Thursday, October 23, 2014

Regulators approve risk-retention rule for mortgages

Six federal agencies wrapped up final approval of a rule on Wednesday requiring banks to keep a stake in the mortgages they package and sell.

The main prong of the long-awaited regulations requires lenders to keep at least 5 percent of the risk associated with loans on their books in an effort to avoid the shoddy mortgage practices that contributed to the recession and housing crash.

Housing and Urban Development Secretary Julián Castro called the rule an "important step forward in creating an environment where good lenders and good borrowers can work together without reservation."

He said the effort is part of the Obama administration's commitment to create certainty for lenders to expand access to credit to underserved borrowers, while ensuring that past abuses aren’t repeated.

The final qualified residential mortgage (QRM) rule, required under the Dodd-Frank financial law, aligns with the Consumer Financial Protection Bureau’s (CFPB) qualified mortgage (QM) regulations, which went into place in January to ensure borrowers have the ability to repay their home loans.


Wednesday, October 22, 2014

Top Mortgage Firm Accused of Abuses

 One of the nation's largest servicers of home loans may have denied struggling borrowers the chance to fix loan problems and avoid foreclosures, New York's financial regulator has alleged.

An investigation by the state's Department of Financial Services found that Ocwen Financial Corp. inappropriately backdated foreclosure warnings and letters that rejected mortgage loan modifications, making it nearly impossible for borrowers to appeal the company's decision.

Many borrowers who had fallen behind on loan payments also received warning letters months after the deadline for avoiding foreclosure had passed, department investigators found.

Potentially hundreds of thousands of backdated letters may have been sent to borrowers, likely causing them "significant harm," Benjamin Lawsky, New York's Superintendent of Financial Services, wrote in a letter to Ocwen released Tuesday.

"Ocwen's indifference to such a serious matter demonstrates a troubling corporate culture that disregards the needs of struggling borrowers," Lawsky wrote in the letter to company's general counsel.

In a statement, Atlanta-based Ocwen blamed software errors in the company's correspondence systems for generating improperly dated letters.

The latest claims of wrongdoing against Ocwen come less than a year after the company agreed to reduce struggling borrowers' loan balances by $2 billion as part of a settlement with federal regulators and 49 states over foreclosures abuses.

It's the most recent evidence that many of the same kinds of abuses that made the housing crisis and the Great Recession worse are still happening some seven years after the housing bubble burst.

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Tuesday, October 21, 2014

Pact Could Expand Mortgage Access

A top federal housing regulator in a speech Monday said Fannie Mae , Freddie Mac and lenders had reached an agreement in principle that could expand access to mortgages for many Americans.

Federal Housing Finance Agency Director Mel Watt said the agency, along with mortgage-finance giants Fannie Mae and Freddie Mac, reached a deal on what kinds of mistakes could trigger penalties for lenders years after a loan is issued.

The agreement, whose details Mr. Watt said would be unveiled in coming weeks, would help close off one big concern that lenders had said discouraged them from lending to less-creditworthy borrowers.

Mr. Watt called the pact “a significant step forward” that will “facilitate market liquidity without compromising the safety and soundness” of Fannie and Freddie.

“Those were extraordinary announcements and extremely positive” for lenders, said Mortgage Bankers Association President David Stevens immediately following the speech.

Fannie and Freddie buy loans from lenders, package them into securities and guarantee to make investors whole if loans default. When lenders sell loans to the companies, they make promises that the loans meet the companies’ standards.

After the financial crisis, Fannie and Freddie required lenders to buy back billions of dollars in loans that the companies said didn’t meet the standards. As a result, lenders have said they have been wary to grant mortgages to riskier borrowers.

The FHFA has tried a few times to mollify lenders’ concerns. The latest agreement clarifies what kinds of mistakes could trigger a repurchase demand many years after the loan is granted.

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Monday, October 20, 2014

Mortgages could become easier to get under changes being mulled by regulator

The regulator that oversees Fannie Mae and Freddie Mac is considering policy changes that aim to make credit more readily available to potential home buyers, many of whom have been shut out of the market by the stiff lending requirements put in place in the aftermath of the housing bust.

The Federal Housing Finance Agency is discussing whether the two mortgage giants should lower their down-payment requirements from 5 percent to 3 percent in some cases, according to people familiar with the matter who asked not to be named because they were not authorized to speak about it. Freddie scrapped the 3 percent minimum a few years ago, and D.C.-based Fannie did the same more recently.

The boost in down payments was part of a broader initiative to shrink the government’s role in the mortgage market — a push that the FHFA abandoned after Mel Watt took over as its leader this year. Watt has said his agency no longer plans to have the government-controlled companies retreat from the housing market, asserting that Fannie and Freddie must help keep home loans flowing to the public.

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Friday, October 17, 2014

With mortgage rates dipping below 4 percent, is it time to refinance?

Maybe it’s time to refinance again?

A weekly survey released by Freddie Mac on Thursday shows that 30-year, fixed-rate mortgages averaged 3.97 percent this week, down from 4.12 percent last week and 4.28 percent a year ago.

That’s the first rate dip below 4 percent in 16 months. Rates were pushed down by the chaos that erupted on the stock market Wednesday as investors reacted to the financial malaise weakening Europe and Asia, disappointing data on U.S. spending, and jitters about the Ebola outbreak.

“We never thought we’d see a 30-year, fixed-rate mortgage below 4 percent again,” said Frank Nothaft, Freddie’s chief economist. “That’s a window of opportunity for so many people.”

