Monday, November 17, 2014

Credit Unions Step in to Fill Lending Void

The number of mortgage originations issued from credit unions in the first half of 2014 has climbed 10 percent year-over-year. This has elevated credit unions to having more than 8 percent share of the home loan market—about triple their share prior to the recession—making them a growing option for home buyers looking for financing, according to data from the Credit Union National Association.
In June, the nation’s 6,557 credit unions surpassed 100 million members (you still have to be a member of one to get a loan, but many credit unions are tied to employment, trades, religious groups, or specific communities). Nearly two-thirds of credit unions offer mortgages.
“We’ve seen a very strong increase in originations over the course of the last several years,” Mike Schenk, vice president of economics and research at CUNA, told the Los Angeles Times.
Mortgages comprise about 41 percent of all credit union loans compared to 25 percent in 2000. The average loan amount at a credit union is $130,000, and 70 percent of the loans offered are for 30-year fixed-rate mortgages. But many credit unions do offer different financing options for members. For example, Pentagon Federal, with 1.3 million members nationwide, introduced a 15/15 adjustable mortgage, where rates reset only once at the midterm mark to reflect the current market rate. Also, the National Institutes of Health Federal CU offers the five-year fixed-rate mortgage, dubbed the “see ya” loan, which allows home owners to refinance and coordinate it to a time of a special event, such as retirement or when the children go to college, in order to end their mortgage payments by that time.
Credit unions don’t typically charge cheaper interest rates, but they “tend not to tack on a bunch of superfluous fees that other lenders seem to love,” the Los Angeles Times notes in a recent article. “And because they are local and member-controlled, they are more likely to consider applicants with a story to tell than some underwriter five states over who is forced to stick to standard guidelines.”
Source: “Shopping for a Loan? Credit Unions Can be Consumer-Friendly Option,” Los Angeles Times (Nov. 9, 2014)

Monday, October 20, 2014

Fannie, Freddie to Loosen Up on Lending

The regulator of mortgage giants Fannie Mae and Freddie Mac is reportedly working on a deal with the financing entities that will loosen up lending standards and make mortgages more affordable for those with less-than-perfect credit. The move is expected to expand home buyers’ access to financing, as tight credit the last few years has kept many sidelined. 
The new rules reportedly will include a lower minimum down payment requirement (from 5 percent to 3 percent), in order for lenders to qualify to sell a loan to Fannie Mae and Freddie Mac. That would bring down payment in sync with the Federal Housing Administration, which insures loans made to lower-income borrowers and first-time buyers. Fannie Mae and Freddie Mac guarantee about 59 percent of all mortgages written.
The Federal Housing Finance Agency, which regulates Fannie and Freddie, reportedly will include more safety measures to help lenders protect themselves from making bad loans. Lenders have faced numerous high-dollar settlements after issuing loans that later defaulted. The new agreement would give greater confidence to lenders so they won’t be penalized years after a loan is made, The Wall Street Journal reports. 
The potential agreement “would allow credit to flow more freely to lower- and middle-income households,” Mark Zandi, chief economist at Moody’s Analytics, told The Wall Street Journal. “That’s vital to getting the housing recovery moving forward.”
During the financial crisis, the financing giants faced steep losses as home loans defaulted. The spike was blamed on poor underwriting by lenders in ensuring that borrowers could afford their mortgages. In response, the companies, which were seized by the government in 2008, have had banks tighten their credit standards, which some critics say has gone too far and prevented many home buyers from qualifying for a home loan. 
The Urban Institute has estimated that 1.2 million more mortgages would have been issued in 2012 alone if lending standards that were commonly used in 2001 were still in place. 
"Understandably, after the [financial] crisis the pendulum of mortgage credit standards swung to a far extreme” Paul Leonard, California director of the Center for Responsible Lending, told the Los Angeles Times. “It's now working its way back to a more moderate position.”
The FHFA is expected to formally announce the plans later this week. 
Source: “Fannie Mae, Freddie Mac Reach Deal to Ease Mortgage Lending,” Los Angeles Times (Oct. 17, 2014) and “Mortgage Giants Set to Loosen Lending,” The Wall Street Journal (Oct. 17, 2014)

