Freddie Mac To Eliminate Interest Only Mortgages

Freddie Mac has announced that effective September 1, 2010 they will no longer purchase interest only mortgages. Undoubtedly lenders will will eliminate these mortgages from their product lines well in advance of the September deadline.

Currently interest only loans account for just over 7% of Freddie's portfolio. According to the release it is not the quality of the underlying borrowers that is at issue (the average credit score for IO borrowers in 2008-2009 was 720). Freddie Mac and Federal Housing Finance Agency feel that underlying weakness in the job market and the overall health of the housing industry that have led them to withdraw this option from their product line.

This is just the latest, in the trend to homogenize mortgage products. It would not surprise me at all to see even more products eliminated from both the Fannie Mae and Freddie Mac offerings as Federal Housing Finance Agency tightens their grip on the two GSE's. It is entirely possible that elimination of certain products will have a wholly negative impact on certain housing markets.

What remains to be seen, is when private equity will step in to fill the void left by Fannie and Freddie. Nature and the economy despise a vacuum. Foresee a company along the lines of the old Headlands Mortgage Group popping up to fill the gap. For those who do not remember Headlands, when I started as a mortgage broker they were practically the only game in town for a client that needed a "stated" income loan (stated income is where the client indicates what he earns on the mortgage application, but the lender does not verify it). Stated loans have taken a bad wrap both on Capital Hill and in the media as a cause for the current housing crisis. Unlike the stated loans offered over the last few years, Headlands had a make sense approach.

1. They made sure you had some "skin" in the game. A typical required down payment was 20%-25%.
2. You had to be self employed (figuring that a good accountant can make a self employed person look "bad" on paper by running expenses through the business)
3. You had to have verifiable assets! Typically Headlands wanted to see at least 6 months of your stated income in a bank account or other liquid asset
4. You needed EXCELLENT credit
5. They watched out for payment shock also
6. They wanted a REAL appraisal, sometimes a review appraisal too

This is a far cry from the types of stated loan that were being dished out by the banks over the last few years. I can actually remember Fannie Mae doing a deal that was stated income, stated asset, and did not even want an appraisal. That is a recipe for disaster.

Mortgage Insurance

An often overlooked issue with obtain mortgage financing these days is mortgage insurance. Up until recently, if a client received an automated approval from Fannie Mae or Freddie Mac the mortgage insurance companies would issue mortgage insurance on the loan and base their decision on the "findings" from the Fannie and Freddie underwriting program. Oh how things have changed!

Now almost every mortgage insurance company has an "overlay" for any mortgage program they are going to issue insurance on. It is now fairly common to see a mortgage receive an approval from the automated underwriting programs (DU and LP), yet be unable to secure mortgage insurance. While Fannie and Freddie might accept a file with a 45% debt ratio on a 95% loan, acquiring mortgage insurance is a whole other matter! Without that mortgage insurance you don't have a loan.

To complicate matters, in years past loan officers were able to structure loans with a second lien and avoid mortgage insurance. As a loan officer I did a lot of 80-10-10 loans and even some 80-15-5 loans. When foreclosures skyrocketed and values fell, these second lien holders took some MASSIVE losses. As a result it is currently almost impossible to find a lender that is willing to be second lien on one of these loans.

Complicating matters is that by and large the mortgage insurance companies guidelines are not uniform. So now a loan officer not only needs to match a client with a lender, but also a client with an MI company. Further complicating matters is that not all lenders have agreements with all MI companies.

FHA News

News coming out of the Washington D.C. National Association of Mortgage Brokers meetings. HUD says that for the time being, FHA minimum down payment will remain at 3.5% instead of the proposed 5% HUD had considered. However, HUD has not ruled out increases in the monthly mortgage insurance premiums as well as the upfront mortgage insurance charge.

HVCC - Boots On The Ground Assesment

At first glance, the HVCC and the agreement that spawned it seem like an appraiser's dream. Both lead off with language regarding the need for sound appraisals produced free of any influence or coercion on the part of the lender or any other party. Perhaps for that reason, many appraisers initially applauded it. But, as is always the case with any governmental or even de facto regulation, the devil is in the details. And in this case, here at a la mode we believe the details create a misleading and dangerous environment for both borrowers and for appraisers.Read the whole story here

In Case You Missed It, The Fed Raised The Discount Rate

The Fed has been talking about its "exit strategy" for quite some time. Few believed he would pull the trigger on anything soon. Yet, Bernanke, unexpectedly raised the discount rate headed into options expiration.

Please consider the Federal Reserve Discount Rate Announcement released after the market close on February 18, 2010.


The Federal Reserve Board on Thursday announced that in light of continued improvement in financial market conditions it had unanimously approved several modifications to the terms of its discount window lending programs.

Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities.

The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19.

In addition, the Board announced that, effective on March 18, the typical maximum maturity for primary credit loans will be shortened to overnight. Finally, the Board announced that it had raised the minimum bid rate for the Term Auction Facility (TAF) by 1/4 percentage point to 1/2 percent. The final TAF auction will be on March 8, 2010. ....

The increase in the discount rate announced Thursday widens the spread between the primary credit rate and the top of the FOMC's 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point. The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve's primary credit facility only as a backup source of funds. The Federal Reserve will assess over time whether further increases in the spread are appropriate in view of experience with the 1/2 percentage point spread. Read The Full Article Here

Wave of Short Sale Fraud Hits Mortgage Industry

By Jennifer Harmon
January 20, 2010

The rise in residential foreclosures around the country has led to a similar increase in short-sale fraud transactions that has particularly serious implications for mortgage lenders.

"What we're seeing are situations where individuals are unlawfully taking advantage of homeowners and their lenders by engaging in short-sale fraud. The most common scenario is where these individuals secure two appraisals on a property that is about to go into foreclosure, one lower and one higher," says Chris Thorsen, a partner and financial services industry litigator with Bradley Arant Boult Cummings LLP in Nashville, Tenn.

"They then use the lower appraisal to buy the property from the mortgage company holding the loan, and the higher appraisal to sell the property on to another buyer. They pocket the difference, which can be as much as several hundred thousand dollars, depending on the property," says Mr. Thorsen.

Mortgage lenders who have fallen victim to short-sale fraud face an expensive battle in court to recover funds Read the full article here

The Clock Is Ticking On The Home Buyer Tax Credit

The extension to the home buyer's tax credit expires April 30th 2010. The tax credit provides up to $8000 for first time home buyers and up to $6500 for mover up buyers (that meet the program criteria). You must have a binding contract in place before April 30th and it must close prior to July 1st 2010.

Aside from the obvious implications for buyers, this deadline is very important to anyone that is thinking about selling their home. Right now the pool of potential buyers is fairly large. That pool is likely to shrink after the tax credit expiration! Few buyers translates to even lower prices. It's all a supply and demand equation. So if you want to sell your home this year, NOW IS THE TIME! Get it on the market and priced aggressively to get it under contract before the expiration., or expect a lower return.

Who's More Qualified

Interesting........

Hitler On HVCC Requirements