Heritage Mortgage Review

12/23/2014

Are Low Mortgage Rates Keeping People in Their Homes?
Sales of previously owned homes tumbled in November to their lowest level in six months, the National Association of Realtors said Monday. And NAR chief economist Lawrence Yun is puzzled as to why.
He admits weak inventory growth could be holding some potential buyers back. So too could October’s stock-market volatility and the “lock-in effect” of low interest rates. Many current homeowners fear that if they buy a new house, they risk facing higher rates–though current mortgage rates are near 18-month lows.

Still, the potential of a home purchase resulting in higher mortgage rates “will be a potentially long-term trend,” says Yun, who called November’s sales-pace decline a “1-month aberration.” He sees the annualized pace returning to 5 million next year.

12/22/2014

Why paying extra on mortgage pays off
Conventional wisdom says that making extra payments toward your mortgage saves interest. True, but that's not all. Increasing your mortgage payment also means larger equity value and more money in your pocket when you're older.

Paying extra on your mortgage saves you money over the life of the loan. Let's look at an example using this online calculator to see how it works. For example, say you take out a 30-year $200,000 mortgage with an annual interest rate of 4%. Under those conditions, you pay $955 a month for the next 360 months, which adds up to $343,739 in total. Now, if you pay an extra $100 a month, the calculator says you pay a total of $316,884, saving $26,855 in interest.

This is where most articles on the topic simply stop. They fail to explore the extra equity value in your home, during the repayment period, which is similarly striking.

As the mortgage meltdown in the early 2000s showed, equity matters. In the early years of ownership, equity is a cushion should home values decline. If you decide to sell, the extra equity value in your home means extra funds that may generate the income you need. It also means more reverse mortgage payments if you decide to tap your home's value for income later on when you are retired. If the home value grows on top of the mortgage payment acceleration, even more gains accrue to you.

Another advantage is the money available after the mortgage is paid off. Shortening the length of the mortgage and thus having that extra money – from not having to pay a mortgage – available to your budget sooner is a major benefit that most people often overlook. From the example above, if you add $100 to your monthly payment, you shorten the mortgage term by almost five years (from 360 months to 301).

Some argue paying off your mortgage early is unnecessary because you could take that money and grow it by investing it somewhere else. Indeed, the $30,100 extra payment is not available to you during the mortgage period. But it is likely that you need that $100 per month now less than you need that $955 later in life. A retiree, for instance, may need money more because of lower income and poorer health. Besides, there is risk in investing the money elsewhere. You may not be able to get a return that breaks even in the end. Extra payments don't have that risk.

Paying off a mortgage faster is about increasing equity value and having more money later on in retirement. More equity today is more income later, when you really need it.

12/20/2014

Mortgage rates drop to new low for the year, Freddie Mac says
The average for a 30-year fixed loan fell to 3.80% this week, down from 3.93% a week earlier, mortgage company Freddie Mac said Thursday. Lenders, meanwhile, offered a 15-year fixed mortgage at 3.09%, compared to 3.20% last week.

Plunging oil prices and concerns over the global economy drove yields on the 10-year Treasury note this week to their lowest level since May 2013.

That sent mortgage rates down as well, because they tend to track the long-term Treasury yield.

The mortgage giant's survey asks lenders each Monday morning through midday Wednesday about the terms they are offering to low-risk borrowers on loans up to $417,000.

12/17/2014

"The Government Refinance Plan Banks Hope You Ignore" Click for todays rates.

You need to act fast in order to refinance your house at these current low refinance rates as the HARP incentive expires. Could you use the extra savings?
The average monthly savings for most eligible Americans is $191.

12/17/2014

Regulator Finds Deficiencies With Mortgage Servicer Ocwen Financial
Ocwen Financial, a firm that collects the payments on millions of mortgages, has fallen afoul of another regulator.

The monitor of the National Mortgage Settlement announced on Tuesday that his office could not rely on information provided by Ocwen. That settlement, struck in 2012, requires banks and firms like Ocwen to meet standards that aim to ensure that struggling borrowers are treated properly.

The monitor, Joseph A. Smith Jr., regularly reviews whether the firms are in compliance with the standards. To do so, he relies to a large extent on reports from an “internal review group” inside each of the institutions that are part of the settlement.

