Thursday, December 20, 2007
Tuesday, December 18, 2007
Fed to tighten up lending rules
The central bank is expected to propose regulations that would offer greater protections for home buyers and curtail abusive lending.
By Jeanne Sahadi, CNNMoney.com senior writer
December 17 2007: 2:51 PM EST
NEW YORK (CNNMoney.com) -- The Federal Reserve on Tuesday will propose a much stricter set of rules for mortgage lenders as part of the central bank's effort to avert abusive lending.
The proposed rules are expected to crack down on lax practices in a number of ways. Among them, the rules are likely to:
Prohibit giving people unaffordable loans. One reason for the spike in foreclosures among those with subprime adjustable-rate mortgages (ARMs) was that lenders measured borrowers' ability to repay the loan based on the low introductory loan rate, but not on the higher rate that the loan would reset to. The Fed may propose that lenders base affordability on a borrowers' ability to repay a loan at the reset rate.
Restrict use of 'liar' loans. The Fed is also expected to restrict the use of so-called "liar loans" or "stated income loans." When lenders make such a loan, they don't verify the income of the potential borrower. The end result: home buyers end up with homes they never could afford in the first place, let alone when their rate resets.
Prohibit or limit prepayment penalties. Homeowners who want to refinance into a more affordable loan are often prevented from doing so because of a punitive prepayment penalty - which can amount to the equivalent of six months of mortgage payments.
If the Fed doesn't ban them outright, it may at least require that lenders waive any prepayment penalties for 60 days prior to a loan rate resetting.
Curb or better disclose broker incentives. To encourage brokers to bring in more business, lenders can pay a broker to lock-in customers at higher rates than they'd otherwise qualify for.
For example, a lender might pay brokers 1 percent of the loan amount for every half point of interest added to what's known as the "par rate" - the rate the borrower would qualify for based on their credit score and other standards. This incentive is known as the "yield spread premium."
And lenders would impose prepayment penalties on the borrower as one way to ensure the lender made back the yield spread premium they paid. (How yield-spread premiums can bite you)
The Fed on Tuesday is expected to address this issue, although it is not clear how restrictive they may make the practice or if they'll just insist on clearer disclosure to the borrower of the incentives being paid.
Require or encourage escrowing of taxes and insurance. Subprime lenders often did not disclose the true cost of a home. They might have excluded home insurance and property taxes, for example. Nor did they collect taxes and insurance along with the mortgage payment and hold them in escrow for the borrower until they came due.
The Fed is likely at the very least to require all lenders to disclose the cost of insurance and taxes, if not also the collection of them with each mortgage payment for certain types of loans, according to reports in "American Banker."
Require better disclosure overall. In a letter last week to Rep. Brad Miller (D-NC), Bernanke indicated that the Fed would propose rules to address incomplete or misleading mortgage ads and to require earlier and clearer disclosures by mortgage lenders so that "consumers avoid loans that are not in their interest."
Congress has been considering its own crackdown on mortgage lenders with two bills the cover some of the same territory that the Fed is expected to cover but also go further.
While consumer advocates and lawmakers are eager to hear what the Fed is proposing and welcome the central bank taking action, they have been critical that the Fed didn't act sooner to avert the present-day mortgage mess. The Fed was given the power to issue rules to clamp down on abusive mortgage lending in 1994 under the Home Ownership and Equity Protection Act (HOEPA).
"HOEPA authorized and directed the Fed to issue rules to address unfair mortgage practices. For 13 years, that authority sat on the shelf unused," said Miller (D-NC), who co-wrote the mortgage lending abuse bill that passed in the House in November.
Still, Miller said, "it would be a huge help if the Fed proposed rules that got at the real abuses."
Where the provisions in the Senate and House bills overlap with what the Fed calls for, Miller said, it's possible they would be removed from the bills under consideration. "The number of fronts would be reduced dramatically. ... maybe we wouldn't fight the same battle where we've had substantial victory."
The rules the Fed proposes on Tuesday will not be made final until the Fed receives public comments on the proposals for some period of time, after which the Fed could make amendments before issuing its final rules.
The central bank is expected to propose regulations that would offer greater protections for home buyers and curtail abusive lending.
By Jeanne Sahadi, CNNMoney.com senior writer
December 17 2007: 2:51 PM EST
NEW YORK (CNNMoney.com) -- The Federal Reserve on Tuesday will propose a much stricter set of rules for mortgage lenders as part of the central bank's effort to avert abusive lending.
The proposed rules are expected to crack down on lax practices in a number of ways. Among them, the rules are likely to:
Prohibit giving people unaffordable loans. One reason for the spike in foreclosures among those with subprime adjustable-rate mortgages (ARMs) was that lenders measured borrowers' ability to repay the loan based on the low introductory loan rate, but not on the higher rate that the loan would reset to. The Fed may propose that lenders base affordability on a borrowers' ability to repay a loan at the reset rate.
Restrict use of 'liar' loans. The Fed is also expected to restrict the use of so-called "liar loans" or "stated income loans." When lenders make such a loan, they don't verify the income of the potential borrower. The end result: home buyers end up with homes they never could afford in the first place, let alone when their rate resets.
Prohibit or limit prepayment penalties. Homeowners who want to refinance into a more affordable loan are often prevented from doing so because of a punitive prepayment penalty - which can amount to the equivalent of six months of mortgage payments.
If the Fed doesn't ban them outright, it may at least require that lenders waive any prepayment penalties for 60 days prior to a loan rate resetting.
Curb or better disclose broker incentives. To encourage brokers to bring in more business, lenders can pay a broker to lock-in customers at higher rates than they'd otherwise qualify for.
