Marc Guzman's West County Blog
Last month, President Obama announced at the State of the Union Address of a new refinance program he was working on that would extend HARP rules past Fannie Mae and Freddie Mac. The new program would be extended to include the largest financial institutions. This new program would allow homeowners underwater on their homes to refinance their mortgages to current interest rates, potentially savings homeowners thousands of dollars per year.
One of the biggest problems that President Obama will encounter trying to pass this new refinance program is how to encourage the biggest financial institutions to refinance many of these loans. The loans applying for this refinance would be current on payments and cause no issues for the banks. So why would the banks encourage refinances and lose profit on mortgages not in default?
Enter the Federal Housing Administration (FHA). It is believed that if President Obama can find a way to encourage refinances, it will be through the Federal Housing Administration by providing a guarantee and a way to ‘streamline’ refinances. It is estimated that at least 1 Million homeowners would be able to take advantage of this and refinance through FHA. But the big question in the industry is: Will it happen?
Every time FHA guarantees a new mortgage, it is required to keep a percentage of that loan as reserves. The current reserve requirement is 2%. The problem is that FHA is operating at less than 0.25% in reserves. So for example if home values decrease further by 10% this year, FHA is in danger of possibly needing a bailout by the government. Another problem is that in 2011, FHA guaranteed 90% of all loans originated. They were mainly refinances but 90% is still a huge market share. FHA knows at their current reserves and operating level, they are in a very dangerous position.
So the Federal Housing Administration has been planning since last year on making dramatic changes. Their goal is to reduce their market share to about 50% of current levels and with refinances making up a majority of the mortgages they guarantee, this is not good news for the Obama Administration. FHA is set to increase premiums in the following months with further increases next year; this will decrease the number of people who qualify.
So will the new refinance program actually happen? It doesn’t look promising right now. But let me know your thoughts.
by
Marc Guzman
Top 3 Housing News Articles for Today
Read below or watch the quick video…
1. Obama Proposes Extending Tax Waiver on Mortgage Debt Forgiveness
DSNews Article (Click Here)
Obama’s FY2013 budget proposal includes an extension of the Mortgage Forgiveness Debt Relief Act of 2007. The Act ensures that homeowners who received principal reductions or other forms of debt forgiveness on their primary residences do not have to pay taxes on the amount forgiven.
Without the Mortgage Forgiveness Debt Relief Act, debt reduced through mortgage modifications or short sales qualifies as income to the borrower and is taxable. Under the act, up to $2 million in debt elimination can be tax-free.
In the Treasury’s Green Book, its summary explanation of the administration’s budget proposal, it calls for an extension of the tax break due to “the continued importance of facilitating home mortgage modifications.”
The administration is proposing an extension that would apply to any amounts forgiven before January 1, 2015. At that point, the government would reassess the market and determine whether another extension is appropriate.
2. CFPB Proposes New Mortgage Statement Layouts
DSNews Article (Click Here)
The Consumer Financial Protection Bureau (CFPB) is looking to propose a rule to standardize monthly mortgage statements to make them easier for customers to understand.
The CFPB recently released an early draft of a statement and is seeking feedback. “This draft statement shows consumers the breakdown of their mortgage payments – what money goes to the loan principal, interest, and fees,” CFPB director Richard Cordray said in a statement. “This information will help consumers stay on top of their mortgage costs and hold their mortgage servicers accountable for fixing errors that crop up.”
The draft is available online (http://www.consumerfinance.gov/a-model-form-for-mortgage-statements/).
“Most servicers have spent years customizing the mortgage statements they send to their customers,” Ghazale Johnston, senior executive of Accenture Credit Services, said in an email. “Moving to a new set of statement standards may require them to make a significant investment in changing their core systems.”
Once a refined prototype is available, the CFPB said in statement that it will propose a rule to specify what needs to be on statements, but creditors, assignees, and servicers will have some flexibility to tweak the form after final publication of the rule and form.