“After my team and I reviewed numerous documents and interviewed several Ocwen personnel, I concluded that I could not rely on the work of Ocwen’s I.R.G. for the first half of 2014,” Mr. Smith said in a statement, referring to the review group. He added that an employee of Ocwen in May contacted the monitor, contending that there were serious deficiencies within the review group.

The company said it would work to address the monitor’s concerns.

“We will continue to support the monitor’s efforts to ensure that we are fully compliant with all aspects of the National Mortgage Settlement,” Ronald M. Faris, Ocwen’s chief executive, said in a statement. “We are committed to delivering best-in-class servicing as we work to help struggling borrowers keep their homes.”

The questions raised by Mr. Smith add to regulatory actions that have weighed on Ocwen’s business and helped cut its stock price by more than half this year.

Benjamin M. Lawsky, the superintendent of New York State’s Department of Financial Services, has assailed Ocwen on several fronts, most recently contending that Ocwen backdated letters to borrowers. Mr. Smith said on Tuesday that he had asked Ocwen to correct any issues relating to backdated letters.

Ocwen ballooned in size after the financial crisis of 2008, by purchasing so-called loan servicing business from banks who no longer found the activity financially attractive. Servicing involves collecting mortgage payments, arranging loan modifications for borrowers in default and carrying out foreclosures. And for a long time, Ocwen had little trouble convincing investors that it did servicing more efficiently.

But the company’s growth prospects came under threat after Mr. Lawsky’s office intervened. The regulator asserted that Ocwen had issues that might hinder it from carrying out its duties as a mortgage servicer. Mr. Lawsky required that a large purchase of servicing rights from Wells Fargo be delayed. That deal fell through completely last month.

The National Mortgage Settlement took aim at big banks, including JPMorgan Chase and Bank of America, that mishandled the tidal wave of foreclosures that followed the financial crisis of 2008. Ocwen became part of the settlement after it bought mortgage servicing business from Ally, a lender that was among the original participants in the settlement.

After finding fault with Ocwen’s review group, Mr. Smith has asked an outside accounting firm, McGladrey, to determine whether Ocwen had met the settlement’s standards.

In an interview, Mr. Smith said that he expected to report on McGladrey’s findings in February or March next year. The monitor first allows a firm to try to fix its problems with its servicing. But he can also resort to fines. “That’s a pretty heavy hammer that we have got, if we need it,” Mr. Smith said.

Ocwen has installed new management in the internal review group that reports to the mortgage settlement monitor. In addition, the review group now reports directly to a compliance committee on Ocwen’s board.

One of Mr. Lawsky’s concerns has been that potential conflicts between Ocwen and related firms may harm borrowers. Those ties may come under greater scrutiny after Mr. Smith’s announcement.

William C. Erbey, a founder of Ocwen and its chairman, is also the chairman and largest shareholder of Altisource Portfolio Solutions, a firm that provides Ocwen with a computer system for servicing loans. One question regulators may have is whether Ocwen used that system, called RealServicing, for the servicing business bought from Ally – and whether that system was up to the task of complying with the National Mortgage Settlement’s standards.

“We do not believe anything particular about RealServicing, as a system, caused the issues identified in the report,” Margaret Popper, a spokeswoman for Ocwen, said. “Unlike other servicers, Ocwen’s I.R.G. was tasked with testing on two platforms simultaneously – and that complexity may have been challenging for Ocwen’s I.R.G. during the applicable time period.”

12/16/2014

"The Government Refinance Plan Banks Hope You Ignore"

Mortgage rates have decreased, but rates may not stay low if the government changes its economic policy. Act now while rates are still low and avoid a potential rate hike.

12/16/2014

Here is a great mortgage calculator from bankrate

Trusted, easy-to-use mortgage calculator helps you calculate monthly payments, see the effect of adding extra payments, and more.

12/16/2014

Fannie Mae, Freddie Mac offer lower mortgage down payments
First-time home buyers have caught a break, thanks to a 3 percent down payment program re-introduced by mortgage giants Fannie Mae and Freddie Mac.