For example, a lender might pay brokers 1 percent of the loan amount for every half point of interest added to what's known as the "par rate" - the rate the borrower would qualify for based on their credit score and other standards. This incentive is known as the "yield spread premium."
And lenders would impose prepayment penalties on the borrower as one way to ensure the lender made back the yield spread premium they paid. (How yield-spread premiums can bite you)
The Fed on Tuesday is expected to address this issue, although it is not clear how restrictive they may make the practice or if they'll just insist on clearer disclosure to the borrower of the incentives being paid.
Require or encourage escrowing of taxes and insurance. Subprime lenders often did not disclose the true cost of a home. They might have excluded home insurance and property taxes, for example. Nor did they collect taxes and insurance along with the mortgage payment and hold them in escrow for the borrower until they came due.
The Fed is likely at the very least to require all lenders to disclose the cost of insurance and taxes, if not also the collection of them with each mortgage payment for certain types of loans, according to reports in "American Banker."
Require better disclosure overall. In a letter last week to Rep. Brad Miller (D-NC), Bernanke indicated that the Fed would propose rules to address incomplete or misleading mortgage ads and to require earlier and clearer disclosures by mortgage lenders so that "consumers avoid loans that are not in their interest."
Congress has been considering its own crackdown on mortgage lenders with two bills the cover some of the same territory that the Fed is expected to cover but also go further.
While consumer advocates and lawmakers are eager to hear what the Fed is proposing and welcome the central bank taking action, they have been critical that the Fed didn't act sooner to avert the present-day mortgage mess. The Fed was given the power to issue rules to clamp down on abusive mortgage lending in 1994 under the Home Ownership and Equity Protection Act (HOEPA).
"HOEPA authorized and directed the Fed to issue rules to address unfair mortgage practices. For 13 years, that authority sat on the shelf unused," said Miller (D-NC), who co-wrote the mortgage lending abuse bill that passed in the House in November.
Still, Miller said, "it would be a huge help if the Fed proposed rules that got at the real abuses."
Where the provisions in the Senate and House bills overlap with what the Fed calls for, Miller said, it's possible they would be removed from the bills under consideration. "The number of fronts would be reduced dramatically. ... maybe we wouldn't fight the same battle where we've had substantial victory."
The rules the Fed proposes on Tuesday will not be made final until the Fed receives public comments on the proposals for some period of time, after which the Fed could make amendments before issuing its final rules.
Tuesday, December 11, 2007
Fed cuts rates by a quarter point
Ben Bernanke & Co. lower a key interest rate for the third consecutive time, and signal that more cuts could be ahead to help stave off a recession.
December 11 2007: 2:24 PM EST
NEW YORK (CNNMoney.com) -- The Federal Reserve lowered an important short-term rate by a quarter of a percentage point Tuesday, the latest in a series of rate cuts that the central bank hopes will stimulate an economy some fear is on the brink of a recession.
This was the third straight time that Fed Chairman Ben Bernanke and fellow policy makers decided to cut its federal funds rate, an overnight bank lending rate that affects how much interest consumers pay on credit cards, home equity lines of credit and auto loans.
The federal funds rate now stands at 4.25 percent. The central bank also cut its discount rate, which is what banks pay to borrow directly from the Fed, by a quarter-point to 4.75 percent.
Leading up to Tuesday's meeting, several economists indicated that the Fed may need to lower rates several more times in early 2008 in order to keep the economy from slipping into a prolonged slump.
And some investors had been holding out hope that the Fed would lower rates by a half of a percentage point as it did in September since several banks have been forced in the past few months to take massive writedowns due to exposure to bad mortgage loans.
Concerns about the subprime mortgage crisis spreading sparked President Bush and Treasury Secretary Henry Paulson to unveil a plan last week that would freeze interest rates for some subprime borrowers whose adjustable-rate mortgages are scheduled to reset in 2008.
Ben Bernanke & Co. lower a key interest rate for the third consecutive time, and signal that more cuts could be ahead to help stave off a recession.
December 11 2007: 2:24 PM EST
NEW YORK (CNNMoney.com) -- The Federal Reserve lowered an important short-term rate by a quarter of a percentage point Tuesday, the latest in a series of rate cuts that the central bank hopes will stimulate an economy some fear is on the brink of a recession.
This was the third straight time that Fed Chairman Ben Bernanke and fellow policy makers decided to cut its federal funds rate, an overnight bank lending rate that affects how much interest consumers pay on credit cards, home equity lines of credit and auto loans.
The federal funds rate now stands at 4.25 percent. The central bank also cut its discount rate, which is what banks pay to borrow directly from the Fed, by a quarter-point to 4.75 percent.
Leading up to Tuesday's meeting, several economists indicated that the Fed may need to lower rates several more times in early 2008 in order to keep the economy from slipping into a prolonged slump.
And some investors had been holding out hope that the Fed would lower rates by a half of a percentage point as it did in September since several banks have been forced in the past few months to take massive writedowns due to exposure to bad mortgage loans.
Concerns about the subprime mortgage crisis spreading sparked President Bush and Treasury Secretary Henry Paulson to unveil a plan last week that would freeze interest rates for some subprime borrowers whose adjustable-rate mortgages are scheduled to reset in 2008.
What a rate cut means to homeowners
How to keep ahead of rates and lower them when your card issuer hikes them up.
By Gerri Willis, CNN
December 10 2007: 4:09 PM EST
NEW YORK (CNNMoney.com) -- Most analysts see the Fed cutting rates for the third consecutive time tomorrow. What investors don't know is just how deep the Fed will cut. What will this mean for your mortgage? Here's what you need to know.