3. Deadline to Request Foreclosure Review Extended 3 Months
DSNews Article (Click Here)
Consumers who want their foreclosure cases checked by a third party as part of federal regulators’ independent foreclosure review directive now have until July 31, 2012, to submit their requests.
The Federal Reserve and the Office of the Comptroller of the Currency (OCC) announced Wednesday that the deadline has been pushed out by three months to give consumers more time to file for a case assessment if they believe they suffered financial injury as a result of errors in foreclosure actions in 2009 or 2010. The original deadline was April 30.
The independent foreclosure reviews, as mandated and enforced by the federal regulatory agencies, only apply to the mortgage servicers and their subsidiaries that were subject to the enforcement actions handed down by the OCC and Fed on April 13th of last year.
Borrowers are eligible for a foreclosure review if their loan is serviced by one of the participating companies above, the mortgage loan was subject to foreclosure between January 1, 2009 and December 31, 2010, and the property securing the mortgage was the borrower’s primary residence.
There are no costs associated with the foreclosure reviews. These case evaluations performed by independent third parties began in November. Eligible borrowers should have received a letter by the end of 2011 detailing the process.
After all the big hype by the government in releasing a new version of the Homeowner Assistance Refinance Program (HARP), HARP 2.0 was released today. The biggest obstacle that the original refinance program ran into was a cap of 125% Loan-to-Value ratio. This meant if your property was more than 25% underwater, then you would not be able to refinance. Well that made it very difficult for many homeowners because with the large decline in home values, most underwater homeowners were well above that 125% cap.
So the idea of HARP 2.0 came into play. There were several changes but the most significant change was the removal of the 125% Loan-to-Value cap. This would have allowed many more homeowners to refinance and obtain a lower interest rate on their mortgage. Today, on February 6th and after much delay, HARP 2.0 was released but with a huge disappointment… the cap of 125% Loan-to-Value still remains. There are several minor changes in the new refinance program but the most significant change needed was not made.
So for the homeowners underwater that were limited by the 125% cap and who were hoping to refinance to save a few hundred dollars a month, today was an unfortunate day. But maybe there is some hope with a new refinance program that Obama hinted at for later this year. I guess we will have to wait and see…
Marc Guzman
Watch the video, then answer this: If a Down Payment Protection Plan was offered, would you buy a house?
Ok maybe it’s not HARP 3.0 if HARP 2.0 hasn’t been released. As a quick refresher, the Homeowner Assistance Refinance Program (HARP) was created to help underwater homeowners refinance their mortgages to current interest rates. But HARP has fallen short of its original goal of helping millions of homeowners mainly due to its limitation of a maximum Loan-to-Value (LTV) ratio of 125%. It is estimated that in the hardest hit markets, approximately 40-50% of homeowners are underwater by more than 25%. Thus HARP 2.0 was created which would eliminate the 125% Loan-to-Value ratio among many other changes. This would allow many homeowners to refinance to current interest rate levels allowing some to save as much as $300-$500 per month on their payment.
What’s the catch?
HARP 2.0 was to be released in December 2011 and be available to homeowners whose mortgage was owned by Freddie Mac or Fannie Mae. The homeowner also has to be on time with their payments with no more than one late payment in the previous 12 months. But the Federal Housing Finance Agency (FHFA), who is in charge of overseeing Fannie Mae and Freddie Mac, delayed HARP 2.0 until March 2012. Their reasoning was due to trying to update the banks on the new procedures.
President Obama and the State of the Union
It appears that President Obama wanted to make this a part of his State of the Union address. He did not go into too much detail over the new refinance program to take place in the coming months but he throw in an interesting twist. The new HARP 2.0 would allow homeowners with mortgages NOT guaranteed by Fannie Mae or Freddie Mac to be refinanced. Read that again… Now we know it wouldn’t go over well if taxpayers had to pay the bill to further refinance mortgages but Obama said the program would be funded by “a small fee on the largest financial institutions.”
I wonder if this “small fee” would come from the settlement between the Attorney Generals and the largest financial institutions?
