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Articles filed under Mortgages

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  • The HECM reverse mortgage program gets a makeover Nov 2, 2013 12:08 AM
    Last month, FHA announced a series of sweeping changes in the HECM reverse mortgage program, most of which have already taken effect. The changes are a response to increasing losses suffered by FHA in connection with the extensive misuse of the program. As a result, the program is more complicated than ever.

  • Why will some lenders accept borrowers that other lenders reject? Oct 19, 2013 12:08 AM
    Some mortgage applicants will be accepted by every lender and others will be rejected by every lender. However, there is a group of “marginal applicants” who will be rejected by some lenders and accepted by others.

  • Is the “too big to fail” problem too big to solve? Oct 12, 2013 12:08 AM
    Previous articles in this series have described the major sources of public policy paralysis in dealing with the “too big to fail” banking problem. What is needed is a regulatory system that is more effective in controlling the risk exposure of these firms than capital requirements; and that also shifts the costs of a bailout, should one prove necessary, onto those banks.

  • Is the “too big to fail” problem too big to solve? Oct 4, 2013 10:25 AM
    Last week’s article argued that existing public policy toward the “too big to fail” problem was based on an unrealistic premise: that capital requirements can be used to eliminate the risk of failure by systemically important (SI) firms — those whose failure would threaten the stability of the world financial system. This article explains why that premise is wrong.

  • Consumers making mortgage payments priority again Sep 30, 2013 8:44 AM
    The steady rise in U.S. home values is increasingly motivating homeowners to make paying their mortgage on time a priority, according to a new study. Credit reporting agency TransUnion said it examined late-payment rates between 2009 and 2012 on mortgages, credit cards and auto loans among consumers with the three types of financial obligations.

  • Rock-bottom mortgage rates evaporating on recovery in U.K. Sep 22, 2013 6:25 AM
    Rock-bottom mortgage rates may be a thing of the past in the U.K. as banks’ borrowing costs surge amid growing evidence that an economic recovery is taking hold.

  • Is the “too big to fail” problem too big to solve? Sep 21, 2013 12:08 AM
    There seems to be almost universal consensus that using public funds to protect large institutions from failure, commonly called “bailout,” is bad policy. There is nothing like a consensus, however, on what should be done about it, and execution seems to be floundering. Three approaches have emerged, only one of which has much chance of being successful.

  • Who can you trust for a mortgage referral? Sep 13, 2013 10:47 AM
    Q. I don’t want to price shop for a mortgage, because I don’t feel competent enough and don’t want to take the time to educate myself on how to do it. I want to go to a lender who I have been told, by someone I trust, is competent and will treat me fairly. So who can I trust for such a referral? Are friends who have recently gone through the process my best bet?

  • Fix up a home before selling it, or not? Sep 7, 2013 12:10 AM
    Recently I put my home up for sale, and because it needed a new roof, deck, and septic system, came face to face with this question. This article is based heavily on that experience, in which I made a serious mistake that other sellers can avoid.

  • Average U.S. 30-year mortgage rate up to 4.57% Sep 5, 2013 11:27 AM
    Average fixed rates on U.S. long-term mortgages neared their highs for the year this week amid signs of further strength in the economy. Mortgage buyer Freddie Mac said Thursday that the average rate on the 30-year loan was 4.57 percent this week. The average on the 15-year fixed mortgage rose from 3.54 percent to 3.59 percent. That’s near the year’s high of 3.6 percent.

  • Smart mortgage shoppers understand mortgage pricing Aug 24, 2013 9:38 AM
    Mortgage pricing is a complicated process, which allows loan officers who understand it to get the better of borrowers who don't. The first step for any borrower looking to obtain the best possible price is to learn how the pricing process works.

  • Prepare to rescind your mortgage refinance before you close Aug 17, 2013 12:02 AM
    Rescinding a contractual agreement is unusual. A major purpose of contracts is to define the rights and obligations of each party, and if provision is made for a rescission, a penalty will almost always be imposed on the rescinding party. For example, when one party to a merger recently decided to rescind, it had to pay a penalty of $150 million.

