Mortgage Rates Fall, U.S. Seeks Further Interest Rate Reduction

With the US Treasury purchasing $600 billion in mortgage backed securities mortgage rates are falling. There is also a plan being floated where the government would set the 30 year mortgage rate at 4.50% on home purchases – almost 1% below current market rates.  The idea being of course that the whole thing started with housing, might as well end it with housing as well. I am sure we all agree that no one really knows the exact solution to cure this crisis.

Regardless here is a snapshot of how rates have fallen in the past few weeks (source: Freddie Mac Weekly Rates):

For reference Freddie Mac reported a weekly average mortgage rate of 6.100% on the first week of October. This week rates are averaging in the 5.500% range.

Loan Servicing Transfer vs. Refinancing

From the Arizona Mortgage Guru mailbag:

Question: Well, we just received a notice that IndyMac, who we have a second mortgage with, closed it’s doors. They kindly sent us a notice that they are working with Wells Fargo to offer help refinancing our loan. My concern is this, if we have to go through a “regular” refinance, there is no way we would qualify with our credit being in the dumps. It’s obvious they aren’t transferring our loan to Wells Fargo, but just offering help to refinance. So I’m concerned. I don’t see how they can do that. When calling the Wells Fargo number they provided, I couldn’t get through to anyone. I’ll try again tomorrow. I would appreciate any advice.

Thanks,

Jen

Dear Jen,

Sorry to hear of the difficult situation you’re facing. Hang in there. Each bank has different rules to an extent on how they are dealing with the current troubles so I can’t comment on exactly what you’re facing. However,  here is what I know:

1. A bank can not force you to refinance in the sense that they can not call back a loan unless you’ve violated some very serious terms. Even then it would have to be pretty bad. This is a rule dating back to the aftermath of the Great Depression. If banks could call back mortgages – in today’s climate – 50-60% of folks would lose their homes – since the vast majority are not in a position to pay back their home loans on short notice without selling the house.

2. Banks can sell the servicing rights – in which case the terms of the loans remain unchanged but only the loan is transferred to a different lender. This doesn’t require you to refinance.

So, with that – I am not sure what exactly Indy is trying to do. I would try to reach someone there and ask them exactly what they are talking about.

I don’t know what else to say really.

Hope that helps. Good luck Jen!

House Passes Key Mortgage “Reform” or, the “No Loan For You” Bill

soup-naziThe US House passed the Mortgage Reform and Anti-Predatory Lending Act (HR 3915). It’s being called as the “anti-predatory” bill, but I’m going to call it the “no loan for you” bill.

For those not familiar with the bill’s key provisions, below is a summary from MSNBC :

The bill would create a licensing system for residential mortgage loan originators, and establish a minimum standard requiring that borrowers have a “reasonable ability” to repay a loan.

It also contains an “anti-steering” provision that would prohibit mortgage originators from steering consumers to a loan that the consumer lacked “a reasonable ability to repay” or had “predatory characteristics”.

The bill also attempts to bring thousands of largely unregulated mortgage brokers – responsible for more than half of the mortgages sold in the US in the past two years – under a nationwide system of licensing and registration.

Lets review:

Licensing: Maybe it will help, but I’m not so sure. Currently brokers have to be licensed even though the individual loan officer do not have to be.

Reasonable ability to re-pay: Has Congress ever heard of the debt to income ratio (DTI)? This is one of the fundamental metrics used to qualify a borrower. The reason why the DTI is so important is because it tells you exactly whether the borrower can repay the debt or not.

Anti-steering: I do agree that the current system is wide open and vulnerable to abuse. However, I wouldn’t ban the compensation which wholesale lenders provide brokers. I would cap it at 1% or 2%. In case you are wondering this compensation is required already disclosed on the settlement statement.

Predatory characteristics – This is too hard to define but I think we need to limit the use of stated income loans.  Also I’d start with cracking down on those insanely crazy ads you hear on the radio. You know the one where the guy claims you can have a $200 payment on a $500,000 loan.  And you must be stoooopid to pay closing costs! So, here’s a radical thought, how about we enforce current laws first?

My disagreement on this bill is philosophical:

1. It makes the lender responsible for the borrowers actions. It treats every borrower as a victim and personal responsibility is substituted for lender responsibility

2. With lenders subjected to greater liability I am pretty sure obtaining a mortgage in the future will be more difficult. Get used to additional documentation, longer processing time and a greater stack of paperwork to sign.

3. It interferes with the free flow of credit and the consequence will be a smaller pool of lenders with a narrower set of loan programs. It will be harder for lower income and lower credit families to buy a home. Homeownership will suffer.

Your comments are welcome.

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