1: Long-term mortgages won't move much
Right now investors are split on whether the Fed will lower the funds rate by another quarter point to 4.25% or cut it by a half-point, to 4%. But the fact is, there's not much doubt that the Fed will cut rates. And because of that, the market has already priced that in, says Mike Larson with moneyandmarkets.com. 30-year fixed rates have been falling for some time.
In July, the average rate on a 30-year fixed mortgage was 6.66%. Last week, it was 5.82%. So, a rate cut won't really do very much to lower long-term rates. They're already low. So if you want to refinance, it's a good time to start shopping.
2: ARM resets not as severe
The Fed move tomorrow may be more significant to borrowers with adjustable-rate mortgages than what the government is doing in freezing subprime interest rates. That's according to Greg McBride at bankrate.com. Most resets on adjustable rate mortgages will reset in the middle of next year. And the fact that the Fed is cutting rates, will make these resets more manageable for prime borrowers, which aren't covered by the foreclosure-prevention plan announced last week.
So, if you had an adjustable rate mortgage that started at 4.5% and your rate was going to reset at 7.5%, you may only face a rate reset of 5.7%.
3: HELOCS will be cheaper
Home equity lines of credit will be cheaper if the Fed does cut rates. It may take up to three billing cycles to see the actual decrease in your bill. If you need to consolidate debts or you need money for medical bills or college expenses, you may consider shopping around for a HELOC since lenders are likely to price in the Fed's cut immediately.
4: Keep it in perspective
The take away here is that the Fed is on your side. This rate cut won't be the silver bullet that fixes the housing market. But it's apparent that Fed is in a rate cutting mode, and the cumulative effect on that will help consumers. There are a number of things the Federal Reserve can't control, like the impact of the credit crunch.
You need to look at inflation, job growth and the overall health of the economy as indicators of when this housing crisis may subside. When we get down to it, there are two issues here, according to McBride. That's inventory of houses on the market and the affordability of houses. Interest rate cuts won't do much to make that go away. Sometimes, it's just a matter of time.
Monday, December 10, 2007
Here is what the FED is looking to do...............
Some think Ben Bernanke & Co. will cut one key interest rate by a quarter point and another one by a half point on Tuesday.
By Paul R. La Monica, CNNMoney.com editor at large
December 10 2007: 7:35 AM EST
NEW YORK (CNNMoney.com) -- Investors are anticipating that the Federal Reserve will cut interest rates for the third consecutive time at its next meeting on Tuesday, as Wall Street continues to grapple with concerns about the housing market and fears of a recession.
An employment report issued Friday, which showed that job growth in November slowed yet exceeded forecasts, did little to change the perception that a cut is in the works. So the issue remains whether Fed chair Ben Bernanke & Co. will lower rates by a quarter of a percentage point or half of a percentage point.
Well, how about both?
When the central bank's Open Market Committee meets to discuss monetary policy, members actually have two decisions to make - one about the federal funds rate and one about the discount rate. Some suggest that the Fed may cut the fed funds rate by a quarter point and lower the discount rate by a half point.
The fed funds rate gets most of the attention from Wall Street since it is the overnight bank lending rate that has a direct impact on how much interest consumers pay on credit card borrowings, home equity lines of credit and car loans. The Fed lowered this rate by a quarter-point on Oct. 31, to 4.5 percent.
The central bank also lowered its discount rate, which is what banks pay to borrow directly from the Fed, by a quarter-point at its last meeting. Changes in the discount rate have been viewed as symbolic, but the rate has taken on increased importance in the wake of the subprime mortgage crisis wreaking havoc on financial services companies and Wall Street.
According to federal funds futures on the Chicago Board of Trade, investors are evenly split on whether the Fed will lower the funds rateby another quarter point to 4.25 percent or reduce it by a half-point, to 4 percent.
But some argue the Fed does not need to lower the fed funds rate by a half point, as it did on Sept. 18.
Despite fears that Wall Street's credit crunch is spreading and possibly leading to a recession, little evidence exists to suggest that the economy will actually stop growing in 2008.
The Fed has predicted a slowdown in growth, to be sure, but not declines in gross domestic product. Many economists share this view. And the November jobs report, which showed that unemployment remained steady at 4.7 percent and that employers added 94,000 jobs, supports the notion that the economy is still in relatively healthy shape.
"The jobs numbers were not shabby. It seems a safe bet that the economy is not going to fall apart rapidly," said Oscar Gonzalez, economist with John Hancock Financial Services in Boston. "The numbers were very important. It should allow the Fed to cut rates by 25 points and not 50," he said.
The big worry about a lower fed funds rate is that it could spark more consumer borrowing. And if consumers have easier access to so-called cheap money, that could exacerbate the problems that got borrowers and banks in this mess in the first place - that too many people got loans they couldn't afford.
That said, the Fed is not likely to ignore the massive number of writedowns that big banks and mortgage lenders have been taking in the past few months because of exposure to loans made to subprime borrowers.
"If you look at what's been the driver for the Fed the past couple of meetings, it hasn't been as much as the economy as it has been what's going on in the financial markets," said Brian Stine, senior portfolio manager with Allegiant Asset Management Co. in Cleveland.
"You could see the Fed drop the fed funds rates by 25 points and cut the discount rate by 50. That would enable banks to borrow at lower rates without affecting the rest of the economy," Stine added.
After all, the Fed lowered the discount rate by a half point on Aug. 17 following an unplanned meeting and followed suit with another half point cut on Sept. 18.
Richard Yamarone, chief economist with Argus Research Corp., also thinks the Fed needs to consider the fact that Wall Street's woes aren't necessarily having a big impact on Main Street.
"The consumer is not crying out for lower interest rates and stimulus - it's the financial sector and the markets," Yamarone said. "Cutting the discount rate by a half point could work. That's justified. But it would be a big stretch to slash the fed funds rate."
