WASHINGTON (AP) -- For Roxanna Evans, the Fed's new rules to crack down on abusive lending practices, approved Monday, came too late.
Lax lending standards during the heady days of the housing boom ended up burning the riskiest "subprime" borrowers - people with tarnished credit or low incomes - because they got loans they couldn't afford or didn't understand.
"Rates of mortgage delinquencies and foreclosures have been increasing rapidly lately, imposing large costs on borrowers, their communities and the national economy," said Fed Chairman Ben Bernanke.
"Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower," Bernanke added.
For risky borrowers, the new rules will bar lenders from making loans without proof of a borrower's income. The rules will require lenders to make sure risky borrowers set aside money to pay for taxes and insurance.
Lenders will also be restricted from penalizing risky borrowers who pay loans off early. Such "prepayment" penalties are banned if the payment can change during the initial four years of the mortgage. In other cases, a penalty can't be imposed in the first two years of the mortgage.
And, lenders would be barred from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value. The borrower need not have to prove that the lender engaged in a "pattern or practice" for this to be deemed a violation. That marks a change - sought by consumer advocates - from the Fed's initial proposal and should make it easier for borrowers to lodge a complaint.
Critics - including some Democrats on Capitol Hill, consumer groups and others - contend that the Fed's failure to curb such lending practices years ago contributed to the mortgage meltdown.
"It was a race to the bottom in lending standards," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School of Business. Still, she believed the rules should protect people down the road - when the housing market gets back to health. "Memories are short," she warned.
For the more immediate term, the new lending rules may not get a test for some time because there are fewer home buyers these days, given all the problems in the housing and credit markets.
Also, some of the shady practices - along with some lenders - have not survived, felled by the mortgage meltdown. "The subprime market doesn't really exist right now," said Donald Kohn, the Fed's vice chairman.
Pava Leyrer, president of Heritage National Mortgage in Grand Rapids, Mich., said lenders already have tightened their standards. "I have people in my office every day. Their situation a year ago may have been completely different than it is now . I can't find loans for them and they're good borrowers."
The rules take effect on Oct. 1, 2009 - except for the escrow provisions, which take hold in April 2010.
"A lot of people probably already thought these rules were in place but they weren't," said Jim Gaines, a research economist at Texas A&M University's real-estate center.
For all mortgages, the plan would require advertising to contain additional information about rates, monthly payments and other loan features, and it would curtail certain deceptive or misleading advertising practices.
For instance, lenders are barred from advertising "fixed" rates or payments without making clear that the "fixed" rates last for only a limited period of time - not the life of the loan.
Other practices also would be clamped down on. Companies servicing mortgages, for instance, have to credit a mortgage payment to the homeowner's account on the day it is received. Consumer advocates said that's important because they contend that some companies were holding on to payments so they became late and then people were hit with late fees.
And, brokers and others are forbidden from "coercing or encouraging" an appraiser to misrepresent the value of a home.
For now, the Fed decided not to ban incentive payments given to mortgage brokers - known as yield-spread-premiums. Critics say these payments give mortgage brokers the incentive to charge higher fees with no benefit to the consumer, while supporters say it's a legitimate way for borrowers to spread out mortgage broker fees over the life of a loan.
Lenders worry the rules could limit mortgage options for people and make it harder for some to obtain financing.
Kieran Quinn, chairman of the Mortgage Bankers Association, called the rules a "thoughtful effort to tackle difficult concerns" and said they would be carefully reviewed. "MBA strongly believes that it is essential for credit not to be unduly restricted," he said.
Much will hinge on effective enforcement.
The plan would apply to new loans made by thousands of lenders, including banks and brokers. It would not cover current loans.
Those different lenders fall under a patchwork of regulators at the federal and state levels. So it will be up to each of these authorities to enforce the new provisions.
---
AP Business Writer Alan Zibel, Adrian Sainz and Ellen Simon contributed to this report.
