Some Needing Mortgage Aid Won’t Get It

When Jirina Koy heard that President Bush was announcing a freeze yesterday on mortgage interest rates, the Stockton, Calif., homeowner felt a flicker of hope.

It was quickly extinguished. After calling a nonprofit housing assistance center, Ms. Koy learned that her mortgage, for all the trouble it was causing her, was not likely to be one of those qualifying for relief.

Mortgage experts say there will be many borrowers like Ms. Koy. The exact guidelines of the rescue plan are still fuzzy, but it is clear that many of those who need aid the most will not get it. The number of households facing foreclosure in the next two years is estimated to exceed two million.

“I’m glad someone’s getting help, but I wish it were me,” said Ms. Koy, 46, who works in the state unemployment office.

She has a so-called option loan, which gives her the choice of how much to pay every month. Heavy in debt, she usually chooses the minimum. The unpaid interest and principal is added to her mortgage balance, which means her loan keeps getting bigger.

Ms. Koy’s woes were compounded by an ill-advised refinancing two years ago.

“I got all these calls from brokers all the time — ‘You could pay off debt, pay off the car loan, make extra money every month, blah blah,’ ” she said. She took out $60,000.

“The only way that would have made sense is if I had cut up my credit cards and nothing else had come up,” Ms. Koy said. “But something else always comes up.”

Ms. Koy’s husband is disabled and has not worked for a decade. The couple’s credit card debt is back up to $25,000, in part because of their daughter’s medical bills. Their three-bedroom house is worth about $250,000, but they owe much more on it.

Kimberley Williams, who owns a small bungalow in Los Angeles, might have a happier fate than Ms. Koy. She bought her home in February 2006, as the boom was peaking.

“I felt that if I didn’t get into the market, I wouldn’t be able to afford a house in California,” she said.

In November 2006, Ms. Williams refinanced. Like Ms. Koy, she got money to pay bills, including paying off her car. But her monthly mortgage payment rose to $3,011. Next December, it will jump by several hundred dollars.

Ms. Williams, a registered nurse, does not regret refinancing, but is worried about possibly being forced to sell in a declining market — or worse.

“Even people with good jobs making good money are facing foreclosure,” said Ms. Williams, 43. She plans to apply for the freeze.

While acknowledging that only a small number of stressed borrowers would be helped, Lori Gay, president of Los Angeles Neighborhood Housing Services, a nonprofit group, called the freeze “a great beginning.”

Michael Shea, executive director of Acorn Housing, another counseling agency, took a different view. “We’re disappointed that a year into this crisis the responses are so lacking in the bold leadership,” he said. “We really need an F.D.R.-like approach, and not Calvin Coolidge.”

Real estate agents in high-foreclosure areas had different opinions about whether the freeze would have an effect on queasy markets.

Jason Bosch, president of Home Center Realty in California’s hard-hit Riverside County, was pessimistic.

“We were selling $300,000 homes to people who could only afford $175,000 homes,” he said. “Even if you freeze their payments, they still can’t handle it.”

In Sarasota, Fla., a real estate agent, Jim Willig, was hopeful that at least the freeze would put a brake on some of the inventory flooding the area.

“That’s a benefit,” said Mr. Willig, who owns seven rental houses, all of them worth less than he paid.

Tom Gutierrez, bought his house in 2004, too early to qualify for the freeze.

Mr. Gutierrez, a school bus driver who lives in West Covina, Calif., is negotiating a new loan. “Many home buyers didn’t do our homework,” he said. “Maybe some kind of education will help as well.”

Senate Will Consider More Restrictive Rules on Mortgages

Christopher J. Dodd, the chairman of the Senate Banking Committee, will introduce a bill today that would impose new regulations on mortgage brokers and investment banks and restrict certain aggressive lending practices, Congressional aides said yesterday.

While similar in some respects to a measure passed by the House last month, the Dodd bill would take a harder line against mortgage brokers and Wall Street firms. The measure is expected to face significant opposition from mortgage companies and banks.

The measure is not expected to make much headway until sometime next year, and it could change based on rules that the Federal Reserve, which has broad authority to regulate mortgage lending, is expected to issue in the coming weeks.

The proposal is a change in direction for Mr. Dodd, a Democrat from Connecticut who is running for president. Earlier in the year, he said that the Fed could address most of the pressing issues in mortgage lending and that federal legislation was not needed. Since then, default rates on mortgages made to people with poor credit have surged, and policy makers in Washington have focused more intently on the housing market.

