Nation’s Top Wholesale Mortgage Lender Launches New Line of Adjustable-Rate Mortgages

Posted on May 13th, 2021

Declaring that ARMs are back, United Wholesale Mortgage (UWM) has just rolled out a new line of adjustable-rate mortgages for its mortgage broker partners.

The new offering from the nation’s largest wholesale mortgage lender includes a 5-, 7-, and 10-year ARM to flank the usual fixed-rate options, such as the very popular 30-year fixed and the shorter-term 15-year fixed.

What makes these loans interesting is the fact that they come with significantly better pricing than fixed-rate mortgages currently available with other lenders.

And that might be enough to change the ARM argument, which has been decidedly dour for years now thanks to record low fixed mortgage rates.

How Long Will You Actually Keep Your Home Loan?

  • Something like 90% of purchase mortgages are 30-year fixed loans
  • And roughly 80% of all mortgages including refinances are 30-year fixed loans
  • Yet less than 10% of borrowers actually keep their home loan for more than seven years
  • This means the bulk of homeowners with a mortgage are overpaying for the perceived safety of a fixed interest rate

UWM aptly points out that fewer than 10% of borrowers stay in the same mortgage for more than seven years, yet something like 80% of mortgagors hold 30-year fixed mortgages.

In other words, a large majority are paying too much for their home loan, yet never actually receiving the benefit of an interest rate that is fixed for the life of the loan.

And because many adjustable-rate mortgages come with a lengthy initial fixed-rate period, many of these homeowners could actually benefit from an ARM without ever worrying about a rate adjustment.

UWM notes that pricing on its 7-year ARM could be anywhere from 50 to 75 basis points (.50%-0.75%) better than a 30-year fixed loan.

For example, if a 30-year fixed is priced at 3%, it might be possible to get a 7-year ARM for 2.25%.

If we’re talking about a $350,000 loan amount, that’s a payment difference of about $140 per month and roughly $18,000 in interest saved over 84 months.

That’s the draw of an ARM – to save you money while also providing a lower monthly payment while you hold the thing.

And if you get rid of it during the fixed-rate period, which in the case of these loans is 5, 7, or 10 years, you essentially win.

Are ARMs Set to Get Popular Again?

  • Adjustable-rate mortgages have mostly been a home loan choice for the very rich lately
  • The ARM share was just 3.8% of total mortgage applications last week per the MBA
  • That may begin to change as mortgage rates rise and lenders embrace ARMs again
  • UWM has been a leader in mortgage innovation so this could be a sign of things to come in the industry

Chances are ARMs will gain in popularity as fixed rates begin to rise, assuming that happens over the next few years.

They may appeal to both new home buyers who want a lower interest rate, and existing homeowners who want to tap equity via a cash out refinance.

The adjustable-rate mortgage was super popular during the housing boom in the early 2000s, though they often featured extra-risky options like interest-only payments and negative amortization.

While an ARM is still a risk to some degree, given you don’t really know where interest rates will be at first adjustment, those who do have a clear vision can benefit, as illustrated above.

UWM’s suite of ARMs are all tied to the newly-launched Secured Overnight Financing Rate, otherwise known as SOFR, the LIBOR’s replacement.

Additionally, they all adjust every six months once they become adjustable, meaning they are 5/6, 7/6, and 10/6 ARMs.

This can be slightly more stressful than an annually adjusting ARM, such as the popular 5/1 ARM or 7/1 ARM.

The good news is the cap at each adjustment is just 1%, meaning the interest rate can’t increase by any more than one percent every six months.

And remember, the first adjustments don’t start for 60, 84, or 120 months, respectively, which as UWM noted, shouldn’t affect many homeowners who either sell their homes or refinance before that time.

The new ARMs are available on primary, second, and investment properties, for purchases, rate and term refinances, and cash out refis.

They are conventional loans (backed by Fannie Mae or Freddie Mac) and a minimum FICO score of 640 is required, with a maximum loan-to-value (LTV) ratio of 95% is permitted.

UWM has been a bit of a vanguard in the mortgage space, so there’s a good chance other mortgage lenders will soon follow suit and begin offering ARMs at a discount to their fixed-rate counterparts.

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.

Source: thetruthaboutmortgage.com

New Fannie/Freddie Refinance Option Drops Adverse Market Fee, Offers $500 Appraisal Credit

Posted on April 28th, 2021

In an effort to undo some of the damage the Federal Housing Finance Agency (FHFA) basically caused itself, it’s throwing a bone to so-called low-income families to save on their mortgage.

It all spurs from the adverse market fee the very same agency implemented back in August 2020 to contend with heightened losses related to COVID-19 forbearance and loss mitigation.

The 50-basis point fee, which went into effect on September 1st, 2020, applies to all new refinance loans backed by Fannie Mae and Freddie Mac.

While it’s not a .50% increase in mortgage rate, the fee does get passed along to consumers in the form of either higher closing costs or a slightly higher mortgage rate, perhaps an .125% increase all told.

Either way, it wasn’t well received at the time, and still isn’t today, and this announcement is a somewhat bittersweet one, as it only applies to a certain subset of the population.

