The back-to-the-future trend in mortgages is continuing, as an industry report on government-insured home loans illustrates.
The Mortgage Bankers Assn. said today that Federal Housing Administration and Veterans Administration loans represented 35.9% of new mortgage applications in June, the highest level since November 1990.
Back in August 2005, at the peak of the easy-money era, just 6.8% of mortgage applications were for these federally insured loans. Of course, back then you could get a loan without a down payment, a decent credit score or even an income if you were willing to fudge the details on your loan papers.
The allure of VA and FHA loans these days is that, although they are paperwork-heavy, they require lower down payments than conventional loans, according to the report by the trade group. --E. Scott Reckard
A reduction in average mortgage rates last week didn't stop the decline in applications
for home loans, the Mortgage Bankers Assn. reported this morning.
The refinance boom continued to fizzle out, with applications down 30% from the previous
week, to the lowest level since November. Purchase applications
fell by 4.5%, according to the report, which you can read at the website below.
http://www.mbaa.org/NewsandMedia/PressCenter/69498.htm
The average contract interest rate for 30-year fixed-rate home loans decreased to 5.34%
from 5.44% a week earlier. For 15-year fixed loans, the rate averaged 4.81%, down from
4.93%. Points, including the origination fee, edged up to just over 1% of the loan amount
from just a hair under 1%, the trade group said.
The 30-year fixed rate bottomed out at 4.61% at the end of March, the lowest level since
the Mortgage Bankers Assn. started keeping track in 1990.
Many economists believe the economy overall may shift back into growth mode later this
year. But despite some encouraging signs, a solid recovery in housing is likely to take much longer.
That is in part because of the rate trends, Federal Reserve Bank of San Francisco President Janet Yellen said in a speech Tuesday.
"Even though house prices are continuing to fall in most markets, housing sales and new
construction appear to have stabilized," Yellen said in her speech, posted online at
http://www.frbsf.org/news/speeches/2009/0630.html
But she added: "I am concerned that mortgage rates, which have risen of late, could place
a drag on a still very sick housing market, potentially driving home prices still lower
and pushing more borrowers into foreclosure."
— E. Scott Reckard
When I was in Washington, D.C., last week, Rep. Barney Frank (D-Mass.) and a couple of other politicians addressed a group of journalists gathered on Capitol Hill to cover the administration's overhaul of finance rules. I hesitated to blog on it because have you ever heard the man speak? It's a stream of mumbling.
 With that caveat, he said a couple of discernible things worth recounting.
No. 1: "The notion that homeownership is a universal goal is greatly flawed," Frank said. There are people "for whom rental housing is ideal." His point: Homeownership society thinking contributed to the housing bubble.
No. 2: "The ability to securitize 100% of loans caused the bubble," he said. One of the critical changes going forward is that lenders keep some "skin in the game," he said, and retain at least a 5% stake in the loans they make.
I agree on No. 1 and, as for No. 2, I think a 5% stake is better than nothing, but I have no idea if it's enough.
And while we're talking about having skin in the game, he concluded with this idea: When home prices appreciate, a lot of problems can go unchecked and unnoticed. "But when the tide goes out," he said, "you can see who has been swimming naked."
-- Lauren Beale
Thoughts? Comments?
Photo: Rep. Barney Frank (D-Mass.) says lenders need to retain at least a 5% stake in the loans they make. Credit: Brendan Smialowski / Bloomberg News
A debt-forgiveness plan being floated by the Milken Institute in Santa Monica is the subject of Tom Petruno's column today. Here's how it would work:
Say an owner's mortgage is worth $400,000 but his house is valued at $300,000. The government would refinance the $400,000 loan with two new loans. Fannie Mae, the mortgage financier now under government control, would provide a first loan for the market value of the house, in this case $300,000. The Treasury would issue the second loan, in this case for $100,000.
The Treasury loan would be interest-only and would provide the vesting part of the program. For each year that the homeowner keeps up payments on both loans, one-fifth of the Treasury loan would be forgiven.
The Milken folks say the cost to taxpayers to save 1.5 million homes from foreclosure -- or people walking away -- would be in the $75-billion to $100-billion range. And, if I'm reading it correctly, this could spare lenders from having to take "haircuts on their loans." Anybody have a problem with that?
-- Lauren Beale
Thoughts? Comments?
Applications for home loans declined by more than 16% last week as interest rates rose, the Mortgage Bankers Assn. said in a survey today.
As expected, the drop-off occurred in people seeking to refinance their homes because the benefits of refis are driven by interest rate trends.