Wednesday, October 15, 2014

Small Lenders Bend for Risky Borrowers

Borrowers with minor imperfections on their credit applications — like a brief loss of employment or a temporary dip in their credit score — are starting to have better luck at snagging a loan with smaller lenders, Bloomberg reports. At least 15 smaller firms this year are offering slightly riskier mortgages, which in some cases come with higher interest rates and larger down payment requirements and aren’t backed by the government.
 “Some lenders became afraid of their own shadows,” RPM Mortgage Inc. Chief Executive Officer Rob Hirt told Bloomberg. The bank started a program this summer for borrowers who have higher debt burdens or who had sold a home for less than the outstanding mortgage. “The market is beginning to realize that if you make smart and sound loans to people who don’t fit in the narrow box, it doesn’t make them a worse risk.”
On the other hand, larger banks, like Bank of America and JPMorgan Chase & Co., have generally tightened their credit standards over the last few years. The average score on mortgages that government-controlled Fannie Mae and Freddie Mac bought now stands at about 740 – well above the 660 level that is considered subprime. Some of the big banks are reluctant to ease their credit standards, concerned that Fannie, Freddie, and the FHA will force them to buy back bad loans with underwriting errors; the banks do not want to take on the risks of loans that the government programs won’t insure, Bloomberg reports. The lending giants from 2006 through 2012 faced more than $200 billion in losses from home loans, according to Moody’s Analytics data.
But where big banks are stepping back, small banks are stepping in. For example, Shellpoint Partners LLC’s New Penn unit began this summer to offer mortgages for home buyers with debt-to-income ratios up to 55 percent and interest-only loans when borrowers have “high disposable income” or “high income potential due to their line of work.” Lone Star Funds’ Caliber Home Loans Inc. also debuted this summer new programs that offer flexibility for foreign nationals and on purchases of condos without approval for government programs. TD Bank’s Right Step program allows borrowers to put 3 percent down and not have to pay mortgage insurance if they have credit scores of 660 or above. Banc of California is providing loans to borrowers who have a foreclosure or late payments on their records, as long as they can make a down payment of at least 20 percent and show other strong assets in their finances.
“To us, it’s common sense,” says Jeff Seabold, chief lending officer at Banc of California. “There’s quite a few people who are boxed out that shouldn’t be.”
Source: “You Don’t Need to Be Perfect to Get a U.S. Loan Anymore,” Bloomberg Businessweek (Oct. 13, 2014)

Tuesday, October 14, 2014

Ex-Owners Bamboozled Years After Foreclosure

Thousands of Americans who lost their homes to foreclosure years ago may have finally moved on, rebuilt their finances, and even considered home ownership again. But first, they may have to face a rising number of debt collectors who are chasing them down for money they still owe from the foreclosure they thought they had left in the past.
More banks are getting aggressive in pursuing deficiency judgments, finding that the proceeds of foreclosure sales may not have been enough to cover the amount of the loans, plus penalties, legal bills, and other fees.
"Using a legal tool known as a 'deficiency judgment,' lenders can ensure that borrowers are haunted by these zombie-like debts for years, and sometimes decades, to come," Reuters reports. "Before the housing bubble, banks often refrained from seeking deficiency judgments, which were seen as costly and an invitation for bad publicity. Some of the biggest banks still feel that way. But the housing crisis saddled lenders with more than $1 trillion of foreclosed loans, leading to unprecedented losses. Now, at least some large lenders want their money back, and they figure it's the perfect time to pursue borrowers: many of those who went through foreclosure have gotten new jobs, paid off old debts, and, in some cases, bought new homes."
Mortgage giant Fannie Mae is one of the most aggressive in pursuing deficiency judgments. Of the 595,128 foreclosures the government-sponsored enterprise was involved in through owning or guaranteeing the loan, it has referred 293,134 to debt collectors for possible deficiency judgment, according to a report by the Inspector General, reflecting the time period from January 2010 through January 2012.
Some of the largest mortgage lenders — JPMorgan Chase, Bank of America, Wells Fargo & Co., and Citigroup — say they don't usually pursue deficiency judgment, but they do reserve the right to do so.
"We may pursue them on a case-by-case basis, looking at a variety of factors, including investor and mortgage insurer requirements, the financial status of the borrower, and the type of hardship," says Wells Fargo spokesman Tom Goyda.
Many borrowers may be surprised to later learn that their foreclosure from years ago is not really behind them. For example, former home owner Danell Huthsing thought she was in the clear after a foreclosure in 2008 on a home she shared with her boyfriend. But this summer, she was served with a lawsuit demanding $91,000 for the amount of mortgage still unpaid after the home was foreclosed and sold. She plans to appeal, but if she loses, the debt collector who filed the lawsuit will be able to freeze her bank account, garnish up to 25 percent of her wages, and seize her paid-off car, Reuters reports.
"For seven years, you think you're good to go, that you've put this behind you," said Huthsing. "Then wham, you get slapped to the floor again."

