Fannie Mae to allow troubled homeowners to rent back homes

Mortgage titan Fannie Mae said it will begin allowing homeowners facing foreclosure to rent back their homes for up to one year in a move aimed at keeping a stack of foreclosures on its books from hitting the market, which is just beginning to show signs of recovery.

The new program is meant for troubled borrowers who don't qualify for or haven't been able to get a loan work-out, such as a modification, according to Fannie's news release.

Under the Deed for Lease program, the borrower would transfer title to the property to the lender by completing a deed in lieu of foreclosure and then rent back the house at market rates -- which in many markets have fallen over the last year and probably would be cheaper than a mortgage payment on a loan made during the boom years.

-- Alejandro Lazo

Photo: Rows of homes in Las Vegas. Credit: Bloomberg

One reason that refi is taking so long

Did a disputed bill put the kibosh on your refi? Possibly, according to Ken Harney's column at latimes.com.

Could a little-known and potentially controversial practice by mortgage giants Fannie Mae and Freddie Mac kill or stall your next loan application? Absolutely.

Picture this scenario: You've got outstanding credit scores close to 800 and solid equity in your home. All you want is to refinance your mortgage to take advantage of today's rock-bottom interest rates.

Your application should rocket through your lender's system and get you a great rate. But your bank says: Sorry, we can't do your loan. Fannie Mae's automated underwriting system won't accept any application where there is a notation in the credit report that a consumer has disputed an account or "tradeline."

You explain that the dispute -- over a medical bill or a credit card charge -- was valid. The account was closed. The creditor promised to remove the dispute notation but apparently didn't. Your loan officer won't budge. Policy is policy, he says. Your refi application is dead.

Apparently automated underwriting is kicking some refi applications out and returns them to the lender for manual underwriting. This may be why some people have been reporting such long delays in getting their refinancing. Has this happened to you?

--Lauren Beale

Thoughts? Comments?

 

Average interest rate for a 30-year mortgage edges up to 5%, Freddie Mac reports

After three weeks in the sub-5% range, mortgage rates crept back to that benchmark during the week ending today, according to the latest weekly Freddie Mac survey.

Freddie's report said lenders nationally were committing to make 30-year fixed home loans at an even 5.0% rate on average. The rate was for traditional mortgages of up to $417,000 eligible for purchase by Freddie and its sister firm Fannie Mae. It assumes a 20% down payment, good credit, and that borrowers would pay 0.7% of the loan amount in points -- the upfront charges that lower rates -- and origination fees.

The average 30-year fixed rate as calculated in the Freddie Mac survey bottomed out at 4.87% two weeks earlier with similar points and fees.

Freddie Mac economist Frank Nothaft said consumers continue to seek the stability of fixed-rate loans, which remain extraordinarily low by historical standards, even though 5/1 adjustable rate loans -- mortgage fixed for the first five years before becoming adjustable -- could be had with an initial rate of 4.4%. Only 6% of mortgage applications in September and October have been for variable-rate loans.

You can study the ups and downs of mortgage rates at Freddie Mac's website.

-- E. Scott Reckard

Mortgage rates drop near all-time lows

Mortgage rates sank near all-time lows this week, according to giant home-loan buyer Freddie Mac -- at least for borrowers who have survived the recession with their credit ratings still solid and able to put 20% down.

For those lucky people, the average rate for a 30-year fixed-rate mortgage during the week ending today was 4.94% with borrowers paying 0.7% of the loan amount in upfront fees and points to the lender. (Paying points, each one equivalent to 1% of the loan, can reduce the rate on the mortgage.)

It was the first time since May that Freddie's survey showed a 30-year rate beginning with a 4, although a separate Mortgage Bankers Assn. survey last week pegged rates at under 5%.

The all-time low for the Freddie Mac survey, which began in 1971, was recorded in April, when the average 30-year fixed rate for solid borrowers dropped to 4.78% with 0.7% in lender fees and discount points.

Last year at this time, 30-year fixed loans averaged more than 6% and even a 15-year fixed loan was at 5.78%. In the Freddie Mac survey released today, 15-year fixed loans averaged 4.36% with 0.6 points, an all-time low. 

Although existing home sales fell somewhat in August, it was still the second-strongest showing in 23 months, noted Freddie Mac chief economist Frank Nothaft.

"Low mortgage rates are helping to stabilize home sales," Nothaft said in a Freddie Mac release that you can read here.

Why are rates so low? Thank Uncle Sam, or Uncle Ben (as in Bernanke). The Federal Reserve is in the process of buying $1.2 trillion in mortgage bonds cranked out by Freddie and other government-controlled entities.

-- E. Scott Reckard

Knock knock. Who's there? Freddie....

It's not quite "Hi, I'm from the government and I'm here to help." 

But it's along those lines. 

Freddie Mac, the government-controlled mortgage giant, plans to send people out to knock on the doors of borrowers who might qualify for a loan modification under President Obama's Making Home Affordable program but haven't completed the paperwork. 

