Rates Mostly Up in Freddie Mac Weekly Survey

Freddie Mac released the results of its Primary Mortgage Market Survey® (PMMS®), which saw all but the 1-year ARM rise. This brings 30-year mortgage rates back to levels seen in May of this year, while the 15-year ties levels not seen since June. Even so, mortgage rates remain incredibly low.

News Facts

30-year fixed-rate mortgage (FRM) averaged 4.86 percent with an average 0.8 point for the week ending December 30, 2010, up from last week when it averaged 4.81 percent. Last year at this time, the 30-year FRM averaged 5.14 percent.

15-year FRM this week averaged 4.20 percent with an average 0.8 point, up from last week when it averaged 4.15 percent. A year ago at this time, the 15-year FRM averaged 4.54 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.77 percent this week, with an average 0.7 point, up from last week when it averaged 3.75 percent. A year ago, the 5-year ARM averaged 4.44 percent.

1-year Treasury-indexed ARM averaged 3.26 percent this week with an average 0.6 point, down from last week when it averaged 3.40 percent. At this time last year, the 1-year ARM averaged 4.33 percent.

Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage.

Quotes

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

“Interest rates on fixed mortgages and the 5-year Hybrid ARM rose slightly over the holiday week, but were still below the year’s highs set in the first half of 2010. For the year as a whole, 30-year fixed mortgage rates averaged just below 4.7 percent, which represented the lowest annual average since 1955 when secondary market yields on FHA mortgages were above 4.6 percent and the average price of a home was $22,000.

“Recent news on housing markets has been mixed. The S&P/Case-Shiller® house price index fell 0.99 percent in October, in line with other reports showing a softening in house prices since mid-year. Home sales continue to recover in the months following the expiration of the Homebuyer Tax Credit, however, with sales of new and existing homes up 5.5 percent and 5.6 percent, respectively, in November."

Source: Freddie Mac

Hiring a Lawyer for Loan-Modification Help

Struggling homeowners can sometimes benefit from hiring a lawyer to try to modify a mortgage or avert foreclosure, but avoiding scam artists and sketchy practices requires vigilance.

Carefully vetting lawyers to weed out the good from the bad can mean the difference between saving tens of thousands of dollars in fees and actually having a loan modified — and being out the cash, with your home in foreclosure and a radioactive credit score.

“It’s difficult for consumers to differentiate between the bad actors and the ones who can help, because they’re so inundated with scams these days,” said William Mackin, a bankruptcy lawyer in Woodbury, N.J.

So what are some of the potential red flags?

According to PreventLoanScams.org, a new online site operated by the nonprofit Lawyers’ Committee for Civil Rights Under Law, homeowners should be cautious about: any guarantees that a loan will be modified, since not all can be; requests for an upfront fee or that the property title be signed over to a third party; and offers to redirect the monthly mortgage payments to a third party who will forward them to the lender or mortgage servicer.

“My best advice is, be wary of the too-good-to-be-true remedies,” Mr. Mackin said.

Brian E. Sullivan, a spokesman for the Department of Housing and Urban Development, says homeowners may want to contact a HUD-approved housing counseling agency before hiring a lawyer. A list of nonprofit counselors — some of which offer free loan-modification services, and others that refer clients to outside loan-modification lawyers — can be found on HUD’s Web site.

One benefit of using lawyers is that they typically know the ins and outs of the welter of government homeowner-assistance programs. Those homeowners who decide to hire one should contact their local bar association to ensure they find “an ethical law firm” that does loan modifications, said Thomas Martin, president of America’s Watchdog, a nonprofit consumer advocacy group.

Lawyers typically charge $1,500 to $2,000, and up, for a loan modification. But they might be reluctant to accept clients who have lost their jobs and have no other outside income, as arguing with the bank or servicer in that situation can be pointless.

A lawyer will typically ask for your last two federal income tax returns, two most recent W-2 forms, six months’ worth of pay stubs, evidence of other income and a letter explaining your predicament. The lawyer puts those documents into a loan-modification application — intricate paperwork that varies by lender and servicer — and follows that up with repeated calls to the loan officer. It may take weeks or months before an applicant learns whether his or her mortgage rate will be lowered or the principal amount reduced (lawyers say the latter is less likely).

Some states govern how lawyers can work with for-profit foreclosure-prevention and debt-recovery firms and other non-lawyers when helping a homeowner; state bar associations typically ban lawyers from instructing non-lawyers on how to perform legal services.

New Jersey permits a lawyer to work with foreclosure and loan-modification consultants only if the lawyer: has found and retained the homeowner as a client; supervises the consultant’s work; and compensates the consultant with a salary or per-case fee. Allowing the client to pay the consultant directly is forbidden.