Yamarone pointed to the fact that consumer spending during the holidays has not taken the bighit so far that many feared.
"Everyone, the Fed included, is underestimating the resilience of the consumer. That would be a big mistake," he said.
But Jim Glassman, senior economist with J.P. Morgan Chase, argued that the Fed risks falling behind the curve if it doesn't cut both the fed funds rate and discount rate by a half point.
"It's not about the economic news now. It's all about the danger that lies ahead of us with a credit system that's far tighter," Glassman said. "The message the Fed needs to send is that it will do what it takes. If the economy slows down as most economists think, the Fed will want to get ahead of that."
Still, even if the Fed decides to be less aggressive and cut the fed funds rate by only a quarter of a point, that might not necessarily mean that the central bank will be done reducing rates.
For what it's worth, Wall Street is banking on more rate cuts at the central bank's first three meetings in 2008, which will take place in January, March and April. The fed funds futures are pricing in a fed funds rate of 3.75 percent by May, three-quarters of a percentage point lower than current levels.
Stine said he believes the Fed probably doesn't want to lower rates further but that might not be possible if mortgage delinquencies and defaults keep rising and housing prices fall.
"I think the Fed is hoping this is the last rate cut, that once we get past this financial crisis, they'll be back on inflation watch. But it depends on how the housing market plays out," he said.
Hope grows for a half-point cutBernanke: Fed 'alert' and 'flexible'
Find this article at: http://money.cnn.com/2007/12/07/news/economy/fed_preview/index.htm?postversion=2007121007
Some think Ben Bernanke & Co. will cut one key interest rate by a quarter point and another one by a half point on Tuesday.
By Paul R. La Monica, CNNMoney.com editor at large
December 10 2007: 7:35 AM EST
NEW YORK (CNNMoney.com) -- Investors are anticipating that the Federal Reserve will cut interest rates for the third consecutive time at its next meeting on Tuesday, as Wall Street continues to grapple with concerns about the housing market and fears of a recession.
An employment report issued Friday, which showed that job growth in November slowed yet exceeded forecasts, did little to change the perception that a cut is in the works. So the issue remains whether Fed chair Ben Bernanke & Co. will lower rates by a quarter of a percentage point or half of a percentage point.
Well, how about both?
When the central bank's Open Market Committee meets to discuss monetary policy, members actually have two decisions to make - one about the federal funds rate and one about the discount rate. Some suggest that the Fed may cut the fed funds rate by a quarter point and lower the discount rate by a half point.
The fed funds rate gets most of the attention from Wall Street since it is the overnight bank lending rate that has a direct impact on how much interest consumers pay on credit card borrowings, home equity lines of credit and car loans. The Fed lowered this rate by a quarter-point on Oct. 31, to 4.5 percent.
The central bank also lowered its discount rate, which is what banks pay to borrow directly from the Fed, by a quarter-point at its last meeting. Changes in the discount rate have been viewed as symbolic, but the rate has taken on increased importance in the wake of the subprime mortgage crisis wreaking havoc on financial services companies and Wall Street.
According to federal funds futures on the Chicago Board of Trade, investors are evenly split on whether the Fed will lower the funds rateby another quarter point to 4.25 percent or reduce it by a half-point, to 4 percent.
But some argue the Fed does not need to lower the fed funds rate by a half point, as it did on Sept. 18.
Despite fears that Wall Street's credit crunch is spreading and possibly leading to a recession, little evidence exists to suggest that the economy will actually stop growing in 2008.
The Fed has predicted a slowdown in growth, to be sure, but not declines in gross domestic product. Many economists share this view. And the November jobs report, which showed that unemployment remained steady at 4.7 percent and that employers added 94,000 jobs, supports the notion that the economy is still in relatively healthy shape.
"The jobs numbers were not shabby. It seems a safe bet that the economy is not going to fall apart rapidly," said Oscar Gonzalez, economist with John Hancock Financial Services in Boston. "The numbers were very important. It should allow the Fed to cut rates by 25 points and not 50," he said.
The big worry about a lower fed funds rate is that it could spark more consumer borrowing. And if consumers have easier access to so-called cheap money, that could exacerbate the problems that got borrowers and banks in this mess in the first place - that too many people got loans they couldn't afford.
That said, the Fed is not likely to ignore the massive number of writedowns that big banks and mortgage lenders have been taking in the past few months because of exposure to loans made to subprime borrowers.
"If you look at what's been the driver for the Fed the past couple of meetings, it hasn't been as much as the economy as it has been what's going on in the financial markets," said Brian Stine, senior portfolio manager with Allegiant Asset Management Co. in Cleveland.
"You could see the Fed drop the fed funds rates by 25 points and cut the discount rate by 50. That would enable banks to borrow at lower rates without affecting the rest of the economy," Stine added.
After all, the Fed lowered the discount rate by a half point on Aug. 17 following an unplanned meeting and followed suit with another half point cut on Sept. 18.
Richard Yamarone, chief economist with Argus Research Corp., also thinks the Fed needs to consider the fact that Wall Street's woes aren't necessarily having a big impact on Main Street.
"The consumer is not crying out for lower interest rates and stimulus - it's the financial sector and the markets," Yamarone said. "Cutting the discount rate by a half point could work. That's justified. But it would be a big stretch to slash the fed funds rate."
Yamarone pointed to the fact that consumer spending during the holidays has not taken the bighit so far that many feared.
"Everyone, the Fed included, is underestimating the resilience of the consumer. That would be a big mistake," he said.