(This version CORRECTS that rules take effect Oct. 1, 2009.) )
"NO MATTER HOW FAR LIFE PUSHES YOU DOWN, NO MATTER HOW MUCH YOU HURT, YOU CAN ALWAYS BOUNCE BACK." WNBA player Sheryl Swoopes. And bouncing back is exactly what Bonds and home loan rates tried to do last week after being pushed to their worst levels of the year.
Bonds and home loan rates managed to hold fairly steady in the first half of the week, despite comments from Philadelphia Fed President Charles Plosser, who said "inflation is too high." Remember signs of inflation typically cause Bonds and home loan rates to worsen, but Plosser also stated that the Fed must "back up their words with action" and hike their benchmark Fed Funds rate. Since a hike by the Fed could lessen inflation...and as a result, cause Bonds and home loan rates to improve...Plosser's inflation comments didn't have as much of an impact on the markets as they could have otherwise.
On Thursday, Bonds managed their biggest rebound of the week after several negative economic reports, including a much higher than expected Initial Jobless Claims report and a lower than expected Existing Home Sales report for June, caused money to flow out of Stocks and into Bonds. However, there was good economic news on Friday as New Home Sales for June and Orders for Durable Goods were far better than expected and the Consumer Sentiment Index shocked the markets with a very robust reading. And good economic news about the economy is bad news for Bonds, which caused money to flow right back out of Bonds into Stocks, keeping Bonds and home loan rates from bouncing back any further.
Rates vary from state to state and each and every lender so check yours today. It is a great time to be out buying.Bargains are to be had.
Call us today and lets chat about finding you a new home or possibly an investment home or maybe avacation home.
It’s no secret: The number of homes on the market right now is high. But did you know the U.S. Census Bureau recently reported that the number of vacant homes for sale set a new record in the first quarter of 2008? In fact, the 2.28 million properties vacant and available for sale marks the highest quarterly number since 1956 when record-keeping on this topic began.1 Add that to rates that are still low and sellers willing to negotiate, and you’ve got what the National Association of Realtors® (NAR) representatives say is the best buyer’s market the nation has seen in a long time.3
If you’re considering purchasing a new home — or perhaps investing in a second home — now may be just the right time to make your move. Following are a few tips for making sure you’re ready to strike while the iron is hot.
As the saying goes in real estate, location is everything. Conditions in your local market may be quite different than the national scene. So be sure to get the inside scoop from local news and area real estate professionals. Ask about the quantity of homes on the market and whether home values are rising, holding steady or falling.
Your credit rating has a major impact on the interest rate you’ll be offered on a home loan. If your credit score is above average, you could be eligible for lower rates than you expected. (In a recent Bankrate.com article, financial experts said consumers with a credit score of at least 680 are in an excellent position to buy right now.3) So make sure your credit report is up-to-date and accurate, and you’ll be ready to apply when you find the right home.
Knowing roughly how much home you can afford will help you zero in on appropriate properties. Get a quick estimate with this home affordability calculator.4. Investigate financing options.
Chances are, the options available today are different than they were when you bought your current home — especially given the recent changes in the mortgage industry. For instance, conforming loan limits have been raised through the end of 2008, meaning more expensive homes can now qualify for a "jumbo conforming" mortgage. Find out more about that change here. So review your choices — loans with different terms, down payments, interest rates and more.
Pre-approval and pre-qualification are easy processes that can give you an edge over other buyers.
Examine neighborhood crime statistics, school profiles and other details that affect your quality of life. Also know what you want and need in a home — number of rooms, size of yard, architectural style and so on. Narrow down your choices before moving forward with home showings.
Real estate agents are trained to help you with the entire house-hunting process, from pinpointing the right home to advising you on price negotiations.
