Mortgage Rates Increase Dramatically

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Today the bubble busted as lenders continued to offer low rates despite the continued increase in the note rate. Lenders were holding out and hoping the the fed commitment up to 1.25 trillion for purchasing mortgage securities would stabilize if not lower note prices. Unfortunately they have steadily increased and lenders finally adjusted rates accordingly. Some rates increased up to a full 1% which is a huge jump from the low to mid 4% rate we have enjoyed for several months. Yield on Fannie Mae and Freddy Mac bonds rose 4 days in a row and exceeded where they were before the federal announcement to purchase mortgage securities.

The feds wanted to keep mortgage rates low to spur more home buying. Home buying is a huge part of our countries economic recovery. We also rely on other countries to purchase our debts and they are growing weary to continue to invest in them. The feds simply cannot continue to spend they way they are. Rapid inflation fears are growing. If the long term treasury rates continue to increase the mortgage rates really have no other place to go but up.

S. 896 Helping Families Save Their Homes Act of 2009

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Today President Obama signed S. 896 Helping Families Save Their Homes Act Of 2009 into law. The bill places additional restrictions and requirements on Homeowners and Mortgage Servicers. It also gives government the authority to get more involved in the Loan Modification process.

It permanently enforces the $250,000 FDIC insurance on deposits. It establishes a Nationwide Mortgage Fraud Task Force to address mortgage fraud. There will be a toll free number to call and report fraud and the task force will have authority to investigate state and local legislation’s.

A mortgage servicer will no longer be able to initiate foreclosure without completing mitigation provisions in the title II of this act and they must use the Homeowner Affordability and Stability Plan.

A summary of the bill can be found here.
This actual bill is located here.

HUD May Allow FHA Down Payment To Come From First-Time Homebuyer Tax Credit

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The National Association of Realtors held their mid year Legislative Meetings & Trade Expo in Washington, D.C. today. They along with many other supporters are trying to find ways for people to be able to purchase homes. One suggestion which found support was being able to use the First-Time Homebuyer tax incentive as a down payment on their new home.

Shaun Donovan, a secretary of HUD, said that FHA is going to permit lenders to accept these funds to be used as a down payment. They will be monetized through a short term bridge loan. The eligible buyer will then have access to all the funds at the closing table.

I think this is great news for home buyers who do not want to put money down on a home and they will start off with a nice deposit into their savings account. USDA continues to provide a 100% loan with no down payment. So does VA. But, if you are not a Veteran and you do not want to live in a Rural Area then you currently need at least 3.5% down. You may be able to use each states grant program for help. Unfortunately using the state program comes at a price. The interest rates are higher and the grant is a lien on your home.

H.R. 1728 – Mortgage Reform and Anti-Predatory Lending Bill of 2009

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The House of Representatives voted on H.R.1728 today which is called the Mortgage Reform and Anti-Predatory Lending Bill of 2009. They passed this bill by a vote of 300 to 114 which seems to make passage of the bill in some shape or form inevitable.

The bill has language that would prohibit certain practices in the industry in order to protect consumers. Many in the industry argue that certain provisions in the bill may harm consumers. They warn congress that in it’s current shape and form small business owners in the industry would be unable to sustain profitability to stay in business. Also consumers would have less control or options when obtaining a loan. Although I do not 100% agree that this will be the result it does make sense.

I have 1 big problem with the bill or any bill related to mortgages. The language targets Mortgage Brokers and they way they operate. The bill states that “yield spread” is disallowed. Yield Spread is the compensation paid to the broker by the lender.

Yield Spread involves a broker, not a banker, selling a consumer a higher interest rate and the higher the rate is the more compensation they receive. They fully disclose this amount on every transaction.

Now on to the problem. Banks do the same thing. They are who brokers use to do the loans. They are the ones who allow the broker to be compensated in this manner. So why are banks blasting brokers for this practice? It makes no sense to me.

What the general public does not know is when you deal with a banker they normally do the same thing. But, it is not called yield spread. It is called service release premium. The loan officer at the bank does not have to disclose this amount to the customer. They can increase their rate and a customer will never know they paid a higher rate in order for the bank to make more money. The loan officer normally receives increased compensation for doing this. It is a formality. Yield Spread and Service Release Premium are not defined as one in the same.

In other words this part of the bill will hurt a broker and leave a banker with the same power over the consumer’s loan.

The bill contains more provisions that are 100% needed and you can see the bill passed by the house by clicking the link below:

http://www.govtrack.us/congress/bill.xpd?bill=h111-1728

HVCC Home Valuation Code of Conduct

The Home Valuation Code of Conduct or HVCC was passed as a part of the Housing and Economic Recovery Act of 2009. It mandates that lenders use an Appraisal Management Company or AMC when ordering appraisals on Conforming Loans. (Fannie Mae and Freddy Mac)

The law was created to prevent inflation of home values when appraisers conduct a valuation of a home. It also allows better control and oversight of appraiser activity. Borrowers will have the right to a copy of their appraisal prior to closing. A disclosure allows the to opt in or waive their right to view the appraisal.

HVCC does not affect the current process with FHA, VA, or USDA loans. You are still able to order appraisals directly with an appraiser on those loans.

The lenders have already began using this process and so far their is a great deal of issues:

1) The process is slow. AMC’s are taking up to 4 weeks toget appraisals back to lenders.

2) Appraisers are expected to take less money than in the past for their hard work. They are also required to provide additional information and work harder for less.

3) The appraisers seem to be very conservative.

Overall, this law is full of flaws in my opinion. The concept is perfect to protect lenders and homeowners. However, the time frame and low amount of regulation of the AMC is poor. I would expect at some point Government loans will also switch over to HVCC methods.