The plan, which you can read about here, is to work one-on-one with people who didn't respond to letters or phone calls from their mortgage servicers, or who need to provide more information to launch their three-month trial periods under the federal loan-mod scheme. 

The door-knockers will be supplied by Titanium Solutions Inc., a specialist in contacting and working with troubled borrowers. They will try to contact people whose mortgages are owned by Freddie Mac, the second-largest buyer of home loans. The borrowers must be at least 31 days late in paying their loans, and they can't be in bankruptcy. 

Titanium "can help them overcome the roadblocks keeping them from starting their Home Affordable Modification trial periods," Ingrid Beckles, Freddie Mac's senior vice president of default asset management, said in a statement. The idea, she said, is to "give borrowers ... the same type of personalized guidance they may have had when they were buying their home or applying for their mortgage." 

To minimize potential fraud by impostors, Titanium representatives will not accept mortgage payments or any other money from borrowers, Freddie Mac said. 

The announcement left unanswered certain questions about the program, such as exactly how many borrowers are likely to be contacted and how much it will cost. Freddie Mac spokesman Brad German said he didn't have those details, and Titanium officials couldn't be reached for comment. 

At last report, Freddie Mac had 340,000 seriously delinquent single family mortgages -- loans in foreclosure or behind in payments by at least 90 days, German said. That worked out to 3.14% of its mortgages, up from 1.11% a year earlier. 

Fannie Mae, the largest buyer of U.S. mortgages, said in a news release today that its serious delinquency rate hit 4.17% at the end of July, a record and up from 1.45% percent a year earlier. Like Freddie Mac, Fannie Mae was taken over by the government when defaults threatened its solvency. 

It would be interesting to know how many Freddie Mac borrowers will welcome the help, and how many have just given up on reworking their loans because they are so far under water. No word on whether Freddie Mac will report along those lines, but don't hold your breath. 

In any case, plenty of people will be watching this and similar efforts. 

"It is my understanding that a number of loan servicers/loan modification specialists have started going door-to-door trying to get home owners to engage in the loan modification process," banking consultant Bert Ely said in an e-mail to The Times. 

"However," Ely added, "many people do not want to play, usually for financial reasons. Consequently, Freddie's outreach is hardly unique. How successful it will be, though, is questionable." 

-- E. Scott Reckard

Reining in boom-and-bust cycles

With real estate and mortgages at the heart of the financial crisis, one of the critical parts of the government's reworking of finance rules will be to figure out how to dampen some of the booms and busts, said James Lockhart, director of the Federal Housing Finance Agency, the umbrella entity that regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks.

"We failed to appreciate how high home prices had risen and how fast they could fall," Lockhart said in an address to a gathering of real estate and finance reporters in Washington. The FHFA head will be on the Financial Services Oversight Council, announced by the White House last week along with other financial regulation overhaul plans, that will look at systemic risk.

As private money has dried up, Fannie Mae and Freddie Mac have increased their share of lending to account for the majority of U.S. home loans. 

The FHFA's goals of providing stability, liquidity and affordability in the mortgage market are being realized, Lockhart said, as Fannie Mae and Freddie Mac have begun to stabilize. The two government-sponsored entities, which were taken over by the government last fall, buy home loans from lenders and package them into securities to sell to investors or the Federal Reserve.

However, Lockhart noted, "from the standpoint of profitability, it’s going to be a couple more years."

--Lauren Beale, reporting from Washington

Thoughts? Comments?

Photo: Federal Housing Finance Agency Director James Lockhart. Credit: Carol T. Powers / Bloomberg News

Bond market signals that mortgage rates may drop

The bond market has been sending slightly better news to mortgage borrowers the last few days as investors in securities carved out of home loans have been accepting lower returns.

Yields on Freddie Mac and Fannie Mae mortgage securities fell today for the third straight day, meaning the buyers are OK with lower rates on the loans backing the securities. The typical rate on a fixed-rate 30-year loan rose to 5.59% last week, up from a record low of 4.78% in late April, according to Freddie Mac.

Yields on Fannie Mae 30-year fixed-rate mortgage bonds dropped to 4.71%, down from 5.07% last Wednesday and the lowest since June 3. Freddie Mac bonds were yielding 4.78%, down from 5.15% Wednesday. On May 20, bond buyers were OK with returns of less than 4% on the securities.

Rising rates have throttled the home refinancing spree that took hold last fall and continued through the winter. While rates under 6% are still great by historic standards, the recent increase also made it tougher to qualify for home purchases, and higher rates generally can put the brakes on the economy.

The higher rates also contributed to an unexpected decline in confidence among U.S. home builders in June, according to a National Assn. of Home Builders/Wells Fargo housing survey out today.

Analysts had expected confidence to increase, but the builder group said anxiety over jobs and the economy, along with higher rates, had clouded the prospects for a housing recovery.

-- E. Scott Reckard
 
  

Mortgage-backed bond investors push for higher interest rates

Investors buying bonds backed by Fannie Mae and Freddie Mac mortgages are demanding higher interest rates, Bloomberg News reported today.

