President Bush today announced FHASecure, a new FHA refinance program designed to help trouble homeowners keep their homes. The new program should provide an option for at least some of those people headed into foreclosure due to interest rate resets and skyrocketing mortgage payments.

Who will benefit?

Hard to say just yet, but here are five criteria listed on the HUD cite:

To qualify for FHASecure, eligible homeowners must meet the following five criteria:

1. A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset
2. Interest rates must have or will reset between June 2005 and December 2009;
3. Three percent cash or equity in the home
4. A sustained history of employment
5. Sufficient income to make the mortgage payment

Number 3 in particular interested me. After all, if a homeowner needs to have 3% equity (or cash) in the home, this lifeboat won’t hold the folks who owe more than their homes are worth. That will be a key question for many here in Sacramento CA. I was hoping this might be similar to the old FHA Streamline Refi’s we did years ago. Value and appraisals were not an issue then and the borrower could refi to a lower rate as long as they had been current on their existing FHA payments.

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So what are mortgage rates doing?

That’s an interesting question. The conforming 30 year fixed rate has actually been falling. That is the bright star in a dark sky. But, it helps pull FHA, VA, CalHFA and any agency 100% programs down with it.

Freddie Mac last week reported the average 30 year fixed rates in the West at around 6.5% at half a point. And although things are bouncing around a bit, conforming rates continue their gradual decline. That makes it a great time for borrowers who can cobble together a down payment and document income.

Jumbo rates–and pretty much everything else–are a different story. The customary 25 basis point spread between the conforming (under $417k) and jumbo rates has widened in recent weeks to at least 100 basis points, putting the best jumbo 30 yr rates in the low 7% range.

A good alternative is to structure a 1st/2nd combo, keeping the 1st at $417k and piggybacking a 2nd behind it. If the combined loans still meet the lender’s requirements and you can find the required 2nd, you’ll have a lower payment that way.

A good mortgage broker can offer you options no bank can match. We can even obtain 1st and 2nd loans from different sources when that saves you money.

Nobody can do what a mortgage broker can.

I posted my Friday article about appraisals and “declining markets” over on Active Rain. It was popular enough to achieve “featured post” status and a good discussion ensued. To read those comments click the Active Rain link.

….was the heading on yesterday’s email from Wells Fargo Wholesale. This is a heads-up to Realtors and home buyers…

Fast Rewind

In mid July, FannieMae issued Announcement 07–11, entitled Collateral Valuation Practices and Declining Markets. Here are several key points from the memo:

• FannieMae’s Desktop Underwriter (DU) Version 5.7 released July 22, will now generate a message when it thinks that a property is located in a declining market.
• The appraiser must also indicate when the property is in a declining market.
• The lender is responsible for ensuring the accuracy of the appraiser’s work.
• Any pressure by the lender on an appraiser will cause the mortgage loan to be subject to immediate repurchase by the lender.

What’s The Big Deal?

The appearance of that term—declining market— in an appraisal has thrown a monkey wrench into many a loan approval. Appraisers avoid saying it, and lenders discourage the use of the term. However, FannieMae is tightening its jaws on past practice with this announcement. The teeth in those jaws are threat of immediate loan repurchase by the lender.

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From BofA today….

All Expanded Criteria products will be suspended until further notice.  Expanded criteria products include, but are not limited to, Stated Income/Stated Asset; Stated Income/Verified Asset; No Income/NoAsset; , No Ratio; and 80/20 (combos).

All Expanded Criteria pipeline applications must be locked by end of day Friday, August 24th.

Expanded Criteria is also known as Alt-A product.  It’s where we go for folks that cannot fully document income to qualify, like nearly all self-employed people.  Investors are no longer showing up to bid on any of this stuff in the secondary market.  Banks have no choice but to stop making these loans until investors are willing to buy them again.

Bank of America is also making change to standard conforming product adjustments for all loans locked on or after 8/27/07.

This means rates will increase for lower credit score borrowers and smaller loan amounts on conventional financing.

Lehman Brothers announced today the closure of its sub-prime subsidiary BNC Mortgage.  Lehman Brothers will continue to originate prime mortgages through its Aurora Loan Services platform but is discontinuing all sub-prime originations.

