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


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.


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.


HAMP Gets Extended for Another Two Years

Today, the Treasury and U.S. Department of Housing and Urban Development (HUD) announced the much anticipated extension of the Home Affordable Modification Program (HAMP).

The program, which was originally launched in March 2009, was set to come to a close on December 31, 2013, but thanks to this most recent extension it will be open to homeowners until December 31, 2015.

Of course, one has to wonder who hasn’t taken advantage of the widely available loan modification program four years after its launch, but I digress.

1.1 Million Homeowners Have Received Assistance

HAMP default

Since HAMP was launched, more than 1.1 million struggling homeowners have received a permanent modification via the program.

The median monthly savings for borrowers is $546, or 38% of the previous mortgage payment, which is supposedly larger than the median savings with private loan mods, per OCC data.

The total amount saved equates to a whopping $19.1 billion, which ain’t too shabby.

However, more than two million trial modifications were started through HAMP since its inception, meaning nearly half of borrowers couldn’t even keep up with modified payments set to a front-end debt-to-income ratio of 31%.

Additionally, the default data on HAMP loans is pretty bad. If you take a look at the chart above, you’ll see that a good chunk of HAMP loans were either 60+ or 90+ days delinquent in seemingly no time at all.

Sure, the numbers have been getting better over time, but they’re still highly elevated, and one has to wonder if the improvement is more the result of the housing market’s resurgence than anything else.

For example, 41.5% of HAMP loan mods that became permanent in the third quarter of 2009 were 90+ days delinquent after three years.

Conversely, of the HAMP loan mods that went permanent in the third quarter of 2011, just 18.8% were 90+ days delinquent after 18 months.

So the default figures are trending lower, which is a positive for the program that has failed to live up to expectations from the get-go.

Part of that could have to do with an increase in principal reductions, seeing that borrowers will be more hopeful if they actually have a chance of getting above water.

Earlier HAMP loan mods were mainly interest rate reductions and/or mortgage term extensions, both of which didn’t seem to entice homeowners facing steep home price declines.

HARP the Real Winner


Another key component of the Making Home Affordable Program is HARP, the Home Affordable Refinance Program, which was also extended until 2015 last month.

Since April 2009, about 2.4 million homeowners have benefited from a mortgage rate reduction through the program. As you can see from the graph above, HAMP holds a small share of total refinance activity.

Most HARP homeowners hold underwater mortgages, some with loan-to-value ratios well north of 125%, which was the original LTV cutoff.

This program appears to be a lot more successful, seeing that borrowers can snag today’s ultra-low mortgage rates.

Additionally, HARP borrowers must be current on their mortgages, so the success rate is clearly going to be better than HAMP.

One has to remember that HAMP borrowers must have a financial hardship, so even if they default on the HAMP loan, it’s possibly a better alternative to a short sale or foreclosure.

Still, instead of focusing on HAMP, lawmakers may want to actively pursue an extension for HARP, that is, allowing newly originated mortgages to take part, as opposed to just those sold to Fannie and Freddie before May 31, 2009. HAMP has the same eligibility cutoff.

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.


New Study Blames Cash Out Refis for Mortgage Crisis

A new study from Fed researcher Steven Laufer puts a lot of the mortgage crisis blame on cash out refinancing, which swelled in popularity as home prices increased in the early 2000s.

Of course, when home prices took a turn for the worse, many who extracted home equity paid the price by acquiring an underwater mortgage.

At this point, we all know homeowners relied on their homes as ATM machines during the housing run-up, but some of Laufer’s figures are pretty startling.

For example, when focusing on a sample of homeowners from Los Angeles, he found that nearly 40% who defaulted on their mortgages were earlier buyers who purchased their homes prior to 2004.

What’s interesting is that more than 90% of these defaulters would have had outstanding mortgage balances below their current home values had they not extracted home equity, which would have left little motivation to default.

But as we all know, scores of homeowners turned to second mortgages and home equity lines of credit to squeeze out every last drop of value in their homes, much to the delight of lenders and Wall Street investors.

