Despite the repeal of a rule unpopular with appraisers and agents alike, low appraisals are still killing deals across the nation, slowing sales at a critical time in the housing markets.

Since the housing bubble burst four years ago and values began to fall, appraisers have been under fire for failing to account for actual market conditions. A new home valuation code of conduct enacted in 2008 by Fannie Mae and Freddie Mac was blamed for contributing to inaccurate appraisals, but the controversy over low appraisals continues despite the code’s repeal this year.

Whether it’s for a purchase loan or refinancing, a low appraisal can kill a deal. And the risk of that happening is greater now since the subprime mortgage meltdown and the housing market crash. Appraisers are being pushed to be more conservative, prices are soft, and comparative properties hard to come by.

Foreclosures, which are typically discounted 30 percent or more below the going rate, continue to exert a huge influence on local market values. In June, the distressed property share of the overall national home sales fell to 24 percent, down from a peak of 35 percent in early 2009, according to CoreLogic. But now that the homebuyer tax credit has ended, the market share of foreclosures is expected to rise.

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Posted in: Housing Market
Tags: appraisal value, comparative properties, fannie mae, fannie mae and freddie mac, foreclosure sales, freddie mac, home valuation, homebuyer tax credit, housing bubble, housing market crash, local market, market values, subprime mortgage meltdown

The Home Affordable Modification Program (HAMP) was expected to help between three to four, million Americans who could no longer afford their mortgage payments. To date, less than 500,000 homeowners have gained modification help.

Homeowners seeking loan modifications are finding it difficult to keep up with payments, while trying to obtain answers from lenders.

Home prices are at an all-time low, as some homeowners wait to sell unaffordable homes. Low mortgage rates, coupled with a semi-optimistic buyers’ market, may mean changes are underway. Yet, home sales remain stagnant as buyers consider alternative housing options. Thousands of homeowners caught in limbo are seeking lender assistance.

According to a Treasury Department press release, lenders are receiving more than 8,000 phone calls related to HAMP daily. This pales in comparison to the number of lender representatives available to answer these calls. As a result, thousands of homeowners seeking a HAMP application or mortgage modification application are being put on hold, in more ways than one.

Another reason why home-modification applications are not being approved is directly linked to Fannie Mae. Homeowners who have Fannie Mae loans can no longer qualify for a modification arrangement, if unemployed. Previously, unemployed homeowners were applying for modifications by including unemployment benefits as a form of income. Fannie Mae has recently put a stop to these applications by disallowing the use of unemployment benefits as a means of steady income.

Fannie Mae representative, Amy Bonitatibus, recently told CNN that the company does not “want to set up borrowers to fail.” Instead, Fannie Mae has employed a tough-love tactic that has left thousands of homeowners in the dark. The Treasury Department issued a similar restriction involving HAMP loans this past July.

There are some other speculations as to why more mortgages are not being modified. Some believe that banks simply aren’t seeing enough government incentives, while others believe that fees charged for missed payments are more enticing to servicers than loan modifications.

Lenders argue that home modifications take time, and that many homeowners aren’t qualifying for a mortgage modification regardless of current hardships. Whatever the reason, HAMP hopefuls will have to keep making mortgage payments or risk foreclosure.

Posted in: Foreclosure
Tags: fannie mae, HAMP, modification applications, mortgage payments, unemployment benefits

At a recently held event at the Pentagon, Fannie Mae and the U.S. Army announced new initiatives to help service members who are struggling with their mortgage payments avoid foreclosure. The effort includes a mortgage payment forbearance of up to six months where the death or injury of a service member on active duty causes a hardship for impacted military families with a mortgage obligation.

The company also announced the creation of a special hotline, 877-MIL-4566, available to all service members to receive guidance about their mortgage options and enlist assistance.

“The men and women of our Armed Forces have shown extraordinary commitment to our country while facing unique challenges as a result of their service,” said Jeff Hayward, senior vice president of Fannie Mae’s National Servicing Organization. “No family impacted by a death or injury in the line of duty should have to face the additional burden of foreclosure as a result of the hardship. We want to do all that we can to provide support to these families at a time of need as we honor their sacrifices and service to our country.”

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Posted in: Housing Market
Tags: army installations, economic hardships, fannie mae, forbearance, line of duty, military families, mortgage company, mortgage obligation, mortgage options, mortgage payment, mortgage payments, service member, service members, u s army

Unemployed homeowners cannot count jobless benefits as income when applying for mortgage modifications if they have loans backed by Fannie Mae. That could greatly limit their ability to get a long-term reduction in their monthly payments.

Because the jobless benefits can’t be considered permanent income, the lender will instead evaluate troubled borrowers for forbearance plans of up to six months. The new guidelines, released Tuesday, will take effect Nov. 1.