But Jim Glassman, senior economist with J.P. Morgan Chase, argued that the Fed risks falling behind the curve if it doesn't cut both the fed funds rate and discount rate by a half point.
"It's not about the economic news now. It's all about the danger that lies ahead of us with a credit system that's far tighter," Glassman said. "The message the Fed needs to send is that it will do what it takes. If the economy slows down as most economists think, the Fed will want to get ahead of that."
Still, even if the Fed decides to be less aggressive and cut the fed funds rate by only a quarter of a point, that might not necessarily mean that the central bank will be done reducing rates.
For what it's worth, Wall Street is banking on more rate cuts at the central bank's first three meetings in 2008, which will take place in January, March and April. The fed funds futures are pricing in a fed funds rate of 3.75 percent by May, three-quarters of a percentage point lower than current levels.
Stine said he believes the Fed probably doesn't want to lower rates further but that might not be possible if mortgage delinquencies and defaults keep rising and housing prices fall.
"I think the Fed is hoping this is the last rate cut, that once we get past this financial crisis, they'll be back on inflation watch. But it depends on how the housing market plays out," he said.
Hope grows for a half-point cutBernanke: Fed 'alert' and 'flexible'
Find this article at: http://money.cnn.com/2007/12/07/news/economy/fed_preview/index.htm?postversion=2007121007
Friday, December 7, 2007
What you need to know about the Freeze that the President came up with:
*The agreement will allow distressed borrowers who are current on their sub-prime loan payments to keep their low introductory rates
*The rate freeze will apply to loans taken out between January 1, 2005, and July 30, 2007, and scheduled to rise in 2008 and 2009
*The rate freeze will exclude the following groups:
Borrowers who are delinquent on payments
Borrowers whose introductory rates expire before January 1, 2008
Borrowers who mortgage companies determine have sufficient income to pay the higher rates
*The agreement will allow distressed borrowers who are current on their sub-prime loan payments to keep their low introductory rates
*The rate freeze will apply to loans taken out between January 1, 2005, and July 30, 2007, and scheduled to rise in 2008 and 2009
*The rate freeze will exclude the following groups:
Borrowers who are delinquent on payments
Borrowers whose introductory rates expire before January 1, 2008
Borrowers who mortgage companies determine have sufficient income to pay the higher rates
Thursday, December 6, 2007
Here it is........
Bush subprime plan offers help to 1.2M
Mortgage interest rates will be frozen only for ARM borrowers who are not yet in foreclosure.
By Les Christie, CNNMoney.com staff writer
December 6 2007: 2:02 PM EST
NEW YORK (CNNMoney.com) -- President Bush's unveiled a foreclosure relief plan Thursday that he said could help 1.2 million distressed homeowners.
The program allows a five-year freeze in interest rates only for borrowers current with their monthly payments.
It will streamline the mortgage modification process for many distressed borrowers, according to Bush. It will offer "more relief to more homeowners, more quickly," he said.
But the plan is limited. It excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months.
It also only covers borrowers with adjustable rate mortgages (ARMs) resetting beginning in 2008 and leaves out any who are judged capable of continuing to make mortgage payments at the higher reset rates. And borrowers who can't afford the loan even at low introductory rates also will be ineligible, according to Anne Canfield, executive director of the Consumer Mortgage Coalition, which represents lenders and mortgage servicers.
The president said 1.2 million borrowers could benefit. But of the 2.2 million subprime ARMS that are expected to reset through the end of 2008, only 240,000 of those would be covered according to an analysis made by investment banker Barclays Capital as reported in The New York Times.
"I think the plan is good in theory," said Mark Zandi, chief economist for Moody's Economy.com, "but, in practice, it's going to come up short. There are too many impediments to its widespread adoption by investors and servicers."
Obstacles include contractual obligations between servicers and investors as well as logistical difficulties. When loans have been sliced up and resold through the securitization process, it's hard to determine who ultimately decides what modifications are possible and still in the best interests of the investors.
Furthermore, said Zandi, "There's no stick in the plan; it depends on moral suasion."
But just because every homeowner won't benefit under the Bush plan, help will be available, according to Canfield.
"The industry will still work to modify these loans," she said. "We have every incentive to do that."
Delinquent loans increase financial pressure on servicers because they still have to make payments to investors, as well as tax payments to local governments, according to Canfield.
The principle aim of the Bush plan is to streamline the modification process, at least for that limited number of borrowers, allowing them to get fast help. Lenders will examine readily available loan criteria, such as loan-to-value ratios, loan amount, credit scores and payment history, to make a quick determination of qualifications.
That makes it a "start in the right direction," said Darla Keegan, speaking for Novadebt, a national nonprofit housing and credit counseling agency, because it will move some borrowers through the system quickly.Mortgage counseling services are currently stretched.
For the rest, she said, "We can still see if lenders will work out agreements with lenders for these borrowers."
"Qualified borrowers will get their modifications much more quickly," said Kurt Pfotenhauer, senior vice president for government affairs with the Mortgage Bankers Association. "A whole cohort will be done on an accelerated basis."
Still, said Bruce Marks, chief executive of the Neighborhood Assistance Corporation of America, a community advocacy group, "The number of borrowers affected by the plan is very small, but it sets the precedent and standard so that more borrowers can be helped down the road."
He expects more of that help to come. "An important point is why they're doing it. They're seeing the numbers of delinquencies. They can't say publicly that it will have a huge impact on the economy, but this action says that."
If the impact of subprime foreclosures increases, pressure will build for the government to do more.
The agreement does leap one of the thorniest hurdles to making wholesale mortgage modifications work: resistance from the investment community, who were sold a bill of goods, according to John Taylor, CEO of the National Community Reinvestment Coalition.
