Posts Tagged ‘Freddie Mac’

HAMP Modifications May Get a Boost

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Mortgage servicers continue to modify 25,000 loans a month under the government’s HAMP program, but that pace could pick up later this summer as new changes to the effort kick in.

To date, servicers have completed roughly 930,000 modifications under the Home Affordable Modification Program with 760,000 homeowners still current on those loans.

Recently unveiled changes could open the door for 1.5 million struggling homeowners (and real estate investors) to be eligible for a HAMP modification, according to analysts at Keefe, Bruyette & Woods.

The Treasury is working on guidance to allow modifications of single-family loans on rental properties for the first time.

The new guidance will relax HAMP’s debt-to-income cutoff, reflecting borrower obligations to make payments on second liens and medical bills. HAMP currently excludes borrowers with mortgage payments that are less than 31% of their income.

Treasury also is increasing incentive payments to investors, including Fannie Mae and Freddie Mac — when they agree to reduce the principal amount on a delinquent loans.

KBW managing director Bose George is skeptical the GSE regulator will allow principal reductions on Fannie/Freddie loans. However, principal reductions would make more underwater borrowers eligible for a HAMP modification.

Treasury wants to issue the new HAMP guidelines this month, but stronger modification results might not be seen until August or September.

“Treasury expects that homeowners may be evaluated under the new program beginning in May for trials starting June 1,” the department said in releasing its December report on HAMP activities Monday.

The new HAMP report shows 79,300 borrowers are currently in payment trials. In December, 23,300 borrowers completed the three-month trials and were granted a permanent modification. In November, servicers completed 26,900 permanent HAMP modifications

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Higher interest rates likely Soon??

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The Federal Reserve (the Fed) took aggressive steps during 2009 and early 2010 to drive mortgage interest rates down in order to encourage more people to buy homes and revive the real estate industry.

To understand how they did this we need to know what actually controls mortgage interest rates for the home buyer.

 It is the price of Mortgage Backed Bonds (MMB’s)and NOTHING else. The bulk of these are created by Fannie Mae and Freddy Mac who buy your mortgage from the Bank or Mortgage Broker who originally made it. They then package hundreds of mortgages together as a Bond and sell it off to private investors (Pension and Insurance companies are typical buyers). The proceeds from the sale are used to buy new mortgages from the Banks and Brokers. This virtuous circle is the motor that drives the Real Estate market.

The Private Investors stopped buying when they realized that a lot of the individual mortgages inside the Bonds were badly designed (Sub-Prime) and payments from were less reliable than they had been told.

When investors stop buying MMB’s the Mortgage Lenders have no money to lend and the Real Estate Market freezes up.

One solution would have been to increase the interest rate on new mortgages in order to offer a higher rate to the investors to compensate for the higher risk. In normal times this is how the market works. In the current circumstances the Investors were not going to buy at any price.

In early 2009 the Fed came to the rescue to avoid a total shut down of the housing market. They began buying these MMB’s in huge numbers and aaccepted very low interest rates. This restored the supply of money available to make new mortgages at historically low rates, and stabilized the whole residential real estate industry.

These Fed purchases have been completed and the challenge now is to attract Private Investors back as buyers for MBB’s. They are there, but will not accept the low rates that the Fed did. Therefore the interest rates paid to get a mortgage will have to go up.

Potential Buyers need to be getting serious if they want to take advantage of these historically low rates.

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