Like the House measure, which is sponsored by Representative Barney Frank, Democrat of Massachusetts, Mr. Dodd’s bill requires lenders to make only those loans that benefit borrowers and that they can repay. But Mr. Dodd’s proposal would also require brokers to act in the interest of borrowers, and that Wall Street firms could be sued.

Investment banks that securitize mortgages could also be sued under Mr. Frank’s measure, but state authorities would be prohibited from pursuing certain claims against Wall Street.

In an interview last week, Mr. Frank said he planned to toughen his bill’s enforcement provisions as it relates to investment banks, but he added that the demand for home loans would dry up if investors in mortgage securities were subject to lawsuits brought by state officials.

Unlike the Frank bill, Mr. Dodd’s proposal would bar specific practices in subprime lending like prepayment penalties, which borrowers have to pay if they try to refinance or pay off their loans earlywithin a few years, and yield spread premiums, which are commissions lenders pay to brokers for gettingpersuading borrowers to take out a higher-cost loan than they could qualify for. But Mr. Dodd’s bill would not create a national registry of brokers and loan officers as the House measure would.

Mr. Frank’s measure passed by a wide margin in the House but has not advanced in the Senate, where procedural rules make it difficult to pass legislation that does not have bipartisan support — a political reality that could also hobble Mr. Dodd’s bill.

NO NEWS, RATES SLIGHTLY WORSE ON STOCK GAINS

There are no economic reports to be released today that will have an impact on mortgage rates. In addition, the market will be closing at an earlier than normal 2pm.

When no economic reports are set to release, traders watch stocks for a sense of the market direction. Stocks are up currently led by Merrill Lynch who is receiving a large cash injection from, you guessed it, foreign investment. This time it is from Singapore. In addition, Merrill announced they will sell their commercial finance business to GE.

Bonds have not reacted much to the news with MBS's currently about 4/32nd's higher than Friday's close. Bonds certainly took a beating on Friday and are not getting any firm floor to stand on today either. With the holiday tomorrow and hardly any economic reports set to release later in the week, rates could go either way. The stock market and corporate financial news will have a bigger impact than normal due to the light economic news calendar combined with the normal volatility caused by decreased trading volume during the holiday season.

Floating is a risk tempered by the huge losses on Friday. In other words, bond prices have risen so dramatically in the last several trading sessions that technical forces suggest they may decrease slightly (moving rates lower) regardless of a continued move downward. If you are going to float, which is a moderate risk through Wednesday, keep a sharp eye on stocks and financial headlines. Anything that sends stocks higher will likely push mortgage rights higher as well. As always, the conservative play is to lock short term. Stay tuned for an analysis of Wednesdays market activities and the economic reports of the rest of the week. This will hopefully give a more solid idea of the short term market sentiment.

Long term, experts are divided, with about 40% predicting recession. If recession occurs at the same time as rising inflation (stagflation), normally bond friendly news will have less than normal impact on rates. As for now, the mood is "wait and see."

Another Slow News Day

Not much change from Monday...

Stocks are down currently as a result of Target's sales numbers and the Case-Shiller Price index showing the largest decrease in home prices in 6 years.

Bonds are trading fairly flat to slightly improved this morning with the FNMA 30 yr 6.0% coupon at 101.03 Bid price.

30 year fixed PAR NOTE rate : 5.75% -5.875%

Lock Comment:

Decreased trading volume over the holiday season opens the door for volatility. So changes that wouldn't normally have a big impact on markets can have a much bigger impact over the next week. Durable Goods, Jobless Claims, and Consumer Confidence will all be released tomorrow. If these are weak, we could get a nice rate improvement. But the opposite is just as true. Float with Caution. Keep an eye on stocks today. As for tomorrow, if you think the reports might be weaker than expected, keep floating. Even if bond prices push lower yet again tomorrow, technical factors would indicate that prices will "see-saw" back up, even if they continue to trend down.

BONDS RALLY ON WEAK ECONOMIC DATA

Durable Goods Orders were down more than expected at +0.1% (expectations were +3.0%). This is bond-friendly news as is signals a potential slow down in the manufacturing sector. When the revised numbers from this report are released in roughly two weeks, this sentiment could change or be reinforced.