Why should anyone but bond buyers care? Well, if the buyers won't accept lower yields, the bond issuers will have to get loans with higher interest rates to bundle up and sell. And since the vast majority of all U.S. mortgages are now winding up in Fannie and Freddie securities, that could mean more costly loans for anyone buying or refinancing a house.

In a bid to keep rates down, the Federal Reserve has been aggressively buying Fannie and Freddie bonds. But the Bloomberg report suggests that the efforts may not be working as well as the Fed hoped.

From the article:

The Fed, seeking to use lower home-loan rates to stem the housing slump and bolster consumers, said March 18 it would increase its planned purchases of so-called agency mortgage bonds by $750 billion, to as much as $1.25 trillion, and start buying government notes. Rising mortgage-bond yields, driven higher in part by climbing Treasury rates, means the Fed now “faces a challenge to its ability to sustain low mortgage rates,” according to Jeffrey Rosenberg at Bank of America Corp. 

The report notes that the yields on 10-year Treasury bonds, a traditional indicator of fixed-rate mortgage trends, are at six-month highs.

The average rate on a typical 30-year mortgage for the week ending May 21 was 4.82%, Freddie Mac said last week. When Freddie issues its new rate report Thursday, will the average have crept closer to 5% again?

It sure looks like the answer is yes.

-- E. Scott Reckard

Fannie, Freddie employee bonuses -- your tax dollars at work?

Retention bonuses at Fannie and Freddie got some more ink in a Wall St. Journal article  Saturday that offers more details on the controversial program:

 In a compensation program that has drawn angry protests from lawmakers, Fannie Mae and Freddie Mac expect to pay about $210 million in retention bonuses to 7,600 employees over 18 months, according to a letter from the mortgage companies' regulator.

The maximum retention bonus for any individual executive under the plan will total $1.5 million during the 18 months ending in early 2010, according to the letter to Iowa Republican Sen. Charles Grassley, which provides previously undisclosed details about the bonuses.

The regulator, James Lockhart, director of the Federal Housing Finance Agency, said in the letter that about $51 million of the payouts were made in late 2008 and the rest are to be made this year and early in 2010.

In the letter, a copy of which was reviewed by The Wall Street Journal, Mr. Lockhart defends the bonuses as vital to retaining talent at the two companies, the main providers of funding for U.S. home mortgages. Fannie and Freddie, which reported combined losses of about $108 billion for 2008, are being propped up by capital infusions from the U.S. Treasury.

How many other places are offering retention bonuses that involve 80% of employees (Freddie's version) or even 61% (Fannie)?

In a statement Friday, Sen. Grassley said: "It's hard to see any common sense in management decisions that award hundreds of millions in bonuses when their organizations lost more than $100 billion in a year. And, it's an insult that the bonuses were made with an infusion of cash from taxpayers."

For the other side:

"It is not realistic to expect that experienced and highly skilled employees will indefinitely continue to work as hard as they have if we do not provide reasonable incentives to perform," Mr. Lockhart wrote. He argued that the companies need "skilled and experienced staff" to manage safely their more than $5 trillion in debt and guarantees of mortgage securities.

These bonuses seem totally out of touch with the economic realities of today and how things are going at Fannie/Freddie. Grassley had me at "cash from taxpayers."

-- Lauren Beale

Thoughts? Comments?

Obama housing fix too timid?

A key participant in the country’s debate over housing policy is blasting the Obama administration’s plan to fix the mortgage mess as “much too timid” but says he’s adamantly opposed to mortgage “cram-downs” in Bankruptcy Court.

Since last fall, real estate guru Chris Mayer, senior vice dean at Columbia University's business school, has argued that the Treasury Department should refinance “the entire universe” of loans guaranteed by Freddie Mac and Fannie Mae -- nearly half of all residential mortgages -- at an interest rate below 5%. He also wants to give loan servicers -- the bill collectors for mortgage investors -– legal protection to aggressively modify home loans without being sued.

But Mayer told L.A. Times reporters and editors today that a proposal to allow bankruptcy judges to reduce the principal on first mortgages, as they already can on other types of debt, would tempt homeowners to reject solid offers by lenders and servicers to modify loans, hoping to get a better deal in court. The option to seek the imposition of a principal reduction, known as a cram-down, might trigger a wave of bankruptcy filings, overwhelming the country’s bankruptcy judges, who number fewer than 400, he said.

And allowing judges to cram down mortgage balances would surely force lenders to raise mortgage rates, Mayer said.

“I don’t think that raising the cost of credit in a recession and during a credit crunch is good policy,” he said. Mayer also argued that principal reductions aren’t needed — because, he said, even “underwater” homeowners won’t walk away from their mortgages as long as they can afford their monthly payments.

A congressional vote on a mortgage cram-down measure was postponed this week by House Speaker Nancy Pelosi after industry groups including the Mortgage Bankers Assn. and the American Bankers Assn. objected and some lawmakers withdrew their support. A Pelosi spokesman said the House would probably consider the bill Tuesday or Wednesday.

--E. Scott Reckard