The FHA announced Tuesday it was halting its risk-based pricing structure beginning October 1 in accordance with the new housing bill and raising its upfront mortgage insurance premiums.
Beginning October 1, FHA will charge an upfront premium of 1.75 percent for purchase money mortgages and full-credit qualifying refinances, 1.50 percent for streamline refinances, and 3.00 percent for FHASecure mortgages.
Annual premiums, paid monthly, will range between .50 percent and .55 percent for most loans.
The new fixed structure is up from the 1.5 percent and .50 percent that was being charged in the “one size fits all” approach before the FHA adopted risk-based pricing on July 14.
The risk-based system set premiums anywhere between 1.25 percent and 2.25 percent, with annual premiums up to .55 percent.
It is assumed this system will be back in place come October 1, 2009, when the moratorium outlined in the housing bill expires.
Mortgages with FHA case number assignments falling between July 14 and September 30, 2008 will maintain the risk-based premium structure for the life of the loan.
The elimination of seller-funded down payment assistance tied to FHA loans is also slated for October 1.
FHA Commissioner Brian D. Montgomery recently noted that seller-funded loans led to $4.6 billion in “unanticipated long-term losses,” claiming they went into foreclosure three times more frequently than loans in which borrowers supplied the down payment.
The Mortgage Bankers Association convened in San Francisco this week for its 95th annual convention, an event marked by protests and angry sentiment from passer-bys.
During a Monday morning presentation involving Fannie and Freddie CEOs, the co-founder of activist group “Code Pink” jumped on stage and argued for a foreclosure moratorium, claiming case-by-case foreclosure prevention doesn’t work.
Interestingly, Freddie CEO David Moffett responded to the question, noting that measures used in the past weren’t viable, but said they still needed to figure out a way to assist homeowners on a case-by-case basis.
Outside the event, protesters could be seen holding signs saying, “Honk if you hate Mortgage Bankers!” and “Jail them, don’t bail them!”
Meanwhile, ordinary citizens walking by the event who spoke with San Francisco Chronicle reporters attributed the mortgage crisis to greed, arrogance, and incompetence, among other things.
Inside, things weren’t much rosier, as MBA chairman Kieran Quinn said we are currently experiencing the “most painful deleveraging in the history of finance.”
The Chronicle noted that attendance continues to plummet at the annual event, with only 2,500 guests at this year’s conference, down from 4,000 last year and 5,500 in 2006.
And just 774 exhibitors are presenting their wares this year, down nearly fifty percent from the 1,336 seen last year.
I suppose it makes perfect sense, with mortgage applications down considerably from last year’s dismal numbers and delinquencies and foreclosures continuing to inch up.
And with tickets for the event ranging between $950 and $2,250, you could understand why attendance is plummeting.
Strong household spending and a resilient labor market could help the U.S. economy avoid a recession in 2024, the American Bankers Association’s Economic Advisory Committee says.
Jamie Kelter Davis/Bloomberg
Resilient household spending and a strong labor market will likely help the U.S. economy avoid a severe recession, according to a new forecast from economists at some of the country’s biggest banks.
The economy is poised to grow at a rate of less than 1% through the second quarter of 2024, the American Bankers Association’s Economic Advisory Committee said Monday. That is low compared with the second quarter rate of 4.1% but well above the dire predictions some economists once harbored for 2024.
“The odds of a soft landing have improved quite dramatically in the near term,” said Simona Mocuta, chief economist at State Street Global Advisors and the chair of the ABA’s committee of economic advisors.
The specter of recession has weighed on banks for close to 18 months, since the Federal Reserve began its campaign of rate hikes in March 2022. The health of the U.S. economy plays a key role in the profitability of banks, so the prospect of a contraction in economic growth raised red flags for banks large and small. The likely avoidance of one of the harsher economic scenarios — a severe recession — is good news for banks, which are also contending with generally tighter profit margins and increasing competition for customers.
Robust consumer spending has helped boost the U.S. economy so far in 2023, the ABA economists noted. Low unemployment and strong wage gains mean households have been able to keep up with many of their spending habits, even as inflation has persisted.
Inflation is also expected to improve in the coming quarters. Big-bank economists anticipate inflation levels to continue to cool to an annualized rate of 2.2% by the second quarter of 2024, close to the central bank’s target rate of 2%.
