Bank of America Has a Waiting List to Refinance

Last updated on February 2nd, 2018

If you’re interested in refinancing your mortgage with Bank of America, you may be in for a big surprise.

Per Bloomberg, the mega bank has been unable to keep up with demand, thanks in part to HARP Phase II, which is beginning to roll out.

The program, which allows pretty much anyone to refinance, regardless of how deeply underwater they are, has led to everyone and their mother inquiring about a possible refi.

And we all know that the biggest names in the finance world will experience the biggest windfall.

Unfortunately, Bank of America has been making steady moves to get out of the mortgage world in recent times.

In fact, their share of the mortgage market has dwindled to little more than five percent, which is less than it held before it acquired Countrywide.

This is largely because they exited both the wholesale and correspondent mortgage businesses to focus on building relationships at the retail level.

90-Day Wait to Refinance

I hope you’re patient, because Bank of America is telling some customers who call during high volume periods of the day to make a reservation.

And once they do that, it could take anywhere from 60 to 90 days just to hear back. Even then, it’s unclear how much longer it will take to apply for a refinance, get the loan underwritten, and finally get it funded.

By then mortgage rates could rise, though that’s probably not too much of a concern. But in the mean time you’d still be stuck making higher monthly mortgage payments, which is clearly no good.

[Are mortgage rates going to stay low?]

If you do manage to “get in the door,” note that Bank of America also stopped offering cash out refinances last month.

So if you’re looking to tap your home equity, you’ll either have to try a HELOC or go elsewhere.

BofA Customers Don’t Need to Wait

That said, one of Bloomberg’s sources said those with Bank of America checking accounts, along with those who go to the bank in person, do not need to wait.

Still, you have to wonder about the bank’s urgency in getting your refinance application to the closing department.

If they’re overloaded, the turn times will surely be extremely high, which could put your time-sensitive mortgage application in danger.

This is all the more reason to shop around for your mortgage, as opposed to just going with the bank you know and “trust.”

If you’re only getting one mortgage quote, you’re doing yourself an injustice.

Be sure to contact several banks, along with a few mortgage brokers, to see what kind of mortgage rate you can get your hands on.

And don’t forget to compare fees and closing costs to ensure you receive the best deal on your refinance.

Tip: How to find the best mortgage rates.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Do I Qualify for the National Mortgage Settlement?

Last updated on February 10th, 2012

In case you haven’t heard by now, the so-called “National Mortgage Settlement” was finalized today.

It’s the largest multi-state settlement since the Tobacco Settlement back in 1998, related to robosigning allegations that took place over the past several years.

Essentially, some of the nation’s largest loan servicers routinely signed off on foreclosure documents without doing their due diligence, and/or without the presence of a notary.

It will provide more than $25 billion in assistance to homeowners, participating states and the federal government.

For the record, all 50 states participated except for lonely old Oklahoma.

The offending parties in the National Mortgage Settlement include:

– Ally/GMAC
– Bank of America
– Citi
– JPMorgan Chase
– Wells Fargo

These are the nation’s five largest mortgage loan servicers.

Benefits will be provided to both borrowers whose loans are owned by the settling banks as well as to borrowers whose loans they service.

In other words, your mortgage may have been originated by another company and sold to one of these companies to be serviced. So be sure to check your loan documents if you think you may be eligible.

Where the Settlement Money Will Go

The bulk of the money, at least $10 billion, will go toward principal balance reductions. In other words, those who hold underwater mortgages will see their balances drop to get them above water.

But the assistance will only be directed toward those who are either delinquent or at imminent risk of default as of the date of the settlement.

The principal reduction will likely be facilitated via a loan modification, so borrowers will ideally end up with a smaller loan balance and a lower mortgage rate, which will certainly make mortgage payments much more affordable.

State attorneys general believe principal reductions will prove beneficial, and as a result, will be employed by other mortgage lenders not involved in the settlement.

Another $7 billion or more will be used for short sales and transitional services, forbearance of principal for unemployed borrowers, anti-blight programs, and benefits for service members forced to sell their homes at a loss as a result of a “Permanent Change in Station” order.

Loan servicers will also have at least another $3 billion at their fingertips to provide refinancing to borrowers who are current, but underwater on their mortgages.

These homeowners will be able to take advantage of the record low mortgage rates that were previously out of reach due to loan-to-value ratio restraints.

Additionally, $1.5 billion will be distributed to roughly 750,000 borrowers who have already lost their homes to foreclosure.

The states involved will also receive immediate payments of roughly $3.5 billion to help fund consumer protection and state foreclosure protection programs.

How and When Can You Get Help?

If you think you qualify for assistance, you can contact the offending mortgage servicer directly, although they should be contacting you…

For borrowers who lost their homes between January 1, 2008 and December 31, 2011, a claim form should be sent to you for one of those shiny checks.

You can also contact your individual Attorney General’s office to check eligibility, or to provide a current address assuming you moved and/or have been foreclosed on.