As a result, even those who purchased homes at relatively cheap levels found themselves in negative equity positions, thanks to the loose lending guidelines that allowed cash out refinancing to 100% LTV or higher.

This explains why you’ll see a long-time homeowner selling their home short, even though they purchased it decades ago.

Had these homeowners not extracted home equity, many would have LTV ratios under 60%, and few would be underwater.

But these early buyers cashed out at a rate of approximately once every three years, ostensibly as home prices marched ever higher.

refi mix

Just take a look at this chart of the types of new mortgages originated during the 2000s for Laufer’s sample.

Rate and term refinances (no cash out) were popular until about 2004, at which point the product mix shifted to pretty much all cash out refinances and second mortgages.

Roughly one in 12 homeowners took out an additional mortgage or withdrew cash via refinancing each quarter from 2004 to 2007.

Late in the rally, cash out refinances became nearly non-existent because homeowners simply didn’t have the equity to extract.

Then came the rise of rate and term refinances again as borrowers looked to take advantage of the lower mortgage rates available, with many needing HARP to get the job done.

What If Homeowners Couldn’t Cash Out?

After highlighting the problem, Laufer presented a few scenarios that could have prevented some of the defaults.

If the max LTV ratio for cash out refinancing had been lowered to 80% (a rule that has been in place in Texas for years), he estimated that the amount of equity extracted would have fallen by 23%, and the default rate would have been 28% lower.

(He also presented a more extreme scenario that prohibited equity extraction entirely, which led to 80% fewer defaults among the early buyers he focused on.)

However, if homeowners were limited in their ability to tap equity to 80% LTV, home prices would also fall by an average of 14%, thanks to the reduced collateral value of housing.

This principle explains why home prices in Texas, where LTV limits are capped at 80% for cash out refinancing, aren’t nearly as extreme as the rest of the nation.

Their housing boom and bust was a lot more muted than say the booms seen in Phoenix and California, where the sky (and LTV) was the limit.

So essentially placing more stringent limits on equity extraction would take some of the speculation (investing, gambling, upside, downside) out of housing.

With less potential upside, fewer individuals would be interested in real estate, and home price movement would probably be pretty boring.

Still, Laufer noted that the welfare gain of such a restriction for new homeowners would be equivalent to 3.2% of consumption thanks to the lower prices at which they could purchase homes. In short, cheaper homes, smaller monthly mortgage payments.

But it’s a little too late to undo what’s already been done – the Fed has made the decision to prop up home prices via ultra-low mortgage rates, and there’s no turning back now.

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.


Watch Out for the Adjustable-Rate Mortgage Pitch

Over the past couple weeks, mortgage rates have risen roughly 1% across the board.

If you look at Wells Fargo’s mortgage rates, which I highlighted late last week due to their meteoric rise, you’ll notice the 30-year fixed is now pricing at 4.875%, up from 4% about 10 days ago.

Consider the fact that back in early May, a rate in the low 3% range was the norm for the 30-year fixed.

The 15-year fixed has climbed similarly, from 3.125% to 3.875% in about 10 days. A month earlier, it was around 2.5%. In other words, conditions aren’t good in mortgage land, to put it more than mildly.

It’s not much different for adjustable-rate mortgages either – the popular 5/1 ARM is now pricing at 3.125%, up from 2.5% a week or so ago.

Mortgage Payments on the Rise

What this all means is that mortgage payments are rising, even if you’re refinancing your existing mortgage to a much lower rate.

The payment you could have secured earlier this month will now be significantly higher, to the point where your refinance may not even make sense anymore.

[The refinance rule of thumb.]

If you’re looking to purchase a home, your purchasing power has been severely reduced. Check out my mortgage payment chart to see what you can afford based on today’s rates.

And as mortgage rates continue to rise, banks and lenders will increasingly look for ways to soften the blow, of course, without actually lowering rates.

So all those ads touting record-low fixed-rate mortgages will quickly and quietly make the switch to a 5/1 or 7/1 ARM instead.

Why? Because they know rates on ARMs will sound a lot more appealing to homeowners and prospective buyers who have been staring at rates in the 3% range for months now.