"They were promised a product that looked very safe and had attractive rates," he said. "Now they're getting little or nothing in return and are being asked to take bigger losses."
As the foreclosure crisis deepened it became apparent that many sensible modifications were being shot down because investors would not agree. An analysis by Moody's earlier this autumn revealed only about 1 percent of resetting ARMs had been modified this year.
The administration had to use its powers of persuasion to get investors aboard at all, according to Don Lampe, a real estate attorney who has testified before Congress on subprime mortgage issues. "Investor push-back probably weakened the plan," he said.
Despite all the criticism, the initiative was welcomed by nearly all the players, including consumer groups. Many wish it were stronger but were happy to see some response from the administration.
As Lampe put it, "Perfection is the enemy of progress."
The president also used the announcement as an opportunity to call on Congress to act quicker on passing mortgage relief legislation, including the FHA Modernization bill, the change in tax code and a bill enabling local and state governments to issue bonds to finance mortgage refinancings. All have been bottled up in the Senate for weeks or months.
Bush subprime plan offers help to 1.2M
Mortgage interest rates will be frozen only for ARM borrowers who are not yet in foreclosure.
By Les Christie, CNNMoney.com staff writer
December 6 2007: 2:02 PM EST
NEW YORK (CNNMoney.com) -- President Bush's unveiled a foreclosure relief plan Thursday that he said could help 1.2 million distressed homeowners.
The program allows a five-year freeze in interest rates only for borrowers current with their monthly payments.
It will streamline the mortgage modification process for many distressed borrowers, according to Bush. It will offer "more relief to more homeowners, more quickly," he said.
But the plan is limited. It excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months.
It also only covers borrowers with adjustable rate mortgages (ARMs) resetting beginning in 2008 and leaves out any who are judged capable of continuing to make mortgage payments at the higher reset rates. And borrowers who can't afford the loan even at low introductory rates also will be ineligible, according to Anne Canfield, executive director of the Consumer Mortgage Coalition, which represents lenders and mortgage servicers.
The president said 1.2 million borrowers could benefit. But of the 2.2 million subprime ARMS that are expected to reset through the end of 2008, only 240,000 of those would be covered according to an analysis made by investment banker Barclays Capital as reported in The New York Times.
"I think the plan is good in theory," said Mark Zandi, chief economist for Moody's Economy.com, "but, in practice, it's going to come up short. There are too many impediments to its widespread adoption by investors and servicers."
Obstacles include contractual obligations between servicers and investors as well as logistical difficulties. When loans have been sliced up and resold through the securitization process, it's hard to determine who ultimately decides what modifications are possible and still in the best interests of the investors.
Furthermore, said Zandi, "There's no stick in the plan; it depends on moral suasion."
But just because every homeowner won't benefit under the Bush plan, help will be available, according to Canfield.
"The industry will still work to modify these loans," she said. "We have every incentive to do that."
Delinquent loans increase financial pressure on servicers because they still have to make payments to investors, as well as tax payments to local governments, according to Canfield.
The principle aim of the Bush plan is to streamline the modification process, at least for that limited number of borrowers, allowing them to get fast help. Lenders will examine readily available loan criteria, such as loan-to-value ratios, loan amount, credit scores and payment history, to make a quick determination of qualifications.
That makes it a "start in the right direction," said Darla Keegan, speaking for Novadebt, a national nonprofit housing and credit counseling agency, because it will move some borrowers through the system quickly.Mortgage counseling services are currently stretched.
For the rest, she said, "We can still see if lenders will work out agreements with lenders for these borrowers."
"Qualified borrowers will get their modifications much more quickly," said Kurt Pfotenhauer, senior vice president for government affairs with the Mortgage Bankers Association. "A whole cohort will be done on an accelerated basis."
Still, said Bruce Marks, chief executive of the Neighborhood Assistance Corporation of America, a community advocacy group, "The number of borrowers affected by the plan is very small, but it sets the precedent and standard so that more borrowers can be helped down the road."
He expects more of that help to come. "An important point is why they're doing it. They're seeing the numbers of delinquencies. They can't say publicly that it will have a huge impact on the economy, but this action says that."
If the impact of subprime foreclosures increases, pressure will build for the government to do more.
The agreement does leap one of the thorniest hurdles to making wholesale mortgage modifications work: resistance from the investment community, who were sold a bill of goods, according to John Taylor, CEO of the National Community Reinvestment Coalition.
"They were promised a product that looked very safe and had attractive rates," he said. "Now they're getting little or nothing in return and are being asked to take bigger losses."
As the foreclosure crisis deepened it became apparent that many sensible modifications were being shot down because investors would not agree. An analysis by Moody's earlier this autumn revealed only about 1 percent of resetting ARMs had been modified this year.
The administration had to use its powers of persuasion to get investors aboard at all, according to Don Lampe, a real estate attorney who has testified before Congress on subprime mortgage issues. "Investor push-back probably weakened the plan," he said.
Despite all the criticism, the initiative was welcomed by nearly all the players, including consumer groups. Many wish it were stronger but were happy to see some response from the administration.
As Lampe put it, "Perfection is the enemy of progress."
The president also used the announcement as an opportunity to call on Congress to act quicker on passing mortgage relief legislation, including the FHA Modernization bill, the change in tax code and a bill enabling local and state governments to issue bonds to finance mortgage refinancings. All have been bottled up in the Senate for weeks or months.
Here is the latest from our President on freezing rates in the subprime fallout.....Guess who will end up paying for all the mess????????
Bush to unveil plan to help homeowners
The plan will freeze certain subprime mortgages for 5 years, a compromise hammered out with mortgage lenders and banking regulators.