Unfortunately, relief won’t be immediate under the settlement. Over the next 30-60 days, settlement negotiators will be selecting an administrator to oversee the program.

And over the next six to nine months, this administrator will work with attorneys general and loan servicers to identify relief recipients.

It is expected to take three years to execute the entire settlement, so patience is a virtue here.

Who is Left Out of the National Mortgage Settlement?

Borrowers with Fannie Mae and Freddie Mac owned mortgages. And those with FHA loans.

This is more than half of the homeowners with mortgages in the United States.

So quite a few borrowers are missing out. But they can still get assistance via HARP 2.0, even if they are severely underwater. Or via the Broad Based Refinancing Plan currently in the works.

Additionally, those that have positive home equity likely won’t see any relief from this settlement.

Essentially, those that paid down their mortgages, or came up with a reasonable down payment, won’t qualify for assistance under this settlement.

While it seems like they’re losing out, they aren’t. This settlement is about shoddy foreclosure practices, so those that weren’t affected obviously wouldn’t receive any benefit.

However, they may receive the indirect benefit of a healthier housing market and higher home prices if the settlement works as it should.

It’s worth noting that the banks involved are still accountable for claims that may arise out of any other wrongdoings committed during the lead up to the mortgage crisis.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Pros and Cons of Refinancing Your Mortgage Right Now

Since April 1, 2009, roughly 16.2 million American homeowners have refinanced their mortgages, according to the latest Housing Scorecard released by HUD.

But as you may or may not know, there are still millions of homeowners who have not, for one reason or another.

Some may not be eligible, while others may be going through foreclosure or have simply given up on making payments.

[Reasons why you can’t refinance.]

And hey, some just may have procrastinated, or simply aren’t that interested in their mortgage.

For example, Obama hasn’t refinanced his mortgage in seven years, but Bernanke has been all about it in recent years.

If you look at the chart below, you’ll notice that refinancing has been pretty steady since the lull in 2008 (when lending came to a standstill), but it’s still nowhere close to that seen in 2003 when things were bubbling up toward implosion.

refinanced

Yet, mortgage rates are at all time lows, and continue to fall seemingly every week, month, etc., not that anyone seems to care.

So if you’re on the fence about refinancing, let’s look at a few pros and cons of refinancing now vs. later.

Con: Home Prices Rising

Home prices have been on the rise for a while now, and are expected to keep climbing nationwide.

The Housing Scorecard also noted that rising property values have brought homeowner equity to its highest point since the third quarter of 2008.

That pushed 1.3 million homeowners out of an underwater position. That’s great for those looking to refinance, as it should make it easier.

equity

But higher home prices also make refinancing even more attractive to those with equity because their loan-to-value ratio may fall to a lower threshold, pushing their qualifying mortgage rate even lower.

So for those who believe their home value will keep increasing, pumping the brakes on refinancing might be a good move, especially if you’re right on the cusp of a LTV threshold such as 80%, where you can ditch mortgage insurance.

Pro: Record Low Rates

On the flip side of that argument, one could argue that mortgage rates are at unprecedented levels, and you’d be a fool not to refinance now.

After all, what if mortgage rates tick higher and you “miss your chance” at snagging a 30-year fixed near 3%?

You might kick yourself a few times for missing the boat. And how low can mortgage rates really fall?

Con: Even Lower Rates

Well, the housing pundits have said that month after month, and week after week, only to grab their erasers and pretend they didn’t call a mortgage rate bottom.

I’ll admit that I’ve been one of those people.

Yes, rates are absurdly low, but no, they probably haven’t bottomed. There is still so much uncertainty out there that can push rates even lower.

Europe is still unraveling, and whether there has been much improvement locally is still a big question mark.

With the Fed pledging to buy mortgage securities until the cows come home, waiting could pay off.

Pro: Lower Payments Today

But, the longer you wait to refinance, the more you’ll pay each month in the form of a higher interest rate.

So if you keep riding it out, waiting for that perfect time to refinance, you’re essentially missing out on a lower payment during those months (or years).

Make sure you factor in all that money once you finally make the decision to refinance. The savings could be skewed as a result.

Con: Big Picture Savings

Of course, you might just say, “hey, I might be spending more each month now, but once I get a 2.50% 30-year fixed, I’ll be ahead in no time.”

That could be true, and someone who waits a bit longer could wind up with an even better rate and a lower monthly payment, which could spell bigger savings over the years ahead.

[Locking vs. floating]

After all, refinancing costs money (unless it’s a no cost loan), and serially refinancing isn’t always possible (nor fun), especially if your credit takes a hit or something else makes you ineligible.

Pro: You’re Eligible Now

Speaking of, if you’re eligible now, and the interest rate is dynamite, letting it ride might not be the best move.

What if something does bar your eligibility, such as unemployment, a mindless missed payment that leads to a lower credit score, or simple program changes?

