Posted by kevin on November 26, 2016 under Foreclosure Blog | 
Since the election, interest rates on residential mortgages are up by over 1/2 of 1 percent (0.005 or 50+ basis points, if my math is correct). As a result, refinancings are down significantly. Increased mortgage interest rates will make homes less affordable, so it is likely that home prices will not advance in 2017 like they have from 2012 to 2015.
A WSJ article indicates that since lenders are not going to be making as much money on re-fi’s, they are starting to push more risky adjustable rate mortgages and increasing loan to value ratios. Didn’t that lead to a meltdown in 2008?
At the same time, MHA or, more specifically, the HAMP mortgage modification program is phasing out as of 12-31-2016. With Trump being elected, it does not appear that this program will be renewed. Under HAMP I and HAMP II, interest rates can be reduced to 2%. What I have been seeing, however, is that servicers are trying to push my clients into so-called “proprietary modifications” which are not subject to MHA guidelines. With interest rates rising, the proprietaries are starting at 3% or more, usually, for 5 years, and then are being stepped up to over 5%.
At that rate, it would seem that many consumers will be priced out of mods.
There is still time to get a MHA/HAMP but time is running out
Posted by kevin on December 31, 2012 under Foreclosure Blog |
With the advent of the mortgage crisis and subsequent recession, the Federal Reserve increased purchases mortgaged backed securities. The purpose was to reduce interest rates and, hopefully, to get the economy moving by keeping interest rates low. Interest rates on mortgages have fallen to under 3.4% on a fixed rate 30 year loan. However, in a recent WSJ article, it states that according to some economists, interest rates should be down to about 2.8% based on the historic price relationships between mortgage rates and yields on MBS’s. Who is gloming the difference? You guessed it, our friendly bankers.
Traditionally, according to the WSJ article, the spread between the bank’s cost of obtaining money and the rate they charge has been about half a percent or 50 basis points. In 2008, the spread increased to 1% or 100 basis points. In October, when the Fed launched its new round of buying MBS’s, the spread increased to 1.6%. Now, supposedly, it is at 1.3%. So, at the height of the spread, the banks were making a 200% profit on the spread. Now, the profit on the spread is down to a meager 160%.
Why? The article appears to say that the banks expenses are up in today’s mortgage industry so they cannot pass the benefit of the Fed action to the borrowers. But it also says that the more volume is moving through an industry whose workforce has shrunk significantly. Wait a minute. More volume means more work, and, theoretically, more revenue. Less workforce means less expense. So, the banks need to take a larger spread because income has increased and expenses have decreased. Or is it, the banks need a bigger spread because they are not getting the volume of loan applications because they refuse to hire adequate staff.
Well, thank goodness the Fed has come along again to provide profits to the Banks with no guarantee of a pass through to the public. It is just like 2009 when the banks used the TARP money to buy government securities (a risk free arbitrage) and refused to lend money out to small business but instead gave out record bonuses
I can understand that there might be some added expense in underwriting a given loan since one aftereffect of the mortgage crisis is that banks must actually perform underwriting that complies with the law (as opposed to giving anyone with a pulse a mortgage). That takes more time. But the bulk of the additional time is spent by the borrower or the mortgage broker who has to put together all those extra pieces of paper and jump through all those additional hoops in order to get a re-fi.
I am not the only one who thinks that the banks are making a windfall at the expense of the Fed, and, ultimately, the taxpayer. A Fed study indicates that banks earn more on mortgages today than from 2005-8, and that commercial banks reported record income from mortgages for the third quarter of 2012.
What does this mean? Well, the sad fact is that the government continues down the wrong path in trying to put an end to the housing crisis which will probably drag on for another 3-5 years. What the Fed is doing now (did in TARP and in the Obama bailout) is like giving gifts to recalcitrant children with the hope that they behave properly. That is not a winning strategy for overwhelmed parents or overwhelmed central banks.
For the borrower, understand that your mortgage lender is not your friend no matter how many mailings you receive that your lender understands your problem and wants to help. If you have a problem with your loan that is going to end in bankruptcy or foreclosure, understand that your lender is your adversary and conduct yourself appropriately. That means getting proper, experienced legal representation early on in the game. Develop a realistic strategy and follow though.
