Schwarzenegger approves mortgage laws

If you've got a mortgage, there are several new laws designed to protect you in one way or another.

In a flurry of end-of-session bill signings, Gov. Arnold Schwarzenegger approved new laws that, among other things, tighten restrictions on mortgage brokers so they can't "steer" borrowers to riskier, higher-interest loans when the borrowers could afford and qualify for more economical ones.

That law, AB 260 by Assemblyman Ted Lieu (D-Torrance) also bans negative-amortization loans in which the principal keeps rising even though monthly payments are made. The measure caps prepayment penalties to 2% of the principal balance and allows state regulators to enforce federal lending laws.

Other mortgage-related bills signed by the governor include:

-- SB 36,  by Sen. Ron Calderon (D-Montebello), sets standardized licensing requirements for all residential loan originators.

-- SB 239, by Sen. Fran Pavley (D-Agoura Hills), makes it a felony to commit fraud on a mortgage loan application.

-- AB 329, by Assemblyman Mike Feuer (D-Los Angeles), requires lenders to provide more, clear information to senior consumers interested in reverse mortgages.

-- SB 237, by Calderon, creates a registration program for appraisal management companies.

-- AB 957, by Assemblywoman Cathleen Galgiani (D-Stockton), allows buyers of foreclosed homes to choose local escrow officers.

-- AB 1160, by Assemblyman Paul Fong (D-Cupertino), requires that mortgage loan documents be translated into the language the verbal negotiations were conducted in.

-- Marc Lifsher

Feds say simplified paperwork should increase successful loan modifications

Successfully modifying loans has proved elusive at times because of multiple factors, including under-trained negotiators, lost paperwork and foreclosure proceedings inadvertently begun before trial loan modifications are complete, panelists at a Mortgage Bankers Assn. conference acknowledged today.

One of the most frustrating common problems is troubled borrowers who accept a trial modification, send in their lowered payments, but then fail to complete the paperwork that enables lenders and loan investors to OK a final loan modification.

The three-month trial period is a key part of the Home Affordable Mortgage Program developed by the Obama administration, which is using bank bailout funds to pay loan customer service firms to modify loans and pay borrowers to make regular payments.

Troubled borrowers who accept modification offers from lenders are supposed to use that time to completely document their financial situations so the restructured loans can be finalized.

Laurie Maggiano, policy director at the U.S. Treasury Department 's Office of Homeownership Protection, said the government is introducing a new, streamlined application with just two documents to be signed, acknowledging the original paperwork was onerous. 

Speaking at a session of the conference in San Diego, Maggiano said the government also intends to have the Internal Revenue Service use its formidable computer system to process these applications and get a "yes" or "no" answer back to servicers in two days.

Borrowers already in the three-month trial modification process will be given an extra two months so the lenders can get them the simplified paperwork and have them fill it out, Maggiano said.

Missing, incomplete or improperly filled-out paperwork has been a major problem in implementing the Making Home Affordable program, now more than six months old, said Douglas Potolsky, a senior vice president with Chase Home Loans.

"Getting those loans to the finish line is tough," Potolsky said. "I think the streamlining will help dramatically."

He also suggested that the Treasury Department add an option for borrowers to pay interest only on their modified loans, say for five years -- something that the government has resisted because the loan balance doesn't go down.

An interest-only option could make for larger "payment shocks" when the interest-only period runs out, but Potolsky said including the option would increase significantly the number of borrowers who could be helped. He said it's something Chase has offered to certain borrowers who don't qualify for the regular Home Affordable modifications.

-- E. Scott Reckard

Why 15-year mortgage rates are down more

If interest rates on 15-year fixed mortgages have never been lower -- and rate trackers say that's the case -- why aren't 30-year loans setting records as well?

To be sure, 30-year fixed rates have fallen near all-time lows, well below 5% for borrowers willing to pay some upfront fees known as points -- a great deal if you're among the lucky borrowers who qualify. But they were lower still last spring, according to surveys by the Mortgage Bankers Assn., Freddie Mac and bankrate.com.

By contrast, all the surveys concur that rates for 15-year fixed mortgages have already reached their lowest point on record -- and keep falling. 

Freddie Mac, for example, says 15-year rates fell to record territory the week ending Sept. 17, when they averaged 4.47%. They have continued falling in three subsequent surveys, including the one for the week that ended Thursday, when they averaged 4.33% for borrowers who paid on average 0.7% of the loan balance in points.

Greg McBride, a senior financial analyst, says you can see the difference in the "spread" between mortgage rates and the benchmark 10-year Treasury note.