There’s been talk about all types of stuff on the horizon, like a qualified mortgage, which Romney mentioned in the first presidential debate.

You wouldn’t want to be caught out by a future change or misstep, would you?

In summary, you can’t really go wrong by refinancing right now, assuming it saves you money, but yes, waiting could prove to be better.

In any case, take the time to really think it over!

Source: thetruthaboutmortgage.com

Watch the Holiday Spending If You Plan to Refinance

Well, believe it or not, the holidays are upon us again. It seems like just yesterday I was cursing the fact that I didn’t have an air conditioner, and now I wish I had a better heater. Go figure.

To compound that, I now need to get out (or stay online) and do my holiday shopping. The good news is that family and friends have to do the same thing for me, assuming they actually bother buying me gifts this year.

Anyway, I got to thinking about a possible problem that can arise from aggressive holiday shopping.

If you spend and spend and spend in the next few weeks, make sure you can actually pay for all your purchases.

Otherwise you’ll rack up credit card debt, which can obviously lead to costly finance charges.

Unintended Consequences

We all know credit card debt is bad; after all, the APR on credit cards is sky-high compared to pretty much every other type of loan, especially mortgages.

So you’ll be wasting away money via outrageous finance charges if you don’t pay off your bad gift giving debt.

But worse are the unintended consequences of carrying said debt.

Let’s assume you’ve got a “great plan” to tidy up your finances and finally get around to that refinance once the in-laws are forcibly removed from your home after the holidays.

Come January, you apply for a refinance at your local bank or via an online lender, with grand plans to save tons of money via an über-low mortgage rate.

You know you’ve got a good credit score, a well paying job, and plenty of assets. Heck, you’ve even got a fair amount of home equity, which will make your low-LTV loan bulletproof.

As you’re daydreaming about your stellar borrower profile, the phone rings, and it’s your loan officer.

Remember your awesome credit score? Well, it dropped 30 points, thanks to all that new credit card debt.

Even though you intend to pay it, or even if you paid it, your credit score got hit because your credit utilization spiked and the credit bureaus took notice.

[What mortgage rate can I get with my credit score?]

You’ve Still Got the Green Light

As you begin to panic, your loan officer reassures you, and lets you know that you can still refinance!

There’s just one little catch. The mortgage rate you were quoted when you originally spoke isn’t going to be as low, thanks to that credit score ding.

That 30-point hit was enough to push you into a lower credit score tier, which increased a pricing adjustment, and subsequently, your interest rate.

Sure, you can still refinance. But you’ll have a higher-than-expected monthly mortgage payment, and pay that much more in interest each month.

All because you were reckless with your spending before going out and getting a mortgage.

[The refinance rule of thumb.]

It Could Be Worse

While perhaps a lot less likely, if you go nuts and rack up a ton of holiday debt, buying heart-shaped pendants from Kay Jewelers, it could be enough to kill your loan completely.

Put simply, if the debt is large enough to where the minimum monthly payment pushes your debt-to-income ratio beyond acceptable limits, you could be out of luck.

So think those big purchases through if you’ve got ambitious plans to get a mortgage in the New Year.

After all, you wouldn’t want to miss out on securing one of the lowest rates in history thanks to some cheesy diamond-stud earrings.

Your loved ones should understand. Once the refi is done you can shop to your hearts delight and make up for any unmet expectations.

Tip: When holiday shopping, avoid opening up a store credit card or any other line of credit if you plan to refinance in the near future, as doing so can really knock your credit score out of whack.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Mortgage Rate Shopping: 10 Tips to Get a Better Deal

Last updated on December 8th, 2020

Looking for the best mortgage rates? We’ve all heard about the super-low mortgage rates available, but how do you actually get your hands on them?

When it’s all said and done, it never seems to be as low as the bank originally claimed, which can be pretty frustrating or even problematic for your loan closing.

But instead of worrying, let’s try to find solutions so you too can take advantage of these remarkable interest rates.

There are a number of ways to find the best mortgage rates, though a little bit of legwork on your behalf is definitely required.

After all, you’re not buying a TV, you’re buying a home or refinancing an existing, probably large home loan.

best mortgage rate

If you’re not willing to put in the work, you might be disappointed with the rate you receive. But if you are up for the challenge, the savings can make the relatively little time you put in well worth it.

The biggest takeaway is shopping around, since you can’t really determine if a mortgage rate is any good without comparing it to others.

Many prospective and existing homeowners simply gather one quote, typically from a friend or real estate agent’s reference, and then kick themselves later for not seeing what else is out there.

Below are 10 tips aimed at helping you better navigate the shopping experience and ideally save some money.

1. Advertised mortgage rates generally include points and are best-case scenario

You know those mortgage rates you see on TV, hear about on the radio, or see online. Well, most of the time they require you to pay mortgage points.