“We don’t want to set up borrowers to fail, said Amy Bonitatibus, Fannie Mae spokeswoman.

Fannie Mae’s announcement broadens a ban already put in place from the Treasury Department. In July, the agency quit allowing unemployment insurance to be used as income when applying for the administration’s signature Home Affordable Modification Program, known as HAMP. Previously, borrowers had been allowed to do so.

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Posted in: Foreclosure
Tags: delinquencies, fannie mae, jobless benefits, mortgage market, unemployment benefits, unemployment insurance

This article from REALTOR.org is pretty good.

However, I take issue with the author’s laying of the housing bust solely at the feet of the financial sector, Wall Street and so-called urban sprawl. If you follow the boom and bust back to it’s roots you will find government’s (Democrat, Republican, Federal, State and Local) hand’s all over. First, extreme regulation on land use caused land costs to rise due to increasing rarity. Then, when the politicians made it an issue they passed legislation essentially pressuring banks to lower the standards of lending. Fannie Mae and Freddie Mac lowered the standards to make money cheaper and more accessible by taking risk that no smart business would do.

After reading this, I encourage you to read Thomas Sowell’s article on the Housing Boom and Bust – or better yet – get the book.

Now, to the article:

———————————————————-

Is the traditional model of homeownership in need of an overhaul? Is it even worth defending? Five years ago, these questions might have seemed absurd, but today, several commentators are posing them — and often coming down in favor of extensive and expansive changes to the system.

For instance, the latest issue of Time magazine has a cover story controversially titled, “The Case Against Homeownership.” (An abbreviated version of the article is available online.) Author Barbara Kiviat begins the piece with the statement, “Homeownership has let us down,” and subsequently describes what she considers to be the “dark side” of this institution.

I’ve seen similar arguments come out in recent weeks, but I’ll pick on Kiviat’s because it’s timely, it’s high-profile, and it condenses most of the criticisms that opponents of the status quo of homeownership have made recently into a single body of work. Here are the broad strokes of her case:
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Posted in: Housing Market
Tags: benefits of homeownership, boom and bust, fannie mae, financial sector, freddie mac, homeownership, housing boom, owning a home, thomas sowell, time magazine, urban sprawl

Zero-Down Loans Coming Back?

When the housing bubble burst, one of the culprits, economists agreed, was exotic mortgages, including those that required little or no money down.

But on a recent evening, Matthew and Hannah Middlebrooke stood in their new $115,000 three-bedroom ranch house here, which Mr. Middlebrooke bought in June with just $1,000 down.

Because he also received a grant to cover closing costs and insurance, the check he wrote at the closing was for 67 cents.

“I thought I’d be stuck renting for years,” said Mr. Middlebrooke, 26, who earns $32,000 a year as a producer for a Christian television ministry.

Although home foreclosures are again expected to top two million this year, Fannie Mae, the lending giant that required a government takeover, is creeping back into the market for mortgages with no down payment.

Mr. Middlebrooke’s mortgage came from a new program called Affordable Advantage, available to first-time home buyers in four states and created in conjunction with the states’ housing finance agencies. The program is expected to stay small, said Janis Smith, a spokeswoman for Fannie Mae.

Some experts are concerned about the revival of such mortgages.

“Loans that have zero down payment perform worse than loans with down payments,” said Mathew Scire, a director of the Government Accountability Office’s financial markets and community investment team. “And loans with down payment assistance” — like Mr. Middlebrooke’s — “perform worse than those that do not.”

But the surprise is the support these loans have received, even from critics of exotic mortgages, who say low down payments themselves were not the problem, except when combined with other risk factors like adjustable rates or lax underwriting.

Moreover, they say, the housing market needs such nontraditional lending, as long as it is done prudently.

“This is subprime lending done right,” said John Taylor, president of the National Community Reinvestment Coalition, an umbrella group for 600 community organizations, and a staunch critic of the lending industry. “If they had done subprime this way in the first place, we wouldn’t have these problems.”

At Harvard’s Joint Center for Housing Studies, Eric Belsky, the director, said the loans might be the type of step necessary to restart the housing market, because down payment requirements are keeping first-time home buyers out.

“If you look at where the market may get strength from, it may very well be from first-time buyers,” he said. “And a very significant constraint to first-time buyers is the wealth constraint.”

The loans are the idea of state housing finance agencies, or H.F.A.’s, quasi-government entities created to help moderate-income people buy their first homes.

Throughout the foreclosure crisis, the state agencies continued to make loans with low down payments, often to borrowers with tarnished credit, with much lower default rates than comparable mortgages from commercial lenders or the Federal Housing Administration. The reason: the agencies did not offer adjustable rates, and they continued to document buyers’ income and assets, which many commercial lenders did not do. In 2009, the agencies’ sources of revenue dried up, and they had to curtail most lending.