  • Why it’s tough to refinance with your current lender Aug 3, 2013 12:16 AM
    A small group of borrowers might profit from refinancing with their current lenders — the firm to which they remit their monthly payment. Most borrowers, however, will do better refinancing with a new lender.

  • Ex-trader ‘Fabulous Fab’ found liable in SEC case Aug 2, 2013 6:35 AM
    A former Goldman Sachs trader who earned the nickname “Fabulous Fab” was found liable Thursday in a fraud case brought by federal regulators in response to the 2007 mortgage crisis that helped push the country into recession. A jury reached the verdict at the civil trial in Manhattan federal court of Fabrice Tourre — a French-born Stanford graduate described by Securities and Exchange Commission lawyers as the face of “Wall Street greed.” Tourre’s attorneys portrayed him as a scapegoat in a downturn caused by larger economic forces.

  • Can government help mortgage borrowers make better decisions? Jul 26, 2013 12:27 PM
    Government-mandated disclosures can help mortgage borrowers make decisions more wisely if properly implemented, but proper implementation cannot be taken for granted.

  • Mortgage are underappreciated, and often misunderstood Jul 20, 2013 12:29 AM
    The standard mortgage contract in the U.S. today calls for full repayment of the balance over the term with equal monthly payments of principal and interest. I will save space by calling a fully amortizing mortgage with equal monthly payments a FAM.

  • Mortgage professor: Calculator can help you decide on affordability Jul 14, 2013 4:44 PM
    The house purchase season is now in full swing, and many wannabe purchasers are wondering whether or not they can afford the price quoted on the house they would like to buy.

  • Using a reverse mortgage to avoid impoverishment: first of two Jun 28, 2013 10:53 AM
    Retirement has become a frightening prospect for millions of Americans who haven’t made adequate financial preparation for it, yet face the likelihood of living much longer than any prior generation of retirees. The Center For Retirement Research at Boston College reports that more than half of all households will not be able to maintain their standard of living in retirement.

  • When banks compete, you win – except when you lose! Jun 22, 2013 12:54 AM
    Competition is generally viewed as a good thing, in the U.S. at least. Hence, advertisements that create an image of powerful banks having to compete among themselves for the favor of individual mortgage borrowers creates a generally favorable impression. The problem is that competition generates favorable results only under certain conditions, and those conditions are very difficult to find in the home mortgage market.

