 |
| 30 Yr Fix |
5.94% |
-0.16% |
| 15 Yr Fix |
5.63% |
-0.15% |
| 1 Yr ARM |
5.15% |
0.03% |
| 5/1 ARM |
5.90% |
-0.10% |
| 30 Yr Tres |
4.06% |
0.03% |
| Fed Prime |
5.00% |
-0.25% |
|
|
|
|
 |
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Banking and Housing Giants Testify About Subprime Solutions
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The chief executives of both Freddie Mac and Fannie Mae as well as the Chairman
of the Federal Deposit Insurance Corporation and the Federal Housing Commissioner
and Assistant Secretary of the Department of Housing and Urban Development testified
last week in a hearing before the U.S. House Committee on Financial
Services about solutions to the current subprime
mortgage turmoil.
Each of the four had some interesting things to say about what their organizations/agencies
are doing or could be doing to resolve the situation and we
will, in a couple of installments, cover them all.
Fannie Mae's Daniel H. Mudd, in a statement prepared for delivery
said that his corporation sounded the alarm about the impending subprime crisis
in early 2005 as they recognized the dangers of "layered-risk"
lending and decided that the products that offered borrowers a mix of teaser
rates, interest-only, negative amortization, and payment option and low-doc
requirements coupled with adjustable rate loans were for more sophisticated
buyers. The corporation decided then that it made no sense for borrowers to
take on risks that they might not be aware of; to set them up for failure.
Fannie Mae thus, he said, instituted a disciplined approach
to that market, applying a "strict 11-point anti-predatory lending standards
to our loan purchases. Under this policy we reject loans the borrower can't
afford to pay from the start, those with excessive points or fees or subject
to mandatory arbitration; loans with abusive prepayment penalties with single-premium
credit insurance or debt cancellation insurance. And, of course, any loans that
are illegal."
"As a result, we gave up significant market share to our competitors.
At the same time, we continued our careful entry into the subprime market, by
and large supporting lenders, products and practices that met our standards,
and which helped us meet our HUD affordable housing requirements."
Consequently, Mudd said, Fannie Mae's exposure remains relatively minimal
-- less than 2.5 percent of the Corporation's book of business can be defined
as subprime and, while this has helped protect the company, its lenders and
borrowers during the crisis, it has also given the company some room to support
the market, as Congress intended. "We are a secondary market mortgage company
-- we can't solve all the problems, but we can't wash our hands of them, either."
Mudd did not agree that the larger market should cut off financing
for the subprime segment which would only make it more difficult and costly
for the least fortunate borrowers to finance or refinance their homes. He quoted
Robert Gnaizda of the Greenlining Institute as saying "Arbitrary and artificial
tightening of credit may be counterproductive - that is, it may dry up credit
for members of minority groups, the poor, and the 70 percent of Americans who
live paycheck to paycheck."
Mudd advocated getting ahead of the problem by assisting borrowers
who are not yet in trouble. "We want to help prevent further disruption of the
subprime market, which would make it tougher for these borrowers to refinance
into better, safer loans. To this end, Fannie has established a new company
initiative nicknamed "Homestay" which has three basic parts.
- The company works with lenders to help homeowners avoid
immediate foreclosure. The company has an operation that focuses on helping
people who are falling behind on payments to avoid default. If it is a Fannie
mortgage the company will work with lenders or services to offer a range of
workout solutions along with offering lenders financial incentives to help
borrowers avoid foreclosure. Mudd stated that the corporation worked out 27,000
loan modifications last year and also has programs in place to help lenders
identify vulnerable borrowers and methods to refer borrowers that are not
on Fannie's books to places they might receive help.
- Fannie is expanding lending options to assist lenders refinance homeowners
out of high-reset
ARMS or other loans that may be problematic. The HomeStay initiative "makes
these products more flexible and broadly available and includes low down payments,
long-term fixed rates, low fees and points, a prohibition of pre-payment penalties,
and a ban on arbitration clauses. Credit requirements are being adjusted so
that many homeowners facing payment shock will be able to refinance into Fannie
supported loans without requiring they clear up unpaid bills on their credit
reports. The company is also relying on its experience with blemished credit
to expand the previous subprime product from 500 lenders to some 2000 accredited
lenders while stretching maximum loan terms from 30 to 40 years.
