Lowering mortgage rates may have risks
2009/04/03, 7:51 pm
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The Federal Reserve has so far spent about $250 billion on low-interest mortgages acquired from lenders by Fannie Mae and Freddie Mac.

The purchases, which could eventually top $1 trillion, are one part of the financial buyout many people understand and support. This spending has driven mortgage rates to record lows, encouraged people to buy houses, and helped many people refinance out of lousy mortgages.

It all looks good on paper, but some economists are warning others about some risks. Here are a few of their concerns:

● The Fed is creating new money to pay for this, which will eventually encourage inflation.

● When the Fed stops buying, rates will increase quickly and substantially.

● Not too many investors are interested in the low-yielding mortgages, so it is likely taxpayers will have to foot the bill.

Source: The Wall Street Journal, Peter Eavis (04/02/2009)


Layoff insurance the latest carrot for homebuyers
2009/04/03, 4:20 pm
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‘Extra safety net’ for those who want to buy a home but fear the ax
The Associated Press
updated 5:15 p.m. ET, Thurs., April. 2, 2009

LOS ANGELES – Free granite countertops, swimming pools and landscaping aren’t going to convince anyone who’s afraid of losing a job to buy a home. But what about a promise to pay your mortgage if you get laid off?

With the unemployment rate at a 26-year high and home sales still in the dumps, a growing number of homebuilders and even some real estate agents are trying to coax buyers with a kind of mortgage unemployment insurance.

Major builders offering job loss mortgage payment plans include Lennar Corp., Pulte Homes Inc., The Ryland Group Inc. and Toll Brothers Inc.

“We’re literally adding at least one builder a day throughout the country,” said Todd Ludlow, senior vice president of Rainy Day Foundation, a nonprofit organization that administers the programs for many builders.

Builders can pay anywhere from $450 to $900 per customer for the coverage. Some absorb the cost as they would any other sales promotion, while others pass it on to buyers, Ludlow said.

In January, Lennar unveiled a version of Rainy Day’s program called “Piece of Mind Mortgage Payment Protection Plan.” Lennar covers monthly mortgage payments between $1,800 and $2,500, depending on the market, for a maximum of six months. Buyers can take advantage of the program only if they lose their job within the first two years after purchasing the home.

Launched last month, Toll’s mortgage protection program only covers homebuyers who finance their purchase through the company’s mortgage lender. The plan covers a maximum of six monthly payments of up to $2,500 a month — including interest, taxes and insurance — if the homeowner loses his or her job within two years after closing on their home.

“It’s for those who perhaps are not feeling themselves in imminent danger but just want that extra safety net,” said Kira McCarron, chief marketing officer for luxury homebuilder Toll, which is based in Horsham, Pa.

One of the most generous programs in the industry comes from Cousins Properties Inc., which is marketing the effort with its 10 Terminus Place luxury condo tower in Atlanta.

Cousins is offering to refund to buyers all their mortgage payments should the appraised value of their condos fall below the sale price after three years. The company, Cousins will let a buyer walk away from their property if they lose their job or just can’t make their mortgage payments anymore.

“You won’t have a foreclosure, you won’t have a credit issue and you won’t have any future obligation,” said Tom Bell, Cousins Properties’ chief executive, adding such homeowners would sacrifice their 5 percent downpayment.

Some real estate firms also are getting into the act.

Keller Williams Realty Inc. began offering job loss protection through the Rainy Day Foundation a couple of weeks ago as a test program in South Florida with an eye to an eventual national rollout.

“We’re bringing it to our sellers as a marketing opportunity,” said Greg Cook, spokesman for Keller Williams South Florida.

The firm also is offering it to buyers who enlist a Keller Williams agent to buy a home that’s not being listed through the company, Cook said.

The plan pays up to $2,500 to cover the full mortgage payment, including taxes and insurance, for six months.

The insurance costs $650, which can be structured into the closing costs paid by the seller, or it can be paid by the lender or the agent, Cook said.

Any buyers who’d rather skip the job loss insurance will get the $650 applied to the cost of the home, Cook said.


That’s a good idea, suggests J. Robert Hunter, director of insurance at the Consumer Federation of America.

Hunter said that homebuyers might be better off passing on the mortgage payment insurance plans — which he generally called “a gimmick” — and ask for a discount.

“If we’re in for a two-year recession and I lose my job, I may not get it back for two years, and six months is still not going to save me,” Hunter said. “I personally would want to find out how much money I could save buying the house without it.”

A Waiting game of refinancing?
2009/03/09, 3:05 am
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March 8, 2009

A Waiting Game for Refinancing

IN the weeks before the Obama administration announced its housing plan, some members of Congress were lobbying the government to subsidize 4 percent mortgages for homeowners who were current on their loans.

But that proposal never made it into the plan. Rather, the administration has decided so far to focus on helping distressed borrowers more easily refinance or modify loans, with terms typically reflecting today’s market rates, now in the low 5-percent range for qualified borrowers. (Only loans owned or backed by Fannie Mae and Freddie Mac would qualify.)

While mortgage professionals have not lost hope that low-rate, government-subsidized mortgages could eventually happen, they are advising clients on the fence about refinancing not to wait. Interest rates remain near historic lows, but at the same time, lending standards have tightened and property values have fallen. If those trends continue, some borrowers may no longer be eligible to refinance.

The waiting game is particularly risky for homeowners in areas where property values are dropping sharply, and for those with barely above 20 percent equity in a home — the typical minimum for qualifying for any home loan.

If the borrower has already secured a mortgage commitment during that time, most lenders are likely to proceed with the transaction even if a property’s value has dropped, according to Regina Garlin, an owner of RCG Mortgage in Montclair, N.J. “If a rate is locked and the loan was approved,” she said, “most lenders will usually honor the original agreement.”

To prevent any problems, though, Ms. Garlin suggests that borrowers have at least an informal home appraisal beforehand. “I recommend having a real estate agent provide comparable sales within the most recent three to six months,” she said. “While it’s not as exact as a certified property appraisal, it can serve to prepare for the unexpected before incurring costs or wasting time.”

These days, home loans are taking longer to review. Lenders are scrutinizing applications more closely, and because of industrywide layoffs, many banks now have fewer loan processors to help vet applicants.

Ms. Garlin said it used to take four to six weeks to complete a purchase mortgage, and three to four weeks for a refinance mortgage. Now, she said, a refinance can take as long as six weeks, and a purchase mortgage can take as long as two months.

Loans insured by the Federal Housing Administration are an exception, mortgage experts say, because lenders can more easily sell these loans to investors.

Nicholas Bratsafolis, the senior managing director of structured refinance at Lend America, a mortgage bank based in Melville, N.Y., says his company can complete an F.H.A. loan in 12 days or less from the time that initial contact is made with a borrower. The loan process is also faster, he said, because his company no longer works with brokers.

“Many banks who bought loans from brokers were badly burned,” Mr. Bratsafolis said, referring to banks that did business with brokers during the housing boom. “So while the broker put together the loan package, the fear for a bank is that there’s something in the package that may not be correct or verifiable.”

Reflecting a move toward more conservative business practices, many major lenders have either chosen not to work with brokers, or are working with far fewer brokers than in years past.

But Alan Rosenbaum, the chief executive of the GuardHill Financial Corporation in Manhattan, said consumers who go directly to a major lender do not always have the experience described by Mr. Bratsafolis of Lend America.

Mr. Rosenbaum said borrowers who go to a bank’s retail branch can sometimes wait 90 days for a loan to close, because the lenders are so backed up. “We know which banks are slow or fast,” he said, “so we can place loans with the banks with the best rates and the best service levels.”