this price and this loss. A short sale means the seller can avoid foreclosure, a stain that would have otherwise remained on their credit reports for seven years.
    What does buying a short sale home mean? First, a short sale can mean a bargain. That's what all buyers want to know, right!?

    If you are planning on searching out a short sale bargain, however, it's important you understand what this sort of purchase will entail. Are there reasons you shouldn't buy a short sale?
    First, short sales will require you to be a patient buyer. You may have agreed to a price and terms with the seller, but the lender must then agree to all terms before you can close. They are notorious for taking their time -- up to several months. There is legislation currently in Congress that would require lenders to answer within 45 days.

    Lenders also want to be sure you have financing in order. They love cash offers, which keep deals short and sweet. Come to the table with pre-qualification and approval in order.
    A short sale probably means any contingencies are out the window. This isn't a time for hard-nosed negotiations. A bank has few emotions. They are all about the bottom-line. Are you wanting repairs? That probably won't happen.

    Only two out of five short sales are approved by lenders. So, you may spend a lot of time waiting on a reply, only to be rebuffed.
    Additionally, short sales can be contractual nightmares. You'll need to employ a good real estate attorney so that you know what you are buying. Most buyers aren't fluent in legal terminology.
    After the robo-signing nightmare of the past decade it's more important than ever that you get a clear title on any home you buy. Do not enter into a quit-claim deed. Be sure you are getting a good, clear title to any home. This may also mean enlisting the expertise of a title officer to see if there are any additional liens on a property.
    Short sales are a time to be sure all legal aspects of the deal are clear and gone over with a fine-toothed comb by the appropriate professionals. Do this and you could be in for a great deal during a time of historically low interest rates.

    Friday, October 12, 2012

    All About FHA Loans

    Provided By Realty Times


    When it comes time to buy a home you’ll be faced with an important decision. How will you be financing this purchase? 

    Around a third of all home purchases are paid in cash, but that leaves a full two-thirds of buyers seeking a mortgage. From adjustable rate (ARM) to fixed-rate mortgages there are a lot of choices. 

    Today’s buyers are also faced with one big issue: the downpayment. In the aftermath of the 2009 recession many lenders are requiring at least a 20 percent downpayment. This helps the lender to ensure their investment in the unfortunate event that the buyer defaults on the loan down the road. 
    Not every buyer can afford a 20 percent downpayment, however. That’s where an FHA loan comes in. How does an FHA loan differ from a conventional loan?  

    According the the Federal Housing Administration (FHA) your downpayment amount can be as low as 3.5 percent (depending on your credit score). Additionally, most of your closing costs and fees can be included in the loan and you are more apt to be able to qualify for credit. There are also no penalties for early pay-off -- one peculiar loophole with some conventional mortgages.  
    There are, however, FHA loan limits, which may be problematic for buyers who live in high cost areas.

    As of October 1, 2011, there are new limits. HUD reports that the FHA reduced loan limits in the highest cost metro areas of the country. They noted that "the new "ceiling" loan limit for higher cost areas was reduced from $729,750 to $625,500 for one-unit properties. FHA loan limits vary based on area median home price, but all will fall within the range of $271,050 and $625,500 for one unit properties." Not every sort of dwelling or property is eligible for an FHA, however.  
    Additionally, an FHA loan is transferrable. This means the borrower can transfer the loan to another qualified borrower without this new party having to apply for a brand new mortgage.  
    What about a fixer-upper home? FHA has a loan that allows you to buy a home, fix it up, and include all the costs in one loan. You can even take out an FHA Energy-Efficient Mortgage that includes the purchase price and funds for energy efficient upgrades!