US Mortgage Restrictions to Increase

The poor fiscal health of the Federal Housing Administration (FHA) is expected to make getting home loans even more difficult as the agency responds to increasing legal costs that stem from loan servicing claims and insuring banks against loan defaults. Prior to the $26 billion mortgage settlement between banks and the government, the FHA had applied for a $688 million loan from the U.S. Treasury to cover its rising expenditures. High-risk borrowers who turn to the FHA for loans are likely to find them as unwilling as banks to extend credit due to banks’ demands that the agency cover their losses. With both banks and the FHA raising lending restrictions, many would-be borrowers will be left with nowhere to turn for financing. For more on this continue reading the following article from TheStreet.

Getting a home loan is only going to be tougher, as banks tighten standards for Federal Housing Administration (FHA) loans amid rising legal claims.

Analysts at FBR Capital have long been worried that the FHA's poor fiscal health will lead it to deny insurance claims and file lawsuits over servicing and origination of FHA loans.

The FHA insures banks against defaults on loans and has seen its share of the mortgage origination market rise from 3% in 2005 to 24% in 2011 in the wake of the sub-prime crisis. But the high default rate during the crisis has drained its resources.

The latest budget plan found that the FHA might need as much as $688 million from the U.S. Treasury to bridge a shortfall in its reserves. That problem was quickly resolved by the recent $26-billion mortgage settlement between the nation's largest servicers and the 49 states.

Under the settlement, the five banks would have to inject $1 billion into the agency's capital reserves to settle claims related to servicing.

Still, not all legal concerns have been put to rest. Analyst Paul Miller notes that the settlement only covers servicing violations and not origination violations. He cites the example of Flagstar Bancorp(FBC) which recently entered into a settlement with the Justice Department for $133 million related to fraudulent FHA lending practices.

Bank of America(BAC) also entered into a $1 billion settlement with the Justice Department over allegations that the bank's Countrywide Unit knowingly made loans insured by the FHA to unqualified home buyers.

Recent fines also include Citi Mortgage, a subsidiary of Citigroup(C) agreed to pay $158 million to settle a civil complaint by the Manhattan attorney's office, accusing the company of routinely certifying that loans qualified for FHA when they did not.

According to FBR, the fines imposed on banks could be quite severe, in some cases trebling damages for violations of FHA's "highly complicated and technical" rules.

The recent Flagstar settlement might just be a one-off, but the analysts believe that the "damage to lender confidence" has already been done. "We believe that this settlement could result in lenders reexamining their risk with respect to FHA lending and tightening standards for the FHA product. Our major concern is that the tightening credit policies could lead to fewer borrowers being able to qualify for an FHA mortgage," the analysts wrote in a note Monday.

Recent government measures have aimed at providing relief to the troubled borrower, but as the Federal Reservefrequently notes, the credit conditions for those seeking a fresh mortgage are still too tight.

One reason is banks have pulled back from lending to borrowers with riskier profiles because of rising putback claims from Fannie Mae and Freddie Mac.

Now, higher risk borrowers who have so far managed to avail of FHA loans might now find that even this source of credit is drying up.

Currently, less than 25% of all loans being purchased by Fannie Mae have a credit score below 740. Over the past 10 years, borrowers with FICO scores between 620 and 660 have fallen from 12% to less than 2% of loans purchased, while roughly 75% of loans have a FICO score over 740, according to the report.

by Shanthi Bharatwaj NuWire Investor Mar 13, 2012

US Mortgage Restrictions to Increase

UPDATE 4-Obama offers mortgage relief to millions of homeowners | Reuters

* Up-front fees and annual premiums to be cut for FHA refis

* White House says up to 3 million borrowers may be eligible

* Plan marks Obama's latest proposal to help housing market


WASHINGTON, March 6 (Reuters) - U.S. President Barack Obama announced on Tuesday a cut in fees on many government-backed mortgages that he said could help millions of homeowners refinance, part of an election-year push to boost the shaky U.S. housing market.