Friday, September 26, 2014

Nearly 1 Million Homeowners Regain Equity


Nearly 950,000 homes returned to positive equity in the second quarter, now bringing the total number of residential homes with equity nationwide to more than 44 million, according to CoreLogic’s Equity Report.  
“The increase in borrower equity of $1 trillion from a year earlier is evidence that things are moving solidly in the right direction,” says Sam Khater, deputy chief economist for CoreLogic. “Borrower equity is important because home equity constitutes borrowers’ largest investment segment and, as a result, is driving forward the rise in wealth for the typical home owner.”
Still, home price rises are needed to help more home owners feel more confident in their equity position. Of the 44 million properties with positive equity, about 9 million – or 19 percent – have less than 20 percent equity (labeled “under-equitied”), and 1.3 million have less than 5 percent (considered “near-negative equity”), according to CoreLogic.
About 5.3 million homes – or 10.7 percent of all residential properties with a mortgage – remained in negative equity as of the second quarter. The number is falling. A year ago, 7.2 million homes – or 14.9 percent –were in negative equity. Negative equity is when borrowers owe more on their mortgages than their homes are currently worth.
“Borrowers who are ‘under-equitied’ may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints,” according to CoreLogic’s report.
If home prices rise by just 5 percent, an additional 1 million home owners currently in negative equity could regain equity, according to CoreLogic’s analysis.
“Many home owners across the country are seeing the equity value in their homes grow, which lifts the economy as a whole,” says Anand Nallathambi, president and CEO of CoreLogic. “With more and more borrowers regaining equity, we expect home ownership to become an increasingly attractive option for many who have remained on the sidelines in the aftermath of the Great Recession. This should provide more opportunities for people to sell their homes, purchase a different home or refinance an existing mortgage.”
State Breakdown
The states with the highest percentage of properties with a mortgage in negative equity as of the second quarter were:
·         Nevada: 26.3%
·         Florida: 24.3%
·         Arizona: 19%
·         Illinois: 15.4%
·         Rhode Island: 14.8%
On a metro level, Tampa-St. Petersburg-Clearwater, Fla., had the highest percentage of mortgaged properties in negative equity at 26.2 percent, followed by Phoenix-Mesa-Scottsdale, Ariz., at 19.5 percent.
On the other hand, the following states had the highest percentage of properties with a mortgage that were in an equity position:
·         Texas: 97.3%
·         Alaska: 96.5%
·         Montana: 96.4%
·         North Dakota: 96%
·         Hawaii: 96%
On a metro level, Houston-The Woodlands-Sugar Land, Texas, boasted the highest percentage of properties with a mortgage in an equity position at 97.5 percent, followed by Dallas-Plano-Irving, Texas, at 97 percent.
Source: CoreLogic

Wednesday, September 10, 2014

Mortgage Giant Opens Door for Earlier Return of Ex-Home Owners

Former distressed borrowers may be able to jump back into home ownership sooner than they expected. Fannie Mae officials say the organization is overhauling its policy to change the minimum waiting period following a pre-foreclosure sale or deed-in-lieu of foreclosure, taking the standard wait-out period from seven years to four years or perhaps even shorter.
Under the new policy, Fannie has removed the LTV requirements. All loans with application dates on or after Aug. 16 now will have a standard waiting period of four years, and only two years under extenuating circumstances.To be eligible for a new mortgage loan, Fannie requires formerly distressed borrowers to show they’ve reestablished their credit after a foreclosure, bankruptcy, preforeclosure sale, or deed-in-lieu. The standard waiting period was two years with a maximum 80 percent loan-to-value ratio and four years with a maximum 90% LTV. Standard eligibility, however, is seven years. In some cases, such as extenuating circumstances where borrowers had a prolonged reduction in income that was beyond their control, they may only have to wait two years with a maximum 90% LTV to get a new mortgage again.  
For example, a borrower who had a preforeclosure sale five years ago — not due to extenuating circumstances — would be eligible for a new loan with as low as a 5 percent down payment (they would not have been eligible prior to the change in the policy unless they at least had a 10 percent down payment). Also, a borrower with a deed-in-lieu two years ago that was due to extenuating circumstances would also be eligible for a new mortgage backed by Fannie with as low as a 5 percent down payment, in which they would not have been otherwise and would have needed at least a 10 percent down payment.
Other programs, such as the FHA's Back to Work program, are also available to formerly distressed borrowers and are curtailing the wait times even more, to as little as 12 months following a foreclosure or short sale. 
Source: “Fannie Mae Widens Credit Box for Failed Home Owners,” HousingWire (Sept. 9, 2014)