  • Fannie shares seen as worthless despite surge Jun 9, 2013 7:07 AM
    Fannie Mae and Freddie Mac shares surged to five-year highs last week, giving them a combined market value of $48 billion, about the same as BlackRock Inc., the world’s largest money manager, and Starbucks Corp., the biggest coffee-shop operator. The securities have climbed eightfold this year as the U.S. housing recovery led the mortgage financiers to record profits and speculation grew they would repay the government after their 2008 bailout and be released from conservatorship. Under a new bipartisan bill being prepared by U.S. senators, the companies would be liquidated and the stock could be worthless. Higher- ranking preferred securities, whose buyers include billionaire hedge fund manager Paulson & Co. and Bruce Berkowitz’s Fairholme Capital Management, are also at risk from the legislation. “There is a giant disconnect between investors and Washington over whether there is any value,” Jaret Seiberg, an analyst at Guggenheim Securities LLC’s Washington Research Group, said in a telephone interview. “Washington can’t fathom there could be value and the investment community seems convinced that there is.” Trading in the preferred and common stock of Fannie Mae and Freddie Mac has jumped in recent months as speculation mounted the Obama administration or Congress would address the future of the $9.4 trillion mortgage-finance system. A bill being prepared by Tennessee Republican Bob Corker and Virginia Democrat Mark Warner would keep the government in the market, an outcome the world’s biggest bond investors including Pacific Investment Management Co. and AllianceBernstein LP say is necessary. ‘Wild’ Speculation Fannie Mae and Freddie Mac surged in May from so-called penny stocks -- trading under $1 -- to an intraday high on May 29 of $5.44 for Fannie Mae, giving it a market capitalization of about $31.3 billion, and $5 for Freddie Mac, equal to $16 billion, according to data compiled by Bloomberg. Fannie Mae has since dropped to $2.24 and Freddie Mac to $2.18. “The speculation is wild,” Anton Schutz, president of Rochester, New York-based Mendon Capital Advisors Corp., said in a telephone interview. His firm has about $160 million under management and doesn’t own Fannie Mae shares. “I would never engage in owning any security like that, where the government makes the rules.” Preferred Gains Fannie’s 8.25 percent of preferred stock has risen to $8.24 from 26 cents at the beginning of the year, as investors speculated the securities, which have a par value of $25, could be repaid. Berkowitz’s Fairholme Capital Management said this week it owns $2.4 billion par value of preferreds from the two companies and is ready to help with a restructuring. “Taxpayer dollars expended by the government during a time of national crisis will be fully repaid,” Fairholme said in the statement. “And equitable treatment of taxpaying shareholders, including community banks, insurance companies, and mutual funds holding preferred Stock, must be restored with dividends reinstated.” The bill in Congress, which would instead replace Fannie Mae and Freddie Mac with a new agency known as the Federal Mortgage Insurance Corp. that would bear any catastrophic losses on mortgage bonds after private investors or insurers get wiped out, faces a “long and very uncertain road towards passage,” according to Ed Mills and Paul Miller, analysts at FBR Capital Markets. While a draft says the U.S. could offer payments to common and junior preferred shareholders once the government is paid off on almost $190 billion of aid, Guggenheim’s Seiberg says the provision is being misread. Investors are assuming that payments the firms are now making from all their profits would be included in the calculation, he said. On Hook “The senators are unlikely to write the bill in such a way that the dividend payments made to Treasury would count as repaying the senior preferred that the government owns,” he said. “In other words, Fannie and Freddie are still on the hook” for the funds given to them in the bailout. The proposal would also shift the revenue the companies earn from guaranteeing existing mortgage bonds, now totaling about $4 trillion, which have helped fuel their record profits as housing emerged from a six-year slump, to the Treasury Department. The government would then take over backing the securities and join with the companies’ replacement in determining whether anything is paid out to private investors. ‘No Money’ While the draft softened language in an earlier version over the treatment of preferred shareholders, “the distinction is somewhat meaningless because the way it would allow for the resolution of the companies may provide no money for others,” said Charles Gabriel, a policy analyst at Capital Alpha Partners in Washington. Hedge funds that own the preferreds, including Paulson and Claren Road Asset Management LLC, have urged lawmakers to drop plans for abolishing the companies. The government is guaranteeing about 90 percent of new home loans, including about 60 percent through Fannie Mae and Freddie Mac and the rest through other agencies including the Federal Housing Administration. The companies were created to provide liquidity to the mortgage market and make it easier to buy a home -- Fannie Mae in 1938 during the Great Depression and Freddie Mac in 1970. Even after they helped fuel the housing bubble and contributed to the global credit crash, bond investors still say a version is needed in the U.S. Next Trillion “The government needs to play a role in housing,” said Daniel Hyman, a money manager specializing in mortgage securities at Pacific Investment Management Co., manager of the world’s largest bond fund. “The way the world is set up, it can’t purchase $5 trillion of additional mortgage assets without government guarantees, or at least certainly not anywhere near today’s prices.” Banks are required to hold more capital against securities with credit risk and “foreign buyers still want the government guarantee to be involved in these markets,” he said. While the private mortgage bond market is slowly reviving, demand won’t be enough without much higher yields. “You can sneak through a small amount of that stuff but it’s not clear where the next trillion clears,” he said. The government needs to reduce its role in the housing market from its current level, according to Michael Canter, head of securitized assets at AllianceBernstein, which oversees more than $250 billion in fixed-income. Still, a fully private model for U.S. housing is “not realistic,” and would “constrain credit and increase house-price volatility down the road.” The likelihood of “substantive action” on reforming the mortgage finance system is remote until 2015 after midterm elections, according to Isaac Boltansky, an analyst with Compass Point Research & Trading LLC. “Ultimately we believe it will be politically unpalatable to facilitate significant recoveries on the junior securities given the concentration of hedge fund ownership, but note this question remains far from answered,” he wrote in a note.

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