Under the plan, a typical borrower with a loan backed by the Federal Housing Administration could save a thousand dollars a year by refinancing into a new FHA loan, the White House said. The fee reductions would be on top of any savings from a lower interest rate.

Two million to three million borrowers would be eligible, although the White House said participation would more likely number in the "hundreds of thousands."

The step is the latest in a series by the Obama administration to aid a depressed U.S. housing market and homeowners threatened by a rising tide of foreclosures.

About 11.1 million Americans now owe more than their homes are worth.

"I'm not one of those people who believe that we just sit by and wait for the housing market to hit bottom," Obama said at a news conference. "There are real things we can do right now that would make a substantial difference in the lives of innocent, responsible homeowners."

Obama, who faces re-election in November, introduced the cut in mortgage fees alongside efforts to compensate members of the military who may have been wrongfully foreclosed.

The lower fees being put in place would be available to borrowers seeking a new loan through FHA's streamlined refinancing program, and even borrowers who owe more on their mortgage than their homes are worth would be eligible.

Under the streamlined program, borrowers must be current on their payments and income verifications, and appraisals are waived. The reduced fees announced today would be available to borrowers who are refinancing loans taken out before June 1, 2009.

BROAD BENEFITS FOR THE ECONOMY

Of the 5.4 million 30-year fixed-rate mortgages that the FHA backs, 3.2 million would not be eligible because they were issued after the June 1, 2009, cut-off date, according to Mahesh Swaminathan, an analyst at Credit Suisse Group AG.

The reduced fees, though, should help enough homeowners that there will be a positive ripple effect throughout the U.S. economy, according to Jaret Seiberg, senior policy analyst with Guggenheim Securities.

"This should be broadly positive for housing and the economy by reducing foreclosures and freeing up income for consumers to spend on other goods and services," Seiberg wrote in a note to Guggenheim clients.

The biggest banks, such as Wells Fargo & Co., Bank of America Corp and JPMorgan Chase & Co., are likely to see an increase in refinancing volume, which could mean higher income from fees related to FHA mortgages, he wrote.

While mortgage rates are at historic lows around 4 percent, many Americans lack the equity to refinance. Others are locked out by tight credit conditions.

Obama has announced several changes to the administration's housing policies this year to help borrowers, including an expansion of an existing mortgage relief program that had failed to reach as many homeowners as hoped.

The latest plan, which does not need congressional approval, reduces the cost of up-front FHA mortgage insurance premiums to 0.01 percent from 1 percent of a borrower's loan balance. It also cuts the annual fee for these loans in half to 0.55 percent.

Many FHA borrowers have found refinancing prohibitive in recent years because of increased insurance premiums. The administration has been raising fees for FHA loans to shore up the agency's dwindling capital and shrink its footprint in the market. The agency backs about a third of all new mortgages.

MILITARY PERSONNEL TO GET RELIEF

The White House also announced more details about an agreement with mortgage servicers to compensate people serving in the military and veterans who faced wrongful foreclosure.

It said servicers will reviews thousands of foreclosures on properties owned by members of the military and will pay those whose homes were wrongly seized the amount of lost equity plus interest and $116,785.

The administration is also seeking refunds for military personnel who were wrongfully denied refinancing.

by Margaret Chadbourn Reuters Mar 6, 2012


UPDATE 4-Obama offers mortgage relief to millions of homeowners | Reuters

FHA to hike premiums on mortgages

NEW YORK (CNNMoney) -- In an effort to bolster its capital reserves, the Federal Housing Administration is planning to hike the insurance premiums it charges borrowers.

Beginning April 1, the agency, which is the largest insurer of low-down payment mortgages, will raise the up-front insurance premium it charges borrowers by 75 basis points to 1.75% of the base loan amount.

In addition, annual insurance premiums will go up 0.1 percentage point for loans under $625,500 and 0.35 points for loans that exceed that amount.

The agency said the hikes are necessary to replenish the agency's declining capital reserves, which fell below the level mandated by Congress back in 2009.
Further red flags were raised in November when the agency's annual report warned that if home prices continued to drop in the coming year, the agency's losses could exceed its reserves.

