Change in law to further thin mortgage brokers' ranks

Thousands of mortgage brokers in Iowa have looked for new careers as the housing market collapsed over the past three years, and a new Federal Reserve rule will likely drive even more of them out of the business of setting up homebuyers with loans.

The Dodd-Frank Act ordered the Fed to create a rule that prohibits mortgage brokers and loan officers from making money based on a higher interest rate for the homebuyer - what's known in the mortgage industry as the yield spread premium.
In January 2008, Iowa had 3,874 licensed mortgage loan originators - mortgage brokers and loan officers. Now there are 1,175, according to the Iowa Division of Banking. The new rule has mortgage brokers - already beleaguered - so frightened about the future of their business that their trade groups have filed lawsuits to stop the Fed from imposing the rule, which is set to go into effect Friday.

The rule is one in a series of battles - each with distinct local implications - set off by the landmark financial reform legislation signed into law by President Barack Obama in July.
Here's what's at stake: When people borrow money to buy a house, they usually pay a loan officer or an independent mortgage broker to arrange the loan. The obvious payment is an upfront fee based on the amount of the loan. For instance, brokers generally charge a 1 percent origination fee. On a $200,000 home loan, the broker would get $2,000 for his or her services.

There's another way mortgage brokers get paid, and the Fed wants to do away with it.
Brokers can be paid a portion of the borrower's interest rate - in a lump sum, by the lender. Any interest rate percentage points above the best possible rate the borrower qualifies for - the yield spread premium - can be paid to the broker.

The Fed's problem with this is that it motivates the broker to lock the borrower into a higher interest rate. The larger the yield spread premium, the more money the broker can make.

"When the yield spread premium is used to compensate the loan officer or mortgage broker's employee, that employee has a personal incentive to deliver a loan with a high interest rate in order to maximize his or her own compensation," the Fed wrote in its response to the lawsuits. "This is in direct conflict with the consumer's interest in paying the lowest interest rate possible for which the consumer qualifies."
Consumers often don't know about the yield spread premium, and mistakenly believe the flat fee they pay their broker is the broker's only compensation, the Fed argues in its court filing.

Mortgage bankers say the rule is well-intentioned. But they think it will further decimate the ranks of independent mortgage brokers, leaving consumers with fewer choices.

"Do I think there will be less brokers involved in transactions as a result of this? Yeah," said Dan Vessely, president of the Iowa Mortgage Bankers Corp.
Mortgage brokers argue the yield spread premium is a tool that gives them flexibility as they mediate between borrowers and lenders. For instance, a broker can discount the closing costs in exchange for a higher interest rate on the loan.

This might be desirable for homebuyers if they're short on cash or if they calculate they'll sell or refinance before the higher mortgage payments catch up with the front-end savings.

Tyler Osby, who used to be a mortgage broker and now is a branch manager for a mortgage banker, said mortgage brokers who abused the yield spread premium will be driven out of business. He's not sure what to think about the rule, and is waiting to see how it's implemented.
"If someone is looking to buy or refinance a house, these changes will likely offer lower rates and costs," Osby said. "But depending on the lender you're working with, you may have less flexibility on how to structure the loan."
 (Source http://www.desmoinesregister.com)

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RBA Warns Australian Banks Lowering Mortgage Lending Standards

The central bank is warning that Australian lenders have begun to lower their mortgage lending standards as they seek to achieve the turbo charged pre financial crisis growth rates, an objective the RBA says is unrealistic.
The Reserve Bank of Australia says that as lenders compete for new mortgage borrowers, they were increasing their maximum loan to valuation ratios.
“Increasing competition in housing loans is starting to put pressure on lending standards,” the bank said.
Smaller regional lenders, building societies and credit unions have all been trying to re capture some of the market share they ceded to the big four lenders by offering cut price mortgage deals. This has resulted in a number of mortgage borrowers refinancing their home loans to take advantage of lower interest rates offered by second tier lenders.
“If industry participants were to attempt to sustain earlier rates of domestic credit growth, they could be induced to take risks that may subsequently be difficult to manage,” the RBA said.
Despite the decline in lending standards, the central bank says that the proportion of home loans that had become delinquent remains unchanged at a benign at 0.7 per cent.
The central bank has also been following the performance of home loans to property buyers who took advantage of the first time home buyers grant that was introduced as part of the Federal government’s stimulus package in response to the global financial crisis.
The RBA says buyers who took advantage of the grant typically had lower average incomes and borrowed a larger proportion of the purchase price, and relied on record low interest rates compared to the typical mortgage borrower.
However since then interest rates have been hiked several times, and according to the central bank, borrowers who took advantage of the grant, do not seem to be suffering from a greater degree of delinquency compared to any other type of first home buyers and are beginning to pay off their debts.
 (Source http://www.money-au.com.au)