If you’re planning to sell your current home to move into a new one, it’s important that your home be ready to stand out and entice buyers. That way, you can take advantage of today’s buyer’s market by selling your house quickly. Consider doing a comprehensive walk-through of your home, identifying areas that need attention
Last Updated: July 14, 2008: 3:02 PM EDT
NEW YORK (CNNMoney.com) -- The fate of Fannie Mae and Freddie Mac may be hanging in the balance but many mortgage borrowers already find themselves struggling to find affordable loans.
Because of the turmoil surrounding Fannie and Freddie, recent borrowers are likely paying at least 10% more in monthly mortgage payments than they would have.
The added cost stems from an erosion in confidence in Fannie and Freddie, according to Mark Zandi, chief economist for Moody's Economy.com.
Fannie and Freddie borrow money in the bond markets to pay for the mortgages they buy from lenders and then sell them to hedge funds and other investors. Their cost of borrowing that money has now gone up, and that filters down to lenders who have to charge more to borrowers.
"It does have an impact on mortgage interest rates," said Richard DeKaser, chief economist for National City Corp. "It will be more expensive for Fannie and Freddie to acquire mortgages and that will ripple through the market."
Indeed, borrowers have been spending more for mortgage loans than usual ever since credit markets went through an upheaval last summer. Before then, the interest rate on a 30-year, fixed-rate mortgage was about 1.5 percentage points higher than yields on 10-year Treasury notes, according to Keith Gumbinger, vice president of HSH Associates, a publisher of consumer loan information. Treasuries are a benchmark for mortgage rates.
Now, the difference is closer to 2.5 percentage points and has expanded by about a 0.3 percentage points since late June, as angst over the futures of Fannie and Freddie reached fever pitch.
With their stock prices plummeting and concerns accelerating over their financial well-being, "Their cost of borrowing money is definitely going to be higher," said Gumbinger.
And mortgages are not only getting more expensive for ordinary borrowers but they're also harder to obtain as lenders tighten up their standards.
"Some lenders are really pulling in their horns," said Steve Habetz, a Connecticut mortgage broker. "They're getting scared. They're demanding really clean loan applications with every i dotted and every t crossed."
What is happening now is compounding the damage which has already devastated the housing market.
The troubles for Fannie and Freddie could even affect current mortgage borrowers since they put the housing rescue bills that Congress has been agonizing over for months in jeopardy, according to Zandi, who has testified before the Senate on aspects of the bills.
Congress has upped the value of the loans Fannie and Freddie can buy, as well as the total dollar amount they can hold.
Jul. 11, 2008 06:14 PMAssociated Press
WASHINGTON - A mortgage rescue to help hundreds of thousands of struggling homeowners avoid foreclosure and get more affordable, safer loans passed the Senate overwhelmingly Friday, but it faces a bumpy road amid continuing turmoil in the housing market.
The 63-5 vote reflected a keen interest by Democrats and Republicans to send election-year help to distressed homeowners with economic issues topping voters' concerns.
The plan lets homeowners buckling under mortgage payments they can't afford keep their homes and get more affordable mortgages backed by the Federal Housing Administration. Banks that agreed to take substantial losses on those distressed loans could avoid costly foreclosures and be assured of recovering at least some money.
The new program would let the FHA insure as much as $300 billion in new mortgages, helping an estimated 400,000 homeowners.
It still faces challenges, however, with the House planning to rewrite key details and the White House threatening a veto without major changes.
"It's not the final stop, but it is a major stop in getting this bill done," said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee. "For those who said this Congress cannot come together in a bipartisan fashion to do something responsible about housing, this bill does that."
Rep. Barney Frank, D-Mass., the Financial Services Committee chairman and an architect of the bill, says the few but significant revisions House leaders are seeking could be made in as little as one week.
Dodd said he was expecting minor "tweaks" that could be dealt with quickly.
But key players are bracing for intense negotiations to resolve the differences. They hope to smooth over disputes with the White House at the same time, with an eye toward producing a bill President Bush could sign later this month.