"After careful analysis of the market and the health of the [Mutual Mortgage Insurance] fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market," said acting FHA commissioner Carol Galante.

Why the Fed can't fix housing

Borrowers will be able to roll the higher up-front fees into their mortgage balance, which should help borrowers better afford the cost. Combined, the higher up-front fees and the 0.1 point premium increase are expected to add about $5 to the average monthly mortgage payment for FHA loans, according to the agency.

Even though those payouts may seem nominal, it's bad news for the housing market, said Jaret Seiberg, an analyst with the Washington Research Group. He said the hikes will discourage sales to first time homebuyers by making it more expensive to borrow thereby depriving sellers of potential buyers.

The impact of the increase, however, is less severe than it could have been because most of it is in the upfront fee, which is far less damaging than a boost in the premium, according to Seiberg. Builders will also suffer as FHA-insured loans remain an important source of financing for their buyers, he added.

By Les Christie @CNNMoney February 28, 2012: 8:13 AM ET


FHA to hike premiums on mortgages

FHFA Takes First Step in Its REO Pilot Initiative | Mortgage News | Daily National and State Headlines

The Federal Housing Finance Agency (FHFA) has announced the first step of a Real Estate-Owned (REO) Initiative targeted to the hardest-hit metropolitan areas nationwide. Investors interested in participating may “pre-qualify” to establish eligibility to bid on transactions in the initial pilot phase as well as subsequent phases. The REO Initiative will allow qualified investors to purchase pools of foreclosed properties with the requirement to rent the purchased properties for a specified number of years. This rental period could provide relief for local housing markets that continue to be depressed by the volume of foreclosed properties, and provide additional rental options to certain markets. Pre-qualification ensures investors will have the financial capacity and operational expertise to manage properties in a way that is conducive to the stabilization of communities hard hit by the housing downturn.

The REO Initiative was developed in conjunction with the U.S. Department of the Treasury, the U.S. Department of Housing & Urban Development (HUD), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, Fannie Mae and Freddie Mac. The Initiative was formulated by meetings with stakeholders and a review of more than 4,000 responses to a Request for Information (RFI) seeking input on options for selling single-family REO properties held by the government-sponsored enterprises (GSEs)—Fannie Mae, Freddie Mac—and the Federal Housing Administration (FHA).

“This is an important step toward increasing private investment in foreclosed properties to maximize value and stabilize communities,” said FHFA Acting Director Edward J. DeMarco. “I am grateful for the collaborative effort by the many stakeholders including investors, non-profit organizations, and state and local government officials, who have worked together on this Initiative.”

During the pilot phase, Fannie Mae will offer pools of various types of assets, including rental properties, vacant properties and non-performing loans, for sale with a focus on the hardest-hit areas. The first transaction will be announced in the near-term.

The pre-qualification will require those interested in receiving information regarding specific pilot transactions to meet certain minimum criteria including, but not limited to, (a) financial wherewithal to acquire the assets; (b) sufficient experience and knowledge in financial and business matters to analyze and bear the risks of the investment opportunity; and (c) agreement to keep certain information about the REO and related matters confidential.

Interested investors can register at FHFA’s REO Initiative page to pre-qualify. FHFA is also looking at ways to improve REO sales to homeowners and small investors, enhancing the existing retail sales strategy at the GSEs. Both companies sell the majority of their REO properties to owner-occupants at close-to-market value. The purpose of the pilot phase will be to examine investor interest in various types of assets, including the location, size and composition of pools of assets; the ways in which investors maximize the participation of experienced local firms and organizations that can provide the types of services and support needed to ensure community stabilization; the types of structures and/or financing that improve returns to the sellers as well as home values in impacted markets; and the process by which investors are qualified to and ultimately participate in the sales transactions.

by nationalmortgageprofessional.com Feb 1, 2012


FHFA Takes First Step in Its REO Pilot Initiative | Mortgage News | Daily National and State Headlines