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Federal Home Loan Bank of New York Announces 2010 Results

NEW YORK -- The Federal Home Loan Bank of New York today released its financial results for the year ended December 31, 2010.
"The Bank posted a solid and consistent performance throughout 2010," said Alfred A. DelliBovi, president and CEO of the Federal Home Loan Bank of New York. "The Bank continued to provide a reasonable dividend, build retained earnings, and provide the liquidity our local member-lenders need to support housing and jobs."
Highlights from 2010 include:
• Net income for 2010 was $275.5 million, and return on average equity ("ROE") was 5.24 percent. These figures compare to record net income of $570.8 million and ROE of 10.02 percent in 2009. The decrease in net income was due to lower gains from derivatives and hedging activities as compared to significant gains from these activities in 2009. In addition, the Bank experienced lower average balances of advances and MBS as compared to the same period a year ago, as well as some compression of spreads.
• As of December 31, 2010, total assets were $100.2 billion, a decrease of $14.2 billion, or 12 percent, from total assets of $114.5 billion as of December 31, 2009. The decrease in total assets was primarily a result of a decline in advances of $13.1 billion, or 14 percent, during the period, from $94.3 billion as of December 31, 2009, to $81.2 billion as of December 31, 2010. This decrease in member demand for advances was driven by economic factors such as continued growth in members' deposit bases and the continued availability of government funding and liquidity options.
• As of December 31, 2010, total capital was $5.1 billion, a decrease of $459 million, or 8 percent, from $5.6 billion as of December 31, 2009. The Bank's unrestricted retained earnings increased during 2010 by $23 million to $712 million as of December 31, 2010. At December 31, 2010, the Bank met its regulatory capital-to-assets ratios and liquidity requirements.
• The Bank paid stockholders a cash dividend on February 18, 2011, at a rate of 5.80 percent (annualized) for the fourth quarter of 2010. The cash value of this dividend was approximately $67 million. The dividend rate paid for the first, second and third quarters of 2010 was 4.25 percent, 4.60 percent, and 6.50 percent, respectively. The full-year average dividend rate paid was 5.29 percent, and the total cash value for all four quarters was approximately $252.0 million.
• The Bank set aside $31 million for the Affordable Housing Program ("AHP") for the year endedDecember 31, 2010, a decrease of $33.2 million, or 52 percent, from a record $64.3 million for the year ended December 31, 2009. In 2010, the Bank awarded a record $62.3 million in AHP grants to 116 affordable housing projects.
• The Bank published its 2010 audited financial results in its Form 10-K filed with the Securities and Exchange Commission on March 25, 2011.
About the Federal Home Loan Bank of New York
The FHLBNY is a Congressionally-chartered wholesale bank. It is part of the Federal Home Loan Bank System, a national wholesale banking network of 12 regional, stockholder-owned banks. The FHLBNY currently serves financial institutions in New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. The mission of the FHLBNY is to support the efforts of local members to make home mortgages to families of all income levels and provide credit to spur community growth.
(Source http://newyork.citybizlist.com)

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There May Be More Options For Loan Modifications Than You Think

By Lynn Ashton


Despite problems within the modification program and with various servicers, homeowners are still being advised to look at these options as soon as difficulties arise as there are not only modification efforts in place but extension programs and housing assistance available directly from states that could help keep more individuals in their home even though federal and private modifications have been highly criticized. Understandably, some homeowners may still face foreclosure even with all these options in place, but with more foreclosure prevention and foreclosure alternative plans being made available, homeowners may have a better opportunity in the coming months to avoid the loss of their home if their financial situation sees trouble to the point where they can no longer make their mortgage payment.

Be Informed

First of all, you need to know why your proposal has been rejected, as this will give you a through idea of what exactly went wrong. Once through with that, look for the guidelines and parameters that the bank or financing agency uses in order to accept proposals under this program. Do a bit of research, surf the web and the numbers and several other important facts related to the program would be before you. Use them and prepare a more professional and economically viable proposal that can be easily acceptable to the bank.