Friday, August 29, 2014

Economists Grow More Optimistic About Housing’s Outlook

The strengthening job market has more economists gaining confidence about the direction of the housing market over the next two years, according to a newly released Reuters poll of 29 housing analysts, including investors and economists.
What’s more, economists expect home resales to continue to inch up in 2015, reaching 5.29 million by the second quarter of 2015.The economists surveyed expect existing-home sales to increase to 5.25 million units in the first three months of 2015. Currently, existing-home sales stand at 5.09 million. In May, the economists surveyed had expected much slower gains at 5.1 million expected in the first quarter of 2015.
The job market is why most of the economists are starting to change their tone about housing’s outlook. For the last six consecutive months in July, employers added more than 200,000 jobs.
"Low mortgage rates and improving labor market dynamics should remain conducive to gradual growth in the housing sector," Gennadiy Goldberg, a strategist at TD Securities, said in a recent note to clients.
The housing analysts surveyed expect mortgage rates to rise more slowly than they originally thought in May. Still, they do expect rises are looming with expectations that the Federal Reserve will slowly begin to increase its benchmark interest rate around the middle of next year. The Fed has held the benchmark interest rate near zero since 2008.
The economists polled expect the 30-year, fixed-rate mortgage to rise to 5.25 percent in 2016. That is a slight drop from the 5.68 percent average they had predicted in the May poll.
The 30-year fixed-rate mortgage is currently averaging 4.10 percent, according to Freddie Mac.
Nevertheless, the economists say the housing recovery likely won’t be derailed by a gradual increase in mortgage rates.
"If a rise in mortgage rates comes with a stronger economic recovery, the housing market will be able to absorb it," Alexander Lin, an analyst at Bank of America Merrill Lynch, told Reuters.

Thursday, August 21, 2014

Obama Administration Settlement With Bank Of America Will Strengthen FHA Fund, Provide Billions In Consumer Relief

U.S. Department of Housing and Urban Developement
Press Release
August 21, 2014

Washington – The Obama Administration today announced an almost $17 billion global settlement with Bank of America. $1 billion of the total settlement amount resolves claims arising from allegations of fraud involving certain Federal Housing Administration (FHA)-insured single-family mortgage loans and a failure to perform under its servicing contract with the Government National Mortgage Association (Ginnie Mae). Under the terms of the settlement, Bank of America will pay $800 million to resolve the claims relating to FHA and $200 million to Ginnie Mae. The remaining nearly $16 billion of the total settlement amount resolves fraud claims involving the pooling of residential mortgage backed securities, collateralized debt obligations, and other claims by the United States, along with the States of California, Delaware, Illinois, Maryland, New York, and the Commonwealth of Kentucky, and includes $7 billion in consumer relief with a focus on borrowers that were in the hardest-hit areas during the housing crisis.

"Today’s settlement with Bank of America is another important step in the Obama Administration’s efforts to provide relief to American homeowners who were hurt during the housing crisis,” said U.S. Department of Housing and Urban Development (HUD) Secretary Juli├ín Castro. “This global settlement will strengthen the FHA fund and Ginnie Mae, and it will provide $7 billion in consumer relief with a focus on helping borrowers in areas that were the hardest hit during the crisis.  HUD will continue working with the Department of Justice, state attorneys general, and other partners to take appropriate action to hold financial institutions accountable for their misconduct and provide consumers with the relief they need to stay in their homes. HUD remains committed to solidifying the housing recovery and creating more opportunities for Americans to succeed.”
This settlement is part of the ongoing efforts of President Obama’s Financial Fraud Enforcement Task Force’s RMBS Working Group.

Working with the Department of Justice, HUD’s Office of General Counsel, Office of Housing, and Office of the Inspector General worked extensively on the fraud investigation involving FHA-insured single-family mortgage loans that were underwritten by Bank of America during the period from May 1, 2009, to April 1, 2011. HUD also provided assistance with respect to a breach of contract claim involving Bank of America’s role as one of two master subservicers for Ginnie Mae’s portfolio of defaulted single-family mortgages.

The $7 billion in consumer relief will focus on areas that were hardest hit during the housing crisis. Consumer relief will take various forms including loan modification for distressed borrowers, including FHA-insured borrowers, and new loans to credit worthy borrowers struggling to get a loan in hardest hit areas, borrowers who lost homes to foreclosure or short sales, and moderate income first-time homebuyers. Bank of America will also make donations to community development funds, legal aid organizations, and housing counseling agencies to assist individuals with foreclosure prevention and to support community reinvestment and neighborhood stabilization. They will also provide financing for affordable rental housing with a focus on family housing in high-cost areas.  An independent monitor will be appointed to ensure compliance with the terms of the agreement.

