BluefoxToday blog : Will mortgage lenders embrace the new housing bill?

Will mortgage lenders embrace the new housing bill?

The ink on the new housing rescue bill isn't dry yet, but Washington is already leaning hard on regulators and mortgage bankers to get their full attention focused on it and act as soon as it goes into effect on October 1, 2008. If all goes as planned, it would help some 400,000 homeowners refinance their existing costly home loans into more affordable FHA programs. 400,000 seems to be a large figure. In light of that, RealtyTrac just released a report according to which almost 740,000 homes were mailed foreclosure-related notices in the second quarter of this year alone and now, all of a sudden, the 400,000 doesn't look all that much. Yet, it should give the market some sense of stability and that's probably what it is designed to do anyway.

Lenders must be now busily figuring out how to approach the bill's intentions and honestly, its success is very dependent on their readiness to go along with it. Their reluctance comes from the fact that they are asked to take a loss on the principal balance of potentially failing loans which then would be refinanced by FHA. Normally banks don't go that route. That's a no-no. But right now they just might do quite a few of these refinances because the real estate markets in many areas are losing value anyway.

For instance, Las Vegas properties have lost a good chunk of value recently and using the rescue bill's provisions might actually save the lenders money on loans they have here. If they let homes go into foreclosure in Las Vegas and then sell them in the slow marketplace would in all likelihood cost them much more than if they would write off a smaller portion right now and let FHA do the rest. The same goes for other hard-hit areas like Arizona, California and Florida. Therefore, the banks are probably going to concentrate, at least to start with, on these states. It still boils down to a business decision, so doing refinances in the these four states will mean minimizing their losses.

The regions where values have held up better are likely to see a much more tepid approach. In most cases it probably becomes a toss-up between using the bill's terms and foreclosure. Either way the loss amount is about the same, so it's anyone's pick.  

There is a feel that the bill's aim is to guide the battered areas out of the weeds as soon as is practical and hope that the better-off real estate markets can more or less do it on their own.

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Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

Comment balloon 30 commentsEsko Kiuru • July 29 2008 10:02PM

Comments

Esko,

Thanks for the post. Unless I am missing something, I don't see much choice for the lenders. Most aren't equipped to address the challenge brought on by the voluminous number of short sales and  foreclosures.

Posted by William Collins, Director of Property and Asset Management (ERA Queen City Realty) almost 10 years ago

Esko,

In a situation when people call the Lender and offer to do that without Fannie Mae, and just ask to agree to get it to 90%-100% of appraised value, and refi the loan with the same lender, so that the lender is no losing 3% to Fannie Mae on top of losing some principle, do you think this will be a probable scenario?

Banks win 3%, and clients save 1.5% imposed to the balance every year for the Borrowers, whihc comes quite heafty?

Would the banks have the right to "marry" the borrower for half of the profit if sold within 5 years?

Posted by Jon Zolsky, Daytona Beach, FL, Buy Daytona condos for heavenly good prices (Daytona Condo Realty, 386-405-4408) almost 10 years ago

I agree that most mortgage lenders are not going to be equipped to deal with these things.  I think that we are gong to see the more seasoned people doing these things.  We'll see what happens.  It should be an interesting fall!

Posted by Dana Couch-Davis, CRS, GRI, ABR, SRES (Kendall Haney Realty Group) almost 10 years ago

I think it's rediculous that after all the fraudulent lending, dishonest lending, whatever it can be called, that the government is going to bail these criminals out.  Many of these people should be put in jail for taking advantage of people.  Giving them Adjustable Rate Mortgages and Negatively amortized mortgages.  On top of that, Reverse Mortgages (the most stupid kind of mortgage ever) are becoming popular, but ten fifteen years down the line once these elderly people pass away the same thing is going to happen that's happening today.  The housing prices will come down because their families can't afford to buy the house, they will be forced to short sell the property because the mortgage will be so high.  No one is thinking about the future; instead here's a short-term thing that will make your problem today a lot worse tomorrow!!!

If you can't get a loan you can afford, don't get the loan!!!!  There is a problem with people borrowing more than they can afford, and then wasting that borrowed money on things that don't make them more money, i.e. HELOC spent on cars or fixing up the property in a horrible market, whatever, just wasting money and then they want someone to bail them out.  The lenders lending more money to people and then wanting the government to bail them out.  well who's gonna bail the government out??? 

The only thing most people learn from history is that they don't learn from history.  But I learn from history, and I tell you what, rents are great now and as an investor this a great market for me.  I will do what I can to help those who NEED help.  I will help them speak with their lenders and try to get them out of a heaping pile of a mess if it will in the end make me a heaping pile of cash.  But I hope that by helping people I can help them see that they need to educate themselves more financially and try to help themselves and others.

Posted by J.B. almost 10 years ago

Esko I still have not heard what the guidelines will be for underwriting these Loans, mainly what will the DTI Ratios be.  Will they be Manual Underwriting Ratios 31 - 43 or will they allow for higher Ratios?  The Qualifying Ratios will dictate the number of Loans that will qualify for this in my opinion.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 10 years ago

George,   just like FHA secure -  nobody will qualify! this bill will be a bust!