They have accepted 5 percent down payments but larger ones have been the general rule since funky mortgages issued during the last decade helped trigger the Great Recession. The hope now is the lower down payment will inject some life into the moribund housing market.

Fannie calls its program My Community Mortgage and Freddie’s is Home Possible Advantage, different names for programs discontinued several years ago as the housing market collapse deepened.

“Home Possible Advantage gives qualified borrowers with limited down payment savings a responsible path to home ownership and lenders a new tool for reaching eligible working families ready to own a home of their own,” Dave Lowman, executive vice president of Single-Family Business at Freddie Mac, said in a email.

Fannie Mae’s program takes affect on Saturday and Freddie Mac’s on March 23.

Realtors applaud lowering the limit.

“It’s very exciting. We’re thrilled to see this,” said Chris Kutzkey, president of the California Association of Realtors. “We, as an organization, have been at the table with Fannie and Freddie and HUD (the federal Housing and Urban Development Department) saying that we are through the horrific times so let’s loosen that credit box up a bit for our first-time buyers.”

This week the website www.mortgagenewsdaily.com reported that close to 70 percent of mortgage and housing industry professional responding to the Collingwood Group’s Mortgage Outlook Report was hopeful that relaxed lending rules will help stimulate the industry.

But Collingwood, which provides advisory services to the industry, also noted that home loan credit will remain tight.

So will knocking the down payment requirement by 2 percentage points really do the trick and boost home sales next year?

Probably not, said Clem Ziroli, Jr., president and chief operating officer of First Mortgage Corp. in Ontario and a member of the California Mortgage Bankers Association’s board of directors.

“I think it will pull a few people off the shelf, “ he said. “But the good thing about this is it’s an admission from the government that they need to loosen things up a bit. But with respect to moving the needle on sale? Probably not so much.”

Mortgage News Daily provides up to the minute mortgage and real estate news including mortgage rates, mortgage rss feeds and blog.

12/15/2014

Low mortgage down payment for minorities good for America

“Every American lives in safe, decent, affordable and energy efficient housing on fair terms.”
— National Urban League 2025 housing
empowerment goal
Federal Housing Finance Agency (FHFA) Director Mel Watt is taking action to turn the American dream of homeownership into reality for many more people. Watt recently announced that Fannie Mae and Freddie Mac, which he regulates and which are linchpins of the nation’s residential mortgage market, will reduce down payment requirements from 5 percent to 3 percent. This will enable many more low-income, but credit-worthy, consumers to become homeowners while helping the nation’s faltering housing market regain its traction.
We enthusiastically applaud this move and believe that as a result, more African-American, Latino and working class borrowers of all races, who face an especially tough time securing mortgages, will have greater access to conventional loans, which are more affordable than other financing options. We are also encouraged that the plan will allow housing counseling in lieu of costly mortgage insurance to be a compensating factor to help make up for low down payments or low credit scores.
Saving the necessary down payment to purchase a home is one of the biggest obstacles to attaining the American Dream, especially for communities of color. African Americans and Latinos typically have lower incomes and are less likely to receive an inheritance or first-time buying help from their parents than white Americans. According to the Center for Responsible Lending, while it takes the typical white family 14 years to save for a 5 percent down payment, plus closing costs, it takes the typical Latino family 17 years and the typical African-American family 21 years to save those amounts.
The National Urban League has long supported a reasonable and affordable “skin in the game” down payment requirement, but the ability to save a lump sum of money does not translate to the ability to pay a monthly mortgage. As Watt said at a Senate Banking Committee hearing recently, “The problem is that the down payment itself is not necessarily a reliable indicator of whether somebody will pay a loan. If they have good credit, if they have housing counseling … and know how to be responsible homeowners — those can mitigate the perceived increased risk.”
Forty years of National Urban League housing counseling experience and independent research indicate that borrowers who receive housing counseling services are one-third less likely to be seriously delinquent on their mortgage than non-counseled borrowers. We have seen first-hand how housing counseling benefits borrowers, lenders, Fannie and Freddie, and communities. Nearly 50 of the National Urban League’s 95 affiliates provide home buyer education to ensure communities of color are well-informed of their housing rights and options. Since 2008, we have provided pre-and-post purchase counseling to nearly 180,000 clients.
Watt has been rolling out this policy for several months. On Oct. 20, he told the Mortgage Bankers Association annual meeting, “To increase access for creditworthy but lower-wealth borrowers, FHFA is also working with the enterprises [Fannie and Freddie] to develop sensible and responsible guidelines for mortgages with loan-to-value ratios between 95 and 97 percent. Through these revised guidelines, we believe that the enterprises will be able to responsibly serve a targeted segment of creditworthy borrowers with lower-down payment mortgages by taking into account compensating factors. It is yet another much needed piece to the broader-access-to-credit puzzle.”
Watt recognizes that low down payments did not cause the housing crisis, but that irresponsible products and predatory lending did. Lowering Fannie and Freddie down payment requirements will allow tens of thousands of African Americans, Latinos and working class Americans to purchase lower cost mortgages and become homeowners. That is good for our communities and good for America.