New York bans lawyers from paying referral fees to third-party consultants who bring clients to the lawyer. All payments by the lawyers to the consultants must be disclosed to and agreed by the client.

In Connecticut, lawyers cannot pay referral fees to the consultants or split fees with them.

Max L. Rosenberg, a consumer-protection lawyer in Stratford, Conn., said that “anytime a lawyer farms out something to a nonlawyer for a loan mod, the hair on the back of my neck stands up. “It’s the Wild West out there,” he said, “and you have to be really careful.”

Source: NY Times

Panel: Mortgage Program Failed Most Homeowners

Congressional panel says program has failed to help most homeowners

An auction signs sits in front of a foreclosed home Wednesday, Nov. 10, 2010 in Valrico, Fla. The number of U.S. homes repossessed by lenders last month fell by the sharpest margin this year, as several major lenders temporarily halted most or all of their foreclosures amid allegations thousands of foreclosures were handled improperly.

The Obama administration’s key program for modifying troubled mortgages has failed to help the vast majority of Americans facing foreclosure, according to the bipartisan Congressional Oversight Panel, which monitors the federal bank bailout program.

The report said that, if current trends continue, the Home Affordable Mortgage Program, or HAMP, “will never have the reach necessary to put an appreciable dent into the foreclosure process” — partly because it’s doing a poor job monitoring how lenders are handling troubled mortgages.

When the HAMP was launched two years ago, the administration said it would keep between 3 million and 4 million homes out of foreclosure.

But the oversight panel said it now seems likely that HAMP will prevent only 700,000 homes from going into foreclosure nationwide — a fraction of the 8 million to 13 million foreclosures expected by 2012.

In the meantime, foreclosures are slowing both nationwide and locally, but not because of HAMP. Instead, the slowdown came after regulators throughout all 50 states launched a probe into the way that banks are handling the foreclosure process, particularly their use of “robo-signers” who have pushed through thousands of foreclosures per week.

In San Diego County, the number of homes going into default dropped 3.7 percent between September and October and 21.6 percent since October 2009, according to mortgage tracker ForeclosureRadar.com. The number of homes entering foreclosure dropped 1.5 percent during the month and 13.4 percent during the year.

"Even before the recent robo-signing controversy, the lack of clarity around the foreclosure process had only created fear, uncertainty and doubt among buyers, leaving them to wonder, when, if ever, the millions of homes that are either delinquent or in foreclosure will hit the market," said ForeclosureRadar founder Sean O'Toole. "Now issues related to robo-signing and other foreclosure and lending practices have led some to call into question the validity of some foreclosures creating fear among buyers that the purchase of their home may later be deemed invalid."

In his blog ForeclosureTruth, O'Toole said he is not confident that most troubled borrowers will ever get real help.

"What they need most is a principal balance reduction sufficient enough to return their underwater homes back into a sensible investment....," he said. "Instead expect to continue to see more of the same – major programs that ultimately fail, as they are primarily designed as political theater rather than real help."

Source: Sign On San Diego

Wells Fargo Reaches Agreement with California to Modify Risky Mortgages

The bank will make modifications valued at as much as $2.4 billion on 'pick-a-payment' mortgages. It also will pay $32 million to 12,000 borrowers who had such loans and lost their homes to foreclosure.

Wells Fargo & Co. reached an agreement with the state of California to make mortgage modifications valued at as much as $2.4 billion on risky mortgages that let borrowers decide how much they would pay each month.

The bank also will pay $32 million to more than 12,000 California borrowers who had such loans and lost their homes to foreclosure, according to the accord, announced Monday with Atty. Gen. Jerry Brown's office. The $32 million works out to an average of about $2,650 for each former homeowner.

Some of the promised modifications, to be made over the next three years, are expected to include reductions in the balances owed by borrowers. But that does not appear to be a significant concession by Wells Fargo because it already has modified more than 50,000 so-called pick-a-payment mortgages in California, reducing the balances on those loans by a total of $2.9 billion.

The San Francisco bank inherited the loans, known generically as pay-option adjustable-rate mortgages or option ARMs, when it purchased troubled Wachovia at the end of 2008 during the financial crisis. At that time Wells Fargo wrote down the value of the Wachovia portfolio before taking it onto its own books.

As a result, the loan modifications haven't generated painful losses for Wells Fargo. The company indicated Monday that it didn't expect the newly promised modifications to force it to further write down the portfolio.

"What they are doing now is more public relations," Rochdale Securities analyst Richard Bove said. "If the only economic impact is that they are going to give roughly $2,600 to $2,700 to a few thousand people, and if that is going to cost them on the order of $32 million, that's peanuts."