Usually, borrowers refinance if they can save at least half a percentage point on their interest rate. Ultimately, the decision should turn on a number of factors, including how much they owe on their mortgages and how long they plan to stay in their homes, Nothaft said.

Moving in six months? Refinancing may not make sense, even if your rate drops an entire percentage point. The cost of refinancing may exceed the savings. Find out if your lender will charge fees or require you to pay for a new appraisal and title insurance.

Also, even all these years after the housing bust, your home value still may be so low that you may not have more than 20 percent equity in your property – in which case you’d have to pay private mortgage insurance on a new loan. On the flip side, with home prices climbing in the past two years, you may now have equity to refinance and get rid of your mortgage insurance.

As for the size of the loan, consider the difference a half-percentage-point rate drop can make on a large balance versus a small one. A homeowner would save $183 a month on a $625,500 loan if the rate is cut from 4.47 percent to 3.97 percent. The monthly savings on a $100,000 balance: $29.

Consumer advocates generally say that if homeowners see a rate that works for them, they should grab it. Just like stocks, interest rates fluctuate all day long, and the potential savings can disappear in a flash.

When the stock market went haywire Wednesday morning, for instance, the average rate on a 30-year, fixed-rate mortgage dropped by a quarter of a percentage point from where it was the previous day, said Bob Walters, chief economist at Quicken Loans. To move an eighth of a percentage point in a day is unusual, Walters said. A quarter-percentage-point drop is downright dramatic.

But anyone who waited too long could not reap that benefit. “By the end of day, we’d gone all the way back up and finished where we had finished the previous day,” Walters said. “The opportunity to take advantage of that quarter of a percent drop lasted for a very short period of time.”

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Thursday, October 16, 2014

U.S. Regulators Poised to Finalize Relaxed Mortgage Rules

WASHINGTON—After more than three years of deliberations, U.S. financial regulators are poised to finalize long-delayed mortgage market standards next week, adopting a relaxed set of rules designed to ensure credit is broadly available.

In a victory for real estate and mortgage industry groups, regulators are expected to finalize a far looser set of standards for mortgages packaged into securities and sold to investors than initially proposed in April 2011. The Federal Reserve on Wednesday said it would consider the issue at an open meeting Oct. 22, and five other regulators, including the Federal Deposit Insurance Corp. and the Securities and Exchange Commission, are also expected to sign off on the rules this month.

The rules, which stem from the 2010 Dodd-Frank law, will no longer require that borrowers make a 20% down payment to get a so-called “qualified residential mortgage.” Instead, loans will have to comply with a separate set of mortgage standards, including limits on how much overall debt a borrower can have in relation to monthly income.

The rules are aimed at preventing a repeat of the 2008 financial crisis, when lax underwriting standards by banks allowed faulty mortgages that were unlikely to be repaid to be packaged into securities and sold to investors. The initial proposal stipulated that issuers of mortgage-backed securities must hold a portion of the loan’s credit risk or require a 20% down payment. The idea behind the proposal was that banks would be less likely to engage in risky lending practices if they had some “skin in the game.”

But after an uproar from real-estate agents, lenders and civil rights groups, banking regulators dropped the 20% down payment requirement in a new proposal issued last year. Under the revised approach, regulators would include a broad exemption for banks and other issuers of mortgage-backed securities from having to retain 5% of the loan’s risk on their books.

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Tuesday, October 14, 2014

Lenders usually require consistent income to refinance mortgage

WASHINGTON — Ed Fine's recent rejection for a refinancing of his home loan wasn't exactly like former Federal Reserve Chairman Ben S. Bernanke's. But there are enough similarities to raise questions about current tight mortgage market standards and how lenders scrutinize applicants' incomes.

At the very least, there are lessons for anybody who can't document months of steady, predictable income, whether from salary, regular retirement fund drawdowns or other sources.

Bernanke's refi blow-up has been widely publicized. He didn't specify why he was turned down or by whom, but mortgage industry experts say most likely it was because he experienced a disruption in his regular employment income stream. He retired from the Fed at the end of January. Though reportedly he has since made $250,000 for a single speech, has a book contract and is now a resident fellow at the Brookings Institution, his income pattern may not have fit the standard mold in an era of computer-driven underwriting.

Fine, 72, isn't coy about why he got turned down by two major lenders — it was an irregular income pattern — and he's steamed about it. The retired defense contractor lives with his wife in a house they own in Shalimar, Fla. The Fines also own a rental house in Northern Virginia and a rental condo in Shalimar.
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The couple's regular monthly income of around $3,500 consists of Social Security and pension fund payments and rental income. They supplement that when needed by making withdrawals from their individual retirement account, which exceeds $250,000. With high FICO credit scores and no delinquencies "ever," Fine says, "we are not hurting financially."

But, like Bernanke, the Fines couldn't get through the refi hoops, even though their lender, Quicken Loans, solicited them to apply. Ditto for a term extension on their home equity credit line from Bank of America, which also solicited their application.
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The rationale for rejection from both lenders: The Fines' sporadic drawdowns from their IRA could not be added to calculations of their qualifying monthly income. As a Quicken Loans official said in a letter to them after their complaint to the federal Consumer Financial Protection Bureau, the couple could not show "consistent monthly draws from the IRA account." This creates debt-to-income ratio problems, the Quicken letter said, because for income from retirement accounts to qualify, there must be "verification of regular receipt of drawdown income for two months, and verification that the payments will continue for three years."

Other lenders would require similar verifications, the Quicken official noted, and indeed, Bank of America's letter to the Fines said their "validated income" was not sufficient to "support the level of your monthly debt."

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