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November 2008
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Freddie Mac Eliminates Stated Income and Reduces Jumbo Fees

Freddie Mac announced they are lowering their delivery fees on jumbo mortgage loans. This will make many of the mortgage lenders and brokers happy because often times they were forced to eat the cost to remain competitive with shopping borrowers. Freddie also announced the were discontinuing to purchase of stated-income home loans. Freddie is eliminating the extra delivery fees that it charged on fixed-rate purchase and “no cash-out” home refinancing jumbo mortgages, beginning Jan. 2, when the maximum loan limit for the government sponsored enterprise is scheduled to drop from $729,750 to $625,000.

The GSE also is reducing its delivery fees on fixed-rate, cash mortgage refinancing of jumbo loans, according to a Freddie Bulletin to seller/servicers. Fannie Mae and Freddie began purchasing jumbo loans earlier this year when Congress the raised the maximum loan limit from $417,000 to $729,750 as part of an economic stimulus bill. Freddie also used the bulletin to tell lenders that is “discontinuing the purchase of all mortgages originated with stated income and stated assets, including Loan Prospector Accept Plus Mortgages.”

Fed Buy Mortgage Securities to Free up Credit Markets

The Federal Reserve announced they are launching a program to buy up to 200 billion dollars in asset-backed securities (ie. student loans, auto loans, credit card loans and other bad credit mortgage loans ) in a effort to melt the frozen credit markets. The US Treasury said it was allocating 20 billion dollars to the asset-backed securities fund as “credit protection.” “The asset-backed securities market provides liquidity to financial institutions that provide small business loans and consumer lending such as auto loans, student loans, and credit cards,” Treasury said in a statement. “Millions of Americans cannot secure affordable home equity refinancing for their basic credit needs,” Treasury Secretary Henry Paulson said, adding that the program “may be expanded over time” to other types of assets. The statement noted that these assets-backed securities amounted to 240 billion dollars in 2007 but had dropped sharply in the third quarter of 2008 “before essentially coming to a halt in October,” making it harder for consumers to get credit and threatening a seizing up of economic activity.

According to the Fed statement, “Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of US economic activity.” The Fed will lend up to 200 billion dollars to holders of AAA-rated asset-backed securities for a term of at least one year, with holders of the securities expected to accept “a haircut” reflecting the reduced market value. The government continues to offer incentives for banks that provide loan modifications to prevent foreclosure. The Federal Reserve said the action on mortgage securities “is being taken to cut the costs while increasing the availability of credit for the home purchase loans, which in turn should support local housing markets while fostering better conditions in financial markets nationally.”

Lawmakers Consider Loan Modifications to Stem Foreclosure Crisis

Lawmakers from states that would suffer most should the U.S. auto industry fail are working behind the scenes to come up with a compromise on a federal bailout. CEOs from GM, Ford and Chrysler say without an infusion of $25 billion in federal loans, there could be a collapse that would lead to millions of layoffs. House Speaker Nancy Pelosi is urging Treasury Secretary Henry Paulson to get behind a plan calling for $24 billion of the $700 billion financial bailout pool to help Americans at risk of losing their homes. The plan is from FDIC head Sheila Bair, who told a House panel “much more aggressive intervention is needed” to address the foreclosure crisis.

Mortgage rates remain low, but millions homeowners are unable to refinance into a more affordable mortgage because lenders have tightened guidelines for mortgage refinancing and many homeowners have trashed their credit because of delinquent mortgage payments. Loan modifications remain the best solution, but lenders need to cooperate and in most cases their loss and mitigation departments do not have the support to handle the volume.

Mortgage Interest Rates Decrease Slightly

Mortgage rates dropped for a second straight week, reflecting the impact of a softening economy may have on financial mortgage markets. Freddie Mac reported Thursday that rates on thirty-year fixed-rate mortgages averaged 6.14 % last week, down from 6.2% the previous week. It marked a sharp decline since rates hit a high of 6.46% two weeks ago.

Analysts attributed the back-to-back decreases to financial markets growing more confident that the Federal Reserve will cut rates again at its final meeting of the year in December in an effort to combat a severe slowdown many economists fear could deepen into a prolonged recession. “Long-term mortgage rates fell slightly … as signs the overall economy is weakening brought interest rates down market-wide,” said Frank Nothaft, chief economist for Freddie Mac. Interest rates on other types of home loans also fell last week with the exception of one-year adjustable-rate mortgage loans. For fifteen-year fixed-rate mortgages, rates dropped to 5.81% from 5.88%. Rates on five-year adjustable-rate home loans decreased to 5.98% from 6.19%, and rates on one-year adjustable-rate mortgages edged up slightly to 5.33% from 5.25%. FHA home loan rates remained under 6%

The mortgage rates do not include points. The national average on fees for thirty- and fifteen-year mortgage loans averaged 0.7 of a point last week. The fee on five-year adjustable-rate mortgages averaged 0.6 of a point, while the fee on one-year adjustable-rate mortgages averaged 0.5 of a point. A year ago, the nationwide average rate on 30-year mortgages stood at 6.24%, 15-year mortgage rates averaged 5.88%, 5-year adjustable-rate mortgage loans were at 5.96%, and 1-year adjustable-rate home mortgages stood at 5.5% Read Complete article >

Mortgage Rates Decline Slightly

Home mortgage rates declined this week after spiking last week, continuing 5 weeks of turbulence that has seen rates interest increase and decrease unusually as the foreclosure crisis keept the credit markets in turmoil. The national average interest rate on the benchmark 30-year fixed mortgage dropped to 6.20% this week from 6.46% a week ago, Freddie Mac said in its Thursday rate survey. The mortgage rate had jumped last week from 6.04% just two weeks ago. It was at 6.46% three weeks ago and at 5.94% the week before that. A year ago the 30-year averaged 6.24%.