The trade group said the average rate for 30-year, fixed-rate mortgages jumped from 4.81% a week earlier to 5.25% -- the biggest weekly increase since October 2008. Typical points charged, including the origination fee, decreased from 1.28% to 1.02% of the loan amount for mortgages amounting to 80% or less of the property value.
The average rate for 15-year, fixed-rate mortgages increased to 4.8% from 4.44%.
Interestingly, applications to purchase homes rose more than 4%, the mortgage bankers said. If you think now is the time to buy, a rate in the low 5% range still looks pretty good.
-- E. Scott Reckard
A spike in mortgage rates may have left would-be home refinancers wishing they hadn't waited quite so long.
Rates for conforming 30-year fixed loans -- the plain vanilla mortgages that make up most of the market -- jumped from an average 5.03% last Tuesday to 5.44% on Thursday before slipping to 5.30% Friday, according to HSH Associates of Pompton Plains, N.J.
Monday they edged up again, to 5.38%, HSH Vice President Keith T. Gumbinger said today.
The bond market, which ultimately determines what happens to interest rates, tends to drive them down when the economic outlook is bad. Signs that the economy may no longer be getting worse contributed to the shift away from the rates under 5% seen in recent months, Gumbinger said.
Other reasons for the move, he added, include bond investors' demands for higher rates because of worries that inflation may return sooner than anticipated, a flood of new sovereign debt being issued, and "what seemed to be pretty shoddy treatment of GM bondholders by the administration."
Bankrate.com senior analyst Greg McBride said federal government borrowing to fund its huge deficit spending is driving up borrowing costs for everyone, "and for consumers that means higher mortgage rates."
"If you wanted a sub-5% rate, that opportunity has passed you by," McBride aid.
But heavy Federal Reserve purchases of Treasury bonds and mortgage-backed securities should in the short term keep the cost of home loans at what historically are extraordinarily low levels, he said.
"They may not necessarily be able to bring rates to sub-5%," McBride said, "but they can keep a lid on mortgage rates."
The upward tick is expected to slow refinancings more than home purchases, because, as Gumbinger put it, "The interest rate is just one of a number of planets which must align" for a home to get sold.
Still, the higher rates, if sustained, could put some additional downward pressure on home prices, since interest rates do affect affordability.
-- E. Scott Reckard
California Assemblyman Ted Lieu, the Torrance Democrat who is running for attorney general, has moved an anti-predatory home lending law through the Assembly -- for a second time.
The measure now heads for the state Senate. Lieu, the former head of the Assembly Banking Committee, wrote a similar measure last year that barely made it through the more moderate Senate.
But when the Legislature sent it to Gov. Arnold Schwarzenegger, he refused to sign it, saying it was well intentioned but would create an uneven playing field because it would not apply to federally regulated entities.
Schwarzenegger supported at least one one provision of last year's bill, which imposed a 120-day moratorium on foreclosures in the state, and signed it into law as a separate measure.
Lieu's proposed law seeks to create a stronger fiduciary duty for California mortgage brokers, meaning they would have to do a better job of putting the interests of borrowers first. To encourage this, it would ban payments from lenders to brokers who bring in loans at higher rates that the borrowers qualify for.
These payments, known as yield spread premiums, are now rarely seen in the wake of the mortgage meltdown. Brokers said the payments enabled them to defray the closing costs of the loans by using them to cover appraisals and the rest of the incredible array of junk fees that always seem to appear at closing time.
Consumer advocates contended that certain brokers tended to pocket the bonuses and stick borrowers in unaffordable adjustable-rate loans.
Lieu's bill, AB 260, expressly prohibits steering of clients into inferior loans, bars brokers and lenders from making deceptive statements about subprime mortgages and limits the use of prepayment penalties. It also would ban negative amortization loans -- the what, me-worry? mortgages where you can pay so little that the mortgage balance goes up.
Federal regulators and legislators also have been tightening restrictions on the mortgage industry, and buyers have evaporated for the easy-money loans that fed the big boom earlier this decade. So it's hard to say what immediate effects Lieu's proposals would have should they become law. In a phone call this afternoon, he told me that one difference in his proposed law compared to federal actions would be to allow private parties to hire lawyers and prosecute on behalf of the state, recovering attorney fees if they win. Critics of the plaintiff's bar are sure to love that.
Lieu also said that banks and their trade groups have so far stayed neutral on his proposals. That is interesting given the brutal battles that banks and the Office of the Comptroller of the Currency -- the Treasury Department agency that regulates national banks -- have fought (and won) in the past to assure that state lending laws can't be enforced against national banks.