So if your loan amount is $200,000, and the rate is 3.75% with 1 point, you have to pay $2,000 to get that rate. And there may also be additional lender fees on top of that.

It’s important to understand that you’re not always comparing apples to apples if you look at interest rate alone.

For example, lenders don’t charge the same amount of fees, so clearly rate isn’t the only thing you should look at when shopping.

Additionally, these advertised mortgage rates are typically best-case scenario, meaning they expect you to have a 760+ credit score and a 20% down payment. They also expect the property to be a single-family home that will be your primary residence.

If any of the above are not true, you can expect a much higher mortgage rate than advertised.

Are you showing the lender you deserve the lowest rate, or simply demanding it because you feel entitled to it? Those who actually present the least risk to lenders are the ones with the best chance of securing a great rate.

2. The lowest mortgage rate may not be the best

Most home loan shoppers are probably looking for the lowest interest rate, but at what cost? As noted above, the lowest interest rate may have steep fees and/or require discount points, which will push the APR higher and make the effective rate less desirable.

Be sure you know exactly what is being charged for the rate provided to accurately determine if it’s a good deal. And consider the APR vs. interest rate to accurately gauge the cost of the loan over the full loan term.

Lenders are required to display the APR next to the interest rate so you know how much the rate actually costs. Of course, APR has its limitations, but it’s yet another tool at your disposal to take note of.

3. Compare the costs of the rate offered

Along those same lines, you need to compare the costs of securing the loan at the par rate, versus paying to buy down the rate.

For example, it may be in your best interest to take a slightly higher rate to cover all your closing costs, especially if you’re cash-poor or simply don’t plan on staying in the home very long.

If you won’t be keeping the mortgage for more than a year or two, why pay points and a bunch of closing costs out of pocket. Might as well take a slightly higher rate and pay a tiny bit more each month, then you can get rid of the loan. [See: No cost refinance]

Conversely, if you plan to hunker down in your forever home and can obtain a really low rate, it might make sense to pay the fees out-of-pocket and pay points to lower your rate even more. After all, you’ll enjoy a lower monthly payment as a result for many years to come.

4. Compare different loan types

When comparing pricing, you should also look at different loan types, such as a 30-year vs. 15-year. If it’s a small loan amount, you might be able to refinance to a lower rate and barely raise your monthly payment.

For example, if you’re currently in a 30-year home loan at 6%, dropping the rate to 2.75% on a 15-year fixed won’t bump your mortgage payment up a whole lot. And you’ll save a ton in interest and own the home much sooner, assuming that’s your goal.

And as mentioned, if you only plan to stay in the home for a few years, you can look at lower-rate options, such as the 5/1 ARM, which come with rates that can be much lower than the 30-year fixed. If you’ll be out of there before the loan ever adjusts, why pay for the 30-year fixed?

5. Watch out for bad recommendations

However, don’t overextend yourself just because the bank or broker says you’ll be able to pay off your mortgage in no time at all.

They may recommend something that isn’t really ideal for your situation, so do your research before shopping. You should have a good idea as to what loan program will work best for you, instead of blindly following the loan officer’s opinion.

It’s not uncommon to be pitched an adjustable-rate mortgage when you’re looking for a fixed loan, simply because the ultra-low rate and payment will sound enticing. Or told the 30-year fixed is a no-brainer, even though you plan to move in just a few years.

6. Consider banks, online lenders, credit unions, and brokers

I always recommend that you shop around and compare lenders as much as possible. This means comparing mortgage rates online, calling your local bank, a credit union, and contacting a handful of mortgage brokers.

If you stop at just one or two quotes, you may miss out on a much better opportunity. Put simply, don’t spend more time shopping for your new couch or stainless-steel refrigerator. This is a way bigger deal and deserves a lot more time and energy on your part.

Your mortgage term is probably going to be 30 years, so the decision you make today can affect your wallet for the next 360 months, assuming you hold your loan to term. Even if you don’t, it can affect you for years to come!

7. Research the mortgage companies

Shopping around will require doing some homework about the mortgage companies in question. When comparing their interest rates, also do research about the companies to ensure you’re dealing with a legitimate, reliable lender that can actually get your loan closed.

A low rate is great, but only if it actually funds! There are lenders that consistently get it done, and others that will give you the runaround or bait and switch you, or just fail to make it to the closing table because they don’t know what they’re doing.

Fortunately, there are plenty of readily accessible reviews online that should make this process pretty simple. Just note that results will vary from loan to loan, as no two mortgage loans or borrowers are the same.

You can probably take more chances with a refinance, but if it’s a purchase, you’ll want to ensure you’re working with someone who can close your loan in a timely manner. Otherwise a seemingly good deal could turn bad instantly.

8. Mind your credit scores

Understand that shopping around may require multiple credit pulls. This shouldn’t hurt your credit so long as you shop within a certain period of time. In other words, it’s okay to apply more than once, especially if it leads to a lower mortgage rate.

