New Bill Touts Shared Equity Mortgage Modifications

While the housing outlook has certainly improved significantly, some 5.1 million homeowners remain underwater on their mortgages.

This means they are unable to sell their homes because they owe more than their properties are worth, and possibly barred from a refinance unless they can take advantage of a program like HARP.

While 5.1 million is a lot less than it used to be, it still represents more than 10% of all homes with a mortgage, per data from CoreLogic.

Additionally, some two million of these unlucky homeowners owe at least 25% more than their homes are currently worth.

Clearly this doesn’t provide much motivation to stick around and make costly monthly mortgage payments, especially if these homeowners can’t take advantage of today’s low rates.


Principal Reduction Today for Your Appreciation Tomorrow

Enter a new bill aimed at tackling the problems associated with underwater mortgages, like high default rates and zombie foreclosures, the latter of which results in property blight.

The so-called “Preserving American Homeownership Act,” introduced this week by U.S. Senator Robert Menendez (D-NJ) is essentially a shared equity mortgage modification program.

It’s supposed to be a win-win situation for both homeowners and lenders, giving each party motivation to modify and keep up with payments, respectively.

The way it works is fairly simple. A borrower with an underwater mortgage has their principal balance reduced to 100% of the current value, provided the borrower can make payments.

The principal reduction takes place over a period of three years or less, in increments of one-third each year. So if borrowers make timely payments their principal balance will be reduced further over time.

The mortgage rate may also be cut if the principal reduction isn’t enough to make payments affordable.

Once it comes time to sell or refinance, the bank (or investor) will received a fixed share (up to 50%) of the increase in the home’s value. This amount cannot exceed twice the dollar amount of the principal reduction.

The value will be assessed via appraisal when the borrower first enters the pilot program, and again when they sell or refinance.

The program would be available on primary and secondary homes, and borrowers would be eligible regardless of how deeply underwater they are.

The plan is to launch two pilot programs, one under the FHFA and another under the FHA.

Menendez noted that a similar program launched by a private mortgage servicer led to a near-80% participation rate and a re-default rate of just 2.6%.

That sounds pretty good, especially when you’re giving away half of your future appreciation. The question is whether this type of relief comes a little too late in the game.

But for those who really love their homes and want to remain in them, it could be a lifesaver seeing that widespread principal reduction never came to fruition.

 (photo: Jonathan McIntosh)

source: thetruthaboutmortgage.com

Mortgage Closing Rate Surpasses 60% in June

While mortgage volume might not be what it once was, it seems more of those loan applications are actually funding these days.

The latest Ellie Mae Origination Insight Report released today revealed that the “pull-through” rate topped 60% for the first since such tracking began back in August 2011.

The closing rate is the percentage of loan applications initiated in the previous 90-day cycle that have closed.

In other words, 60.7% of all loans initiated in March closed successfully, up significantly from 57.8% in May and well above 54.3% in June 2013.

So despite there being a lot less business out there, as evidenced by recent second quarter earnings reports from the likes of Chase and Wells, it seems more of it is reaching the finish line.

That’s certainly good news as banks struggle to reap profits from mortgage lending.

 The Closing Rate Has Been Steadily Rising

 

Since the beginning of 2014, the closing rate has increased fairly steadily from 54.9% in January to nearly 61% last month.

The improvement has been seen in both purchase applications and refinances, with the former hitting 63.6% in June and the latter climbing to 55.8%.

Broken down by loan type, the FHA loan pull-through rate was 57% in June, up from 53.6% in May and 51.9% a year earlier.

For conventional loans, 61.6% of loans closed in June, up from 58.7% in May and 59.2% in June 2013.

The VA loan closing rate was 58% last month, up from 56.2% in May, the first month tracking began.

Overall, closed loans had an average FICO score of 728, which was up slightly from previous months, but well below the 738 average seen in 2013.

The average loan-to-value ratio was 82%, the same as it has been all year long, though up marginally from 81% in 2013.

Closed loans also exhibited faintly higher DTI ratios, with 24/37 the average, up from 24/36 in 2013.