12/13/2014

Mortgage Lenders Tough on Self-Employed
Self-employed people have always had a tough time getting a mortgage but new data from Zillow, the real estate Website, shows just how bad it is.

Despite the fact that 6.6% of the U.S.-based working population is self-employed and many enjoy high incomes, self-employed borrowers receive 40% fewer purchase loan quotes. According to Zillow, they get six loan quotes for every ten received by non-self-employed borrowers. In June 2011 they fared a little better, getting seven loan quotes for every ten.

“The primary reason is their credit scores are lower,” says Erin Lantz, vice president of mortgages at Zillow. “Many times their personal and business finances are intermingled which can cause problems with their credit.”

According to Zillow’s finding, people who work for themselves are nearly twice as likely as those that work for an employer to report a FICO score below 680. Of survey respondents, 47% have scores below 720 while 28% have scores lower than 680. While myFICO says the median U.S. credit score as of April 2014 was 692, lenders want to see a credit score of at least 740 to get the best rates on a mortgage loan. Lenders use several factors to determine if they will give someone a mortgage, but the credit score situation seems to be hurting self-employed people the most, according to Zillow.

Another factor that may be limiting their chances of getting a mortgage is the size of loan. According to Zillow self-employed borrowers typically request loan quotes for homes that are 12% more expensive than employees of companies. The median property value for the self-employed, at least on Zillow is $352,000 compared to $315,000 for the non self-employed.

The lower credit score and higher loan price may be the reason self-employed people are getting shut out of the mortgage lending market but one thing is for sure, many of them make more money than those that work for an employer. Zillow found the incomes disparity was an eye-opening 81% with the self-employed reporting household income of $145,000 compared to $80,000 for the average non-self-employed household. “Income for self-employed borrowers is up by 28% since the summer of 2012, whereas the reported household income for non-self-employed borrowers is down 17% during the same time period,” said Zillow in its report. What’s more, self-employed people typically have a larger down payment.

Although the self-employed have always struggled to get a mortgage, Lantz says these days it’s slightly worse. Three years ago that type of borrower got 30% fewer quotes and now it stands at 40%. That doesn’t mean they can’t get a loan, but it does mean they are going to have to shop around to get a mortgage. After all, one lender may not be willing to give them a mortgage but the one around the block may be willing to. “It’s going to be harder to find a lender that will work with them,” says Lantz. Another thing working against them is the fact that underwriting and producing a loan for a self-employed person is going to require more work on the bank’s part than for a standard W-2 worker. “It takes more time and a lot of the time the borrower’s income is more volatile. They have to explain the ups and down,” she says. Not to mention that underwriters are working off of tax returns instead of W2s.

So what do the self-employed need to have at the ready when looking for a mortgage? According to Quicken Loans, some of the documentation they’ll have to produce include tax forms that document their profit and loss from a business; a profit and loss statement summarizing the revenues, costs and expenses for a specific time; business license, letters from customers proving they performed a service; and bond insurance for some professions, among other documentation.

12/13/2014

Revisiting Mortgages With Low Down Payments

This week, the government released details of a plan to encourage more people to buy homes. Soon, it will be easier for banks to offer mortgages with down payments as low as 3 percent.