Still, the FHFA believes families who are eligible for this new refinance initiative could see monthly savings between $100 and $250 on average.

Who Is Eligible for Adverse Market Fee Waiver and Appraisal Credit?

  • Applies to homeowners with incomes at or below 80% of the area median income and loan amounts at/below $300,000
  • Must result in savings of at least $50 in monthly mortgage payment, and at least a 50-basis point reduction in interest rate
  • Must currently hold an agency-backed mortgage (Fannie Mae or Freddie Mac)
  • Property must be a 1-unit single-family that is owner-occupied
  • Borrower must be current on their mortgage (no missed payments in past 6 months, 1 allowed in past 12 months)
  • Max LTV is 97%, max DTI is 65%, and minimum FICO score is 620

Perhaps the biggest eligibility factor is the borrower’s income must be at or below 80% of the area median income.

This new refinance program specifically targets what the FHFA refers to as low-income families, which director Mark Calabria said didn’t take advantage of the record low mortgage rates.

Apparently more than two million of these homeowners did not bother refinancing, even though it would have been advantageous to do so (and still is).

He noted that this new refinance option was designed to help eligible borrowers who have not already refinanced save somewhere between $1,200 and $3,000 annually on their mortgage payments.

That’s actually a requirement as well – the borrower must save at least $50 per month in mortgage payment, and their mortgage rate must be at least .50% lower.

For example, if your current mortgage rate is 4%, you’ll need a rate of at least 3.5% to qualify.

Additionally, you must currently have a home loan backed by either Fannie Mae or Freddie Mac, and your property must be owner-occupied and no more than one unit.

I assume condos/townhomes work as well, as long as it’s your primary residence.

The adverse market fee is waived as long as your income is at/below 80% of the area median AND your loan balance is at/below $300,000.

If your loan amount happens to be higher, my understanding is you can still get the $500 appraisal credit.

You’ve also got to be current on your mortgage, meaning no missed payments in past six months, and up to one missed payment in past 12 months.

Lastly, there is a maximum loan-to-value ratio of 97%, a max debt-to-income ratio of 65%, and a minimum FICO score is 620.

Most borrowers should have no issue with those requirements as they are extremely liberal.

Is This New Refinance Option a Good Deal for Homeowners?

  • It’s an excellent deal for those who haven’t refinanced their mortgages yet
  • You get a slightly lower mortgage rate and/or reduced closing costs
  • And with mortgage rates already super cheap it could be a double-win to save you some money
  • Even though who don’t qualify for this new program should check to see if a refinance could be worthwhile

As Calabria said, many higher-income homeowners probably already refinanced, or are currently refinancing their mortgages to take advantage of the low rates on offer.

Meanwhile, lots of lower income borrowers haven’t for one reason or another, perhaps because they’re not aware of the potential savings or had a bad experience with a mortgage lender in the past.

Whatever the reason, those who haven’t yet and meet the income requirement can take advantage of a refinance without the pesky adverse market fee.

That means they could get a mortgage rate maybe .125% lower than other borrowers who aren’t eligible for this program.

Additionally, they’ll get a $500 home appraisal credit from the lender, assuming the transaction doesn’t already qualify for an appraisal waiver.

Either way, eligible homeowners won’t have to pay for the appraisal, which is another plus to save on the refinance itself via lower closing costs.

It’s actually a great deal for those who haven’t refinanced yet because you might wind up with an even lower mortgage rate and reduced closing costs.

And because your new mortgage payment must be at least $50 cheaper per month, there’s less likelihood of it being a meaningless refinance.

All in all, this is good news for the so-called low-income homeowners who’ve yet to refinance, but bittersweet for everyone else.

Still, mortgage rates remain very attractive for everyone, so even if you have to pay the adverse market fee (and the appraisal fee), it could be well worth your while.

The FHFA said the new refinance option will be available to eligible borrowers beginning this summer, though it’s unclear exactly what date that is as of now.

Read more: When to a refinance a mortgage.

Source: thetruthaboutmortgage.com

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

refinances

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.

Source: thetruthaboutmortgage.com

Why Is the Housing Market So Hot?

Real estate Q&A: “Why Is the Housing Market So Expensive Right Now?”

If you asked me this same question a few years ago, I would have had the same basic answer I’m about to explain.

And since that time, home prices have surged much, much higher, which basically tells me the same fundamentals have been at play for quite a while now.

Additionally, they may continue to more years to come.

Similar to a market downturn, when things are hot, they remain hot for years, which is why it can pay to hold on, just like those who didn’t sell their bitcoin at first-profit.

Reason #1: There Is Very Limited Inventory and Lots of Buyers

The top reason why the housing market is so high right now has to do with limited inventory, or supply.

It’s one of those fundamental concepts even a child can comprehend. When you have a small or finite amount of something, and people want it, its value goes up.

This is basically what’s been going on with real estate since the market bottomed in 2012.

In reality, supply has been tight ever since the market peaked and the foreclosure crisis took hold because banks were careful to flood the market.