Nobody wants to hear that their interest rate is now 4.5%, or worse, somewhere in the 5% range. It’s embarrassing. What will their friends think?

It could even be enough for a prospective home buyer to have a change of heart about buying a property to begin with, especially if it requires getting into a bidding war and paying well over list.

Choose Your Mortgage Wisely

While it may be tempting to go with an ARM instead of a fixed-rate mortgage, there is a whole lot of risk, especially right now.

Everyone pretty much expects mortgage rates to keep rising over the next decade, so your ARM will most likely be more expensive in the near future, once that first adjustment date rears its ugly head.

At the same time, rates on fixed mortgages, despite their recent upward trajectory, are still pretty darn cheap. Just ask anyone over 50 what they think.

And locking in a mortgage at today’s rates isn’t a losing endeavor, it just doesn’t sound as sweet, seeing that rates were a heck of a lot cheaper just weeks ago.

But in hindsight, you might be pretty happy with a 30-year fixed in the 4% range, especially if they make their way past 5% and up in to the 6’s. It’s not unlikely over time.

So if your loan officer or mortgage broker tells you they can put you in a 5/1 or 7/1 ARM instead of a fixed product (and save you lots of money!), question their motives.

They want the loan to sound more attractive to you, and a lower rate with a lower payment will certainly accomplish that.

But don’t discount the fact that the rate will eventually rise, once the fixed period comes to an end in five or seven short years (they go by faster than you think).

Read more: How long do you plan to keep your mortgage?

(photo: Hasan Diwan)

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.


Bank of America Panned for Unattractive Refinance Offer

Last updated on February 2nd, 2018

Anytime someone is looking to save you money, you should probably be skeptical, really skeptical.

After all, it’s one thing to seek savings on your own, but if someone is doing the work for you, there’s a good chance they’ve got their own best interests in mind.

Yesterday, a few publications, including American Banker, grilled Bank of America for its recent refinance pitch to a New Jersey customer.

The borrower, who currently has a 20-year fixed mortgage set at a very low 4%, was offered a new 30-year fixed mortgage at a rate of 3.75%.

[How are mortgage rates calculated?]

At first glance, it sounds like a slightly better deal, though not all that significant in regard to rate.

But BofA smartly chose to highlight the mortgage payment savings of $362 of month, and $4,344 annually.

Unfortunately, if you actually bother to read the fine print, beyond the headline screaming at you to refinance, you’ll notice that the APR is 4.105%, higher than the borrower’s existing mortgage rate.

The APR is that high because Bank of America is helping itself to two mortgage points to get the deal done, and those must be factored in and presented to the borrower.

[Mortgage rate vs. APR]

Additionally, because Bank of America is recommending the borrower refinance into a 30-year loan, they effectively add 10+ years to their loan term, which will cost the borrower more money in interest as the loan amortizes that much more slowly.

In fact, the offer would add $37,188 in additional interest over the full term of the loan, which doesn’t seem to be in the large print, or any print for that matter.

The best part of the offer though, as highlighted by American Banker, was the following Q&A:

Q: “What kind of new loan will I have if I refinance?”
A: “The loan that’s right for you.”

Tip: The APR can sometimes be lower than the interest rate if it’s an ARM loan, but it’s not as attractive as it may look.

Watch Out for Mortgage Offers That Come to You

Look, at the end of the day, Bank of America is permitted to pitch deals like this to their customers, and the company was quick to point out that it disclosed everything properly.

If you focus solely on monthly mortgage payment, which is ostensibly what BofA wants you to do, there are savings of nearly $400, which could help a struggling borrower looking to minimize expenses.

Just because a homeowner will pay more over time doesn’t mean they won’t want to save in the near-term, especially if they have more pressing matters.

We also don’t know what the borrower has in mind – perhaps they don’t want to pay off their mortgage that quickly (or at all), though if they have a 20-year fixed, there’s a good chance they’re more in the “I want to pay it off” camp.

[Pay off mortgage or invest?]

But the issue here is that the bank is coming to you with an offer they’ve carefully constructed to be appealing, even if it doesn’t make a whole lot of sense, let alone save you money.