What Denied Applications Look Like

 

Wondering what happened to the other 40% of loans? Well, the ones that were flat out denied had an average FICO score of 686, which was lower than the 689 average in May and the 699 average for all of 2013.

So clearly lenders have become a little looser in terms of credit-related underwriting standards.

At the same time, the average LTV ratio of a denied loan was 82%, which is lower than the 84% average seen last year, though that could have more to do with fewer high-LTV HARP refinances being submitted these days.

Despite FHA loans allowing for FICO scores as low as 500, the average FICO for a closed FHA app was 672 last month, whereas a denied loan was just 640.

LTV ratios were pretty similar among closed and denied apps, but DTI ratios were markedly lower on closed FHA loans.

So keeping debt low going into a mortgage app is especially important if your income isn’t too hot.

For conventional loans, the average FICO for a closed loan was 733 in June, compared to a 695 score for denied applications.

High DTI ratios were again an issue on denied apps, whereas LTVs were pretty similar for both those approved and denied.

For the record, applications not reported as denied or closed may still be active, withdrawn, or closed due to incompleteness.

source: thetruthaboutmortgage.com

Refinancing the Mortgage With HARP

A few years back we refinanced our mortgage to get a lower interest rate.  At the time, we were absolutely thrilled to get a 4.875% mortgage.  I never thought I’d see rates that low.  The only drawback was that we’d stretch the loan back out to another 30 year term.  We decided to mitigate that by paying extra all year long.  We did that by signing up for the free biweekly payment program at our credit union and also added another $300 a month on top of that.  That got us back on track to pay our mortgage off much sooner than the 30 year term.

I recently started receiving offers in the mail to refinance our house because our mortgage was backed by Fannie Mae and was eligible to participate in the HARP program (if needed).  As soon as I opened each letter, I put it right in to the shredder though because I don’t trust mailings like that.  It wasn’t until I got a letter from my credit union saying that my loan was backed by Fannie Mae and I might be eligible for a lower interest rate that I really started thinking about it.  When I looked in to the current rates at my credit union, I was disappointed to see that they were significantly higher than other rates I’d seen.  Instead of going through the credit union, I remembered that I’d read about Costco aggressively offering mortgage services through a select group of banks and institutions so I gave them a try.  It turns out that Costco has, once again, squeezed many of the fees out of the process.  In order to work with Costco, banks had to agree to a $600 cap on loan costs for executive members and a $750 cap for regular members.  Normally most banks would charge a 1% loan origination fee so this saved us a nice chunk of money.  Because HARP is involved, I was also happy to hear that I didn’t have to pay for an appraisal.  This saved us another $400.  All in all, it was very cheap to go through the process.  It was also very painless.  All the interaction happened through email and they are going to come to my house to handle the signing of the documents.  The best part about all of this is that we got a 3.625% interest rate on the new mortgage.

While I’ve been really pleased with the whole process, I was kind of shocked at the amount of detail they wanted us to provide.  We both have credit scores over 800, flawless credit, no debt other than the mortgage, and have really good salaries.  Based on the amount of information we had to provide, you’d never believe we were a good credit risk.

In order to process the loan, here’s what we had to provide:

• 3 pay stubs for each of us
• 2010 tax return
• 2011 tax return
• Proof of insurance on primary home
• Proof of insurance on vacation home
• Latest bank statement
• Proof that home equity loan has a zero balance
• Homeowners Association Bill
• W2 for 2010 for each of us
• W2 for 2011 for each of us
• Settlement statement from last refinance a few years ago

Like I said, you’d think we had bad credit or something.  Things have definitely changed since the high flying days of 2008.  If they are doing this much due diligence with us, I’m sure there are a LOT of people that are out of luck when it comes to getting a mortgage.

Anyway, we are glad we’re doing it.  The 3.625% rate is unbelievable.  Between the rate and putting an extra $20,000 in cash to pay down the balance even further, we’re going to see our payment drop by $400 a month.  We’ll actually be paying more than that because we want to pay the house off much earlier than 30 years but it’s nice to know that if we ever lost our jobs or fell on hard times, we’d have a much lower mortgage payment to deal with.

source: everybodylovesyourmoney.com