Notes From The Mortgage Insider

Dear Friends:

I hate to keep harping on the same thing over and over, but almost all of the leading commentators in my industry are singing the same refrain right now – if you would benefit from a refinance to a lower rate, do it now and don’t wait (hey, that rhymes!).

RISMedia, a widely read blog, says, “Take advantage of record low rates before they rise.” They are referring to the ridiculous method that Congress used to fund the extension of payroll tax cuts, which was to charge the two-month cost of the tax cuts to the (imagined) Fannie and Freddie credit card. That means that agency (conforming) mortgage loans will very soon have a premium cost attached to them to pay for the payroll tax cuts. Terrible policy to mix the two but that’s our dysfunctional government right now.

In addition, as I mentioned last week, global risk (Europe, Iran, etc.) is very high right now and any exogenous shock from those sources will most likely cause a substantial spike in mortgage rates.

Notwithstanding the negative outlook I have painted, mortgage rates remained at historic lows last week. The best rates, referred to in the industry as the “best-execution” rate (named without a trace of irony), is approximately 3.875% to 4.000% for 30 year fixed agency conforming loans. Pretty darned good!

Steven Hofberg, Operations Manager, Residential Mortgage Center Inc

To contact Margie Hofberg email her at margie@rmcenter.com. If you wish to be notified when she posts the weekly Newsletter simply click on the Subscribe button below. To be added to the weekly Newsletter email distribution list email Renee Bourassa at renee@rmcenter.com.

Dear Friends:

Often in the financial world you find that “bad is good” and “good is bad.” Today’s Federal Reserve report is a perfect example.

As reported by The Wall Street Journal (WSJ.com) the Fed expects the economy to grow between 2.2% and 2.7% this year. That's down from November's forecast of between 2.5% and 2.9%. But it sees unemployment falling as low as 8.2%, an improvement from November's bottom rate of 8.5%.

So the economic news is mixed at best. But there is some good news to report as well.

Federal Reserve officials also said Wednesday that they expect short-term interest rates to stay close to zero “at least through late 2014,” longer than previously indicated, a move that could aid the U.S. economy’s path to recovery.

So it is likely that mortgage interest rates will remain stable in the short-term as well. But I would add a word of caution to those who would benefit right now from refinancing. Don’t wait around. There are lots of global risks that could cause a sudden increase in mortgage rates (think Europe, Iran, among others), and consequently sitting on your hands might not be the best idea right now.

Steven Hofberg, Operations Manager, Residential Mortgage Center Inc

To contact Margie Hofberg email her at margie@rmcenter.com. If you wish to be notified when she posts the weekly Newsletter simply click on the Subscribe button below. To be added to the weekly Newsletter email distribution list email Renee Bourassa at renee@rmcenter.com.

I can’t believe that I can report TWO pieces of good news this week! Things are actually looking up in the economy.

First, the HARP 2.0 program has boosted homebuyer confidence. HARP is the program that allows homeowners with good credit to refinance to a much lower market rate even if their home value has declined below what would otherwise be required to refinance. And the program has led to a modest increase in purchase activity as homeowners begin to pay off these mortgages faster than if they were paying higher rates of interest.

Second, last week mortgage rates once again broke previous all-time lows and the current “best-execution” interest rate is now under 4.00%!

If any of your clients are looking for mortgage financing the time to call is right now!

Steven Hofberg, Operations Manager, Residential Mortgage Center Inc

To contact Margie Hofberg email her at margie@rmcenter.com. If you wish to be notified when she posts the weekly Newsletter simply click on the Subscribe button below. To be added to the weekly Newsletter email distribution list email Renee Bourassa at renee@rmcenter.com.

Last April, the Federal Reserve overregulated our industry by amending Regulation Z (commonly known as Truth-In-Lending) in so many ways that are anti-consumer because they severely limit our flexibility in designing the best mortgage solutions for our clients. But we have some good news for 2012!

After nine months’ experience with the new Reg Z we have figured out how to once again offer what used to be called the “no closing cost mortgage” by using what is now called “lender paid closing costs.” It’s a bit more complicated than before but in the end we can get your clients to where they want to be – a refinanced mortgage at a lower rate without directly paying any closing costs.

On a personal note, along with a wish for health and happiness to all for the New Year, I would like to take a minute to honor my father Joe Hofberg and my Uncle Sam Hofberg, both World War II veterans; Joe in the Navy and Sam in the Marines. Sam will turn 90 this year (my father does not permit me to divulge his age but it is pretty close to Sam’s). Both are in good health and look to be around for a while. We are very fortunate to have them.