For this reason, you should always take offers that come your way with a huge grain of salt.

The individual assembling the offer has the advantage of sitting back and coming up with a scenario that will appeal to you, as opposed to a more objective process where you sit down and run the numbers yourself.

Perhaps that’s why it’s called marketing, or more specifically, inbound marketing. Targeted marketing even.

If you do receive an offer that sparks your interest, be sure to do some shopping on your own to see how it stacks up. Chances are there will be something out there that’s better, and possibly much better.

And be vigilant because as rates rise and the mortgage market slows, loan originators will become increasingly desperate to drum up new business, even if it doesn’t make all that much sense for the borrower.

Read more: 10 tips while mortgage rate shopping.

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.


HARP Refinance Program Extended Until 2015

As many had predicted, the popular Home Affordable Refinance Program (HARP) was extended today until December 31, 2015.

The program was set to expire at the end of the year, but apparently the FHFA isn’t satisfied with the more than two million homeowners who have already refinanced via HARP.

FHFA Acting Director Edward J. DeMarco said in a release that the program is being extended to reach more underwater homeowners so they can benefit from the lower mortgage rates currently on offer.

HARP Nationwide Campaign Coming Soon

While I don’t know if we’ll see HARP commercials on TV during the NBA playoffs, it is possible.

The FHFA plans to launch a nationwide campaign to inform homeowners about HARP, even though the program has been around for several years now.

For the record, I’ve never seen any advertisements about HARP specifically, though I have seen ads for Hope Now and other mortgage assistance programs.

And I’m sure there are scores of homeowners who are eligible for HARP, but either don’t realize it or think it’s all just a scam.

The aim of the campaign is to educate homeowners about the benefits of HARP in order to motivate them to take action. This will not only help them, but also the banks behind the loans and the economy at large.

21% of Refis Went Through HARP in January

HARP totals

The FHFA also released its latest Refinance Report on Monday, which revealed that HARP activity remains strong despite the program being four years old.

During the first month of the year, a total of 97,600 refinances were completed via HARP, accounting for roughly 21% of the 470,000 total refinances during the month.

Amazingly, HARP seems to be the only game in town in certain states. For example, 66% of all refi volume in Nevada went through HARP in January – the same was true for 56% of refis in Florida.

This is really the lone route for many homeowners in these states where home values plummeted after the housing crisis reared its ugly head, washing away all traces of home equity.

Last year, a total of 1,074,754 refinances were completed through HARP, and if January’s numbers are any indication, 2013 could be an even bigger year.

The total number of refis completed via HARP now stands at just over 2.2 million.

Additionally, many of the refis completed through HARP were for high loan-to-value (LTV) loans, those that tend to be most at risk of default.

In January, 47% of HARP refis were for LTV ratios above 105%, meaning those with no home equity could enjoy a lower mortgage rate thanks to the program.

And 25% of loans refinanced via HARP had LTV ratios greater than 125%, a godsend for the many deeply underwater homeowners out there.

Shorter Terms for HARP Borrowers

Finally, it should be noted that many HARP borrowers seem to intend to stay in their homes and weather the storm.

HARP term

In January, 18% of HARP refinances for underwater borrowers were for shorter loan terms, either 15-year fixed or 20-year fixed mortgages, as opposed to the traditional 30-year fixed.

This not only bodes well for the homeowners who elected to take the shorter terms, but also for the housing market as a whole.

Ideally, it will mean fewer foreclosures and a healthier group of homeowners, even if home prices falter over the next few years.

While this all sounds like good news, there will be those that are disappointed HARP hasn’t eased guidelines or allowed for things like “reHARPing.”

Additionally, HARP is only good for Fannie Mae and Freddie Mac borrowers – those with private-label mortgages are still out of luck.

However, a recent report from Fitch Ratings claimed that nearly half of all private-label mortgages have been modified.

So maybe most who need help are getting it, or are at least being offered assistance.

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.


Slowing Mortgage Market Could Lead to Looser Lending

The forecast for the 2013 residential mortgage market wasn’t all that optimistic.

