Thanks to everyone who participated in the blog talk radio show last night with Bill McBride!
Based on the responses here and at CR, people enjoyed hearing from Bill, and are encouraging him to do more – hopefully we can do it again.
Here is the link to the two hours:
http://my.blogtalkradio.com/jim-the-realtor/2012/01/11/bill-mcbride-of-calculated-risk
I will have the transcript of the show hopefully by tomorrow for those who prefer to read – we covered many topics!
Bill brought up the HARP refinancing of underwater mortgages, and how they are going to automated underwriting in March. This means that the Fannie/Freddie loans over 80% LTV (though appraisals aren’t required) can be refinanced at today’s rates – with no qualifying.
The GovFed guys think this program will help another million people stay in their homes. We speculated that if it was easy (or at least easier) to get a loan mod, more people would do it, and stay in their home.
With 8-10 million foreclosures expected, if they could solve a million here, and a million there, and not have to foreclose…for now…could that be enough relief to calm the markets?
The new enhanced Home Affordable Refinance Program guidelines were released on November 15, 2011, and with this December 20th update they stated that no income ratios will be required for qualified borrowers (on page 7). It appears that they will rely primarily on credit histories.
However, these are guidelines, and the lenders will come up with their own interpretation.
Fannie Mae and Freddie Mac buy loans, they do not fund loans. Therefore, we must be reminded that these guidelines must now be met up with originators such as BofA, Wells Fargo, Chase, Citi, etc. who will then in turn create their own internal guidelines, based on their interpretation of what Fannie and Freddie have put out. In addition, the lenders may have their own comfort level, company philosophy or other internal reasons for making the program more attractive, or less.
Key components of the new HARP:
-
The original mortgage must have been sold to Fannie or Freddie prior to April 1, 2009.
-
It appears they are looking for scores at 620 and higher.
-
The new guidelines are permitting one 30-day delinquency within the previous 12 months on the mortgage being refinanced provided the Delinquency was not within the previous six months.
-
There are no LTV restrictions for fixed-rate mortgages with terms up to 30 years, including those with terms of 15 years.
-
Any borrower with an LTV ratio below 80% is not eligible for HARP.
-
The GSEs provided specifics on which liabilities would be lifted and noted that the rep and warranty adjustment is one of the most important components of the new program in order to create competition. The lender will not be responsible for any of the representations and warranties associated with the original loan. As long as the new loan has no fraud associated with it, for the most part the new lender is off the hook as far as buy backs are concerned. This is a major point and will cause additional refinances.
-
The lender is not required to make any representation or warranty as to value, marketability, or condition of the subject property unless they obtain a new appraisal. It should mean that the lender would rather NOT order an appraisal. They will likely order one in the event they believe that the subject property may have challenges that are not being fully disclosed.
-
They are removing the requirement that the occupancy of the Mortgage being refinanced and the occupancy of the Relief Refinance Mortgage be the same
-
The GSEs are also removing the requirement that the borrower (on the new loan) meet the standard waiting period following a bankruptcy or foreclosure. The requirement that the original loan must have met the bankruptcy and foreclosure policies in effect at the time the loan was originated is also being removed.
https://www.efanniemae.com/sf/mha/mharefi/pdf/refinancefaqs.pdf
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1122.pdf
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2011/sel1112.pdf1.
You may look up to see if Fannie Mae owns your mortgage by clicking here; http://www.fanniemae.com/loanlookup/ and click here to see if your loan is owned by Freddie Mac; https://ww3.freddiemac.com/corporate/
It is practically a null set between someone 90+ days delinquent and Fico >620. If you are more than 90 days delinquent on any mortgage your credit score will not be high enough to qualify.
So no we get to hear stories about how in order to get a fico of 620 you need to have “near perfect” credit. Near perfect is defined by being maxed out and only delinquent on 4 loans not including foreclosure proceedings on a home.
In addition, if FNM and FRE start paying full gain commission to lenders, it will become more difficult to find someone willing to do a purchase loan for someone with legit good credit. Why would a mortgage broker want to deal with someone that needs an appraisal.