That’s not much, and we are less than a decade removed from the last great housing collapse. Won’t these borrowers be likely to default more often?

They might. If you do not have much home equity and prices drop, you will owe more than the home is worth and might be tempted to abandon it, especially if your income falls. The inevitable interpretive skirmishes have broken out, with one side pointing to data that suggests increased defaults while the other points to fresher data and new rules that it says will keep bad things from happening.

This program may not end up being very big, but it does pose a question for people who cannot come close to affording the 20 percent down payment that is a standing order in prudent financial planning prescriptions: Does it ever make sense to put this little money down, regardless of whether some bank will let you?

The answer, especially for the first-time home buyers whom the government hopes to lure back into the market, comes down as much to a bet on yourself as it does to one on the housing market. It is a wager on your career trajectory, your resilience and your staying power as a couple if you are buying with another person.

These feelings defy efforts to compute them in a tidy ratio. So this week, I checked back in with two couples I featured in this column several years ago, when I was trying to persuade readers that the world was not ending and that buying a home at that point might have been a swell idea.

Both put 5 percent or less down, and they are doing just fine. But they have been tested.

When I last spoke with Lacey Mamak and Alison Nowak in late 2008, they had recently put just 3 percent (or about $4,500) down on a small $149,900 home in the Windom neighborhood of Minneapolis through a Federal Housing Administration loan. “It was about the idea of your money meaning something,” said Mamak, who asked that I use no gendered honorifics. “When you rent, it’s not going to you.”

To many observers, any 3 percent down payment loan is by definition risky. Some people put that little down while leaving aside a separate emergency fund, which can help in the event of a job loss or illness. But the couple, who married last year, put every last dollar they had down; they even lived on credit cards for a few months to accumulate the savings they had.

But saving 20 percent, or about $30,000, seemed like a laughable notion given that Ms. Nowak teaches and works in the arts and Mamak was in graduate school at the time.

A 2012 Center for Responsible Lending study noted that if even a 10 percent down payment were required of everyone for a home with the 2010 median value of $158,100, a household with the median income in the United States would need 21 years to save that and closing costs.

Then there was the matter of the couple’s $50,000 or more in student loan debt, now closer to $80,000 given that they both have masters’ degrees. And sure enough, housing prices fell, they were underwater on their home and Ms. Nowak was unemployed for a time.

Still, the couple have always seen themselves as conservative. They chose Minneapolis, having lived in San Francisco and given up on being able to do so affordably and happily over the long term. They received down payment assistance from the city, which required them to stay in the home for 10 years or repay the grant. (Short stays in a first home can leave homeowners with little equity.) Their house is smaller than that of anyone else they know.

Mamak, age 34, is now an academic librarian thanks to a master’s in library science, so graduate school was a good bet. The couple could meet their $1,100 monthly housing costs with that paycheck alone if they needed to. Ms. Nowak, 35, could and would switch careers to make more money if necessary. And the value of their home has rebounded to about what they paid for it.

“If you look at what we did through an objective lens, it may look kind of irresponsible, given that we didn’t even have 3 percent,” Ms. Nowak said. “But both of us really like security, so any risks that we take are really padded versions of risk.”

“Does this make sense in our part of the country?” she added. “Absolutely. Would we have considered it in New York or San Francisco? There, it’s funny how not possible this would be.”

The prospect of owning a home was just within reach for Marke Hallowell and Allison Firmat when I spoke to them in 2010. The couple, who are now 31 and 29, hoped to put about 5 percent down on a condo in Orange County, Calif., and they eventually found a three-bedroom one for $335,000 in Aliso Viejo. In the column, Mr. Hallowell expressed no concern about his job as a software engineer and possible need for mobility, and they figured they could rent the place out if they had to.

Sure enough, he got a great job opportunity in Santa Monica and found himself driving up to two hours each way every day. Why not move? Well, he and his wife had one child and she soon became pregnant with another. The in-laws were in Orange County, and the couple wanted them nearby.

Eighteen months of pain and suffering on the freeway, however, prompted Mr. Hallowell to shoot for the moon and apply for a job with Google closer to home. He got it, and the long commute ended. Even better, the condo is now worth $100,000 more than when they bought it, which has allowed them to refinance their F.H.A. loan and stop paying for mortgage insurance.