Back in December, the Mortgage Bankers Association said it expected refinance volume to slip to $785 billion from $1.2 trillion in 2012, while purchase money mortgage activity was slated to increase only slightly from $503 billion to $585 billion.

After all, there are only so many refinances out there, and many were originated in earlier years. Mortgage rates have pretty much idled over the past year, so the eligible pool probably hasn’t grown much.

Additionally, despite an anticipated increase in purchase activity, it’s clear that inventory constraints continue to make it difficult to purchase a home.

Cash buyers continue to control the market as well, so even if home purchases rise, lenders aren’t necessarily getting a piece of the action.

At the same time, more and more banks and lenders are positioning themselves to take part in the burgeoning mortgage market.

For example, lenders that didn’t even exist prior to the latest mortgage crisis, such as PennyMac (ex-Countrywide execs) or OneWest Bank (IndyMac’s ashes), have entered the fray, and old names, such as Nationstar and Impac, have risen from the dead.

Meanwhile, the big guys, like Bank of America, Capital One, Chase, Discover, and Wells Fargo, continue to compete for market share.

Bad for Lenders, Good for You?

This sounds like a recipe for disappointment if you’re a lender, not to mention possible layoffs, but there may be a silver lining for consumers.

If lender competition continues to increase, and the pool of potential mortgages continues to shrink or remain relatively flat, there’s a good chance lenders will begin to take on more risk.

Assuming they do, there will be plenty more options for homeowners going forward, as opposed to the plain vanilla stuff that has been on offer for years now.

So instead of requiring a credit score north of 720, or a massive amount of home equity to take cash out, homeowners and prospective buyers may be greeted with more reasonable underwriting guidelines.

For those with a property, or able to get their hands on one, it could make life just a little bit easier.

Additionally, as home prices rise, existing homeowners will have more equity to play with, which could lead to an increase in HELOC lending.

The maximum loan-to-value ratios for such loans may also rise if decent home price appreciation is projected to be in the cards.

A Slippery Slope?

The mortgage market is clearly not back to normal just yet. As mentioned, most of the lending is pure vanilla, meaning excellent credit score, full documentation, 20%+ down payment, and so forth.

This has led to criticism from housing market advocates, such as the National Association of Realtors, who have called for looser guidelines to spur lending and home sales.

But market participants will have to be careful not to repeat history in just 5-6 short years.

Sure, lenders aren’t going to return to originating no-doc loans with zero down financing overnight, but the lack of supply could tempt some to dip their toes in those waters again.

If more private capital funnels into the market and competition heats up, it’s only a matter of time before the return of Alt-A lending leads to the arrival of subprime, and then an eventual “situation.”

It will be especially interesting to see how lenders manage the expected uptick in mortgage rates.

Clearly homes will be less affordable if mortgage rates normalize just a little bit, so it’s only a matter of time before creative financing rears its ugly head again.

Let’s just hope it’s more creative, and less destructive this time around.

Read more: Will high quality mortgages prevent another housing bubble?

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.


How Does HARP 2.5 Sound?

For the past couple years now, there has been a big push for a so-called HARP 3.0, which would essentially open the door to private-label refinances under the popular Making Home Affordable program.

Since inception, only Fannie and Freddie mortgages have been eligible, despite private-label mortgages accounting for more of the carnage that led to the housing crisis.

Still, such negotiations have always ended in an impasse, likely because investors don’t want to lose any money by giving homeowners who are able to make payments a break.

But that hasn’t stopped the Obama administration from fighting for such a program, despite it now being years since the crisis first reared its ugly head.

Will Eligibility Date for HARP Be Pushed Forward?

Apparently a bunch of mortgage executives met with White House officials last week to discuss the current situation in mortgage and housing.

And one official familiar with the talks told Inside Mortgage Finance that the Obama administration will “push hard” for HARP 3.0, that is, an underwater refinance program for non-Fannie/Freddie mortgages.

Unfortunately, there’s still a lot of doubt surrounding such a push, seeing that the bill would need to make its way through Congress before landing on Obama’s desk for signature.

