Friday, April 17, 2009

Rates Ease, Pipelines Clog

In its Primary Market Survey, Freddie Mac reports that 30 year fixed rates eased back down for the week ending April 16.  We slid down to 4.82% with 0.6 point origination from 4.87 the week before.  For comparison’s sake, one year ago the rate was 5.88%.

Meanwhile, bank pipelines continue to fill up as tens of thousands take advantage of this historic opportunity.  Underwriting turn times have slowed to crawl.  Banks that a few months ago had 2-day waits for underwriting are now 9-10 business days out.  Conditions and stipulations are at least 48 hours per cycle, in many cases 4 days.

The Right of Recission steals up to six days from a 30-day lock.  If a refinance closes on a Tuesday, it can’t fund until the following Monday, because Saturday can’t be a funding day.  So mortgage brokers and bankers have to plan on being able to do a loan in 3 weeks if they want to make a 30-day lock.

That’s become almost impossible unless you have a full package ready to go when you make your lock.  That means having an appraisal, all signed documents and supporting income and assets ready to submit to underwriting.

For that reason, our company Crown Mortgage Services now prefers to take only 45-day locks on refinance loans without a full package ready.

Wednesday, April 15, 2009

Second Mortgage Subordination

As I wrote about last week, 2nd mortgages are gumming the works for Obama’s Making Home Affordable program.  Second lien holders have to agree to subordinate their loans to the new firsts in refinancing.  And in many cases they aren’t, or are not making it easy.  The Administration was scrambling to correct this egregious oversight.  

But homeowners in Virginia have their state government to thank for a partial solution.  During the year 2000 legislative session, the General Assembly enacted a statute that, if certain conditions are satisfied, makes subordination automatic.

The most salient conditions include:  the original second mortgage must be for $50,000 or less.  The property is residential and contains no more than one dwelling unit.  The original deed of trust being refinanced was recorded prior to the subordination deed of trust.  The refinance mortgage amount is not more than $5000 than the current balance of the original mortgage.  And the interest rate of the refinance mortgage does not exceed the rate of the replaced mortgage.

The situation must meet all of these conditions and others, as well.

So this automatic process only applies to rate and term refinancing, not to cash out.

But thanks to Virginia Code § 55-58.3, subordination can happen in these instances without the lengthy delay it would otherwise entail.  A good lawyer can do it at closing.

Saturday, April 11, 2009

Have We Finally Hit Bottom?

Not of housing prices.  Not of the economy.  I’m wondering if we have hit bottom on mortgage rates. 

Freddie Mac reports that rates bounced up from a historic low during the week ending April 9, 2009.  Their Primary Mortgage Market Survey found that 30-year fixeds averaged 4.87% for an average .7 point.  The prior week was 4.78% for the same instrument.

Meanwhile, the Federal Reserve Bank of New York revealed Thursday that it had gobbled up another $74.7 billion in GSE mortgage-backed securities for the week ending April 8.  It’s hard to imagine that the Fed can put any more downward pressure on mortgage rates.

Wednesday, April 8, 2009

Dr. Frankenstein plays Van Helsing

It’s a grand irony American politics often engenders.  Representative Barney Frank, chairman of the House Financial Services Committee helped create the subprime monster.  Now, he wants to drive a stake through its heart.

“Affordable Housing,” has been jokingly defined as housing people can’t afford.  The good intentioned push sought to provide extraordinary ways and means for otherwise unqualified people to attain home loans.

Yet, like the Irish proverb says, the good intentions paved the road to hell.  The political actions contributed mightily to the creation of the subprime industry and the current housing mess.  For years, if not decades, Barney Frank stood as a cheerleader and political quarterback for Affordable Housing. 

But now, he has decided to slay the very beast he helped sew together.  “We will bring a bill out in April that will stop people from getting loans in the future that they cannot repay,” he promises.

He fears that Congress must act, driving a stake through the heart of this industry. Otherwise, the monster will rise Dracula-like again.

"It won't be dead forever," Frank said of subprime lending. "It would be a grave mistake to think it's never going to come back again."

More here and here.

Monday, April 6, 2009

Second Lien Roadblocks

Obama’s Making Home Affordable Plan has hit a significant speed bump for many borrowers who are depending on it to help them refinance. 

In a nutshell, many second lien holders aren’t playing nice.  They’re not readily agreeing to jump back in line behind a new first mortgage.  But why should they?

They want to get paid off.  They want to get better terms.  And they hold the trump card.

In the event of a refinance, those in second lien positions have to agree to go behind the new primary loan.  If they don’t, no bank will agree to write a new primary loan.

Second mortgages are inherently riskier than firsts.  If a house goes in foreclosure, the first lien holder calls the shots.  They’re going to auction or dispose of the property in a way that tries to get what they have in it.  They’re not too concerned about who else is in line.

What’s left gets dispersed to the second lien holder, and any one else holding a lien against the property, like a homeowners association that wasn’t getting its dues.

The greater risk, the less certainty they will get paid off in a worse case scenario, is the reason HELOCS and HELOANS typically carry higher interest rates than conventional mortgages.

And the equity loan companies have been getting hammered because people have been defaulting on them before they stop paying on their first loans. 

So they want to be taken care of, as well.

The Wall Street Journal is reporting today that this has caught the Administration by surprise.    If so, it betrays shocking incompetence in basic understanding of the mortgage business.  The bureaucrats are now scrambling to come up with a solution. 


Thursday, April 2, 2009

Full Steam Ahead for HVCC

The National Association of Mortgage Brokers (NAMB) announced today that they were withdrawing their suit against the Federal Housing Finance Administration (FHFA) to block the implementation of the Home Valuation Code of Conduct (HVCC). 

What this means is that the HVCC is coming.  Nothing is going to stop this train.

The intent of the HVCC was to clean up the appraisal process, to keep loan officers from exerting pressure on appraisers to inflate home values.  It attempts to do so by separating the loan originator from the appraiser.

Starting May 1st, mortgage brokers will not directly be able to order appraisals for borrowers.  They will have to use national clearinghouses to make the order. 

Thus, the new process puts another middleman collecting his ounce of flesh in the process.   Additionally, appraisers will feel less need to be competitive, as their services will no longer be “shopped.”

It will make the process more expensive to the borrower.  And it is unclear what benefit the consumer, or the housing market, will reap from these new regulations.

The NAMB claims their withdrawal was done for strategic reasons.  It hopes to assess its legal options and challenge the HVCC through various means.  I hope they find this route soon.

NAMB press release.

More on HVCC.