December 6 2007: 10:32 AM EST
WASHINGTON (AP) -- The Bush administration has come up with a plan to help strapped homeowners facing a daunting jump in their monthly mortgage payments.
The proposal, reached in negotiations led by Treasury Secretary Henry Paulson with the mortgage industry, would freeze introductory "teaser" rates on subprime mortgages, preventing them from resetting to higher rates for five years.
President Bush, who is scheduled to announce the agreement after a meeting with industry leaders at the White House on Thursday, has stressed that the deal is not a bailout because no government money is involved.
The effort is aimed at stemming a threatened wave of foreclosures in coming years as 2 million subprime mortgages - home loans provided to borrowers with spotty credit histories - reset from their introductory rates of around 7 to 8 percent to levels as high as 11 percent, adding hundreds of dollars to the typical monthly payment.
The mortgage companies will offer to freeze the loans at the lower introductory rates as long as the borrowers did not miss any payments at the lower rate.
The program is the biggest effort yet to deal with a tidal wave of mortgage defaults, which have piled up billions of dollars in losses for big banks, hedge funds and other investors as well as roiled financial markets around the globe. The defaults are the latest economic blow from the worst housing slump in more than two decades. Some economists believe the housing bust could become severe enough to push the country into a recession.
Two Democratic presidential contenders, Hillary Rodham Clinton and John Edwards, said Wednesday that Bush's proposal did not go far enough. They put forward their own plans that would not only freeze mortgage payments but also declare moratoriums on further foreclosures for a period of time as a way of adding pressure on lenders to reach at-risk homeowners.
The financial services industry applauded the administration for negotiating a plan that will allow free-market forces to operate. The hope is that the five-year freeze will buy time for the housing industry to work down record levels of unsold homes and for sales and prices to start rising again.
A housing rebound would allow homeowners to refinance their current adjustable rate mortgages into fixed-rate loans with more affordable monthly payments.
The big sticking point in the lengthy negotiations was getting investors who have purchased the mortgages after they have been bundled into mortgage-backed securities to agree to accept lower interest payments. Critics have said even with a deal, there are likely to be lawsuits.
"The $64,000 question remains: will investors who might balk at going along with this be able to maintain legal roadblocks and prevent the plan from going into effect?" said Sen. Charles Schumer, D-N.Y.
But officials representing major players in the mortgage industry said they believed the plan would withstand any legal challenges and would help at-risk homeowners avoid defaulting on their mortgages.
Steve Bartlett, president of the Financial Services Roundtable, a trade group representing the country's largest financial service firms, said the deal would benefit banks, investors and homeowners since there is a significant cost when a mortgage is foreclosed.
Under the administration plan, the rate freeze will apply to loans made at the start of 2005 through July 30 of this year and will cover loans that had been scheduled to rise to higher rates between Jan. 1, 2008, and July 31, 2010.
The plan represents an about-face for Paulson, who until recently had insisted the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed.
A subprime bailout plan that worksRoadblock to a subprime solutionOctober foreclosure filings surgeFind mortgage rates in your area.
Find this article at: http://money.cnn.com/2007/12/05/real_estate/bush_freeze.ap/index.htm?postversion=2007120610
Bush to unveil plan to help homeowners
The plan will freeze certain subprime mortgages for 5 years, a compromise hammered out with mortgage lenders and banking regulators.
December 6 2007: 10:32 AM EST
WASHINGTON (AP) -- The Bush administration has come up with a plan to help strapped homeowners facing a daunting jump in their monthly mortgage payments.
The proposal, reached in negotiations led by Treasury Secretary Henry Paulson with the mortgage industry, would freeze introductory "teaser" rates on subprime mortgages, preventing them from resetting to higher rates for five years.
President Bush, who is scheduled to announce the agreement after a meeting with industry leaders at the White House on Thursday, has stressed that the deal is not a bailout because no government money is involved.
The effort is aimed at stemming a threatened wave of foreclosures in coming years as 2 million subprime mortgages - home loans provided to borrowers with spotty credit histories - reset from their introductory rates of around 7 to 8 percent to levels as high as 11 percent, adding hundreds of dollars to the typical monthly payment.
The mortgage companies will offer to freeze the loans at the lower introductory rates as long as the borrowers did not miss any payments at the lower rate.
The program is the biggest effort yet to deal with a tidal wave of mortgage defaults, which have piled up billions of dollars in losses for big banks, hedge funds and other investors as well as roiled financial markets around the globe. The defaults are the latest economic blow from the worst housing slump in more than two decades. Some economists believe the housing bust could become severe enough to push the country into a recession.
Two Democratic presidential contenders, Hillary Rodham Clinton and John Edwards, said Wednesday that Bush's proposal did not go far enough. They put forward their own plans that would not only freeze mortgage payments but also declare moratoriums on further foreclosures for a period of time as a way of adding pressure on lenders to reach at-risk homeowners.
The financial services industry applauded the administration for negotiating a plan that will allow free-market forces to operate. The hope is that the five-year freeze will buy time for the housing industry to work down record levels of unsold homes and for sales and prices to start rising again.
A housing rebound would allow homeowners to refinance their current adjustable rate mortgages into fixed-rate loans with more affordable monthly payments.
The big sticking point in the lengthy negotiations was getting investors who have purchased the mortgages after they have been bundled into mortgage-backed securities to agree to accept lower interest payments. Critics have said even with a deal, there are likely to be lawsuits.
"The $64,000 question remains: will investors who might balk at going along with this be able to maintain legal roadblocks and prevent the plan from going into effect?" said Sen. Charles Schumer, D-N.Y.
But officials representing major players in the mortgage industry said they believed the plan would withstand any legal challenges and would help at-risk homeowners avoid defaulting on their mortgages.