Mudd said the Fannie is currently getting at least 15,000 applications for
subprime refinancing each month and that 80 percent of these applications have
been accepted. Thus, some 1.5 million homeowners facing resetting ARMs could
be eligible for Fannie Mae loan options.
- The company helping to counsel future homeowners, especially those
who are most vulnerable, or for those whom a product modification alone will
not save the day. The goal is to help people know what to do before payment
shock hits, and to avoid making the wrong mortgage choice in the first place.
He cited $5 million in grants this year to support a national foreclosure prevention
initiative being managed by NeighborWorks of America and the Homeownership Preservation
Foundation. Such nonprofit organizations join with local governments, other
nonprofit organizations, borrowers and lenders to help families overcome obstacles
that could result in the loss of their homes.
- Mudd also cited additional educational programs such as
a "Know Your Mortgage" effort, providing lenders with fact sheets with easy-to-understand
descriptions of mortgage terms in English and Spanish for use with borrowers
and an expanded distribution of its Home Counselor Online system to lenders,
organizations and agencies. This web-based application is designed to help
people understand the home-buying process, how to protect or fix their credit,
what to demand and what to avoid.
"Finally," Mudd said, "as we help the subprime market through
this turmoil, Fannie Mae will continue to support better lending guidelines.
When banking regulators finalize the new guidelines regarding teaser ARMs, which
should be soon, we will work with our industry partners to comply with them.
From the start, we said we believed the best course of action would be to follow
the regulatory process to avoid further disruption of the subprime market and
the borrowers who depend on it. That's what we're going to do."
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Comments (22)
| The truth is Americans are the "greedy" ones in this mess. We want it all and we want it now. I'll worry about tomorrow...tomorrow. Even when we know it's not a good decision, we will do it. Why do we have so much credit card debt? Instant gratification is America! Spend one day watching tv, listening to radio, reading the paper. We are getting sold something we "need" every hour of every day. And we believe it. If you want to blame, blame yourself and your parents. |
|
| Above Posted By:
Bobby
| Sun, 19 Aug 2007 11:34:56 EST |
| I'm tired of everyone trying to blame banks, brokers, etc.
Every borrower is shown at closing what their payment will be and what information on thier loan. Our weakness as a society, lack of self control, and addiction to "instant gratification" is what has caused this mess. Lets get real and quit blaming someone else for our own mistakes. YOU know what your income and expenses are. YOU KNOW YOU WERE GETTING IN OVER YOUR HEAD. BORROWERS TAKE RESPONSIBILITY for your own actions!
|
|
| Above Posted By:
Get real
| Fri, 17 Aug 2007 19:01:49 EST |
| 1)The Option Arm is a loan product, like any other that has a proper use (leverageing for wealth building is one of them- 100% first time homebuyers with 580 credit is NOT 2) The Mortage broker (like me) has a fiduciary responsibility to the borrower - to do what's best for them-many do, many do not (unethical) or don't know how (new or incompetent) 3) The BORRROWER has a responsibility to become educated 4)The loan officer must care more about his borrowers welfare than he does his commission. |
|
| Above Posted By:
Lee J. DeMeo
| Thu, 5 Jul 2007 18:46:16 EST |
| If anyone took the time to read the lawsuits pending and Federal actions in courts across this Nation they would understand that the borrower, for the most part, was just a pawn in the game of greed and corruption. Lenders, brokers and title companies, created a myriad of techniques to coerce and decieve. They used affiliates and sham companies to funnel kickbacks to each other. The POA loans will send shockwaves through this industry and Wall Street the likes of which we have never seen. |
|
| Above Posted By:
Paula Rush
| Thu, 5 Jul 2007 13:13:56 EST |
| Most Option ARMS started in 2005, so 30 months won't hit until end of 2007 - - that is when the market will really melt. We ain't seen nothing yet, baby. |
|
| Above Posted By:
marilyn
| Mon, 25 Jun 2007 22:51:29 EST |
| accruing unpaid interest and principal that is being adde to the loan balance every month.