Just another government actions that will hurt housing and the responsible middle class.
This simply will hurt MBS holders further. If someone is current in 2011 they they will likely remain current going forward.
The bad loans are generating zero income and returning principal of $0.60/$ and now the current loans’ income in the MBS will be cut too (via lower rates).
Watch out for a drop in mbs pricing and the stocks of the holders of agency mbs (NLY, etc)
“It is practically a null set between someone 90+ days delinquent and Fico >620. If you are more than 90 days delinquent on any mortgage your credit score will not be high enough to qualify.”
I see nothing in the program to suggest it would apply to people 90+ days late. Actually bullet point 3 says you can only have 1 30 day late in the past year and none in the past 6 months. From what I’m reading this is the back door version of we’ll let everybody finance into the lower rates that they denied they we’re going to do a few months ago.
This is a zero sum game in the sense that whatever benefit the homeowner gets from lowering their rate is a loss for the creditor holding their loan. Maybe that’s ok, pension funds, insurance companies, grandma’s fixed income and rich investors lose interest rate payments and some homeowners gain. Of course the biggest gainer is the banks that get to charge the fees on the refinance.
I always like to look at how gov-stuff like this will affect us on the street.
If more of the Fannie/Freddie mortgagors can get an easy refi, instead of foreclosure or strategic default, it should mean less meat for the flippers.
These are typically all in the lower-priced areas of SD county, where investors (flippers and landlords) are gobbling up product like crazy.
I mentioned this Fannie REO listing on the show:
http://www.sdlookup.com/MLS-120001558-554_Meadowbrook_Dr_San_Diego_CA_92114
The previous short-sale listing agent couldn’t get it done when he had it listed for $169,000, and we BPO’d it at $149,000.
Fannie lists it for $174,900 with blown out windows and no kitchen, and won’t finance with HomePath regular financing. I tell wifey it’ll sit for 30-60 days.
We already have 3 offers…..from investors.
The flipper profits will get squished further if more ‘owners’ opt to refi, instead of foreclosure, and there is already a fever pitch for product.
Will it drive flippers out, or prices higher?
7967 Skyline looks like a flip, this one should be similar. Not enough margin for me.
If the market for this product is flippers that replace windows and kitchens anyway, adjusting the comps for those items and coming in at a lower value on a BPO may not be justified. The buyer pool may consider the missing kitchen a positive as there is less demo to be done.
Refi risk is always a risk with RMBS. The lenders will drag their feet on this round, as they have on all the previous rounds. Fannie and Freddie say one thing to the press and another to the lenders.
Deadbeats win again
From NAR – can you believe this made it to print?
The primary reason for purchasing a home was the desire to own a home—more than one-quarter of home buyers cited this reason in 2011.
The primary reason for the timing of the home purchase remains that it was just the right time to buy and the buyer felt ready to buy a home.
Jim: Why do they 75% of other people buy a home?
Living: The assertion is that this program will stop foreclosures. hence my comparison to the 90+. If it simply is lowering the rate for all the people who paid on a timely basis great, but those were not the foreclosure risks, were they?
Removing the Reps and Warranties issues is one hell of a big carrot. And Jim, I enjoyed the interview with Bill Mcbride a great deal…A real coup for you considering how many interview requests he has turned down over the years.
The bank I work at just cut Loan Officer commission on this product to 3 basis points! that is correct 3 bps! The profit per loan to the bank will be close to 6 points! viva harp 2!
“Living: The assertion is that this program will stop foreclosures. hence my comparison to the 90+. If it simply is lowering the rate for all the people who paid on a timely basis great, but those were not the foreclosure risks, were they?”
I don’t see how this program stops foreclosures at all. Maybe that’s what’s being said but that’s not what it does. In order to participate you need to be current on your loan. Most people in the position of foreclosure are already delinquent. I get what you’re saying about the false pretenses of the reason for the program.