Although the overall economic picture is brighter, economists warn that there are several lingering threats that could make it more difficult for the U.S. economy and banks alike to grow.
The economists expect businesses to invest less capital in the short term, which could weigh on loan growth at banks. Loan growth at U.S. commercial banks increased 4.5% in the second quarter from a year earlier, according to Federal Deposit Insurance Corp. data.
About 4.4% of the labor forcewill be unemployed by the end of 2024, according to the economists’ forecast. A higher unemployment rate could make it more difficult for laid-off workers to make loan payments, potentially boosting the level of charge-offs at banks.
Credit quality reached historic lows during the pandemic, when many creditors offered grace periods and other breaks to struggling borrowers until the economy got back on track. Analysts expect asset quality to continue to deteriorate, with loan-loss increases spreading beyond the credit card and commercial real estate arenas.
“Investors are eager to learn how much higher net charge-offs are expected to go, especially with the student loan moratorium coming to an end,” Jason Goldberg, managing director and senior equity analyst at Barclays, wrote in a recent research note.
Certain elements of the ABA’s advisory committee’s forecast provide a strong contrast to the details issued when the last forecast was issued earlier this year, when economists believed the U.S. was on the edge of a mild recession.
“The tone of the conversation certainly feels much more positive today,” Mocuta said.
The ABA committee includes economists from some of the country’s largest banks. The group meets twice a year to discuss the economic environment and issue forecasts on economic growth, inflation and the trajectory of interest rate moves.
This year’s committee features representatives from U.S. Bank, Wells Fargo, JPMorgan Chase, State Street, Comerica Bank, BMO, TD Bank, PNC Financial Services, Deutsche Bank, First Horizon, Regions Financial, Northern Trust, Wilmington Trust and Morgan Stanley.
Notice of default filings fell a whopping 61.8 percent during September in the state of California, largely due to new legislation that makes it more difficult for lenders to foreclose on borrowers.
The new law, SB 1137, requires mortgage lenders to attempt to make contact with their borrowers, and then wait 30 days after satisfying specific due diligence requirements before initiating foreclosure proceedings.
If a notice of default was filed before the bill was enacted, the lender would need to provide evidence that attempts were made to contact the borrower before taking action.
The sudden impact of the bill is clear, with only 16,352 NODs filed last month, down from 42,790 in August and 36.4 percent less than in the same period a year earlier.
Notice of trustee sales, the final step in the foreclosure process prior to auction, also decreased 47.3 percent from August to just 19,116, but were still up 33.9 percent from September 2007.
There were a total of 23,409 foreclosure sales during the month, a 163.2 percent increase from the same period a year earlier, but 12.4 percent below August’s numbers.
“CA State Senate Bill 1137 has rendered analysis of current activity against prior foreclosure levels useless in understanding market conditions,” said Sean O’Toole, founder of ForeclosureRadar, who provided the September numbers, in a statement.
“What is important to watch now, is how quickly lenders and trustees adjust to the new law. While it is unlikely foreclosures will return to previous levels, given the new requirements; we expect SB 1137 to have no long term impact beyond delaying the foreclosure process for homeowners, and slowing the overall recovery.”
O’Toole, like many of other critics of foreclosure moratoriums, believes such measures will simply delay the inevitable and cause a spike in foreclosure activity further down the line.
Just yesterday, presidential hopeful Barack Obama called for a 90-day foreclosure moratorium for all lenders receiving aid as part of the $700 billion bailout package.
Citi has become the latest large bank to step up its loan modification efforts, putting in place a new streamlined approach and extending a foreclosure moratorium for select borrowers.
The New York-based bank has launched its so-called “Citi Homeowner Assistance” program, which over the next six months, will reach out to 500,000 at-risk homeowners who are not currently delinquent, but may need assistance in remaining that way.
The effort is expected to result in loan workouts of approximately $20 billion in underlying mortgage balances, with the focus on borrowers in areas that are expected to “face extreme economic distress.”
Loan counselors in so-called “Borrower Relief Centers” will preemptively reach out to customers in high-risk areas, where home prices are falling and unemployment rates are high.
Citi will also put the freeze on foreclosures for an unknown number of “eligible borrowers,” defined as those with owner-occupied residences seeking to retain their homes who have sufficient income and are working in good faith with the bank to find a solution (loan must also be owned by Citi, not just serviced).