At 110% the lender recasts the loan and instead of having a $ 600K loan, with payments at 1.25%, they now have a $660K loan, with fully amortized payments at 6% if they are lucky AND a house with a falling value of $560K. If they can't afford the nearly quadrupled monthly payment, foreclosure is their only option. |
|
| Above Posted By:
marilyn
| Mon, 25 Jun 2007 22:51:15 EST |
| $600 BILLION in loans to reset in the next 12 months at a time when the fixed is over 6% and values are declining 10 - 15% in Southern California. What no one is addressing are the Option ARM homeowners, who, at about 30 - 36 months, have their loan "recast" by the lender, meaning a nice letter arrives, informing the homeowner that the $600K loan they took out in 2005 and only paid the minimum start rate paymet of 1.25%, |
|
| Above Posted By:
marilyn
| Mon, 25 Jun 2007 22:50:14 EST |
| I am an investor, a real estate agent, and regularly consult with investors who are in trouble with option ARMs, 80/20 piggybacks, and so forth. I have been counseling investors who are delinquent. Most did not understand the financial effects of their loans, in terms of their effect on the profitability. In other words, they signed for loans that were not going to yield a profitable cash flow, but did not realize it until it was too late.
Ignorance is not bliss in the RE business. |
|
| Above Posted By:
Donna Robinson
| Sat, 23 Jun 2007 13:29:11 EST |
| I very much agree with Bryan Courtney. People have gone through some rough times and the thought of owning their own home and a new start is normal. I know of only one mortgage company that I have delt with in the past that are the very finest and honest people. The others are getting the recompense of their greed and it is going to change the whole "mortgage broker" industry. Just look how many mortgage brokers(so called) have jumped off the band wagon . |
|
| Above Posted By:
TenHen
| Thu, 21 Jun 2007 13:15:36 EST |
| In response to Bryan. You are clueless about the mortgage industry. Majority of consumers have used their homes as ATMs, and now want to blame everyone but themselves for getting further in debt, upside down on their home, or in a negative amortizing loan or arm. If you want a fixed rate loan, your should demand it. If you are looking to blame someone, dont blame greed, or the mortgage industry. Go all the way back to elemetary school on up where personal finance/credit is not taught to us. |
|
| Above Posted By:
anonymous
| Tue, 19 Jun 2007 20:42:20 EST |
| In asnwer to Bryan Courtney, the borrower, when duped by a lender that doesn't post a timely payment doesn't have a prayer in court. At least not in Colorado. The judiciary have all decided in advance that the corporate entity is in the right even so much so as to not recognize evidence to the conrtary.
I unfortunately know because we were foreclosed on. Our reciepts and canceled checks meant nothing to the magistrate in charge of the court. |
|
| Above Posted By:
cjh
| Thu, 14 Jun 2007 15:53:47 EST |
| Todays mortgage business is no different than the car business. I get a trade in and offer 2K and then sell it to you for 8K and at a rate of 21%. No one is screaming about that. I think that individuals who are applying for a mortgage should be required to attend a face to face training by state sponsored personnel. This will allow a forum where each borrower can be educated to the good and the bad of their loan choice. However, we all, including the borrower, have to take responsibility. |
|
| Above Posted By:
Bryan Courtney
| Thu, 3 May 2007 08:07:41 EST |
| The reason is greed. Brokers profitting from the high fees. Bankers who sell the loans in blocks to investors, who know the higher risk, the bigger the payoff. Anyone seeking a mortgage was steered to high rates and fees. The loans going into foreclosure now, were written when the Prime rate was as low as 4.9! Is that what you pay? Stop trying to rationalise the results of corruption and fraud. Regulations on the books would have prevented this "chaos" if somebone thought to enforce them! |
|
| Above Posted By:
Danielle Von Tungeln
| Thu, 3 May 2007 04:59:51 EST |
| There are many things that need to be changed in the lending industry, but all those involved, mortgage brokers, bankers and lenders should have to follow the same guidelines. If there were an industry standard there would be less predatory lending and more consumer protection. A higher level of education and a certification to offer hybrid loan programs should be required. |
