Mortgage Rates Hovering At Historic Lows

Although most types of mortgages fell a bit last week, experts are predicting a rise in rates in the upcoming weeks due to positive trends in the economy and stock market.

30-year fixed: twelve weeks under 4.0 percent

Last week, Freddie Mac reported that rate for 30-year fixed mortgages dropped to 3.87percent — the lowest in over 50 years. By the end of the week, though, the rate climbed a bit to reach 3.95 percent. (via SFGate)

Rising mortgage fees could impact rates

With rates so low, borrowers may not notice or care so much about rising fees associated with getting a mortgage right now. Long-term, however, these rising fees could signal the increasing difficulty — and cost — of securing government backed mortgages.

For instance, lenders pay a guarantee fee to Fannie Mae and Freddie Mac that will be increasing 1/10^th of a percentage point on April first — something banks will pass on to its borrowers through an interest rate increase of around 1/8^th of a percentage point.

If this fee increase does signal a trend in rising mortgage costs, borrowers could be looking at higher and higher origination costs for their loans. (via WSJ’s MarketWatch)

The “Robo Settlement” — What’s in the Details?

Who Wins and Who Loses in the $26 Billion Deal

The $26 billion dollar settlement announced earlier this month the Department of Justice and and Attorneys General from every state with the exception of Oklahoma is being hailed a significant victory for consumers and a step forward for the housing market.

Major Lenders Involved in the Settlement

There are five major banks involved in the settlement: Wells Fargo Mortgage, Bank of America, JP Morgan Chase, Ally Financial and Citigroup. These five are responsible for the entire $26 billion, though an as-yet-unnamed additional nine other, smaller, lenders can contribute around another $7 billion to the settlement if they choose.

How Much the Banks Are Really Shelling Out

The reality of the settlement is that the five lenders are directly responsible for paying $5 billion in cash to be allocated to the Feds and the 49 participating states. Another $500 million to $1 billion will be paid by Bank Of America Mortgage to settle claims against its subsidiary, Countrywide — $500 million payable immediately and another $500 million to be paid over three years if certain loan forgiveness targets are not met.

Who’s Paying the Balance

Of the remaining $20 billion, $3 billion will be provided by the banks in the form of mortgage refinance loans for current borrowers. The largest portion of the settlement, $17 billion, will be funded by reducing the returns to investors who bought mortgage backed securities from the banks.

Who Stands to Benefit

Some existing homeowners, assuming their loans are not GSE or FHA-backed, with troubled mortgages might see their balance reduced by up to $20,000 — those principal reductions are expected to take $17 to $20 billion of the settlement. Another $3 to $5 billion is expected to be distributed as checks to around 750,000 former homeowners whose homes were foreclosed on between 2008 and 2011. Remaining funds will be directed toward refinance support and foreclosure preventions programs.

Breaking it Down

The $5 billion for customers who lost their homes due to improper foreclosure works out to about $2,000 per homeowner.  The banks, although they seem to have gotten away with a minimum penalty, did not win much if any legal protection as a result of the settlement — states and homeowners can still can after them individually, as can the Federal Government. With the current estimate of negative equity in the housing market hovering around $700 billion, $26 billion seems like barely a drop in the bucket.

Why the Crisis In Greece Matters Here

How US Mortgage Rates Are Impacted by the Eurozone Economy

Although Greece seems far away — and far from involved in the mortgage and housing market challenges faced in the U.S., the fact is that our economies are linked.

Simply put, Greece is bankrupt, which means it can’t pay its debts, including those made by foreign governments and banks.

Although the direct exposure of U.S. banks to bad debt in Greece is not huge, when you combine Greece with four other European countries facing the same challenges (Portugal, Italy, Ireland and Spain — together with Greece, they are referred to as the PIIGS), you have a much more daunting problem.

Banks with defaulting loans face a decreased liquidity challenge — as protecting and preserving existing capital becomes more of a priority. Last week saw several of the Big Five banks calling a halt to three and four-year fixed rate specials due to “global economic concerns.” On the verge of recovering from the last bout of bad loans (our own mortgage crisis), a looming debt crisis — even if it occurs thousands of miles away — is not what our economy needs.

In the coming weeks and months, the Euro Zone’s response to the crisis in Greece, and in the other PIIGS, will trickle down with some force on our economy, impacting loans and mortgages and the housing market recovery.

What the Drop In Unemployment Means For Housing Market

Home sales rise as home prices continue to fall

 

 

Unemployment rate falls to 8.3%

The unemployment rate in January of this year fell to to its lowest point in nearly three years, since February 2009.  This, along with the number of people jobless (12.8 million) — also the lowest in nearly three years — are good indicators that the economic recovery is impacting the job market. (via The New York Times)

Monthly job creation rate better than it’s been in 5 years

Averaging 163,000 jobs a month, the U.S. job creation rate is the best it’s been since before the recession began — the best 12 month report since 2007. (via WSJ Blogs:Real Time Economics)

Home ownership levels still low, as are home prices

Home ownership continues to drop, reaching 66 percent in the fourth quarter of 2011, according to the U.S. Census Bureau. The peak of home ownership in the country was in the fourth quarter of 2004, when home ownership reached 69.2 percent. Standard & Poor’s/Case-Shiller index shows that average U.S. home prices are at mid-2003 levels. Many experts feel that prices will stabilize sometime in 2013. (via USA Today)

Home sales are on the rise

For the third month in a row last December, however, home sales rose. David Blitzer of S&P noted that home prices would be the last thing to improve, after home sales increase and inventory decreases. As the economy recovers and home buyers begin to have increased access to credit, depressed home prices will continue to encourage home sales, eventually kick-starting the housing market recovery. (via USA Today)