The ban and mortgage lender’s streamlined loan modification program is similar to the FDIC/Indymac model, reworking mortgages to affordable levels through mortgage rate reductions, extension of term, or forgiveness of principal.
Since early 2007, Citi has helped roughly 370,000 families avoid foreclosure, representing more than $35 billion in total underlying loan value.
And this year, the company said loss mitigation efforts have kept about four distressed borrowers in their homes for every foreclosure completed.
Shares of Citi were off 53 cents, or 4.66%, to $10.69 in midday trading on Wall Street, hitting a fresh 52-week low in the process.
Despite this, the bank is reportedly on the prowl to scoop up a regional bank after losing Wachovia to Wells Fargo last month.
The FHFA has announced details of a streamlined loan modification program similar to the one in place at Indymac Federal Bank, aimed at helping seriously delinquent borrowers.
The aptly named “Streamlined Modification Program” is a collaboration of the FHFA (Fannie and Freddie’s new regulator), FHA, Treasury, and Hope Now (along with its 27 servicer partners), but does not provide any direct government assistance.
To be considered for the program, borrowers must own and occupy the subject property as their primary residence, be 90 days or more behind on their mortgage payments, and must not have filed for bankruptcy protection.
They must also prove that they have experienced a “hardship or change in financial circumstances” and did not purposely default on the mortgage to receive assistance.
Eligible mortgages include Freddie Mac, Fannie Mae or portfolio loans with participating investors.
Under the program, borrowers will work with their servicers to establish an affordable monthly mortgage payment, determined as no more than 38 percent of the household’s monthly gross income (debt-to-income ratio).
The affordable payment will be achieved by reducing the mortgage rate on the loan, extending the life of the loan, or deferring payment on part of the principal, but no principal reductions will be permitted.
While no foreclosure moratorium has been put in place, borrowers who remain in contact with their servicers during the modification process may have any planned foreclosure sale suspended.
To encourage participation, servicers who take part will receive $800 for each loan modified through the program.
FHFA director James B. Lockhart noted that Fannie Mae and Freddie Mac own or guarantee nearly 31 million mortgages, representing almost 60 percent of all single-family mortgages in the U.S., but account for just 20 percent of serious delinquencies.
Private-label securities, those sliced and diced on Wall Street, account for 60 percent of serious delinquencies, despite their 20 percent share of the mortgage market.
The program is expected to be launched by December 15th.
Well, it looks as if a foreclosure moratorium has made its way to the Sunshine state, though it’s not as cut and dry as similar proposals.
The program is voluntary, and relies on the member institutions of the Florida Bankers Association and the Florida Credit Union League to hold off on foreclosures and foreclosure sales for 45 days on primary residences.
At this point, it’s too early to tell who will be onboard, but it’s likely to get good support considering all the related action by larger lenders and individual states nationwide over the past few weeks.
Last week, ING Direct offered to suspend foreclosures until March, following similar action by Chase, Citi, and a number of other large mortgage lenders.
Fannie Mae and Freddie Mac have also put the freeze on foreclosures through the holidays, which should allow about 16,000 families to stay in their homes, at least in the short term.
Florida is one of the hardest hit states in terms of foreclosure activity, ranking third in rate of foreclosure (1 in every 157 homes) and second in number of foreclosure filings (54,324 in October), just behind California.
Default filings have plummeted in California thanks to a new piece of legislation that makes if more difficult for lenders to foreclose on borrowers.
The new law, SB 1137, requires lenders to spend more time and effort on making contact with at-risk borrowers before serving foreclosure papers.
It still remains to be seen whether any of these initiatives will have a lasting and meaningful impact, though a low mortgage-rate environment coupled with a bit of extra time could allow some to get into more affordable mortgages.
Foreclosure filings were reported on 279,561 U.S. properties in October, a five percent increase from the previous month and a 25 percent increase from the same period a year earlier, RealtyTrac reported today.
However, thanks to recent legislation, foreclosure filings have dropped precipitously in key states, most notably, California.
In the Golden State, overall foreclosure activity was down by double-digit percentages for the second straight month, and default filings were a whopping 44 percent below year-ago levels.
Despite this, October marked the 34th consecutive month foreclosure filings have risen, with one in every 452 U.S. households receiving a notice during the month.
However, that streak may soon come to an end, as evidenced by the growing number of foreclosure prevention initiatives being carried out by both individual mortgage lenders and the government.