More importantly, do not apply for any other types of loans before or while shopping for a mortgage. The last thing you’d want is for a meaningless credit card application to take you out of the running completely.

Additionally, don’t go swiping your credit card and racking up lots of debt, as that too can sink your credit score in a hurry. It’s best to just pay cash for things and keep your credit cards untouched before, during, and up until the loan funds.

Without question, your credit score can move your mortgage rate significantly (in both directions), and it’s one of the few things you can actually fully control, so keep a close eye on it. I’d say it’s the most important factor and shouldn’t be taken lightly.

If your credit scores aren’t very good, you might want to work on them for a bit before you apply for a mortgage. It could mean the difference between a bad rate and a good rate, and hundreds or even thousands of dollars.

9. Lock your rate

This is a biggie. Just because you found a good mortgage rate, or were quoted a great rate, doesn’t mean it’s yours.

You still need to lock the rate (if you’re happy with it) and get the confirmation in writing. Without the lock, it’s merely a quote and nothing more. That means it’s subject to change.

The loan also needs to fund. So if you’re dealing with an unreliable lender who promises a low rate, but can’t actually deliver and close the loan, the rate means absolutely nothing.

Again, watch out for the bait and switch where you’re told one thing and offered something entirely different when it comes time to lock.

Either way, know that you can negotiate during the process.  Don’t be afraid to ask for a lower rate if you think you can do better; there’s always room to negotiate mortgage rates!

10. Be patient

Lastly, take your time. This isn’t a decision that should be taken lightly, so do your homework and consult with family, friends, co-workers, and whoever else may have your best interests in mind.

If a company is aggressively asking for your sensitive information, or trying to run your credit report right out of the gate, tell them you’re just looking for a ballpark quote. Don’t ever feel obligated to work with someone, especially if they’re pushy.

You should feel comfortable with the bank or broker in question, and if you don’t, feel free to move on until you find the right fit. Trust your gut.

Also keep an eye on mortgage rates over time so you have a better idea of when to lock. No one knows what the future holds, but if you’re actively engaged, you’ll have a leg up on the competition.

One thing I can say is, on average, mortgage rates tend to be lowest in December, all else being equal.

In summary, be sure to look beyond the mortgage rate itself – while your goal will be to secure the lowest rate possible, you have to factor in the closing costs, your plans with the property/mortgage, and the lender’s ability to close your loan successfully.

Tip: Even if you get it wrong the first time around, you can always look into refinancing your mortgage to lower your current interest rate. You aren’t stuck if you can qualify for another mortgage down the road!

Source: thetruthaboutmortgage.com

HARP Refinancing Takes Off Thanks to New Guidelines

Last updated on August 10th, 2013

As a result of recent enhancements, and perhaps ultra-low mortgage rates, the Home Affordable Refinance Program has actually made a meaningful impact.

Last month, there were a total of 98,885 HARP refinances recorded by the FHFA, which accounted for nearly 24% of all the Fannie Mae and Freddie Mac refis during August.

That’s a big chunk of the business, and represents nearly a quarter of the 400,000 total HARP refis originated in all of 2011.

Since January, 618,217 loans have been refinanced via HARP, bringing the all-time total to 1,640,068 (the program began in 2009).

A total of 1,292,932 HARP refis have been for loan-to-value ratios between 80 and 105 percent, and another 228,666 were for refis between 105-125%.

Helping the 125%

Last month, a total of 26,944 loans refinanced through the program had a loan-to-value north of 125%, which was one of the major program enhancements announced in late 2011 and implemented in 2012.

In fact, fewer borrowers (23,265) with LTV ratios between 105-125% refinanced through the program in August.

Simply put, the program is reaching the hardest-hit borrowers out there, many of whom you would assume are “too far gone” to benefit from such a program, let alone any program.

After all, if you’re underwater on the mortgage by more than 25%, it might be looked at as a losing endeavor, especially if it doesn’t involve any principal forgiveness.

But these numbers show there are believers out there, even in the darkest of times.

For all of 2012, 118,470 borrowers with LTV ratios greater than 125% have taken advantage of HARP 2.0.

And the overall numbers also appear to be picking up. Last month, 99,000 HARP refis were recorded, up slightly from 96,000 in July.

Assuming the numbers held up in September, we’d be looking at quarterly figures around 300,000.

That would be significantly higher than the 243,000 refis in the second quarter, and well above the 180,000 executed in the first quarter of 2012.

Additionally, the last two months’ totals have also surpassed the quarterly numbers seen in the last three quarters of 2011.

Nearly 20% of HARP Borrowers Choose Shorter Terms

Somewhat amazingly, 18 percent of borrowers with LTV ratios above 105% chose to refinance into shorter-term mortgages, such as 15- and 20-year fixed loans.

The rest went with the traditional 30-year fixed. This compares to just 10% in 2011.

[30-year fixed vs. 15-year fixed]

In other words, borrowers really believe in their homes if they’re willing to make larger monthly mortgage payments while underwater.