Steve Bartlett, president of the Financial Services Roundtable, a trade group representing the country's largest financial service firms, said the deal would benefit banks, investors and homeowners since there is a significant cost when a mortgage is foreclosed.
Under the administration plan, the rate freeze will apply to loans made at the start of 2005 through July 30 of this year and will cover loans that had been scheduled to rise to higher rates between Jan. 1, 2008, and July 31, 2010.
The plan represents an about-face for Paulson, who until recently had insisted the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed.
A subprime bailout plan that worksRoadblock to a subprime solutionOctober foreclosure filings surgeFind mortgage rates in your area.
Find this article at: http://money.cnn.com/2007/12/05/real_estate/bush_freeze.ap/index.htm?postversion=2007120610
Record Rate of New Foreclosures
Record rate of new foreclosures
Mortgage bankers say meltdown causes highest level of homeowners late in payments since 1986.
December 6 2007: 10:24 AM EST
NEW YORK (CNNMoney.com) -- The rate of home owners going into foreclosure hit a record high in the third quarter, while those late with their payments were at the highest level since 1986 - the latest signs of the meltdown in the mortgage and real estate markets shaking the U.S. economy.
The Mortgage Bankers Association reported that 0.78 percent of mortgages entered the foreclosure process in the three months ended Sept. 30, up from the 0.65 percent foreclosure rate in the second quarter that had been the previous record high, and more than double the 0.32 percent rate seen a year earlier.
The report also showed that 5.59 percent of borrowers are now at least 30 days late making their mortgage payment.
Mortgage deliquencies and foreclosures became a serious problem during the quarter, as investor demand dried up for securities backed by mortgages, particularly subprime loans made to borrowers without top credit scores.
That meltdown in the mortgage market made many major lenders pull back from making subprime mortgage loans, which in turn helped send home sales, prices and new construction sharply lower, raising the risk of a recession. Countrywide Financial (Charts, Fortune 500), the nation's largest mortgage lender, was one of the banks to pull back from making subprime loans.
Many of those subprime loans had low introductory teaser rates which reset to payments that the homeowner can no longer afford.
President Bush is due to unveil a proposal Thursday that would freeze rates for some of those at-risk homeowners, and some lenders.
In addition to the effect on home owners and mortgage lenders, many of the top firms on Wall Street, including No. 1 bank Citigroup (Charts, Fortune 500), No. 1 brokerage firm and Merrill Lynch (Charts, Fortune 500), have been hit by the mortgage meltdown. Both took billions in writedowns from subprime losses as their chief executives were forced to resign.
The two government-sponsored mortgage finance firms, Fannie Mae (Charts) and Freddie Mac (Charts, Fortune 500), have also both been hit with losses from problems in the mortgage market that have left them scrambling to raise cash.
And home builders have been badly hurt by the problems, with No. 1 builder Lennar (Charts, Fortune 500) announcing late last week it was selling 11,000 properties for only 40 percent of their previously-stated value. On Thursday, leading luxury home builder Toll Brothers (Charts, Fortune 500) reported its first loss as a public company. Find mortgage rates in your area.
Find this article at: http://money.cnn.com/2007/12/06/real_estate/foreclosure_delinquencies/index.htm?postversion=2007120610
Mortgage bankers say meltdown causes highest level of homeowners late in payments since 1986.
December 6 2007: 10:24 AM EST
NEW YORK (CNNMoney.com) -- The rate of home owners going into foreclosure hit a record high in the third quarter, while those late with their payments were at the highest level since 1986 - the latest signs of the meltdown in the mortgage and real estate markets shaking the U.S. economy.
The Mortgage Bankers Association reported that 0.78 percent of mortgages entered the foreclosure process in the three months ended Sept. 30, up from the 0.65 percent foreclosure rate in the second quarter that had been the previous record high, and more than double the 0.32 percent rate seen a year earlier.
The report also showed that 5.59 percent of borrowers are now at least 30 days late making their mortgage payment.
Mortgage deliquencies and foreclosures became a serious problem during the quarter, as investor demand dried up for securities backed by mortgages, particularly subprime loans made to borrowers without top credit scores.
That meltdown in the mortgage market made many major lenders pull back from making subprime mortgage loans, which in turn helped send home sales, prices and new construction sharply lower, raising the risk of a recession. Countrywide Financial (Charts, Fortune 500), the nation's largest mortgage lender, was one of the banks to pull back from making subprime loans.
Many of those subprime loans had low introductory teaser rates which reset to payments that the homeowner can no longer afford.
President Bush is due to unveil a proposal Thursday that would freeze rates for some of those at-risk homeowners, and some lenders.
In addition to the effect on home owners and mortgage lenders, many of the top firms on Wall Street, including No. 1 bank Citigroup (Charts, Fortune 500), No. 1 brokerage firm and Merrill Lynch (Charts, Fortune 500), have been hit by the mortgage meltdown. Both took billions in writedowns from subprime losses as their chief executives were forced to resign.
The two government-sponsored mortgage finance firms, Fannie Mae (Charts) and Freddie Mac (Charts, Fortune 500), have also both been hit with losses from problems in the mortgage market that have left them scrambling to raise cash.
And home builders have been badly hurt by the problems, with No. 1 builder Lennar (Charts, Fortune 500) announcing late last week it was selling 11,000 properties for only 40 percent of their previously-stated value. On Thursday, leading luxury home builder Toll Brothers (Charts, Fortune 500) reported its first loss as a public company. Find mortgage rates in your area.
Find this article at: http://money.cnn.com/2007/12/06/real_estate/foreclosure_delinquencies/index.htm?postversion=2007120610
Subscribe to:
Posts (Atom)