Then they created Affordable Advantage. The loans are 30-year fixed mortgages, with mandatory homeownership counseling, available to people with credit scores of 680 and above (720 in Massachusetts). The buyers have to put in $1,000 and must live in the homes.

All of these requirements ease the risk, said William Fitzpatrick, vice president and senior credit officer of Moody’s Investors Service. “These aren’t the loans that led us into the mortgage crisis,” he said.

So far Idaho, Massachusetts, Minnesota and Wisconsin are offering the loans. The Wisconsin Housing and Economic Development Authority has issued 500 loans since March, making it the first state to act. After six months, there are no delinquencies so far, said Kate Venne, a spokeswoman for the agency.

The agencies buy the loans from lenders, then sell them as securities to Fannie Mae. Because the government now owns 80 percent of Fannie Mae, taxpayers are on the hook if the loans go bad.

The state agencies oversee the servicing of the loans and work with buyers if they fall behind — a mitigating factor, said Mr. Fitzpatrick of Moody’s.

“They have a mission to put people in homes and keep them in homes,” not to foreclose unless other options are exhausted, he said. The loans have interest rates about one-half of a percentage point above comparable loans that require down payments.

Ms. Smith, the spokeswoman for Fannie Mae, distinguished the program from loans of the boom years that “layered risk on top of risk.”

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Posted in: Housing Market
Tags: down payment assistance, fannie mae, first time home buyers, home foreclosures, housing bubble, national community reinvestment coalition, zero down payment

This is a copy of a letter from 2004 House Democrats and sent to then-President George W Bush. In it, the signatories complained that the administration had taken a hard line with ‘housing-related government sponsored enterprises’ (GSEs) such as Fannie Mae and Freddie Mac by insisting on emphasizing fiscal prudence and responsible lending over increased affordable housing access. The relevant section is highlighted below.

Full article at RedState.com

Download (PDF, 140.52KB)

Posted in: Housing Market
Tags: affordable housing, fannie mae, fannie mae and freddie mac, fiscal prudence, freddie mac, george w bush, house democrats

What could go wrong?

Mortgage giant Fannie Mae bled another $13.1 billion during the first quarter, prompting the U.S.-owned company to request another $8.4 billion cash infusion from the Treasury Department.

Fannie Mae, which was placed into conservatorship in 2008 amid enormous mortgage losses, said it lost $13.1 billion, or $2.29 a share, last quarter, compared with a loss of $16.3 billion, or $2.87 a share, during the fourth quarter of 2009.

The company blamed the heavy losses on credit-related expenses that remain “at elevated levels” due to weakness in the U.S. economy and the housing market.

“In the first quarter we continued to serve as a leading source of liquidity to the mortgage market, and we made solid progress in our ongoing efforts to keep people in their homes,” CEO Mike Williams said in a statement.

Fannie said it purchased or guaranteed about $191.4 billion in loans during the first quarter and completed 94,000 loan modifications. The company said its purchases and guarantees financed about 516,000 conventional single-family loans and about 61,000 multifamily units.

Due to the heavy losses, Fannie said the Federal Housing Finance Agency has asked the Treasury Department for $8.4 billion on or before June 30. Fannie already received $15.3 billion at the end of 2009. Last week sister company Freddie Mac said it would need another $10.6 billion from the government.

Fannie didn’t shy away from saying it will continue to need cash, saying, “Due to current trends in the housing and financial markets, we continue to expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury.”

Shares of Fannie soared 6.8% to $1.10 in Monday’s premarkets, almost doubling the gains in the futures markets amid enthusiasm for Europe’s $955 billion rescue. Fannie’s stock was down almost 13% year-to-date as of Friday’s close.

Fannie said credit-related expenses rose sequentially to $11.9 billion last quarter due to loan modifications. Due to rising defaults, credit losses rose to $5.1 billion in the first quarter from the prior quarter. Fannie’s single-family serious delinquency rate increased to 5.47% at the end of the first quarter, up from 5.38% at the end of 2009.

“Promoting sustainable homeownership and maintaining ready access to liquidity are our guiding principles in serving the residential markets,” said Williams. “The strong credit characteristics of our acquisitions during the quarter are evidence that we continue to strike an appropriate balance in providing liquidity while also applying the lessons of the recent credit cycle.”

The future of Fannie and Freddie remain in doubt. Neither company has been included in the Obama administration’s financial regulatory overhaul.

Posted in: Housing Market
Tags: cash infusion, fannie mae, financial markets, fnm, freddie mac, futures markets, housing finance agency, Housing Market, mortgage market, treasury department