And if they stick with it, they’ll build home equity a lot faster than those who stick with the traditional route.

Of course, one could argue that now is not the time to pay off your mortgage quicker, considering how low mortgage rates are at the moment.

But still, homeowners who do will help the housing market recover faster.

HARP refis were most popular in the sand states of Arizona, Florida, and Nevada, but well below average in high-priced California.

In Nevada, 66% of refis last month went through HARP. The numbers were similarly high in Arizona (50%) and Florida (54%).

In California, just 19% of total refinances were HARP loans.

Lastly, check out this nifty chart (included in the report) that looks at mortgage rates and the level of refinancing activity:

rates vs refi

Read more: Are consumers even interested in low mortgage rates anymore?

(photo: rfduck)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Homeowners Are Betting on a Housing Recovery

The other day, I got to thinking about the state of the housing market, as I often do.

The last time I discussed it, my focus was on the free-for-all taking place in some “hot” markets across the country.

In short, I expressed my discontent with some of the junky properties making their way to market, largely because the record low mortgage rates will allow them to sell to hungry buyers.

While I still believe this is true, it’s not necessarily bad news.

Sure, there’s still a ton of doubt about the future, but there’s some really good stuff happening too.

Doom and gloom and unemployment aside, many of the mortgages being originated these days are pretty darn solid, relatively speaking.

Banks and lenders are actually underwriting files again, instead of approving virtually everything under the sun. And borrowers are choosing healthier loan products over crazy programs like the now-defunct option arm.

There are also new safeguards in place to help borrowers avoid getting ripped off when taking out loans, or getting the runaround from their loan servicers.

Are We Creating a Better Housing Market?

At first glance, it appears as if we are. Yes, the government is probably way too involved than it ought to be, but over time, the private market should make their way back in.

And when they do, we should be in pretty good shape. Why? Well, just look at what existing homeowners are doing at the moment.

After all, it is these individuals that will dictate the direction of the market going forward if the mortgage crisis was any indication.

Freddie Mac released their quarterly refinance report today, which details what types of loans borrowers have been opting for.

First and foremost, 95% of borrowers went with a fixed-rate mortgage during the second quarter of 2012, which is clearly a plus.

[Facebook founder Mark Zuckerberg has an ARM]

But on top of that, nearly a third of homeowners (30%) shortened their mortgage terms.

So, many of those with 30-year or 20-year fixed mortgages now have 15-year fixed mortgages. They’re essentially doubling-down on their mortgage, for better or worse.

Now I argued the other day that this seems to be a government initiative to get homeowners more fully invested, which may not be good on an individual level.

[Should you pay your mortgage down early?]

But for the housing market as a whole, I think it will help everyone going forward.

Just look at this refinance data from Freddie Mac, which details what percentage of borrowers refinanced into what.

Previous loan: 30-year fixed

New loan:

30-year fixed: 66%
15-year fixed: 21%
20-year fixed: 12%
Hybrid-ARM: 1%

Previous loan: 20-year fixed

New loan:

30-year fixed: 29%
15-year fixed: 61%
20-year fixed: 9%
Hybrid-ARM: 1%

Previous loan: 15-year fixed

New loan:

30-year fixed: 11%
15-year fixed: 86%
20-year fixed: 1%
Hybrid-ARM: 2%

Previous loan: Hybrid-ARM

New loan:

30-year fixed: 71%
15-year fixed: 6%
20-year fixed: 4%
Hybrid-ARM: 19%

As you can see, most borrowers are investing more in their homes, despite mortgage rates already being at rock-bottom levels.

Even 25% of homeowners who took out HARP loans, many of which are underwater or lack substantial home equity, chose shorter terms!

If anything, it tells you that the vast majority of homeowners believe in the housing recovery, regardless of whether the pundits do or not.

And those who don’t own a home seem to want in immediately…

Read more: What is a cash-in refinance?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Mortgage Rates Not as Low as They Could Be

A new Fed study and associated workshop revealed that mortgage lenders continue to offer inflated mortgage rates to consumers, despite ongoing efforts to reduce such borrowing costs.

Over the past several years, the Fed has pledged to purchase billions in mortgage-backed securities (MBS) in an effort to lower consumer mortgage rates.

The plan seems to have worked so far, pushing 30-year fixed mortgage rates from the five-percentage range to around 3.3% today.

However, Federal Reserve Bank of New York researchers Andreas Fuster and David Lucca argue that rates should be even lower.

In fact, the 30-year fixed could be closer to 2.6% if the yield declines in MBS were fully passed on to consumers.

Fat chance.

Lender Profits Clearly Rising

profits

While it’s open for debate, it’s clear that lender profits have risen substantially in recent years, largely because of the widening spread between yields on MBS and primary mortgage rates.