As I mentioned, we are now years away from the height of the mortgage crisis, so convincing a bunch of lawmakers to ease payments for mortgagors now seems a lot less likely.

This would have made sense when housing was in the gutter, but now that everyone and their mother wants to buy a home, it doesn’t seem as promising.

[See: Why it’s a bad time to buy a house.]

Still, if HARP 3.0 doesn’t get the green light, there is still hope for an expanded HARP, which I refer to as “HARP 2.5.”

At the moment, the cutoff date to be eligible for HARP is May 31, 2009, meaning your mortgage must have been sold to Fannie Mae or Freddie Mac by that date.

If you took out a mortgage after that time, and your property plummeted in value, you’re essentially out of luck.

By out of luck, I mean you probably can’t refinance for lack of equity, assuming you didn’t put down a huge down payment.

A possible extension would move the cutoff date to somewhere in 2010.

This extension isn’t a new idea – it was included in a bill put forth by Senators Barbara Boxer (D-CA) and Robert Menendez (D-NJ), known as, “The Responsible Homeowner Refinancing Act of 2013.”

However, that seemed to fall on deaf ears, and was about as popular as “The Responsible Homeowner Refinancing Act of 2012.”

Is It Just Too Late to Offer Relief?

I’ve covered this subject many times on this blog, largely because it keeps resurfacing. Or reHARPing, if you will.

Unfortunately, every time it does, more time has passed. And as more time passes, those who still remain current on their mortgages seem less a threat to default.

At the same time, home prices continue to march higher, meaning far fewer homeowners are actually underwater and in need of a HARP refinance.

Sure, home prices took a dive from 2010-levels, but prices have since climbed higher in most parts of the country. And they’re only expected to go higher from here.

So there’s a decent chance that many of these homeowners can now explore a traditional refinance, assuming they’ve made on-time payments and paid down some principal.

It seems housing officials are more concerned with homeowners who actually pose a threat to the recovery, which is why the Streamlined Modification Initiative, aimed at severely delinquent borrowers, was recently launched.

For those who can make their payments, there is little incentive to offer a lower mortgage rate, especially if the future appears bright.

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.


Mortgage Origination Volume Up 34 Percent in 2012

What a difference a year makes. As I reported back in September, 2011 was the worst year in mortgage lending since 1995.

Just 365 days later, we experienced the best year since 2007, according to data from Lender Processing Services, yet another sign things are getting back to normal.

In 2012, loan origination volume increased 34% year-over-year to 8.6 million loans, up from 6.4 million a year earlier, per the company’s 2012 December Mortgage Monitor released today.

Much of the volume increase could probably be attributed to the record low mortgage rates on offer for much of 2012.

In fact, rates on the 30-year fixed were below 4% for much of the year, making it nearly irresistible for just about anyone who could to refinance.

While volume was up, it still pales in comparison to lending levels seen as recently as 2007.

Take a look at this snapshot of the past eight years and you’ll get a better idea of where we stand:

origination volume

Sure, origination volume from 2005 to 2007 was absurd, but we’re still below historic levels, even with the latest uptick.

Also note that the share of government-backed originations was 84%, which while very high, is down from 91% three years earlier.

But we’ve still got a long way to go to get closer to a healthier mix of government and conventional mortgages.

Low Rates Will Boost HARP, Refis, Purchases in 2013

Fortunately, rates remain low and are expected to stay near current levels, meaning plenty more borrowers will be tempted to refinance or purchase new homes.

LPS believes an additional 2.6 million loans may be eligible for HARP under current guidelines.

That’s more than the current total of completed HARP loans, which is around two million at last glance.

And if HARP 3 or reHARPing or whatever they want to call it comes along, millions more might become eligible for a high loan-to-value refinance.

Additionally, as home prices continue to rise, more borrowers will become eligible for traditional refinancing as their levels of home equity rise.

Apparently about four million loans with non-conforming LTV ratios may now qualify for a mortgage today.

negative equity

The report indicated that negative equity is down 35% since the start of 2012, though sand states continue to struggle with a large number of underwater loans.