Jobless claims were also up just slightly higher than expected. 349k as opposed to 343k. This isn't enough in and of itself to have an impact on rates, but the tepid reading fails to mitigate the impact of other reports.

One report that is mitigating the positive impact on the bond market is the consumer confidence report which came in at a higher than expected 88.6 (expected at 86.5). Strong consumer confidence means strong spending, which means strong economy, which means investors put money in stocks rather than bonds, which means bond prices go down, which mean mortgage rates go up.

As a result of all this info, bond prices are up this morning, countering a reasonable amount of the losses after yesterday's weakly bid 2 year treasury auction. 5.5% FNMA 30 yr coupon currently bid at 98 and 30/32nds. Mortgage rates should be slightly better than yesterday afternoon, closer to those of yesterday morning.

30 YEAR FIXED PAR NOTE RATE: 5.75%-5.875%

Lock Comment: Weak bidding on the 2 year treasury auction yesterday led to some weakness in the entire bond market. There is another auction today at 1pm EST. It should be a relatively safe risk to float until then, but keep an eye on the economic news. If the 5 year auction in weakly bid, lock ASAP.

FHA Legislation Will Help Homeowners, Economy, Says NAR

The FHA Modernization Act of 2007, passed today by the U.S. Senate, would help protect the interest of America’s current and future homeowners by giving borrowers a safer alternative to riskier mortgage products while also helping many homeowners who may be facing foreclosure, according to the National Association of Realtors®.

“A reformed FHA is positioned to help homeowners who face unaffordable mortgage payments as a result of resetting adjustable subprime loans and help bring stability to local markets and economies,” said NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif. “NAR commends the leadership of Majority Leader Harry Reid, D-Nev.; Senate Banking Chairman Christopher Dodd, D-Conn.; and Sens. Mel Martinez, R-Fla., and Richard Shelby, R-Ala., for passing the Federal Housing Administration reform bill, S. 2338, today.”

NAR has long supported FHA modernization legislation that would increase loan limits, reduce or eliminate the statutory 3 percent minimum cash down payment, and give FHA increased flexibility and the ability to streamline certain programs, in addition to strengthening the loss mitigation program.

“FHA can once again be a leader in providing safe loan products and preventing foreclosures by authorizing lenders to help borrowers who are in default. That assistance will make a substantial difference for many families that may otherwise face foreclosure,” Gaylord said.

In addition, the increase in FHA mortgage loan limits would help first-time home buyers, minority buyers, and people who do not qualify for conventional mortgages. Increased loan limits would also help people living in high-cost areas; current FHA limits make the program unusable in these areas,” said Gaylord.

Gaylord noted that FHA has made mortgage insurance widely available to individuals regardless of race, ethnicity or social status during periods of prosperity and economic depression. The FHA program makes it possible for higher risk yet creditworthy borrowers to obtain prime financing.

“NAR recognizes and appreciates the Senate’s bipartisan effort. We hope this bill is sent quickly to the President and that he signs it into law swiftly,” said Gaylord. “As the leading advocate for homeownership and housing issues, NAR believes that FHA reform not only helps home buyers, but also is a good catalyst for the nation’s economy.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential

Statement on President Bush's Signing of Mortgage Forgiveness Debt Relief By NAR President Richard F. Gaylord

“On behalf of the many individuals and families who would have been burdened by a tax after losing their home, the National Association of Realtors® thanks President George W. Bush for signing the Mortgage Forgiveness Debt Relief Act into law. Today the president offered a Christmas present to many people who have suffered the agony and humiliation of losing their home due to a short sale, foreclosure, deed in lieu of foreclosure or any similar arrangement that relieves the borrower of the obligation to pay some portion of their debt.

“NAR has been advocating for such a change to the IRS tax code for nearly 10 years. We have always believed that it is clearly an issue of fairness and of not kicking people when they are down. By making the forgiven debt taxable income, individuals in already unfortunate situations most likely faced IRS actions because they did not have the money to pay the additional taxes. This legislation will relieve that additional burden and may also encourage families to work with their lender to negotiate terms, knowing they will now not be subject to an IRS bill.

“Today’s bill will ensure that any debt forgiven on a mortgage secured for a principal residence will not be taxed. This is very significant legislation. This may also mean that some day in the future these families can once again achieve the dream of homeownership.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.