Pick-a-payment loans proved to be problematic for many borrowers, particularly in California, where many of the loans were made. Losses on the loans were a major reason Wachovia was forced to find a healthier bank to buy it.

The option ARMs allowed homeowners to essentially choose how much they wanted to pay on their loans each month. Many borrowers opted for the smallest payment, which didn't even cover the interest accruing each month. That meant the balance on the loan rose instead of fell. But once the balance reached a certain level, the required payment was reset automatically, often ballooning to a level that the borrower couldn't afford.

The settlement with California follows similar agreements that Wells Fargo struck in October with nine other states: Arizona, Colorado, Kansas, Florida, Illinois, Nevada, New Jersey, Texas and Washington.

The agreement is unrelated to an investigation that all 50 state attorneys general are conducting into the foreclosure practices of major lenders. That probe was sparked by revelations that several major lenders had employed people who had legally attested to the accuracy of foreclosure documents without reading them.

The bank also will pay the attorney general's office $1.8 million "for the investigation and prosecution of consumer protection matters, for consumer education and outreach, and to pay any costs incurred to distribute payments to eligible foreclosed borrowers."

Source: L.A. Times

Existing-Home Sales Resume Uptrend with Stable Prices

Existing-home sales got back on an upward path in November, resuming a growth trend since bottoming in July, according to the National Association of Realtors®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 5.6 percent to a seasonally adjusted annual rate of 4.68 million in November from 4.43 million in October, but are 27.9 percent below the cyclical peak of 6.49 million in November 2009, which was the initial deadline for the first-time buyer tax credit.

Lawrence Yun, NAR chief economist, is hopeful for 2011. “Continuing gains in home sales are encouraging, and the positive impact of steady job creation will more than trump some negative impact from a modest rise in mortgage interest rates, which remain historically favorable,” he said.

Yun added that homebuyers are responding to improved affordability conditions. “The relationship recently between mortgage interest rates, home prices and family income has been the most favorable on record for buying a home since we started measuring in 1970,” he said. “Therefore, the market is recovering and we should trend up to a healthy, sustainable level in 2011.”

The national median existing-home price for all housing types was $170,600 in November, up 0.4 percent from November 2009. Distressed homes have been a fairly stable market share, accounting for 33 percent of sales in November; they were 34 percent in October and 33 percent in November 2009.

Foreclosures, which accounted for two-thirds of the distressed sales share, sold at a median discount of 15 percent in November, while short sales were discounted 10 percent in comparison with traditional home sales.

Total housing inventory at the end of November fell 4.0 percent to 3.71 million existing homes available for sale, which represents a 9.5-month supply at the current sales pace, down from a 10.5-month supply in October.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said good buying opportunities will continue. “Traditionally there are far fewer buyers competing for properties at this time of the year, so serious buyers have a lot of opportunities during the winter months,” he said. “Buyers will enjoy favorable affordability conditions into the new year, although mortgage rates are expected to gradually rise as 2011 progresses.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.30 percent in November from a record low 4.23 percent in October; the rate was 4.88 percent in November 2009.

“In the short term, mortgage interest rates should hover just above recent record lows, while home prices have generally stabilized following declines from 2007 through 2009,” Yun said. “Although mortgage interest rates have ticked up in recent weeks, overall conditions remain extremely favorable for buyers who can obtain credit.”

A parallel NAR practitioner survey shows first-time buyers purchased 32 percent of homes in November, the same as in October, but are below a 51 percent share in November 2009 from the surge to beat the initial deadline for the first-time buyer tax credit.

Investors accounted for 19 percent of transactions in November, also unchanged from October, but are up from 12 percent in November 2009; the balance of sales were to repeat buyers. All-cash sales were at 31 percent in November, up from 29 percent in October and 19 percent a year ago. “The elevated level of all-cash transactions continues to reflect tight credit market conditions,” Yun said.

Single-family home sales rose 6.7 percent to a seasonally adjusted annual rate of 4.15 million in November from 3.89 million in October, but are 27.3 percent below a surge to a 5.71 million cyclical peak in November 2009. The median existing single-family home price was $171,300 in November, which is 1.2 percent above a year ago.

Existing condominium and co-op sales declined 1.9 percent to a seasonally adjusted annual rate of 530,000 in November from 540,000 in October, and are 32.2 percent below the 782,000-unit tax credit rush one year ago. The median existing condo price was $165,300 in November, down 5.5 percent from November 2009. “At the current stage of the housing cycle, condos are offering better deals for bargain hunters,” Yun said.

Existing-home sales in the West jumped 11.7 percent to an annual level of 1.15 million in November but are 19.0 percent below the sales peak in November 2009. The median price in the West was $212,500, up 0.4 percent from a year ago.