His proposals mostly apply to independent mortgage brokers, who are regulated by the state, not the federal government. The brokers work with multiple lenders, theoretically helping borrowers find the loan best suited to their needs. Lieu's measure would give the state AG the power to revoke state licenses for violations and impose a $10,000 fine per violation.
A Schwarzenegger press assistant, Rachel Cameron, said the governor won't discuss a proposed law until it hits his desk. Cameron did volunteer to send me a list of the governor's past efforts to help troubled homeowners. Since this post is already way too long, I will be happy to e-mail the list, along with his previous statement on the flaws in Lieu's law, to anyone who wants to review it. Requests should be sent to scott.reckard@latimes.com
-- E. Scott Reckard
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
As Bank of America Corp. phases out the Countrywide Home Loans brand -- you can read what I wrote about in The Times today -- the banking giant is rolling out interesting twists on its own mortgage offerings.
The bank today unveiled a flat-fee plan to allow people buying homes to see beforehand exactly how much they will pay for all closing costs. Those costs include the annoying application and processing charges by lenders, along with fees charges by such service providers as appraisers.
Bank of America will have three flat-fee tiers -- $1,995, $2,495 or $2,995 -- depending on the state. California, as if you had to guess, is in the most expensive tier.
So far, the program is available in full-service Bank of America offices but not the former Countrywide Home Loan offices acquired last year when the Charlotte, N.C., bank bought Calabasas-based Countrywide Financial Corp. And for now, it’s only for purchase loans, not the refinancings that have, at least temporarily, made home lending a boom industry again.
The idea is to make the flat fees available eventually for refis and at the home-loan offices, Bank of America Home Loans President Barbara Desoer said in an interview.
In 2007, Bank of America attracted attention with a no-fee mortgage. But consumers tended to regard that loan with some suspicion, on the theory that you can’t get something for nothing, Desoer said.
Many competitors were offering similar no-fee loans two or three years ago, but these days few lenders have been offering promotions of any kind. Indeed, said Inside Mortgage Finance publisher Guy Cecala, "today mortgage lending is very expensive."
That fact should help Bank of America attract attention with its new plan. Still, as Cecala added, in an environment in which borrowers are out to capture 30-year rates at below 5%, the bank will have to compete on low rates as well as on low fees.
As if to address that issue, Bank of America's new approach includes a satisfaction guarantee. If a person decides that another lender’s loan is better after shopping at Bank of America, the bank will write them a check for $250, Desoer said.
Because Bank of America is so large, the moves are likely to attract high interest from consumers and perhaps force rivals to adopt similar programs, said Greg McBride, a senior analyst at the financial information firm Bankrate Inc.
McBride praised another Bank of America offering I described in today’s article -- a plain-language, one-page summary of loan terms to be provided to borrowers when the bank originates a mortgage and again when the loan closes.
That’s a big deal, he said, because of how many consumers complain that they didn’t understand loan terms. McBride said that on government-mandated disclosure forms, key terms can be buried where the borrowers may not see them.
-- E. Scott Reckard
Wells Fargo, the San Francisco banking giant, is sounding more bullish on the California housing market – at least compared with places like New York, where the downturn began later. “It’s premature to say the economy has bottomed out,” Wells’ chief financial officer, Howard Atkins, said in an interview this morning as the bank reported record earnings. “But clearly there are signs that indicate to me we are closer to the bottom,” Atkins said. “Some of that is in the housing sector. With interest rates so low, we are seeing volumes picking up, even in California – not just refinancings, but home purchases.” Because California’s housing market collapsed earlier than many other states, “it will come out earlier. New York is definitely still declining,” Atkins said. Wells' first-quarter statistics showed $1.6 billion in revenue from mortgage loan originations and sales on $101 billion in new home loans. That put it ahead of Bank of America Corp. as the biggest originator. There were $100 billion in additional mortgages in the pipeline at the end of the first quarter, up 41% from the previous quarter, Wells said. Atkins said that Wells has added 5,000 mortgage employees to handle the surge caused by rates in the 5% range for 30-year fixed-rate loans. Given the backlog of pending home loans, they’ll be kept busy at least through the end of this quarter, he said. Bank of America also recently said that it is adding 5,000 employees to handle the huge volume of loans. Atkins’ comments came as Wells released first-quarter earnings. As the bank pre-announced April 9, its profit was about $3 billion before dividends to preferred shareholders. After dividend payments – including $372 million owed on $25 billion in taxpayer bailout funds – it earned $2.38 billion. A year earlier, Wells had turned a profit of $2 billion. But in the fourth quarter it lost $2.7 billion. -- E. Scott Reckard
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