OREGON REAL ESTATE ROUND TABLE

Tag: Fannie Mae

  • New Program for Buyers, With No Money Down, John Leland, Nytimes.com


    MILWAUKEE — When the housing bubble burst, one of the culprits, economists agreed, was exotic mortgages, including those that required little or no money down.

    But on a recent evening, Matthew and Hannah Middlebrooke stood in their new $115,000 three-bedroom ranch house here, which Mr. Middlebrooke bought in June with just $1,000 down.

    Because he also received a grant to cover closing costs and insurance, the check he wrote at the closing was for 67 cents.

    “I thought I’d be stuck renting for years,” said Mr. Middlebrooke, 26, who earns $32,000 a year as a producer for a Christian television ministry.

    Although home foreclosures are again expected to top two million this year, Fannie Mae, the lending giant that required a government takeover, is creeping back into the market for mortgages with no down payment.

    Mr. Middlebrooke’s mortgage came from a new program called Affordable Advantage, available to first-time home buyers in four states and created in conjunction with the states’ housing finance agencies. The program is expected to stay small, said Janis Smith, a spokeswoman for Fannie Mae.

    Some experts are concerned about the revival of such mortgages.

    “Loans that have zero down payment perform worse than loans with down payments,” said Mathew Scire, a director of the Government Accountability Office’s financial markets and community investment team. “And loans with down payment assistance” — like Mr. Middlebrooke’s — “perform worse than those that do not.”

    But the surprise is the support these loans have received, even from critics of exotic mortgages, who say low down payments themselves were not the problem, except when combined with other risk factors like adjustable rates or lax underwriting.

    Moreover, they say, the housing market needs such nontraditional lending, as long as it is done prudently.

    “This is subprime lending done right,” said John Taylor, president of the National Community Reinvestment Coalition, an umbrella group for 600 community organizations, and a staunch critic of the lending industry. “If they had done subprime this way in the first place, we wouldn’t have these problems.”

    At Harvard’s Joint Center for Housing Studies, Eric Belsky, the director, said the loans might be the type of step necessary to restart the housing market, because down payment requirements are keeping first-time home buyers out.

    “If you look at where the market may get strength from, it may very well be from first-time buyers,” he said. “And a very significant constraint to first-time buyers is the wealth constraint.”

    The loans are the idea of state housing finance agencies, or H.F.A.’s, quasi-government entities created to help moderate-income people buy their first homes.

    Throughout the foreclosure crisis, the state agencies continued to make loans with low down payments, often to borrowers with tarnished credit, with much lower default rates than comparable mortgages from commercial lenders or the Federal Housing Administration. The reason: the agencies did not offer adjustable rates, and they continued to document buyers’ income and assets, which many commercial lenders did not do. In 2009, the agencies’ sources of revenue dried up, and they had to curtail most lending.

    Then they created Affordable Advantage. The loans are 30-year fixed mortgages, with mandatory homeownership counseling, available to people with credit scores of 680 and above (720 in Massachusetts). The buyers have to put in $1,000 and must live in the homes.

    All of these requirements ease the risk, said William Fitzpatrick, vice president and senior credit officer of Moody’s Investors Service. “These aren’t the loans that led us into the mortgage crisis,” he said.

    So far Idaho, Massachusetts, Minnesota and Wisconsin are offering the loans. The Wisconsin Housing and Economic Development Authority has issued 500 loans since March, making it the first state to act. After six months, there are no delinquencies so far, said Kate Venne, a spokeswoman for the agency.

    The agencies buy the loans from lenders, then sell them as securities to Fannie Mae. Because the government now owns 80 percent of Fannie Mae, taxpayers are on the hook if the loans go bad.

    The state agencies oversee the servicing of the loans and work with buyers if they fall behind — a mitigating factor, said Mr. Fitzpatrick of Moody’s.

    “They have a mission to put people in homes and keep them in homes,” not to foreclose unless other options are exhausted, he said. The loans have interest rates about one-half of a percentage point above comparable loans that require down payments.

    Ms. Smith, the spokeswoman for Fannie Mae, distinguished the program from loans of the boom years that “layered risk on top of risk.”

    With the new loans, she said, “income is fully documented, monthly payments are fixed, credit score requirements are generally higher, and borrowers must be thoroughly counseled on the home-buying process and managing their mortgage debt.”