Even back then, it was difficult to scoop up a property because many of them were either foreclosure sales, which aren’t for novice home buyers, or short sales, which took bank approval and months and months to close.

I remember looking at homes in 2012 and it wasn’t much different than today. Sure, home prices were significantly lower, but inventory wasn’t all that great.

Much of what was listed either needed work or wasn’t in the most desirable area. For me, that hasn’t changed over the past decade.

Yes, a good property comes on the market here and there, but if and when it did/does, it becomes a “hot home” and a bidding war ensues.

It’s for this main reason that home prices are at all-time highs nationwide, with the median home valued at roughly $273,000, up from $215,000 in early 2007, per Zillow.

Reason #2: Record Low Mortgage Rates

  • Despite a recent uptick mortgage rates are lower than they were a year ago
  • This has allowed purchasing power to stay strong while home prices rise
  • The only increased burden is a higher down payment for prospective buyers
  • It may remove some buyers from the picture but not enough to lower prices

Now if reason number one weren’t reason enough for real estate to be booming, sprinkle in some record low mortgage rates.

To get this straight, there’s a short supply of something people want and it’s on sale from a financing point of view. No wonder everyone is going wild.

While the listing price might be quite a bit higher than it was five or 10 years ago, the fact that mortgage rates are roughly half the price they were then is huge.

This has kept home purchasing power intact despite a big run-up in home prices, basically only making the required down payment an issue for some prospective buyers.

And remember, because there’s a limited supply of homes available, it doesn’t really matter if some would-be buyers are shut out of the market due to affordability constraints.

There are still enough willing and able buyers to come in and pick up any slack, of which there isn’t much of to begin with.

So the bidding war might only have 20 participants instead of 30 – that’s not going to make any impact whatsoever on the final sales price.

Reason #3: Rising Incomes and Inflation

home price affordability

Lastly, we can’t simply look at unadjusted (nominal) home prices and say whoa, they’re even higher than they were back in 2006 when real estate was in a massive bubble. They must crash!

Yes, unadjusted home prices are about 22.2% above the peak seen in 2006 when the housing market last boomed, per First American (see the blue line above).

But that alone isn’t enough to determine whether the market is overvalued or not.

Ultimately, you have to factor in inflation, mortgage rates, and wages to get a complete picture.

Speaking of wages, median household income rose 6.2% year-over-year in January and is up 74.8% since January 2000.

Meanwhile, real house prices (those adjusted for inflation) were about 25.6% less expensive to begin the year than in January 2000.

And so-called “house-buying power-adjusted house prices” are still 47.8% below their 2006 housing boom peak, meaning rather incredibly, there’s still a lot of room to run.

Just check out the chart above – from October 1993 to December 1994, nominal home prices barely budged one percent, but the Real House Price Index (RHPI green line) increased over 20% because purchasing power decreased by 16% due to rising mortgage rates.

Then from January 2005 to March 2006, nominal house prices surged about 13% while mortgage rates remained mostly steady, pushing the RHPI up a big 15%.

At that time, affordability was eroded because nominal home price appreciation far outpaced purchasing power.

Finally, nominal home prices increased more than 13% year-over-year in January 2021, but house-buying power (yellow line) jumped 19% as the RHPI fell nearly five percent.

Why did housing affordability improve despite rising home prices? Because median household income increased and the 30-year fixed fell from 3.62% in January 2020 to 2.74% in January 2021, per Freddie Mac.

In other words, you can’t look at nominal home prices in a vacuum, aka firing up the Redfin app and saying OMG, that $500,000 home from last year is now selling for $600,000!

You need to consider the big picture and factor in wages and how cheap/expensive financing is.

If you look back at that chart, nominal home prices (blue line) have risen steadily since around 2012, and are now above the scary 2006 housing peak levels.

But the RHPI has reached its lowest point since the series got started in 1990, and at the same time the House-Buying Power Index has surged higher, especially recently.

All of this may explain why despite double-digit year-over-year gains and nominal home prices that might be up nearly 100% from 2006, the buyers are still coming. And they’re bidding over asking!

It also supports the idea that the next housing crash (or beginning of a decline) won’t happen for a while still, perhaps my longstanding prediction of 2024.

In other words, if you’re a prospective home buyer, don’t get your hopes up for a discount anytime soon, though if mortgage rates do rise, we might see a moderation in home price appreciation and perhaps less competition.

But the only real relief will come from increased home building, which is beginning to ramp up as housing starts and housing completions are both up significantly year-over-year.

As to how real estate could go from red hot to ice cold again, picture a scenario a few years out when home builders overshoot the mark and mortgage rates are back at 4-5% for a 30-year fixed.

Oh, and asking prices are up another 10-20% from today’s levels. That’s where you can start to imagine another major correction, especially if the wider economy hits another snag.

Read more: 2021 Home Buying Tips

Source: thetruthaboutmortgage.com

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.

Source: thetruthaboutmortgage.com

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.

Source: thetruthaboutmortgage.com

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.

Source: thetruthaboutmortgage.com

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.

Source: thetruthaboutmortgage.com

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.

Source: thetruthaboutmortgage.com

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.

Source: thetruthaboutmortgage.com