Mortgage Rate News

One of the mortgage trends we saw earlier in the whole subprime lending mess was people making the conscious decision to simply walk away from their homes. Rather than try to save the home, some people, unable to make resetting mortgage payments, simply walked away. In some corners, the move was being seen as a smart financial move.

Now conventional wisdom is being turned on its head yet again: With mortgage lenders reluctant to help people who have been hitherto making their mortgage payments, the new trend may be to default on purpose. This was seen a little bit when the government announced its voluntary programs, but now that the Treasury department and the FDIC are contemplating more mandatory and generous measures, mortgage default on purpose may become more popular.

Setting up for mortgage payment default

One of the problems many homeowners are running into is how unwilling mortgage lenders are to help. Whether they are trying to get a short sale, or just trying to get loan modification, many of them are being told that mortgage lenders will not consider chaning things up unless payments have already been missed. In some cases mortgage lenders require that homeowners miss three months worth of payments before helping. You can see where this is leading, and why this is shortsighted on the part of mortgage lenders.

Homeowners who want to stay in their homes, but recognize ahead of time that they may have a problem, are trying to do what they can to avert foreclosure. But mortgage lenders, determined to go as long as possible to get whatever they can, are not being helpful. So what ends up happening instead is that some homeowners go into mortgage default on purpose so that they can have access to programs from the lender and from the government.

Instead of backing homeowners into a corner (and increasing the rate of foreclosure), mortgage lenders should be helping the people who come to them in good faith. They should be helping with loan modifications before payments are missed. This way, the homeowner keeps making payments, and the bank doesn’t have the expense and hassle of foreclosing on the home.

It seems like common sense.

Tags: mortgage default, mortgage trends, home mortgage loan, mortgage lenders,
foreclosure, homeowners, mortgage loan blog

Today, there is a reasonable amount of mortgage market news — and it’s still before noon. The biggest items of interest for some are the following:

1. Mortgage interest rates are spiking.
2. The FDIC and the Treasury are unveiling a plan to stymie foreclosures.

Mortgage interest rates head higher

While yesterday’s Fed rate cut is likely to help adjustable rate mortgages and home equity lines of credit, it is not very favorablet o fixed rate mortgages. Indeed, as CNN Money reports, mortgage interest rates are following Treasury bond yields higher:

“Long-term mortgage rates followed long-term Treasury bond yields higher this week, pushing fixed-rate mortgages up to levels of two weeks ago,” said Frank Nothaft, Freddie Mac (FRE, Fortune 500) vice president and chief economist.

Last week, mortgage interest rates were sitting at around 6.06%. Now they have spiked rather dramatically to 6.46%. This time last year, they were at 6.26%. It appears that everything that has to do with money and finance is volatile right now, and in a state of flux. And that includes mortgage interest rats.

New plan to stop foreclosures

So far, everything the government has tried to stymie increasing numbers of foreclosures has fallen a bit short. So the FDIC and the Treasury are adding to the efforts with a new plan. Rather than simply attacking toxic assets, the government now plans to try and fix the problem at the source: Mortgagest hat are likely to slip into foreclosure. The idea is for the government to guarantee restructured loans, reports BloggingStocks:

The plan, which could place as many as three million homeowners in affordable mortgages, would require lenders to restructure mortgages based on the borrower’s ability to repay. In exchange, banks / lenders would receive a federal guarantee that the loan would be repaid; program guarantees are estimated at $500 billion.

An interesting idea. However, there are likely to be some homeowners who will not be able to repay no matter what — unless the new terms include a very long mortgage term of between 40 and 60 years. I wonder if that is what is had in mind. If the borrower can’t repay in 30, offer him or her a 60 year modified mortgage so that payments can be made.

Tags: mortgage interest rates, mortgage rates, mortgage market, mortgage market news,
interest rates, Fed rate cut, home equity lines of credit

When my husband and I bought our house last year, we went with FHA financing, coupled with a first time homebuyer program from the state. It worked out really well. But at the time we bought our home, FHA financing was not terribly popular. The main reason is that with FHA financing, a 3% down payment was required (it’s gone up to 3.5% under new FHA loan rules). At the time, people didn’t want to come up with a 3% down payment when they could go the 0 down route.

This year is different. It’s getting harder to get a home mortgage loan, and some mortgage lenders are asking for 5%, 10% and even 20% as a down payment. Interest rates are higher, and underwriting departments are seriously jumpy in some cases. All of this means that FHA financing is suddenly looking rather attractive.

Calculated Risk put together this chart to show the rising popularity of FHA financing:

Conventional financing is still more popular, but FHA financing is on the rise. Calculated Risk reports that the Census Bureau figures show that 17% of new homes sold in 2008’s third quarter were done so through FHA financing. On average, from 2005 to 2007, that number was only 4%. That’s a rather remarkable jump when you stop and think about it.

What do DAPs have to do with it?

Calculated Risk suggests that the big increase in FHA financing is due mainly to down payment assistance programs (DAPs). In the run up to October 1, when DAPs were banned from FHA financing, many home mortgage loan programs pushed these in order to take advantage of the impending change in the rules.

While I think that DAPs probably did contribute to the popularity of FHA financing, I’m not sure there will be a big drop off (although I except some). Right now, FHA home mortgage loans offer some of the better deals out there for homebuyers. In terms of interest rate and down payment requirements — and even credit requirements — FHA financing has become somewhat flexible when compared to some other mortgage lenders. And that makes FHA financing more appealing than it has been for years.

Tags: FHA loan rules, FHA financing, home mortgage loans, home loans,
mortgage lenders, mortgage market, mortgage market trend