    For Porfiria Gonzalez and her son, Eric, the loan allowed them to move out of a rental house in a neighborhood with a high crime rate to a quiet street where her neighbors are retirees and police officers.

    Ms. Gonzalez, 30, processes claims in the foreclosure unit at Wells Fargo Home Mortgage; she has seen the many ways a mortgage holder can fail.

    On a recent afternoon in her three-bedroom ranch house here, Ms. Gonzalez said she did not see herself as repeating the risks of the homeowners whose claims she processed.

    “I learned to stay away from ARM loans,” or adjustable rate mortgages, she said. “That’s the No. 1 thing. And always have some emergency money.”

    When she first started shopping, she looked at houses priced around $140,000. But the homeownership counselor said she should keep the purchase price closer to $100,000.

    “They explained to me that I don’t need a $1,200-a-month payment,” she said.

    The counselor worked with her real estate agent and attended her closing. On May 28, Ms. Gonzalez bought her home for $90,500, with monthly payments of $834. After moving expenses, she has kept her savings close to $5,000 to shield her from emergencies.

    “If I had to make a down payment, it would have wiped out my savings,” she said. “I would have started with nothing.”

    Now, she said, she is in a home she can afford in a neighborhood where her son can play in the yard. A neighbor brought her a metal pink flamingo with a welcome sign to place by her side door.

    “My favorite part is the big backyard,” said Eric, 10. “And that’s pretty much it.”

    “You don’t like it that it’s a quiet, safe neighborhood?” his mother asked.

    “Yeah, I do.”

    “He didn’t go out much with kids in the old neighborhood,” she said.

    “Because they were bad kids,” he said.

    Ms. Gonzalez said that owning a house was much more work than renting, and that when the basement flooded during a heavy rain, her heart sank.

    “But I look at it as an investment,” she said, adding that a similar house in the neighborhood was on the market for $120,000.

    Prentiss Cox, a professor at the University of Minnesota Law School who has been deeply critical of the mortgage industry, said the program met an important need and highlighted the track record of state housing agencies, which never engaged in exotic loans.

    “It’s not a story people want to hear, because it won’t bring back the big profits,” Mr. Cox said. “The H.F.A.’s have shown how the problems of the last 10 years were about having sound and prudent regulation of lending, not just whether the loans were prime or subprime.”

    He added, “One of the great and unsung tragedies of the whole crisis was the end of the subprime market.”

  • Communities Get First Shot at Foreclosed Homes, By Gregory Korte, USA TODAY


    Major mortgage lenders will now give state and local governments the right to buy foreclosed properties before they go on the market, giving them “a leg up” on speculators who have often thwarted local redevelopment efforts, Housing Secretary Shaun Donovan announced Wednesday.

    The First Look program will give communities a 48-hour heads up on foreclosed properties and the ability to buy them at a 1% discount, Donovan said. The effort is intended to help improve the $7 billion Neighborhood Stabilization Program, he said.

    “First Look is good for our housing market because it will bring much-needed speed” to the sale of bank-owned homes, Donovan said. Data show that vacant homes are more than three times more destructive to neighboring home values than those early in the foreclosure process.

    USA TODAY reported in July that more than $1 billion in Neighborhood Stabilization Program funds were unspent two years after Congress authorized the program. Short staffing and confusion over rules were partly to blame, but local governments also said lenders wouldn’t deal their foreclosed properties.

    Often, cities can’t move as quickly as private companies in buying homes especially in highly visible areas or where they’re trying to assemble multiple properties in a land bank.

    “You can’t be successful in neighborhood stabilization unless you control all the pieces on the chess board,” said Craig Nickerson, president of the National Community Stabilization Trust, which runs the clearinghouse.

    The participating mortgage lenders account for 75% of foreclosed homes, Donovan said. They include Bank of America, Chase, Citibank, Wells Fargo and Freddie Mac.

    The banks won’t offer all their foreclosures. “We’re not going to run all our inventory through this engine,” said Steven Nesmith, senior vice president of Ocwen Financial Corp. He said about 20% will be offered to governments and non-profits.

    The plan might come too late to help communities involved in the first round of funding. Many have just days to write contracts or risk losing their federal funding. In all, 143 communities have less than a month to spend their federal money. If they don’t, the Department of Housing and Urban Development will freeze their unused funds as much as $354 million nationally and could take the money back.