During 2007, this primary-secondary spread was around 45 basis points, but has since risen 70 bps to about 115 bps.

spread

Some of the participants in the workshop attributed the disparity to higher guarantee fees (which are passed on to consumers), costs associated with putback risk (repurchasing bad loans), a decline in the value of mortgage servicing rights, and so on.

But if you look at the mortgage banker profit survey from the Mortgage Bankers Association, the average profit on home loans originated in the third quarter of 2012 was $2,465, up from $1,423 two years earlier.

Profits have nearly doubled in just two years, at a time when banks and lenders have made it appear as if mortgages are no longer cash cows.

Why Won’t They Lower Mortgage Rates More?

You’d think that with profits so high, more competitors would enter the space and offer even lower rates to snag valuable market share. Or that existing lenders would battle one another and force rates lower.

Unfortunately, this hasn’t been the case. It seems as if a smaller group of large players essentially control the market.

Just look at Wells Fargo’s share of the mortgage market, which is now more than a third of total volume.

So why are things different this time around? Well, the researchers argue that lenders are increasingly uncertain about the future.

After all, this is an unprecedented time, and the recent mortgage boom could easily go bust at the drop of a hat, or perhaps at the sight of a fiscal cliff.

It’s no secret that loan origination volume is slated to fall tremendously next year, with refinances expected to slide from $1.2 trillion this year to $785 billion in 2013.

And new market entrants would probably think twice about jumping in if business is expected to slow that dramatically.

If things aren’t expected to last, taking larger profits now makes more sense, even if consumers get the short end of the stick.

Additionally, with mortgage rates already at historic lows, why go lower? I’m sure lenders are sitting back and saying, “Hey, these borrowers are already getting ridiculously low rates.”

And if all banks and lenders are in agreement, they can hold rates a bit higher than they otherwise should be.

At the same time, borrowers are probably satisfied with the rates currently available, meaning they shop less and lenders don’t have to worry about being priced out of the market.

There’s also the thought that it takes time for rates to fall on the consumer-end, as lenders get more and more comfortable with offering such a low rate.

Conversely, lenders will raise rates the second they fear they’re too low to avoid getting burned themselves.

But a more innocent explanation is simply that offering rates too low could overwhelm the banks.

Mortgage volume is already high, and staff is probably still relatively thin thanks to the recent crisis, so lowering rates more would grind things to a halt.

A lack of third-party originators, including mortgage brokers and correspondent lenders, has added to these capacity concerns.

How Low Will They Go?

The researchers summed things up by remarking that mortgage rates probably won’t fall to 2.6% in part because of the higher guarantee fees charged by Fannie Mae and Freddie Mac.

Of course, those guarantee fees should only reflect about a .25% increase in rate for the consumer. As for the remaining .50%, they argued that easing capacity constraints and thereby reducing existing lenders’ pricing power could push rates closer to a more modest 3%.

This could be accomplished by lowering net worth requirements to allow more market participants, extending rep and warranty reliefs to different servicers for streamline refinance programs, such as HARP II, and making more loans already owned by Fannie and Freddie eligible for such programs.

Ironically, the GSEs raised guarantee fees to encourage more private capital in the mortgage market, but instead it appears as if the same banks are just retaining more of the profits.

Source: thetruthaboutmortgage.com

New Petition Urges Mortgage Re-HARPing

Well, file this one under “was bound to happen,” or, “was only a matter of time.”

A clever guy by the name of Marcus J. from Clementon, New Jersey has created an online petition to eliminate the securitization cut-off date for HARP eligibility.

At the moment, this ever-important cut-off date is May 31, 2009, meaning if your mortgage was sold to Fannie Mae or Freddie Mac after that date, you’re not eligible for a HARP refinance.

Unfortunately, many homeowners already refinanced their mortgages under HARP, perhaps when it wasn’t as attractive as it is now, seeing that there is a much more flexible HARP 2 nowadays.

At the same time, mortgage rates have marched lower and lower since HARP was originally unveiled, again, likely frustrating homeowners who refinanced early on.

There are also the many people who purchased homes after that cut-off date, who are now underwater and likely seeking a HARP refinance.

Eliminate HARP Cut-Off Date?

The petition essentially calls for the elimination of the cut-off date, which Marcus J. refers to as “arbitrary,” along with the one-time HARP limit. This would allow for so-called “reHARPing.”

He argues that removing these roadblocks would permit millions of Americans to refinance their mortgages to lower rates, thus saving thousands on their monthly mortgage payments over time.

Note: You can reHARP a Fannie Mae loan that was refinanced under HARP from March to May 2009.

Interestingly, he isn’t the first to propose such an idea. Back in May 2012, U.S. Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA) proposed extending the cut-off date an additional year to May 31, 2010.

That seemed to fall on deaf ears, so it’s unlikely a complete removal of this key date will be approved.

As much as it sounds like a good idea (maybe), it’s a bit of a slippery slope. If you remove the date, borrowers could just refinance over and over until they saw fit, assuming rates continued to fall.