Source: NAR

ARMs Providing Unexpected Relief for Some Home Owners

Horror stories about adjustable rate mortgages (ARMs), that double and triple mortgage payments when the rate resets, belie the fact that ARMs can likewise generate a small windfall of smaller mortgage payments at reset time.

That's just what ARMs are doing today.

"Whenever I closed a 5/1, 7/1 etc. I always warned my clients that they would save money during the fixed rate period, but that they should expect that it's a bad loan (meaning a high payment) after that," said Stephanie Noryko, broker/owner of Granite Financial in Cupertino.

"But now, when lending guidelines have tightened up so severely and home values have declined, adjusting ARMs are, in most cases, declining," she added.

Fixed rate mortgages (FRMs) come with an interest rate that is fixed for the life of the loan. For the borrower, that builds in budgeting security -- the mortgage payment remains the same each month.

Not so with ARMs. They come with an interest rate that changes throughout the life of the loan. How often and by how much the rate changes, depends on the terms of the ARM, but their lure is an initial rate that is lower than FRMs.

That gives the borrower the power of financial leverage to initially pay less a month for the same mortgage than they would pay for a FRM. ARMs can also help a buyer buy a larger home or more expensive home in a better neighborhood.

For example, in recent weeks, for conforming, 30-year mortgages, the interest rate on FRMs have averaged about one percentage point higher than the 5-year Treasury indexed ARM.

Fixed rate mortgages for conforming loans averaged 4.40 percent vs. 3.45 percent for the 5-year Treasury indexed ARM, according to Freddie Mac's Nov. 24 Primary Mortgage Market Survey.

That's about $2,000 a month on a $400,000 mortgage for the FRM and $1,785 for the ARM -- a savings of $215 a month for the 5-year ARM's first five years.

But here's the rub.

ARMs come with a starting rate for a given period. The rate remains the same, typically, from one year to 10. After the initial period, the rate changes, typically each year. A "5/1" ARM, for example, is fixed for five years and then resets each year thereafter.

How much the rate changes depends upon the "index," which can rise and fall; "margins," which, when attached to the index, add up to your current interest rate; and maximums or "caps" that limit the size of the rate increase during each period and how high the rate can go during the life of the loan. "Floors" also limit how low a rate can go.

Because the margin is set with the terms of the loan, the interest rate is at the mercy of the index.

Common indexes are the 12-month Libor (for London Interbank Offered Rate) and the 1-Year Treasury.

The week of Nov. 30, 2010, put the 12-month Libor at 0.785 percent and the 1-Year Treasury at 0.26 percent.

Average margins run about 2.25 percent to 3 percent, hence the recent average 3.45 percent rate on the 5/1.

"I have a client now whose 5/1 will now go down to 3.125 percent and he had submitted a refinance for a 5/1 at 4.125 percent. He called me recently after being on vacation and reading lots of business forecasting articles and decided that he thinks there is a good chance rates will stay low for the next two to three years so he is going to keep his existing ARM," said Noryko.

For Noryko's client, the ARM paid off five years ago as a loan that was cheaper than a FRM, and again, today, resetting for less in the low interest rate environment.

The risk, however, remains.

FRMs remain today's most popular type of loan because there's a demand to lock in and avoid the potential pain of rising rates that could come with the housing markets projected recovery in late 2010.

ARMs are useful for those who plan well in advance to remain in the home for a short period of time, say for borrowers who've decided to put off selling until the housing market rebounds; for those who plan to relocate soon; or for those approaching retirement and expect to move up, down or over.

For all those scenarios and others, because ARM mortgage rates can eventually rise, ARM borrowers must keep their financial house in order, their debt levels low and their credit standing high so they are able to refinance or buy anew down the road.

Holding an ARM also comes with a mandate for solid employment, or the cash, savings or investment returns to withstand any future rate hikes.

ARM holders should be intimately aware of all loan terms -- the index, the margin, the cap (especially the maximum over the period of the loan) and the reset periods.

Source: Realty Times

Fast Facts

Calif. median home price: October 2010: $304,220 (Source: C.A.R.)

Calif. highest median home price by C.A.R. region October 2010: Santa Barbara So. Coast $864,000 (Source: C.A.R.)

Calif. lowest median home price by C.A.R. region October 2010: High Desert $125,060 (Source: C.A.R.)

Calif. First-time Buyer Affordability Index - Third quarter 2010: 64 percent (Source: C.A.R.)

Mortgage rates: Week ending 12/2/2010 30-yr. fixed: 4.46 Fees/points: 0.8% 15-yr. fixed: 3.81% Fees/points: 0.7% 1-yr. adjustable: 3.25% Fees/points: 0.6% (Source: Freddie Mac)