    Palm Bay, Fla., has until Friday to spend its $5.2 million, and might fall $200,000 short. “Just with our purchasing requirements, we do not move as quickly as the private sector,” said David Watkins, the city’s growth management director.

    “If First Look had been available from the beginning, he said, “we might be at least three or four months ahead of where we are now.”

  • FHA puts floor on borrower credit eligibility, by CHRISTINE RICCIARDI, Housingwire.com


    Borrowers with credit scores less than 500 are not eligible for Federal Housing Administration-insured mortgage financing, according to the new credit score and loan-to-value (LTV) requirements released today by the U.S. Department of Housing and Urban Development.

    This is the first time the FHA has had a minimum score to determine borrower eligibility.

    Borrowers with a credit score between 500 and 579 can receive up to 90% LTV  from FHA for a single-family mortgage while any borrower with a score 580 or above is eligible for maximum funding. Non-traditional and insufficient credit is accepted provided that borrowers meet the underwriting guidelines.

    100% financing is available to borrowers using Mortgage Insurance for Disaster Victims with no downpayment, as long as their credit score is above 500.

    The FHA said it is providing a special, temporary allowance to permit higher LTV mortgage loans for borrowers with lower decision credit scores, so long as they involve a reduction of existing mortgage indebtedness pursuant to FHA program adjustments.

    The credit standards will take effect on Oct. 4.

  • Tax Credit Uncertainty Not Benefiting Housing Market, by CJ Moore, Technorati.com


    Could the home buyer tax credit be returning?

    That’s the hot topic right now in housing, as secretary of Housing and Urban Development Shaun Donovan wouldn’t squash the idea when he was asked about it Sunday on CNN’s “State of the Union.”

    “I think it’s too early to say after one month of numbers whether the tax credit will be revived or not,” Donovan said. “All I can tell you is that we are watching very carefully. … We are going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.”
    If Donovan were to follow his own advice – making sure the market stabilizes – he would be smart to provide some certainty to housing. By leaving the possibility open, Donovan could be postponing any chance of a recovery.

    The housing market certainly needs a boost after the news last week that new home sales and existing home sales in July dropped to record low levels.

    The tax credit certainly influenced these numbers. Many prospective homebuyers rushed to meet the April 31 deadline so they could receive the tax credit, and that undoubtedly interrupted the month-to-month flow of housing. By leaving the possibility open for another tax credit, it could have the opposite effect. Prospective buyers might hold out and wait to see if the credit returns.

    With Donovan’s wishy-washy response on Sunday, the Obama administration had a chance to give a clearer answer on Monday, and White Press Secretary Robert Gibbs failed to do so, saying that bringing back the tax credit “is not as high on the list as many other things are,” but still leaving the possibility open.
    Another tax credit could provide a boost, but it’s debatable whether that boost would really be beneficial in the long term. It could be best to sit back for a while and see what happens and focus on other areas that could benefit housing, such as unemployment.

    Read more: http://technorati.com/business/finance/article/tax-credit-uncertainty-not-benefiting-housing/#ixzz0yIHYvbvn

  • Them Be Fightin’ Words: The Fight Over Foreclosure Fees, by PAUL JACKSON, Stopforeclosurefraud.com


    For the law firms that manage and process foreclosures on behalf of investors and banking institutions, what’s a fair legal fee? What’s a fair filing fee? Should fees to outsourcers be prohibited? And just how much money should it really cost to process a foreclosure?

    As I write this, the answer to these and other questions are being fought out in the trenches, in an out-of-sight but increasingly heated battle involving Fannie Mae and Freddie Mac, the law firms that specialize in creditor’s rights, default industry service providers, and various private equity interests.

    It’s a complex fight that many say will ultimately shape the way U.S. mortgages are serviced over the course of the next decade — and perhaps beyond. It’s also a debate that promises to spill over into how loans are originated and priced.

    “No aspect of the U.S. mortgage business will go untouched by the outcome of this current debate,” said one attorney I spoke with, on condition of anonymity. “This is the single most important issue facing mortgage markets today, and will even determine how securities are structured in the future.”

    How foreclosures are managed

    Typically, a foreclosure involves legal and court filing fees — it is, after all, a legal process involving the forced transfer of a property from a non-paying borrower to secured lender. But the foreclosure process also typically involves a host of other associated fees, including necessary title searches, potential property insurance, homeowner’s association dues, property maintenance and repair, and much more.