More sad news from my rep at Accredited Mortgage yesterday afternoon:

I’m sure you’ve all heard the news that we’ve ceased accepting new loan applications.  As you can surely guess, this means I am no longer employed.  I wanted to thank all of you for your business and wish you the best of luck in the future.  My email account will be shut off shortly.  If you’d like to stay in touch, here’s an alternate email.

HSBC, Europe’s largest bank, restructured its U.S. mortgage operations and announced plans to close an Indiana office.

Finally, this mysterious communication from Homecomings Financial. 

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Just a quick suggestion for Agents and Buyers in this jumpy market:

Don’t remove the loan contingency until the loan has funded.

I recognize that some agents have always taken this approach. Others—I am of this school of thought—believe that once in Contract it’s best for both sides to determine quickly whether or not there is a deal. Sellers don’t want to waste time with a buyer who picks apart the transaction, and buyer’s agents want their clients to quickly satisfy themselves as to the condition of the property and the financing terms. Does anyone want these decisions to drag out only to blow up at the end. Of course not.

But this market has presented a new challenge: lenders who leave borrowers twisting in the wind, lenders who suddenly meet “unprecedented disruptions” and cannot, or will not, fund a previously approved loan. This is happening with alarming frequency..

If you are a listing agent, counsel your sellers to be flexibile and patient. Request more detail about the lender involved, the borrower’s qualifications, Fico scores, or the type of financing involved. But if you can’t be a little adaptable in this market, your buyer may decide to leave the party before it gets started.

So, I’ll say it again:

Don’t remove the loan contingency until the loan has funded.

More sad news.  Today Capitol One Financial Group announced that effective immediately it is shutting down Greenpoint Mortgage, it’s wholesale lending group.  I did a lot of business with Greenpoint over the years.  They’ve been a great niche lender, but their eggs were predominately in the Alt-A basket which this market has riddled with holes.   Here’s another link to the story. 

These words of wisdom came in the form of a Monday morning email from fellow loan officer and mortgage broker Dave Ryland. Dave was already a seasoned professional when I got into the business 18 years ago. Through good and bad markets, Dave has lived and demonstrated the kind of integrity & professionalism that defines us at our best.

Through the current mortgage industry shake up, positive changes are evolving. Here are a couple of Dave’s thoughts:

I have realized why the contraction in our industry has me encouraged rather than worried. For many years, I took pride in the fact that it took effort and intelligence to pilot a loan through the system. I built my reputation and career by wowing Realtors with smooth execution and knew there was a dollar value to my skills.

In recent years, the amount of effort needed to complete a loan has declined. In a sense, the standards have been “dumbed down”. An originator could bring about a successful closing with little pride in their work. That, I believe, is changing. I welcome it. It will elevate our sense of worth. It will elevate our compensation. It will re-elevate the reputations of competent and ethical loan officers who have been competing with realtors who did their own loans, thinking that origination is a piece of cake.

Those people are going to discontinue their activities also, don’t you think? Is that a bad thing? Hardly! When the Realtor who stopped sending you business in 2003 calls you up to pre-qual their next buyer, be grateful. I will be.

Sincerely, David Ryland

Thanks Dave! What a great way to start the week.

Got a comment? Join the discussion below

In a surprise move, the FOMC cut the Discount rate from 6.25% to 5.75%.

The largely symbolic move signals the Fed’s willingness to take action on the recent collapse in the market for commercial paper, but it may have been enough to pull Countrywide and Washington Mutual out of the fire.

The Discount rate is the rate banks pay to borrow from the Federal Reserve. Cutting the discount rate provides funds to banks but doesn’t change consumer or commercial rates. Banks use this Discount window less, borrowing less than $100 million each day.

The Fed Funds rate, presently 5.25%, is the rate banks pay each other on over night loans and more widely used. Expectations are that the Fed will also lower the Fed Funds rate when they meet in September.

Money now is flowing out of bonds (bad for mortgage rates) and fueling a rally in stocks that has pushed the Dow back through 13,000 at the moment.

Meanwhile, this morning’s Michigan Consumer sentiment fell to 83.8 from 90.4 in July. The expected number was 88, but consumers are sensitive to the headlines and often “feel” bad about things while continuing to spend.

More later…..