Still, the company noted that nearly 20% of mortgages have “refinancible” characteristics.

Back in December 2011, 7.2 million loans were deemed “refinancible,” with approximately 5.5 million refinances carried out since.

Delinquencies and foreclosure sales have also continued to fall, meaning we may finally be working through all the bad that preceded the housing crisis.

So there is certainly plenty to be excited about in 2013, despite a forecast for an overall slowdown in volume.

Qualified Mortgage Impact Expected to Be Low

LPS also investigated the potential impact of the recently released qualified mortgage rules.

They noted that at least two percent of 2012 originations would have been designated as “non-QM,” compared to 23% back in 2005, when option arms and interest-only loans were king.

So basically the QM rules just solidify the direction of mortgage underwriting over the past several years, and don’t really inhibit it.

Again, this should all make for a healthier housing market going forward, that is, until the next round of “creative financing” rears it ugly head when home prices become unaffordable.

Until then, enjoy the ride up.

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.


Everyone I Know Is Trying to Refinance

There’s been a lot of talk (and worry) that the higher mortgage rates of late might derail the apparent housing market recovery.

After all, many believe the only reason things were improving was because of the ultra-low rates the Fed facilitated with the likes of QE3.

Without them, some argue, home prices would have to come back to more realistic levels. And optimism would probably also be somewhat deflated.

Unfortunately, such a scenario was not feasible, seeing that foreclosures were getting out of control, and lower prices would have meant so many more would have lost their homes, either involuntarily or by choice.

Higher Rates Are Motivational

Interestingly, I’ve seen a different reaction, albeit an early one. Many individuals I know who own homes are seeking to refinance their mortgages. Why they didn’t do it last year or even last month is beyond me, but we all know people procrastinate.

Many also grew complacent with the low rates, as it got to a point where one just assumed rates would keep on falling. I’m sure most people figured there was more downside in store, and if rates did happen to rise, they probably would do so slowly.

But now that mortgage rates have shot up in no time at all, it seems to have given many people a kick in the rear to finally go about getting that refinance, even if rates are significantly higher than they were just weeks ago.

One friend of mine seemed content locking in a rate of 4.5% on a 30-year fixed, even though he may have been able to snag a rate of around 3.75% last month.

He didn’t even seem that upset about missing the lower rates, and instead looked at the bigger picture. In the grand scheme of things, a 4.5% 30-year fixed mortgage is still a great deal.

Another pal of mine used the recent rise in rates as motivation to finally start calling around and inquiring about a refinance.

For him, there were home equity issues that made it difficult to refinance (he’s not eligible for HARP). So you can’t blame him for waiting for his home to appreciate a bit more, and alleviate some LTV concerns.

He too seemed happy enough to snag a rate at current levels. He’s even looking at a 15-year mortgage instead of his current 30-year as a way to take advantage of a lower rate and pay down his mortgage faster, without too much of a cost burden.

Possible Mortgage Rate Easing Ahead?

All said, it seems everyone is keeping things in perspective, despite the less attractive pricing of late.

And who knows, we may even see rates fall a bit over the next couple weeks, seeing that they increased so much so fast.

The market probably overreacted to the Fed news, so there’s definitely a chance things could improve in the near-term.

Additionally, the Fed owns a ton of the mortgage-backed securities out there, so they can control the price to some degree, even if everyone else wants to bail.

Whatever direction mortgage rates go in the next month or so, loan originators should stand to benefit from all the last-minute refinancers.

Banks and lenders will probably receive a flurry of refinance applications in coming weeks as more borrowers get off the fence and take advantage before it’s seemingly too late.

Unfortunately, borrowers might have to contend with sizable delays, so if you’re refinancing, get your ducks in a row to avoid any potential mishaps.

As far as home purchases go, the rate increase alone shouldn’t deter too many folks. It may disqualify some if their proposed payments rise too much, but I doubt it would completely dictate one’s decision to buy a home.

Remember, rates would have to rise to about 7% for the median priced home to fall out of reach for the average American family, so there’s still plenty of room.

Read more: Do higher mortgage rates lead to lower home prices?

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.