    Many of these fees are ultimately tacked onto the “past due” amounts tied to a delinquent borrower — and done so legally. Much like when a credit card becomes past due and the interest rate kicks into high oblivion, consumers looking to catch up on their delinquent mortgage payments must also make up the difference in additional fees in order to successfully do so.

    Legal fees in the foreclosure business, however, aren’t what you might think. Instead of billing hourly for most work, as most attorneys in other fields would do, attorneys that specialize in processing foreclosures are paid on a flat-fee basis, using pre-determined fee schedules.

    Thanks to the market-making power of the GSEs, Fannie Mae and Freddie Mac — both of whom publish allowable fee schedules for every imaginable legal filing and process in the foreclosure repertoire — the entire foreclosure process has been reduced to a set of flat fees.

    And not even negotiated fees, at that. For firms that operate in the field of foreclosure management, the GSE allowable fees amount to a take-it-or-leave-it menu of prices.

    “For us, it doesn’t matter who the client is, even if it isn’t Fannie or Freddie,” said one attorney I spoke with, under condition of anonymity. “We know we’re only going to be able to claim whatever that flat fee schedule they set says we can claim, since other investors tend to employ whatever the GSE fee caps are.”

    Fannie and Freddie as housing HMOs? In the foreclosure business, that’s pretty much what it amounts to.

    But beyond determining the legal fee schedule for much of the multi-billion dollar default services market, the GSEs also largely determine who gets their own foreclosure work. Both Fannie and Freddie maintain networks of law firms called “designated counsel” or “approved counsel” in key states marked with significant foreclosure volume — and they either strongly suggest or require that any servicers managing a Fannie or Freddie loan in foreclosure refer any needed legal work to their approved legal counsel.

    Each state will have numerous designated counsel — sometimes as many as five law firms — but in practice, attorneys say, two to three firms end up with the lion’s share of each state’s foreclosure work. In states hit hard by the housing downturn and foreclosure surge, like Florida, the amount of work can be substantial.

    “The GSEs can force a servicer to use their designated counsel, especially if timeline performance in foreclosure management is out of some set boundary,” said one servicing executive at a large bank, who asked to remain anonymous. “It’s usually easiest to simply use their counsel on their loans, even if we don’t see that firm as best-in-class.”

    With the vast majority of the mortgage market now running through the GSEs, and much of what’s left of the private market following the guidelines Fannie and Freddie establish, it should come as no surprise to find that a few law firms in each state end up with the majority of the foreclosure work, sources say.

    The rise of the ‘foreclosure mills’

    Being designated as approved counsel by Fannie Mae and/or Freddie Mac does carry risk. Just ask Florida’s David Stern, who has seen his burgeoning operation pejoratively branded a ‘foreclosure mill’ by consumer groups, dragged through the press for both alleged and real consumer misdeeds, and facing numerous investor lawsuits surrounding the operation of DJSP Enterprises, Inc. (DJSP: 3.22 -1.23%) — the publicly-traded processing company tied to the law firm.

    While Stern’s operation may win the award for ‘most susceptible to negative publicity,’ how the law firm operates is far from unique in the foreclosure industry.

  • Multnomahforeclosures.com: Update with July 30, 2010 NOD Lists


    Multnomahforeclosures.com was updated today (July 31, 2010) with the largest list of Notice Defaults to date. With Notice of Default records dating back over 2 years. Multnomahforeclosures.com documents the fall of the great real estate bust of the 21st centry. The lists are of the raw data taken from county records.

    It is not a bad idea for investors and people that are seeking a home of their own to keep an eye on the Notice of Default lists. Many of the homes listed are on the market or will be.

    All listings are in PDF and Excel Spread Sheet format.

    Multnomah County Foreclosures

    http://multnomahforeclosures.com

  • The Future of Fannie Mae and Freddie Mac to be decided August 17th, by Jim Kim, FierceFinance


    The most glaring omission from the Dodd-Frank financial reform act is without a doubt the lack of a plan for Fannie Mae and Freddie Mac. The government-sponsored enterprises remain encumbered with billions in toxic loans, and unfortunately, the movement to fix these institutions has been stuck on the back burner–until now. The Treasury Department has announced it will hold a conference on the future of Fannie and Freddie on Aug. 17. A Congressional hearing will be held in September.