Monday, August 11, 2014

REO Inventories Shrinking for Fannie, Freddie


Government-sponsored enterprises Fannie Mae and Freddie Mac have been working through the REO inventory load they hold on their books, a move that helped them report a profit yet again in the latest quarter.
In the second quarter of this year, Fannie Mae’s REO inventory stood at 96,796 compared to 166,787 properties it held in the third quarter of 2010. Freddie Mac is also reporting a large decrease: In the second quarter of this year, it held 36,134 REOs on its books compared to its peak of 74,897 in the third quarter of 2010.
REO numbers have been steadily dropping over the last few quarters as foreclosures continue to fall nationwide.
Fannie Mae says that in the first half of this year it has seen a “modest increase in REO prices” compared with the “significant increase” in REO prices it saw during the second quarter and first half of 2013.
As the housing market improves, the GSEs are continuing to report profits. In the second quarter, Fannie Mae reported a net income of $3.7 billion while Freddie Mac reported a net income of $1.4 billion, its 11th consecutive quarter of positive earnings. Tim Mayopoulos, Fannie Mae’s chief executive, told reporters on a recent conference call that he expects Fannie Mae to remain profitable for the “foreseeable future.”
Both Fannie Mae and Freddie Mac came under government conservatorship in 2008. The GSEs must turn over their profits to the U.S. Treasury, a requirement for the government bailout. Fannie Mae and Freddie Mac will make their latest payments to the U.S. Treasury in September, which will amount to $218.7 billion to taxpayers in return for the $187.5 billion in aid they had received during the height of the financial crisis, Reuters reports.

FICO Scoring Changes May Help More Qualify for Mortgages

FICO, the nation’s most popular credit-scoring system, announced it is tweaking some of the criteria used in coming up with consumers’ scores, which could help consumers save more money in qualifying for mortgages and other types of loans.
The changes include reducing the toll that overdue medical bills can take on credit scores, as well as removing other past penalties from consumers who have paid off debts that had been assigned to collection agencies. A consumer whose only major delinquency comes from an unpaid medical bill could see their credit score rise by 25 points due to the changes.
The changes come after a recent Consumer Financial Protection Bureau study, which found that both paid and unpaid medical debts were unfairly penalizing consumers’ credit ratings. An estimated 64 million Americans have a medical collection item on their credit reports, according to Nick Clements of Magnify Money, a personal finance site.
The FICO changes will go into effect this fall, but borrowers may have to wait a year or more until they see the impact of the changes in their scores, lenders say.
The changes may help consumers with blemished past credit histories or high medical debts qualify for mortgages more easily. Consumers with higher scores also might qualify for a lower rate, housing experts say.
"In recent years the [credit score requirement] has been dialed so tightly that only fairly upper-tier consumers were able to qualify for a loan," says Lawrence Yun, National Association of REALTORS®’ chief economist. "We're looking at people who are currently being denied potentially being offered a mortgage because of this."
In June, the average FICO score for a closed mortgage was 728, a drop from 742 a year prior, according to data from Ellie Mae, a company that processes mortgage applications for lenders. FICO scores range from 300 to 850.
Borrowers with higher FICO scores can usually expect to pay less in interest on a loan. A borrower with a FICO score of 675 may nab a 4.75 percent interest rate on a 30-year fixed-rate mortgage, which would be about  $2,086 a month in payments on a $400,000 loan, according to Informa Research Services. In comparison, a borrower with a 700 FICO score may qualify for a rate of 4.212 percent, which could drop the monthly payment to $1,959 and bring a $127 savings.
The credit scoring changes will not remove any unpaid debts from a credit report, so some lenders may still be able to factor that information into their lending decision.
“This move will ultimately make a real difference in the lives of millions of Americans, who have been shut out of the housing market or forced to pay higher mortgage interest rates because of flawed credit scores,” Steve Brown, NAR’s president, said in a statement. “Since the housing crash, overly restrictive lending has been the greatest obstacle to home ownership. NAR will continue to support efforts to broaden access to credit for qualified homebuyers.”
In other news, two of the big national credit bureaus Experian and TransUnion recently reported they’ve  added verified rental payment data into credit files, which will be used to compute a consumers’ score when applying for a mortgage. A recent TransUnion study showed that the inclusion of rental data could raise some consumers’ scores. For example, nearly 20 percent of renters’ scores rose by 10 points or more after just one month.
Source: “New FICO Criteria Could Help Borrowers,” Los Angeles Times (Aug. 8. 2014) and “Experian, TransUnion Start Adding Rent Payment Data to Credit Profiles,” Los Angeles Times (Aug. 10, 2014)