The White House Friday renewed its warning that Bush would veto the Senate-passed bill without revisions, citing $3.9 billion in the measure for buying and rehabilitating foreclosed properties it said would help lenders, not homeowners.
The measure includes a long-sought modernization of the FHA and would create a new regulator and tighter controls on Fannie Mae and Freddie Mac, the government-sponsored mortgage giants. It also would provide $14.5 billion in housing tax breaks, including a credit of up to $8,000 for first-time home buyers.
Democrats are divided over important elements of the plan, including limits on loans the FHA may insure and Fannie Mae and Freddie Mac may buy. The Senate measure sets them at $625,000, while House leaders - including Speaker Nancy Pelosi, D-Calif. - want the cap as high as $730,000.
House leaders also oppose the immediate effective date of the Senate plan, preferring to phase in the new regulations for Fannie Mae and Freddie Mac over six months.
"We'd have a hard time agreeing to that," Dodd told reporters Friday. He called a Capitol Hill news conference to dispel fears about the financial health of Fannie Mae and Freddie Mac as their stocks plummeted on reports that the government was considering taking over one or both of them.
Another key point of dispute is the funding in the Senate measure for buying and fixing foreclosed properties. The House's band of conservative "Blue Dog" Democrats oppose the money, arguing that it would swell the deficit unless paired with cuts or tax increases to cover the cost.
But many Democrats, particularly members of the Congressional Black Caucus, are fighting to keep the funding, which they say will help prevent the communities hardest hit by the housing crisis from sliding into blight.
"There are people who tell me to ignore" that threat, Frank said in a statement Friday. "But there is too much that is important in this bill, and it has already been too long delayed by procedural problems in the Senate, for us to risk the further delay involved in a veto."
He said he was working to find a way to shift the funds to a must-pass spending bill that would be approved before lawmakers scatter for the year in September.
Dana Perino, Bush's spokeswoman, said the money should be stripped out of the measure "so that they can get a housing bill to the president that he could sign right away."
Sen. Barack Obama, D-Ill., the presumptive presidential nominee, said Bush should drop his opposition to the housing plan and other Democratic efforts to ease economic pain.
"I call on the administration to support this bill along with a second emergency stimulus package to jumpstart the economy and build on this important start to advance more rigorous measures to protect homeowners from foreclosure," he said. Obama was on the campaign trail Friday and did not vote on the measure, which had been expected to pass by a wide margin. He was one of 32 senators not voting.
With the administration scrambling to tamp down on investor fears about Fannie Mae and Freddie Mac, Perino called the new regulations in the measure for the two mortgage giants its "most important feature."
Lawmakers and the Bush administration agree on the central concept behind the housing package: allowing the government to backstop new mortgages for struggling homeowners.
To make it more palatable to Republicans, the Senate measure would take responsibility for any losses away from taxpayers and instead cover them by diverting a newly created affordable housing fund drawn from Fannie Mae and Freddie Mac profits.
Builders Bank on Turnaround, Buy Up Land Builders, including Lennar Corp, KB Home, Hovnanian Enterprises Inc, Meritage Homes Corp., are back buying and developing land again.Lennar spent $162 million on new land in the second quarter and will spend at least $200 million more by the end of the fourth quarter, JP Morgan analyst Michael Rehaut wrote in a note to clients. KB expects to spend $300 million on land and $400 million on land development this year, Rehaut said.Hovnanian is working on a land development joint venture, company spokesman Jeffrey O'Keefe says. And Meritage is "beginning to shift from defense to offense," looking to buy land in the second half of the year, wrote Wachovia analyst Carl Reichardt after meeting with Meritage management.In theory, buying land now is a smart move, said Todd Lowenstein of HighMark Value Momentum Fund, which owns 187,000 shares of Pulte Homes Inc."You have to be a predator in these down markets to position yourself for the upturn," he said.
Source: Reuters News, Helen Chernikoff (07/10/08)