FHA-home loan applications had dropped last week, but this week they rebounded as FHA mortgage rates decreased slightly.

The 15-year fixed-rate mortgage, a popular refinancing choice, fell to 5.88% from 6.19% a week earlier. A year ago, the loan averaged 5.90%. The five-year Treasury-indexed hybrid mortgage dropped to an average 6.19% from 6.36%, and the one-year Treasury-indexed adjustable-rate mortgage hit 5.25%, down from 5.38%. A year ago the hybrid was 5.89% and the ARM 5.50%. The 30-year and 15-year loans required the payment of an average 0.7 point to achieve the rate, while the hybrid needed 0.6 point and the ARM 0.4 point. A point is 1% of the loan amount, charged as prepaid interest.

“Mortgage rates fell this week amid new indications of a pullback in consumer spending and a weaker jobs market,” said Frank Nothaft, Freddie Mac chief economist. “The economy shrank by 0.3 % in the third quarter, led by the first decline in consumer spending since the fourth quarter of 1991. In September alone, consumer spending fell by the most since June 2004. More recently, job layoffs more than doubled in October compared to September on year-over-year basis.”

The poor economy coupled with the ongoing mess in financial markets has made getting a mortgage more difficult, Nothaft said. “With the economy contracting and experiencing record home foreclosures, mortgage lenders tightened their credit standards further, according to the October Federal Reserve Senior Loan Officer survey. Approximately 70% of banks raised their lending standards for prime mortgage loans and about 90% of banks that offer nontraditional mortgages did so as well,” he said.

Home Construction Spending Drops with Credit Crunch

According to a report from the U.S. Department of Commerce, construction spending in the United States edged down in September, coming in at -0.3% month-over-month. The consensus had forecast construction spending in September to decline by 0.8%. The total construction figure for August was revised upward to 0.3% from 0.0%. According to Smart Home Equity who provides home equity credit lines and cash out refinancing for homeowners, said that “consumers aren’t qualifying for home equity loans and they just aren’t remodeling their houses at the moment.”

Residential construction fell by 1.3%, a drop from August’s 1.9% increase, while non-residential construction increased 0.1%, up slightly after falling 0.4% in the previous month. The report also noted a 0.1% increase in private construction and a 1.3% decline in public building, which came in at -0.1% and -1.3%, respectively, in August.  Mortgage rates rose even though the Federal Reserve lowered interest rates.

Fed Wants U.S. to Play Role in Mortgage Loan Securities

Federal Reserve Chairman Ben Bernanke sketched out a blueprint for handling the mortgage-loan crisis which has become a key issue both presidential candidate. Speaking to a mortgage-finance symposium in Berkeley, Calif., by videoconference Friday, Mr. Bernanke said policy makers may need to maintain a key role in mortgage securitization regardless of the fate determined for government-sponsored entities Fannie Mae and Freddie Mac. Among the choices he outlined was creating a government bond insurer for mortgage funding. “Government likely has a role to play in supporting mortgage securitization, at least during periods of high financial stress,” Mr. Bernanke said.

The government on Sept. 7 seized Fannie and Freddie, which together own or guarantee half the nation’s mortgage loans, after months of uncertainty about their future. The government’s action initially alleviated some pressure on the market of loans for a mortgage refinance. But the financial crisis has pushed consumer mortgage rates up, weighing on the housing market. According to financial publisher HSH Associates the average for 30-year fixed-rate mortgage refinance loans conforming to Fannie and Freddie standards was 6.63%, , up from 6.34% in early September before the government put the firms into conservatorship.

According to former IHE home equity executive, Dan Ambrose, “the market for mortgage refinancing has been damaged in the wake of the foreclosure crisis and the lure of the low rate loan modification. The mortgage industry needs a lot more than the Federal Reserve dropping the interest rates a few times. Ambrose continued, “The housing sector desperately needs restored confidence and attractive mortgages with secure lending guidelines are essential.”

Government-sponsored lenders have been the only firms producing and selling mortgage-backed securities to investors during the recent credit crunch. “Their ability to continue to securitize when private firms could not did not appear to result from superior business models or management,” Mr. Bernanke said. “Instead, investors remained willing to accept GSE mortgage-backed securities because they continued to believe that the government stood behind them.” Having Fannie and Freddie compete as private firms — perhaps after breaking them into smaller units — would eliminate the conflict between private shareholders and public policy, diminish risks to the overall economy and financial system and allow them to be more innovative by operating with less political interference, Mr. Bernanke said. But “whether the GSE model is viable without at least implicit government support is an open question,” he said. Even under privatization, Mr. Bernanke said “it would seem advisable” to provide government support for the mortgage-securitization process during periods of turmoil. He cited FHA home loans as a great mortgage system. Bernanke may develop a government bond insurer, modeled on the Federal Deposit Insurance Corp., to provide government-backed insurance for bond financing to fund mortgage markets. As an alternative, Mr. Bernanke suggested covered bonds and debt issued by financial institutions and backed by a pool of high-quality assets with extensive regulation. Covered bonds have been used frequently in Europe as the focal point of home loan funding.

As a third option, he said the home loan firms could be tied even more closely to the government through a public-utility model or a cooperative between mortgage loan originators and the government-sponsored FHA mortgage firms. “A public-utility model might allow the enterprise to retain some of the flexibility and innovation associated with private-sector enterprises in which management is accountable to its shareholders,” Mr. Bernanke said. Mr. Bernanke’s comments came as the latest economic data showed a nation retrenching. Read the complete article by James R. Hagerty article.