Mixed Reviews

The home loan modification foreclosure prevention plan has helped homeowners find more for ability in their mortgage payment but there have also been issues surrounding homeowners who have been denied home loan assistance and a lower monthly mortgage payment. Obviously, numerous financial institutions that are participating in the federal modification program have had complaints by homeowners who feel they may have been unjustly denied a home loan modification plan or, in some cases, homeowners believe that servicers have not properly adhered to modification program guidelines and want information on why their particular application was denied for HAMP assistance.

 (Source http://dailynewspulse.com)

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New Loans Could Raise The Price Of Homeownership

by Chris Arnold

Since the housing bubble collapsed, it's been harder for many Americans to qualify for a home loan. But soon, it might get even more difficult.
The government is reshaping the mortgage market. And right now there is strong political support for requiring much bigger down payments for most home loans. Powerful congressional Democrats and Republicans support the move, as does the Obama administration.
In a matter of weeks, federal regulators are expected to unveil new rules for home loans. The buzz is that the rules could translate into mandatory 10 percent or even 20 percent down payments for most new loans in the U.S., which would be a significant change.
A Mandatory Down Payment
For the average-priced home that would mean saving $18,000 to $36,000 for a down payment. Some experts think that's a good idea.
"We put too many people into houses they weren't qualified to buy, they didn't have income [and] they didn't have skin in the game," says Edward Pinto, a fellow with the American Enterprise Institute.

The Face Of The New Mortgage?

The government's 10 percent or 20 percent down payment rule would be for loans that could be considered "Qualified Residential Mortgages" under the Dodd-Frank Act.
These "QRM" loans would be exempt from requirements that banks retain a portion of the risk for the loans after they issue them. The idea is that it would make banks more careful about lending.
But industry and housing advocates both predict the result would be that very few non-QRM loans would actually be offered by the banks. That's because the banks wouldn't want to set extra capital aside to cover potential losses from loans that they retain risk on.
So, the idea is that these capital requirements would push almost all loans to be QRM loans. Therefore, most loans would require a 10 to 20 percent down payment.
— Chris Arnold

He thinks requiring 20 percent down is probably going too far and favors a 10 percent down payment rule. He says that would be good evidence of a person's ability to handle owning a house.
"And if people know they need the down payments, they'll start saving for them," he says. "You can't just buy lattes if you need to be saving for down payments."
A Return To The 1960s?
Some economists and many housing advocates don't like the proposed down payment rules.
They say this would set the country back more than 30 years in terms of the ability for minorities and people without family wealth to buy houses.
Mike Calhoun, the president of the nonprofit Center for Responsible Lending, estimates it would take seven years for the average American to save up even a 10 percent down payment.
"If it made a big difference in the performance of mortgages it would be worth it," he says. "But the real key is not the down payment."
Calhoun says some loans with smaller down payments perform quite well. He says the housing bubble and subsequent foreclosure mess happened mainly because lenders got sloppy in other ways. For example, banks gave out no-document loans where they didn't even check to see if a homebuyer made enough money to pay back the loan.
"All those other safeguards were totally abandoned," he says.
Calhoun says "bailout shock" is the reason why the big down payment rule is so popular right now among both Democrats and Republicans
"The taxpayers got stuck with a big bailout, and so people sort of want to throw the baby out with the bath water and say, 'Let's never do anything like that again.'"
The Death Of 30-Year Fixed-Rate Loans?
The down payment is just one big change. Lawmakers are talking about dismantling the government-backed mortgage finance giants Fannie Mae and Freddie Mac. And Pinto, of the American Enterprise Institute, says that for decades Fannie and Freddie have subsidized one of the bedrocks of the current mortgage industry: the 30-year fixed-rate loan.
"That exists because the government subsidizes it," he says.
Going forward, banks might prefer to push borrowers toward shorter-term loans instead, perhaps 20-year fixed-rate loans. In most other countries, loans with shorter-term fixed rates are much more common. But going down that road could also make it more expensive to buy a house.
Calhoun, of the Center for Responsible Lending, doesn't like that path. But Pinto says in the long run it might help homeowners.
"The problem with the 30-year loan — it amortizes incredibly slowly," Pinto says. In other words, homeowners pay a ton of interest up front in the first years, and it takes a long time to pay off what they owe.
Twenty-year loans do have moderately higher monthly payments, but Pinto says borrowers would quickly find themselves owning a bigger chunk of their houses.
(Source http://www.npr.org )

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