Historically, interest rates for 30-year fixed home loans for borrowers who don't pay points have run about 1.7  percentage points above the yield on 10-year Treasuries. Rates on 15-year loans with no points have run about 1.3 percentage points higher.

These days, 15-year mortgage rates are close to their historical norm. (McBride says those borrowers were averaging 4.6% on their loans, while the 10-year Treasury was at 3.25% Thursday.)

But 30-year borrowers are paying 2 full percentage points more, he said -- significantly higher than the historical average.

So what's the difference? One reason is the different type of borrower.

The main users of 15-year loans, McBride said, are established homeowners refinancing mortgages -- people secure enough that they often take on larger monthly payments in order to pay off their loans before they retire. Lenders appear willing to apply the old rules to these borrowers.

People who take out 30-year loans, by contrast, are generally less well established, with smaller down payments, and require a bigger slice of their incomes to make their payments.

At a time when home prices have fallen, and unemployment and loan payment delinquencies continue to rise, such borrowers are just plain higher-risk. And the credit crunch remains real, McBride said -- the banks just don't want to take chances in this environment.

Hence, no fresh record lows just yet for the 30-year loan.

--E. Scott Reckard

Mortgage applications up again as average 30-year rates stay below 5%

The ups and downs of the mortgage business continue -- these days, with some benefit for consumers.

 

The Mortgage Bankers Assn. reported today that applications for home loans increased 16.4% last week, with refinance and purchase loans up by double digits.

The survey showed the average interest rate for 30-year fixed-rate mortgages remained below 5% for the third straight week, dipping to 4.89% from 4.94% a week earlier. (The rate assumes borrowers had good credit and made 20% or higher down payments.)

 

It looked as though borrowers were trying to maximize the benefit by paying more upfront lender fees, or points, to lower the rates.  The bankers groups said the typical points paid rose from 0.94 to 1.13 (a point is 1% of the loan).

 

The 30-year rate was at its lowest level since May, when it was 4.81%. And the rate on 15-year loans continued to fall to all-time lows, dropping from 4.34% with 1.01 points to 4.32% with 1.04 points.

You can read the industry group survey here.

-- E. Scott Reckard

One couple's tale of refi rejection

If you missed David Lazarus' column on Sunday, it shows how the pendulum has swung from easy refinancing to darn-near-impossible refinancing, using the example of Glendora residents Angie Trujillo and Carl Heinzen, who applied for a refi several weeks before Trujillo was laid off from Bank of America in March and spent months satisfying the paperwork requirements:

But in August, they learned it had been rejected. The reason, according to the letter they received from the bank: "Income insufficient to support expenses."

Apparently BofA decided not to take into consideration the $58,000 severance package Trujillo received from BofA along with her pink slip.

Or her $377,000 BofA pension.

Or her $156,000 in savings at BofA.

Or the $10,000 she and her husband deposit at BofA monthly for rental properties they own and manage.

Not to mention the $450,000 value of their house, as appraised by BofA for their current BofA loan of $280,000.

Oh, and let's not overlook that Heinzen's FICO credit score was 809 at the time of their refi application and Trujillo's was 764, placing them among the least-risky loan seekers in the country.

I understand banks not wanting to loan to the unemployed -- nearly 10% of the population according to the latest U.S. figures. And just because someone has a pension and hefty personal savings doesn't mean they won't decide to strategically walk away if values decline further. But it still surprised me that even with their rental income, they were considered too risky for the refinance.

-- Lauren Beale

Thoughts? Comments?

Regulators report more aggressive mortgage mods

A quarterly mortgage report out this week from U.S. Treasury regulators contained  bits of encouragement for struggling borrowers along with the unsurprising finding that delinquencies and foreclosures rose in the second quarter.

A first-quarter report from the regulators had found that only 54% of what lenders described as loan modifications involved actually reducing borrowers’ payments.

 

That number rose to 78% in the second quarter as mortgage servicers increasingly cut payments due on principal and interest, rather than just adding missed payments back into the reworked loans.

The joint report from the Office of the Comptroller of the Currency, which regulates national banks, and the Office of Thrift Supervision, the federal overseer for savings and loans, surveyed 64% of all U.S. home loans.

The OCC and OTS said they had seen “a significant shift from earlier practices, in which the vast majority of loan modifications either did not change or increased monthly payments.”

The agencies also said “modifications that reduce borrowers’ monthly payments continue to show lower levels of redefaults and longer term sustainability than modifications in which payments are either increased or unchanged.”

 

Uh, could have guessed that one.

The 46-page OCC and OTS Mortgage Metrics Report report, which you can read here, said home retention actions by lenders rose nearly 22% from the first quarter and were up 75% from a year earlier.