“While the intention behind this legislation — to prevent more foreclosures — is admirable, without a more integrated approach that includes significant loan modifications, the net effect may be merely delaying inevitable foreclosures,” said James J. Saccacio, CEO of RealtyTrac, in a release.
“And in the meantime, the apparent slowing of foreclosure activity understates the severity of the foreclosure problem in these states.”
As usual, Nevada, Arizona, and Florida posted the top state foreclosure rates, and each saw both a double-digit month-to-month and year-over-year increase, largely because no legislation is in place to artificially slow the pace.
Webster Bank Extends Foreclosure Moratorium
Webster Bank has become the latest mortgage lender to freeze foreclosures, placing a 90-day moratorium on Webster-owned mortgages and expanding its mortgage assistance program to carry out more loan modifications.
The bank will temporarily suspend foreclosure activity for a minimum of 90 days for all qualified borrowers who are more than 30 days in arrears as of November 4, who own their home as a principal residence and are able to document income to support an affordable mortgage payment.
Webster joins a growing number of banks and lenders who have recently pledged similar support, including both Citi and Chase, who initiated like programs over the past week and change.
Former lending giant Countrywide Financial has agreed to refund $11.5 million in cash to overcharged borrowers as part of a settlement with the North Carolina Office of the Commissioner of Banks.
An investigation launched in 2007 found that a total of 3,800 borrowers were illegally overcharged on first mortgages, and another 1,000 on second mortgages.
Those affected by the settlement will receive checks for any illegal charges identified in the investigation within the next 60 days.
Additionally, Countrywide has agreed to provide $2 million in grants to North Carolina nonprofit housing counseling agencies active in foreclosure prevention, and another $900,000 to the Nationwide Mortgage Licensing System.
If you think you may be due a refund, you can contact the banking commissioner’s consumer hotline at 888-384-3811.
The Calabasas, California-based mortgage lender has faced a number of lawsuits in recent months, with the latest coming from investors in Countrywide mortgages who claim proposed loan modifications leave them footing the bill.
The company has also been sued by six state Attorney Generals for alleged deceptive lending practices, including those in California, Connecticut, Florida, Illinois, Indiana, and West Virginia
In late July, the city of San Diego accused Countrywide of consumer lending fraud, which it claimed pushed a sizable number of city residents to the brink of foreclosure.
As part of the settlement, San Diego City Attorney Michael Aguirre called for a foreclosure moratorium for all owner-occupied properties involving a Countrywide-issued subprime loan.
I think we’ll be hearing from this company for years to come…
While mortgage delinquencies inevitably continue to rise, foreclosure starts in relation to those figures have fallen, according to the FHFA September Foreclosure Prevention Report released today.
The report, which covers Fannie Mae and Freddie Mac’s 30.7 million residential mortgages, revealed that loans 60+ days delinquent (including those in BK and foreclosure) increased to 2.21 percent of the total portfolio as of the end of the third quarter.
That figure is up from 1.46 percent as of the end of the first quarter and 1.73 percent as of June 30.
Despite the rise in borrowers falling behind on their mortgage payments, foreclosure starts as a percent of loans 60+ days delinquent fell from 8.29 percent in the first quarter to 7.12 percent in the third quarter.
And loans for which foreclosure was completed stabilized at 2.55 percent between the second and third quarter after rising from 2.41 percent in the first quarter.
Fannie Mae’s Homesaver Advance Making Numbers Look Pretty?
However, loan modifications completed fell from 15,372 in the second quarter to just 13,450 in the third quarter, though loans reinstated via Fannie’s Homesaver Advance program skyrocketed, and accounted for 45 percent of all loss mitigation activity.
But it’s unclear whether an unsecured personal loan extended to an ailing borrower to temporarily cure a first lien loan will be enough to head off foreclosures over the long haul.
The number of more favorable (grain of salt) loan modifications completed in the third quarter have actually fallen from both the first and second quarter, and averaged just over 4,000 a month in the latest quarter.
Meanwhile, completed foreclosure sales averaged more than 15,500 a month in the third quarter, up about 5,000 per month from earlier this year.
So unless Homesaver Advance sees some serious long-term success, these seemingly optimistic numbers are nothing more than a false calm before a very real storm.
And the numbers look to get even more muddled thanks to the foreclosure moratorium imposed by the pair over the holidays.