But now, the couple has rented the condo out and moved into her parents’ home. They hope to keep the condo as an investment property and save as much as they can for a bigger down payment on another home, which will be necessary because low down payment loans tend not to be readily available for people who already own one home with its own mortgage.

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COMMENTS
“Even if we were allowed to, I’m not sure we’d take a similar risk in this current housing market as we did last time,” he said. “When we bought, no one was sure if it was the bottom, but we were certainly trying to follow Warren Buffett’s advice to be greedy when others were fearful.”

Mr. Hallowell admitted to having some second thoughts after seeing his own words splayed out in my column in 2010. He knew that an unbiased person might have seen the couple’s move as risky. But he looks at his life now and mostly feels blessed — and certainly not scared about the type of debt that he and his wife have.

“My brother is in medical school, and it’s terrifying to me how much money he is borrowing,” he said. “I support him and think it will be fine. But it’s scarier than any of my friends’ big houses.”

12/13/2014

Falsified Mortgage Applications on the Rise

Falsified applications are now the most common type of mortgage fraud, their incidence having risen steadily for the last three years, according to LexisNexis Risk Solutions’ annual mortgage fraud report.

The report, scheduled for release on Monday, breaks down the composition of verified mortgage fraud activity in 2013 as reported by lenders, insurers and other subscribers to a LexisNexis database known as MIDEX. The database tracks only fraud involving industry professionals, such as loan officers, real estate agents and appraisers.

“Eighty percent of all mortgage fraud involves a professional,” said Tim Coyle, the company’s senior director of financial services and an author of the report. “It almost has to — it’s a very complex game.”

Continue reading the main story
RELATED COVERAGE

Times Topic: Mortgages
Seventy-four percent of the investigated loans reported in 2013 involved application fraud, up from 69 percent in 2012, and 61 percent in 2011. Application fraud involves misrepresenting a borrower’s background or circumstances by providing a lender with false information about crucial factors, such as income, employment or intent to occupy the property. Identity theft or invalid Social Security numbers may also come into play.

Mr. Coyle attributed the rising incidence of application fraud to tight credit conditions that make it harder for borrowers to qualify and for industry professionals to profit. Credit fraud also increased last year, according to Jennifer Butts, the manager of data insight and also an author of the report. Credit fraud, such as undisclosed debt on a credit history or misrepresentation on the credit report, occurred in 17 percent of reported fraud investigations, which was a big jump from 5 percent in 2012, she said.

Appraisal fraud, however, dropped to a five-year low of 15 percent of reported loans. Mr. Coyle credited federal regulations adopted several years ago aimed at preventing corruption of the appraisal process by professionals with a financial stake in the mortgage transaction.

The report also ranks the states according to the seriousness of their mortgage fraud problem relative to their share of origination volume. Florida ranked first as having the worst fraud problem for the fifth consecutive year, followed by Nevada and New Jersey.

The authors didn’t expect to see Utah in seventh place; last year it was ranked 21st. Mr. Coyle speculated that the rise in activity may have to do with Utah’s proximity to Nevada and Arizona (ranked No. 4). “Fraudsters are elusive,” he said. “It’s not surprising to me that they might go to an area where you’re not looking.”

The report attempts to identify potential collusion between buyers and sellers to defraud lenders. By focusing on deed transfers between relatives or business associates — particularly for properties sold at a loss between a linked buyer and seller — the report ranked states with the highest likelihood of collusion. Alabama, Louisiana and Pennsylvania had the highest potential for collusion according to the report, based on transfers of properties with a drop in price of 20 to 95 percent.

These transactions are not confirmed fraud, but are “very suspicious,” Mr. Coyle said. He offered a scenario of someone who buys a house for $400,000, then later persuades the lender that his financial circumstances are such that he needs to sell, and that a short sale at $200,000 is warranted. Unbeknownst to the lender, the buyer is his sister.

“Generally what happens is, I sell it to my sister with a different last name so it looks like everything’s O.K.,” he explained. His sister then transfers ownership back to him using a quitclaim deed. “The bank just lost $200,000,” he says, “and I never even left the house.”