Posted by Lewis Poretz, Mortgage Loan Officer - Lending in 50 States (Bank of England Mortgage) almost 10 years ago

esko: do you feel that the government will redesign the Down Payment Assistance Programs or will they be totally dead within 60 days??

Posted by Steve Harless (Platinum Real Estate) almost 10 years ago

William,

Lender participation is a concern among regulators and lawmakers in Washington.

Posted by Esko Kiuru almost 10 years ago

Jon,

Homeowners could work out their own refis with the banks.

Posted by Esko Kiuru almost 10 years ago

Dana,

Let's see in the fall and winter how it plays out.

 

Posted by Esko Kiuru almost 10 years ago

J.B.,

Many borrowers in the recent past used poor judgment when signing up for these exotic loans.

Posted by Esko Kiuru almost 10 years ago

George,

Haven't seen any details on that either, although the assumption is the existing ratios will rule.

Posted by Esko Kiuru almost 10 years ago

Lewis,

Give it a chance.

 

Posted by Esko Kiuru almost 10 years ago

Steve,

That's a topic that has been in the news lately. Honestly, don't know what will happen.

Posted by Esko Kiuru almost 10 years ago

Esko -  I have had a day or so to read through the comments. Here is my new take to your question.

Mortgage lenders / servicers will embrace the bill.

Mortgage brokers will not ...    

bottom line - end of story....   check back in one month and revisit this post.....  once again, this bill is good for big business and corporate America and not good for small business (brokers) and consumers....   damn, is it an election year??

Posted by Lewis Poretz, Mortgage Loan Officer - Lending in 50 States (Bank of England Mortgage) almost 10 years ago

Lewis,

You got a deal.

 

Posted by Esko Kiuru almost 10 years ago

We will really need to see how this is implemented - There is a lot in the bill that requires details and processes. "A long way to go and a short time to get there. Watch ol Bandit run."

Will the refinances retain the same servicers? Would that bog down lenders?

Will the refinances be open to brokers? Many lenders do not participate in FHA Secure (not that there are many qualified borrowers for FHA Secure). What lender would take on new mortgages for borrowers who have defaulted?

My read is that FHA is not happy about the program. How will that impact the process?

How paperwork intensive will the process be - how many steps, how many approvals?

Who is working on these questions? There has been very little in my inbox from lenders on this or from DPA companies on these changes. How long will they stay open - through Sept 30? do they close up sooner?

I do not see this working very well, very quickly.

Richard

 

 

Posted by Richard Byron Smith, NMLS #184479, Mortgage Loan Officer (Mortgage Loan Officer, Fairway Independent Mortgage Corporation NMLS #2289) almost 10 years ago

Richard,

Good points. The paperwork alone on these refinances is probably going to be a challenge.

Posted by Esko Kiuru almost 10 years ago

 

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Esko,

I'll make this short and to the point. My husband works for a large home builder here in town. They're closing the division so he's out a job. We haven't been able to find him a new job yet so, we're in jeopardy of losing our home. How would we go about getting our mortgage lender to approve the housing bill rescue loan?

 

Posted by Emily almost 10 years ago

Emily,

I would suggest you do a bit of research on the bill's provisions first, for instance just click on the link in my article, and then call your existing lender and tell them what your situation is. Be up front, that's the best way. Also mention the new bill and see what they say about it. Give me a call at 499-1006 if you'd like to discuss it further.

Posted by Esko Kiuru almost 10 years ago

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Due to my husbands current job lost looking to move forward with short sale / rescue bill. Do you know an exceptional realtor that is extremely knowledgeable and successful with both these options?

Posted by Emily almost 10 years ago

Emily,

Thanks for contacting me about a short sale scenario. Sorry to hear about your husband's job loss. I'll send you an email shortly.

Posted by Esko Kiuru almost 10 years ago

My current lender file bankruptcy. Now what? Will another lender be able to refi my loan under the new housing bill?

Posted by KJ over 9 years ago

KJ,

Another lender services your loan, should have actually contacted you already. Call them and ask if they will do that. Some lenders don't participate. Let me know if you need further advice.

Posted by Esko Kiuru over 9 years ago

is Wachovia one of the Lenders participating in the Housing Rescue Bill>

Posted by Anonymous over 9 years ago

I don't know which lenders will participate and they themselves probably won't know it yet either. And it could be that they participate in some areas and not in others. Best thing to do is call your lender and ask.

Posted by Esko Kiuru over 9 years ago

I heard today that Countrywide will participate and IndyMac, if anyone hear somenthing let me know, is probably going to be difficult to qualified plus is only 400,000 refinances, there is plenty more people going or about to go into forclosure.

Posted by Marie Malic over 9 years ago

Marie,

Let's see how well lenders will accept it.

Posted by Esko Kiuru over 9 years ago

I hope someone is right?

Posted by Jack Climer (Jack Climer Realty, LLC) over 9 years ago

Jack,

Time will tell us how it fares.

Posted by Esko Kiuru over 9 years ago

Participate