Driving the increase were three-month trial loan modifications made under President Obama’s Making Home Affordable program to assist troubled homeowners.

-- 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

Brokers critique mortgage mini-boom story

Reader reaction was generally favorable to a front-page Times story Friday on home loan applications increasing as average interest rates for 30-year mortgages fell below 5%. But a couple of brokers complained that the article omitted some crucial points.

The story quoted a Mortgage Bankers Assn. report that the national average for a 30-year fixed-rate home loan had dropped to 4.97% for the week that ended Sept. 18. Loan applications had jumped 13% from the previous week and were up 50% from late June, the trade group said.

Mike Gianelli, a  veteran mortgage broker in Torrance, said such broad averages are meaningless without additional details, especially how many "points" borrowers paid to get the loans. (Points are upfront fees charged by lenders, with each representing 1% of the loan value. By paying more points, borrowers can "buy down" the rate on a loan.)

"If you really want to get some buzz with your next column, why don't you write that rates dip below 4%?" Gianelli  wrote. "That's available too -- if you pay a ton of points, put 20% down, accept an impound account and have FICO [credit] scores above 780."

Fair enough. So here, for the record, are more details on the average loan the mortgage bankers' group was describing: The borrowers put 20% down and typically paid 1.12 points, including the origination fee.

Laguna Niguel loan broker Jeff Lazerson said his company had been doing sub-5% mortgages for months -- for the fortunate few who can even get a loan these days. He said it was a "gaping hole" for the story not to have mentioned the fact that the mortgage system "is still completely dysfunctional."

"If you have fair or poor credit, there is nothing for you, regardless of income and asset qualifying," Lazerson said.

"Perhaps 30% of homes are upside down. Unemployment is, what, 12% in California? Applications may be up, but the lenders are still minimalist when it comes to loan fundings. Their thinking is, today's fundings are tomorrow's foreclosures."

So much for trying to detect rays of hope on the mortgage front, eh?

-- E. Scott Reckard

Will the home buyer tax credit get packed away?

As the time nears to bid farewell to the popular $8,000 tax credit for first-time home buyers, sentiment is building to extend -- and maybe expand -- the program.

The tax credit is set to end Nov. 30, meaning that buyers have to agree to terms soon to get deals closed in time.

The program is part of the federal effort to resuscitate the real estate market. Realtors and home builders, along with many members of Congress, are pushing hard for an extension. They argue that although the housing market has shown signs of recovery, it still needs the help.

"If anyone thinks this housing crisis has ended . . . that's not the case," Rep. Ken Calvert (R-Corona) said. "There's a significant amount of inventory throughout a large part of this country, especially in Southern California."

He has introduced a bill to extend the credit for a year, expand it to provide $15,000 and make it available to anyone who buys a house. "A lot of people are still waiting on the sidelines, waiting for the clear 'buy' signal. I think we need to give them one."

To read the article by Jim Puzzanghera and Tiffany Hsu, click here.

And here's a video about the subject.

Los Angeles mortgage modification event begins Thursday

More than 50,000 homeowners are expected to begin streaming through the Los Angeles Convention Center on Thursday, hoping for a hand in restructuring their mortgages or avoiding foreclosure.

The free five-day event, running through Monday, is organized by Boston-based Neighborhood Assistance Corp. of America. NACA hosted similar meetings nationwide this summer that attracted more than 180,000 participants.

Counselors at 360 computer stations will scan homeowners’ mortgage documents and send electronic files to nearly 2,000 on-site servicers and lenders, including representatives from Wells Fargo & Co., JPMorgan Chase & Co. and Bank of America Corp., who will negotiate more affordable loans.

“People usually call up the servicers and get the runaround,” NACA Chief Executive Bruce Marks said. “But here, there’s nothing to lose and everything to gain.”

The event will cost about $1 million, funded by federal grants. Boston-based nonprofit National Consumer Law Center released a study today of 25 foreclosure mediation programs from 14 states, including California, and concluded that most were inefficient.

The law center said that procedural barriers often kept homeowners from participating in those programs, and that mortgage servicers were rarely required to provide documentation or more affordable alternatives.

Rafael Mayo, 41, said NACA helped save his home from foreclosure by pushing both his 5% and 11% interest-only mortgages down to two 2% fixed-rate loans, saving him $850 a month.

“We were one foot inside the safety line, one foot outside,” he said.

The Save the Dream tour launched in Cleveland with 35,000 participants before moving to Chicago and St. Louis. Other stops will include Phoenix, Las Vegas and San Francisco.

Participants can register for appointments at www.naca.com or toll-free at (888) 499-6222.

-- Tiffany Hsu