Regarding those who have served our country I recommend to you a recent story in the Wall Street Journal entitled, “Happy Hanukkah, Marines!” using this link. It will be available online for seven days from today.

WSJ.com - Opinion: Happy Hanukkah, Marines!

Happy New Year to you and yours!

Steven Hofberg, Operations Manager, Residential Mortgage Center Inc

To contact Margie Hofberg email her at margie@rmcenter.com. If you wish to be notified when she posts the weekly Newsletter simply click on the Subscribe button below. To be added to the weekly Newsletter email distribution list email Renee Bourassa at renee@rmcenter.com.

On September 30 2011 the temporary “High-Balance Conforming” loan limits expired without any action from Congress to extend them (I know – inaction by Congress is not exactly a surprise). That meant that the maximum “conforming” loan amount was lowered from $729,750 to $625,500. Currently all loans amounts above $625,500 are classified as “jumbo” which means they are ineligible for purchase by Fannie, Freddie or FHA. Which of course means that they cost substantially more in points and rate since they can only be sold in the private capital market, which has yet to fully recover from the 2008 meltdown.

But today there is some good news. We got half a loaf back. Approval was recently granted to FHA to increase their maximum loan amount back to $729,750. Unfortunately Fannie and Freddie, being the red-headed step-children, were not granted equivalent authority. So the new limit applies only to government (FHA) loans and does not apply to conventional loans.

The lenders have already rolled out the higher limits so we are ready right now to take FHA applications up to $729,750.

Happy Holidays!

Margie Hofberg, President, Residential Mortgage Center Inc

To contact Margie Hofberg email her at margie@rmcenter.com. If you wish to be notified when she posts her weekly Newsletter simply click on the Subscribe button below. To be added to her weekly Newsletter email distribution list email Renee Bourassa at renee@rmcenter.com.

As we reported to you on November 7 2011, the Federal Housing Finance Agency (FHFA) announced a number of changes to the Home Affordable Refinance Program (HARP) in October which we (naively) thought would greatly expand the number of borrowers who are eligible to take advantage of this very beneficial program.

In general, HARP allows borrowers who have remained current on their obligations but have not been able to refinance because the value of their home has declined to successfully refinance to a lower interest rate. In other words it is for those borrowers who would have otherwise been able to refinance except for depressed home values.

Sounds great, right? Not so fast. Just because the government and the agencies (Fannie and Freddie) roll out a program doesn’t mean the lenders will go for it. And I will bet you that one of main reasons is that the biggest lenders (among them B of A, Wells Fargo, and JP Morgan Chase) hold tons of mortgage backed securities (MBS) with well-above market rates of interest, and the borrowers who are faithfully paying those above-market rates would be the ones that would benefit the most from the HARP refinance program. The banks would lose the above-market interest rate cash flow from those MBS in the process so naturally they are not that excited about implementing the program. That’s the thanks we get for giving them their multi-billion dollar bailout.

So even if HARP 2 ultimately makes it to the market it is going to take quite a while. What are the alternatives? Remember we are talking about borrowers who have consistently paid on time but are prevented from refinancing to a lower rate because their particular neighborhood is not appraising very well and so their LTV (loan-to-value) ratio is too high. I’ll bet you that this description applies to a substantial number of your clients.

The good news is that we have an alternative for your clients, which is lender-paid mortgage insurance (LPMI). Very simply, LPMI is a program for loans above 80% LTV in which the mortgage insurance premium, instead of being paid by the borrower as a separate amount added to the monthly payment, is instead paid by the lender in return for a slightly higher interest rate on the mortgage.

Now nobody likes mortgage insurance, but at least with LPMI the premium is a part of the interest rate so the cost is just as deductible as any other kind of home mortgage interest (always consult your tax advisor regarding the deductibility of any mortgage interest). And in the end, the test of whether a mortgage refinance is worthwhile is always based on the numbers – how much will you save?

Rates are SO low right now that we are finding that refinances using LPMI are saving our borrowers hundreds of dollars a month. Sure, if their houses appraised for more they would save more, but no one is forecasting a substantial increase in housing prices for the next few years. Why not save $300 to $500 or more per month now?

