Mortgage News | Refinancing Articles

FHA loan mortgage defaults are expected to continue in high cost communities in California because of the rising number of high cost loans guaranteed by the Federal Housing Administration in the state.

The FHA has been insuring loans not only in high cost neighborhoods; it has also been insuring mortgages covering four-unit residential units purchased with very low down payments.

In a particular home loan criticized by the New York Times, three technology professionals teamed up and bought a two-unit apartment worth almost $1 million with a loan insured by FHA and with only a $33,000 down payment.

Critics said that it would be easier for the borrowers to walk out on their FHA loan if they face difficulties because they invested only $33,000.

Based on data from the Mortgage Bankers of America, the default rate for loans taken out to buy 1-to-4-unit residential properties increased to 9.6 percent of all home loans in the July-September 2009, an increase of 40 points from the April-June quarter and an increase of 265 points from last year’s third quarter.

Jay Brinkmann, chief economist of the MBA, said that the default rate for FHA loan mortgage loans has risen despite a significant rise in approved FHA loans. Over the past 12 months, the number of home loans guaranteed by FHA rose by around 1.1 million loans, increasing the denominator for computing the default and foreclosure rates.

But still, according to Brinkmann, the default rate increased. He further explained that if the newly guaranteed home loans were not the ones getting delinquent, the rate of foreclosure would be higher at 1.76 percent, above 1.31 percent if the new loans were considered.

The MBA also reported that one out of every 6 FHA borrowers was in default on their home loans as of the three-month period ended September.

In the 1930s, FHA home loans were introduced to enable low-income families unable to afford the typical 20-percent down payments to own homes. They paid a higher insurance premium, but their down payments could be lowered to just 3.5 percent.

During this recession, the FHA loan limits were temporarily increased to stimulate the declining housing market, increasing conforming limits to $729,750 for single-family homes and to $934,200 for two-unit residential properties.

In California, which has the biggest number of foreclosure homes in the country, there are over 107,000 loan mortgage accounts guaranteed by the FHA this year, many of which are expected to default and go into foreclosure.

Refinance mortgage loans now as rates fall below 5 percent again.

According to the Mortgage Bankers Association, rates for fixed-rate 30-year mortgage loans dropped below 5 percent – the first time rates fell sharply over the past 4 weeks.

The MBA also reported that the volume of mortgage loan and refinancing applications rose during the week ended October 30 by 8.2 percent to an adjusted index of 608.3 because of the drop in mortgage rates.

MBA officers explained that the 5-percent level has become a significant point among consumers, sparking home loan and refinancing applications if rates fall below it and temporarily slowing down loan applications if rates rise substantially above it.

The struggling housing market has been showing some signs of nearing stability after three years of decline, but it is still vulnerable to movements in other areas of the economy.

Ronald Temple, research co-director at New York-based Lazard Asset Management, said that it is still too early to pronounce a recovery in the housing market and it is still difficult to determine if the federal government’s intervention in the market has been effective.

Temple explained that large numbers of foreclosures will still enter the market over the coming months. He added that although currently, rates are attractive, pushing many borrowers to refinance mortgage loans and buyers to take out home loans, mortgage rates will likely increase.

Meanwhile, the National Association of Realtors said that pending sales of existing homes in September increased to their highest point in almost three years largely due to the expiration of the first time buyer tax credit at the end of November. The $8,000 federal tax credit, however, is likely to be extended based on statements from legislators over the past weeks.

According to several U.S. representatives, they will likely support a Senate proposal to extend the tax credit program through April next year. They recognize that the federal tax credit has been contributing significantly to the reduction of foreclosure homes in the market and the rejuvenation of home sales.

Additionally, the Federal Reserve assured the public that it will continue to focus on keeping home loan rates low so more Americans can buy homes or refinance their loans.

Based on MBA data, the number of borrowers who submitted loan refinancing applications increased by 14.5 percent to an adjusted index of 2,693.7 as rates were kept below 5 percent to encourage borrowers to refinance mortgage loans.

The federal mortgage loans refinancing program has produced disappointing results seven months after it was launched to help struggling homeowners who have no or little equity refinance their loans.

So far, the refinancing program has helped no more than 3 percent of its targeted number of struggling borrowers, prompting industry experts to say that the program is not enough to help many distressed homeowners avoid foreclosures.

Experts said that the poor performance of the program is an indication of how difficult it is to help the increasing number of homeowners who owe more on their mortgage than the total value of their houses.

The refinancing program is one of the major components of the federal government’s efforts to abate the growing foreclosure problem, stabilize and strengthen the housing market. However, the refinancing program has received a mediocre public attention compared with its companion program, the mortgage loans modification which motivates lenders to modify troubled loans to make them affordable for borrowers who are at risk of foreclosures.

The refinancing program is geared towards struggling borrowers who owe more on their mortgage than the total value of their homes. The program works on the premise that helping struggling borrowers refinance their loans into affordable terms would save them from future troubles.

The program involves suspending the traditional equity requirement for refinancing in an effort to help them stave off foreclosure. Those who are eligible include homeowners who have loans guaranteed by mortgage financiers, Federal National Mortgage Association and Federal Home Loan Mortgage Corp.

So far, the program has helped nearly 130,000 out of the target 5 million borrowers that the Obama Administration has identified as eligible for the program.

According to market data, one third of the total number of borrowers in the country have mortgages greater than the value of their properties. In Washington, nearly 34 percent of homeowners had zero equity in the first quarter of this year. The problem of lack of equity is more acute for homeowners who took out mortgages in 2007 and 2006, with 60 percent of them having properties that are worth less than their mortgages.

Industry experts said that struggling borrowers do not find mortgage loans refinancing an attractive option because they end up still owing more on their mortgage than the value of their properties and could only regain equity after giving payments for several years.

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Mortgage companies are now required by Fannie Mae and other major lenders to check the federal income tax returns of home loan applicants twice during the home loan application process – the first check at the start of loan application and the second check at closing. The form used by mortgage lenders to check income [...]

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Financial mortgage loans can take banks and other institutions hostage if foreclosures continue to dampen the real estate market. Even though hope can be seen, there are still a significant number of houses that are foreclosed properties and are selling for much lower prices. This creates negative effects on the whole real estate market. Last [...]

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American home mortgage rates continue to decrease through this month. This is good news to homeowners who are having a hard time refinancing and finding new loans for their houses. The interest rates now are at record lows and are very encouraging to a lot of homeowner. The Federal Reserve Bank has been continuously working [...]

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