And this isn’t a traditional refinance program – it’s essentially a loss mitigation tool for distressed borrowers, or those at risk of walking away.

A line has to be drawn somewhere, otherwise it would become something of a free-for-all.

Does the cut-off date deserve a second look? Absolutely; the FHFA should dissect the data to determine if extending it will provide a net benefit.

But removing the date entirely might be a bit extreme.

When it comes down to it, timing can be your best friend or your worst enemy, and we can’t rely on the government to extend the program every time rates drop, especially when there’s not even a refinance program for non-agency mortgages.

Ironically enough, you can blame the government for creating this situation, seeing that they simultaneously worked to push mortgage rates lower and lower long after HARP was released.

Petition Needs 25,000 Signatures

petition

It will certainly be interesting to see if the petition receives the necessary 25,000 votes to at least “get a look.”

It’s currently available for online signature over at whitehouse.gov, which is the official website to have your voice heard.

At the moment, it only has 26 signatures, so an additional 24,974 are needed by February 8th, 2013 in order for an official review and response from the Obama administration.

Additionally, it needs at least 150 signatures to be publicly searchable on the website, meaning it’s got zero visibility right now.

If you’re interested, you can sign here.

(photo: Feral78)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

New Refinancing Program for Loans Not Owned by Fannie or Freddie

Last updated on December 13th, 2017

Yet another mass refinancing program has been proposed, this time by Oregon Senator Jeff Merkley.

His program, “The 4% Mortgage: Rebuilding American Homeownership” (RAH), is geared toward underwater borrowers who have kept up with their mortgage payments, but haven’t been able to receive assistance via existing programs.

It specifically targets those who hold mortgages that aren’t government-backed, and therefore do not qualify for HARP or HARP II. Presumably, it includes those with jumbo mortgages as well, who have also been left out of the refinancing party.

So basically all homeowners with private-label mortgages, which is a figure somewhere north of three million. Clearly a lot of individuals have been left out.

A refinancing program for these borrowers is certainly overdue, so perhaps it could work. Let’s look at the details.

How RAH Would Work

A temporary, government-backed trust would be created by the Treasury, the Federal Reserve, or the FHA to purchase mortgages from banks, credit unions, and mortgage lenders that meet the program’s criteria.

The trust would create a secondary market for the loans, and sell bonds to raise funds so it could purchase the mortgages.

Investors would buy the bonds because of their implied government guarantee, thus creating ongoing liquidity to fund the program.

RAH would make money via the near 2% spread between the cost of funds and the interest rate charged to homeowners, and therefore would not need taxpayer money to operate.

It would only offer mortgages for three years, at which point it would only exist to service the mortgages. Once all the loans were sold, paid off or refinanced, it would be closed down entirely.

The guidelines are pretty straightforward.  If you’re current on your mortgage payments, you qualify.

There do not seem to be any loan-to-value limits, though those with mortgages greater than 140% LTV would need a write-down to qualify. In other words, these homeowners would probably be out of luck.

Additionally, borrowers would still need to pay mortgage insurance until their LTV dropped to 80%, and those who chose to participate would not be able to entertain a short sale for the first four years of the loan. Makes sense.

RAH Mortgage Options

There are three options for homeowners, including a 5% 30-year fixed mortgage, a 4% 15-year fixed mortgage, and a two-part combo mortgage.

The first two options are pretty self-explanatory. You get a better deal with the shorter-term mortgage, but you’d be more invested, as much larger payments would be required each month.

In both cases, you’d be paying above the prevailing market rate, which is how the program would have funds to operate, but ideally much lower than your existing mortgage rate.

Their case study assumes a borrower has a mortgage rate around 7% on a first mortgage, and 8% on a second mortgage, so switching to a 15-year mortgage would leave payments nearly unchanged.

But those who stayed with a 30-year mortgage term could save $500 or so a month in some cases, which would boost the economy and reduce foreclosure starts.

The third option would be a two-part combo loan with a soft second mortgage. The mortgage would be broken up into a first mortgage at 95% LTV, and a second mortgage for the remaining balance.

The soft second would not accrue interest for the first five years, and would not require any payments during that time.

This would essentially make it act like a temporary principal reduction, without the “moral hazard” of reducing balances for some but not all homeowners.

Does It Make Sense?

The program seems to be fairly sound in theory, and provides enough of a benefit to borrowers without putting too much risk on whoever decides to helm the program (via those higher-than-market mortgage rates).

And it’s certainly a worthy idea, given how many homeowners still can’t take advantage of loan modifications, most of which are reserved for those with government-backed loans.

But it might be too late for most borrowers, who have either already been foreclosed on or have simply given up on their current home.

At the end of the day, you kind of have to wonder how many homeowners are still waiting for help six years later…

For the record, Obama floated a similar idea back in February called the “Broad Based Refinancing Plan,” though because it requires congressional approval, is likely dead in the water.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com