Articles filed under Mortgages

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  • 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.

  • Insanity in today’s mortgage market Jun 8, 2013 4:30 AM
    In a recent article, I pointed out that mortgage lenders today can make a loan with only 3 percent down to a borrower with a steady job but a credit score of only 570, and have it insured by FHA. But lenders can’t or won’t accommodate a self-employed physician who can’t adequately document enough income, even if the physician can put 30 percent down and has a credit score of 800! Considering that the likelihood of a default is at least ten times higher on the first mortgage, this is insane.

  • Crackdown on mortgage reinsurance may not benefit homeowners Jun 1, 2013 5:21 AM
    Tthe Consumer Financial Protection Bureau announced 0n April 4 it had taken "enforcement actions to end what the Bureau believes to be improper kickbacks paid by mortgage insurers to mortgage lenders in exchange for business." - CFPB is right that mortgage reinsurance arrangements are really kickbacks for the referral of business. But it is wrong in suggesting that eliminating them will reduce costs to borrowers.

  • Mortgage-crisis funds slow in coming, analysis shows May 26, 2013 5:19 AM
    Banks have paid less than half the $5.7 billion in cash owed to troubled homeowners under nearly 30 settlements brokered by the government since 2008, delaying help to the millions of victims of discrimination and shoddy lending that epitomized the housing crisis, according to a Washington Post analysis of government data.

  • Record profit signals healthier Fannie Mae May 9, 2013 4:12 PM
    Fannie Mae said something Thursday that would have been unthinkable a few years ago: It earned a record $58.7 billion profit in the January-March quarter.

  • Despite new rules, borrowers still vulnerable to discrimination May 4, 2013 4:08 AM
    In an effort to eliminate discriminatory pricing of home mortgage loans, the federal government now imposes a raft of regulations on how mortgage brokers can price loans and charge for their services. The new rules have not eliminated discriminatory pricing, but they probably have raised mortgage broker fees.

  • Allure of financial gain blinds many to the obvious red flags Apr 27, 2013 4:59 AM
    A few weeks ago, I discovered that I was not getting all the emails sent to me by readers, which induced me to examine my spam file. I disabled the spam filter, and reconciled myself to the daily task of weeding out all the junk mail by sight.

  • American dream eludes under-40s saddled with student debt Apr 21, 2013 8:11 AM
    Two- thirds of student loans are held by people under the age of 40, according to the Federal Reserve Bank of New York, blocking millions of them from taking advantage of the most affordable housing market on record. The number of people in that age group who own homes fell by 4.6 percent in the fourth quarter from the third, the biggest drop in records dating to 1982.

  • Protect yourself against mortgage lock scams Apr 20, 2013 5:57 AM
    A price quote means nothing until it is properly locked with the lender. Too often, lenders take advantage of home mortgage borrowers because interest rates are continuously changing.

  • 6 key considerations when applying for a mortgage Apr 14, 2013 7:42 AM
    For most would-be homebuyers, making a run at homeownership is going to mean getting approved for a home loan. It’s a process that, at best, can be stressful and confusing. Borrowers can be better prepared by taking steps to study their options and learn what to expect from a lender. “It’s surprising to me that people tend to spend more time in pre-purchase research for a car than they do for a home mortgage,” says Chris George, president of home mortgage lender CMG Financial.

  • Complications arise when splitting real estate in divorce Apr 13, 2013 5:37 AM
    If a couple is not married when they purchase a house, the possibility of a future split looms large, and they should agree before the purchase on how the house will be handled if it occurs. Married homeowners sometimes split, as well.

  • Reverse mortgages struggle to shake stigma Apr 6, 2013 4:27 AM
    Q. It seems to me that you are writing a lot about reverse mortgages recently. Is the subject really worth the time you are spending on it?

  • Mortgage professor: What seniors should know if borrowing costs start to rise Mar 29, 2013 5:21 AM
    This is a great time for senior homeowners to take out a home equity conversion mortgage HECM), especially if they don't need the extra money now! Sounds crazy? It isn't, so read on.

  • New tool reliably compares mortgage rates, avoids overcharges Mar 23, 2013 5:15 AM
    The process of deciding whether to refinance a mortgage in order to lower costs involves four steps. What has been conspicuously missing in the marketplace has been one reliable information source supporting all four steps in the refinance process, but that is no longer the case.

  • Eliminate ‘profit illusion’ from mortgage lending Mar 16, 2013 4:38 AM
    The subprime debacle arose out of a housing bubble within which decision-makers assumed that house prices would rise indefinitely. The profit illusion can be eliminated by requiring that reserves be set aside on each loan based on its risk. This is "transaction-based reserving," or TBR. It is common practice in the insurance industry, including mortgage insurance, where it works very well.

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