    The administration seems bent on offering a concrete proposal in January, which is welcome news, as the travails of these entities are costing taxpayers a lot of money. So far the tab stands at $145.9 billion; it will likely end up topping $380 billion–which would make it by far the most expensive bailout effort to date.

    What sort of solutions will be discussed? I doubt anyone will argue that having some sort of body that guarantees mortgages and sells them for securitization is a bad thing. The key will be to somehow retain the salutary effects of this process, which can lower costs, expand the ability of lenders to make home loans, and protect lenders from rate shocks.

    Taking the long view, the rise of securitization has been a welcome development. The real estate crash has revealed that there’s a down side if you let securitization run amok. One theory, as noted by the New York Times, is that this process has led to lax lending. “If mortgage issuers passed along the default risk to Freddie Mac and Fannie Mae or to the buyers of mortgage-backed securities, those issuers would have little incentive to screen borrowers properly. While issuers often do have some skin in the game, the enormous amount of both securitization and sloppy lending during the boom made it natural to link the two phenomena.” Indeed, defenders of Fannie and Freddie have long argued that they were pressured to start guaranteeing non-prime loans, to expand the homeownership pie. On top of all of this, securitization has made it harder for loans to be worked out. These are certainly reasonable theories.

    The bottom line is that securitization of mortgage loans based on a sound lending standard is a good idea. But how best to do that? Perhaps the biggest issue is whether the government has a role in subsidizing this effort. And if so, what exactly is that role? What are your ideas?

    FierceFinance
    http://www.fiercefinance.com/story/future-fannie-mae-freddie-mac-be-decided-aug-17/2010-07-29?utm_source=twitterfeed&utm_medium=twitter

  • Colonial’s failure could make mortgages more scarce, CNN Money


    The collapse of Colonial BancGroup poses another hazard to the still-shaky housing market: Mortgages could become even harder to get.

    The Southern regional bank, based in Montgomery, Ala., was the largest remaining player in warehouse lending, which provides short-term financing to independent mortgage bankers. At one time, these mortgage bankers originated half of all U.S. home loans using these funds.

    Today, the warehouse lending market is decimated. In 2007 it was worth an estimated $200 billion; now there is just $25 billion available — 25% of which belongs to Colonial. With Colonial’s failure, those funds could become even more scarce.

    “It’s like if they shut down half the concession stands at the baseball game,” said Scott Stern, CEO of the Lenders One mortgage bankers group in St. Louis. “It means the guy who’s last in line is going to have to wait a lot longer to get a hot dog, and in this market who knows what the price is going to be when he gets there?”

    The money began drying up when investors started shunning mortgages not guaranteed by government-backed agencies such as Fannie Mae. These loans, made by the independent mortgage bankers, had become closely associated with the worst excesses of the housing bubble.

    Among the biggest players in the market were Countrywide, rescued last year by Bank of America, and Washington Mutual, which collapsed last September. This year, two other prominent lenders had to unwind their warehouse business: National City, the troubled Cleveland bank acquired last fall by PNC; and Guaranty Bank, the Texas thrift that warned last month that it expects to be taken over by regulators.

    To be sure, everyone isn’t fleeing the market. ResCap, a troubled home lender owned by the government-supported GMAC finance company, said earlier this year that it would expand its warehouse lending business. Citi said this month it expects to put $2 billion into warehouse lines this year.

    But with small banks failing and pulling back and many larger players, such as JPMorgan Chase and Wells Fargo, not aggressively pursuing new business, few expect the new entries to reopen the market.

    Thus the industry is lobbying Washington to give government-backed Fannie Mae, Freddie Mac and Ginnie Mae a bigger role in warehouse lending.

    But with those entities already backing some 90% of current U.S. mortgage originations — and taxpayers on the hook for potentially hundreds of billions of dollars of losses at Fannie and Freddie — that idea is proving a hard sell.

    Still, mortgage bankers are hoping the latest tremors in the banking industry will make Washington more receptive.

    “We’re trying to show people how important this is, but I’m not sure the urgency is there,” said Glen Corso, a longtime mortgage industry executive who now heads the Warehouse Lending Project that’s advocating an expanded federal role. “We’d like to see a private solution, obviously, but failing that we need to get something in place to keep financing flowing.”