|
| Above Posted By:
Cyndi
| Wed, 2 May 2007 20:43:20 EST |
| As for mortgage brokers having to redisclose 48 hours prior to closing. By law if any fees, rates, loan amounts or loan program changes occur, the borrower must be notified in writing whether a broker or a banker. Brokers have to follow the same rules that banks have to, yet only mortgage brokers are required to disclose the yield spread premium (payment received from the lender) while banks do not. Predatory brokers, lenders & greedy investors are to blame for this mess. |
|
| Above Posted By:
Cyndi
| Wed, 2 May 2007 20:38:38 EST |
| The high foreclosure rates have little to do with the option arm or mortgage brokers. Mortgage brokers do not set the guidelines for these loans. The investors are the ones who rolled out these loan programs to fill their pockets by lending to borrowers who did not have good credit. What did everyone expect to happen when they were loaning 100% of a homes purchase price to someone with a 580 score? We are back to where we were 5 years ago in this market. |
|
| Above Posted By:
Cyndi
| Wed, 2 May 2007 20:28:21 EST |
| I totally concur with Gary Volt. In addition to that Option Arms are really great if the property appreciates so much to offset the deferred interest. With legislation doubling minimum payments for credit cards, and prior to that bankruptcy law changed has contributed heavily to default of subprime loans. When these loans were closed they made sense then, but with changes in legislation and high gas prices, contributes to the foreclosure and financial burden of miniority groups poor Americans. |
|
| Above Posted By:
D.Samuel
| Mon, 30 Apr 2007 13:05:46 EST |
| I wish people would stop putting all of the blame on Mortgage Brokers for all the woes of the mortgage industry. There are predatory lenders that are Mortgage Brokers, but they also work at Banks & Mortgage Bankers. It isn't just Mortgage Brokers. As in any industry, there are good people and there are bad people. The same applies in the Mortgage industry. |
|
| Above Posted By:
Damon
| Mon, 30 Apr 2007 10:44:58 EST |
| Require Originating Mortgage Brokers to have FINAL figures and a copy of the loan package 48 hours to the BORROWER before closing and a qualified person to explain the borrowers OPTIONS and the LOAN which the LO picked for them would be greatly appreicated by everyone in the transaction. Too many times the borrowers have no clue about the loan until the closing - be it ignorance or the fact that the LO wants them in the dark |
|
| Above Posted By:
anonymous
| Mon, 30 Apr 2007 09:06:55 EST |
| Leveraging your home to invest is betting you can beat the bank. If they could get a higher return on their money, they wouldn't be lending it to you. In the long run you'll loose. In the short term you'll think you're a freaking genius and will give a nice commision to the loan salesman. Most of the proceeds from MEW are buying jet skis and spinner rims. Do these count as an investment? |
|
| Above Posted By:
Gary Volts
| Wed, 25 Apr 2007 23:08:37 EST |
| Using your home to leverage money and create more wealth by investing the savings each month is intelligent and if done properly, conservative! The Option Arm in itself is not the problem. The problem is approving Option ARMs for borrowers who lack discipline and have not been competently educated on the benefits and risks of the program. It would be a crime to make Option ARM products unavailable. They are an invaluable tool and have been creating wealth for money savvy individuals for years! |
|
| Above Posted By:
Chris
| Wed, 25 Apr 2007 10:47:14 EST |
| One of the contributing factors to the high foreclosure rates we are seeing these days is due to the Pay Option Arm. I have found many financial advisors, mainly the World Financial Group, are putting their clients in the option arm so they can invest the monthly savings and therefore double dip on commissions. I would like to see that practice deemed illegal. The result is homeowners owing more on their home than it is worth and arm resets that can double or triple their payment each month |
|
| Above Posted By:
Sandra
| Tue, 24 Apr 2007 13:46:13 EST |
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