For example we recently recommended an LPMI refinance alternative to one of our borrowers who had initially applied for a standard refinance mortgage (estimating an LTV of 78%), but when the appraisal came back her LTV was 84%, too high to be eligible without mortgage insurance. She would have saved approximately $580 per month if her house appraised high enough, but it didn’t. But the good news is that even with the lower valuation (and consequently higher LTV) she is still saving $540 per month using LPMI, and she is very happy about it!

Feel free to call us to discuss any scenarios your clients might be facing right now and we will let you know whether the LPMI alternative makes sense for them. Have a great Thanksgiving holiday!

Steven Hofberg, Operations Manager

To contact Margie Hofberg email her at margie@rmcenter.com. If you wish to be notified when she posts her weekly Newsletter simply click on the Subscribe button below. To be added to her weekly Newsletter email distribution list email Renee Bourassa at renee@rmcenter.com.

On October 24, 2011 the Federal Housing Finance Agency (FHFA) announced a number of changes to the Home Affordable Refinance Program (HARP) which together will greatly expand the number of borrowers who are eligible to take advantage of this very beneficial program.

In general, HARP allows borrowers who have remained current on their obligations yet are still unable to refinance to lower their monthly payment because the value of their home has declined such that the loan-to-value ratio (LTV) is above 80% (or 95% in the case of loans using private mortgage insurance). It is important to note that HARP is not for borrowers who are in default or who have been 30 days or more past due on their mortgage payment in the last 6 months or more than once in the last 12 months. It is primarily for those borrowers who would otherwise be able to refinance except for depressed home values.

There are a number of beneficial changes which I have summarized for you below, but the most important change is that you DO NOT have to refinance with your current lender! So if the gigantic seller-servicer / international banking behemoth that currently owns your mortgage can’t or won’t give you the personal service that you deserve then come to Residential Mortgage Center Inc. We can originate your HARP refinance with the same personal service and attention to detail that we provide to all of our clients, regardless of their financial situation.

Here are some of the enhancements to HARP announced on October 24, 2011 [with my
comments in italics]:

1. Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers [If you refinance to a 20 year term your rate and/or fees will be even lower than the already current low rates];

2. Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac [You are eligible regardless of the present value of your home];

3. Waiving certain representations and warranties that lenders commit to in making loans
owned or guaranteed by Fannie Mae and Freddie Mac [Which means that lenders will want to make these loans!];

4. Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises [Potentially saving the borrower between $300 and $700]; and

5. Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the enterprises on or before May 31, 2009.

Quoting from the FHFA “HARP Phase II Q&A’s” web page:

“Which borrowers may be eligible for an enhanced HARP? In general, borrowers must meet the following criteria:

1. The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.

2. The mortgage must have been sold to Fannie Mae or Freddie Mac on
or before May 31, 2009.

3. The mortgage cannot have been refinanced under HARP previously
unless it is a Fannie Mae loan that was refinanced under HARP from March-May,
2009.

4. The current loan-to-value (LTV) ratio must be greater than 80%.

5. The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months.”

If you or any of your clients could benefit from the enhanced HARP program please have them contact me immediately to take advantage of the historically low mortgage rates that are currently available.

For more information see FHFA’s web page for HARP at:

http://www.fhfa.gov/default.aspx?Page=380

Have a great week!

Margie Hofberg, President

Residential Mortgage Center Inc

301-208-9090 x112

Margie@rmcenter.com

http://www.rmcenter.com

Well, not exactly a news flash, but as our processor Renee Bourassa said after reading the article, "At least we aren't the only ones [suffering]!"

The article, published in today's (September 15 2011) USA Today, touches on just about every frustrating issue we have to deal with while trying to process your mortgage application and get it approved.

The article discusses how much standards have been toughened since 2007, which most agree is a good thing.  The problem is that the lenders have decided that demanding lots and lots of paper - any paper, whether relevant or not - is the equivalent of tougher standards.  Which of course it is not.

The article quotes a frustrated homeowner in California who very accurately summed up the current situation by saying, "It seemed like an incredible waste of my time and [the lender's] money.  They're trying to dot I's and cross T's to show that they checked 40 documents, but it doesn't mean that they're important documents."

Towards the end of the article a Wall Street mortgage industry analyst is quoted as saying that lending standards are unlikely to loosen until home prices stabilize.  That may be the most accurate statement in the article; however, one could also argue that home prices may not stabilize until lending standards loosen a bit.  So then what?

To read the entire article follow this link: http://usat.ly/pVFP6R

Steven Hofberg, Operations Manager

Note: This article is reprinted from Margie Hofberg's Newsletter dated September 12, 2011.