Fall takes mortgage rates to ’05 levels

WASHINGTON – Mortgage rates fell sharply this week, with rates on 30-year mortgages dropping to the lowest level in more than two years.

Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 6.10 percent. That was down from 6.20 percent last week and was the lowest rate since the week of Oct. 13, 2005, when rates stood at 6.03 percent.

Analysts attributed the decline to increased worries that a severe slump in housing and a continuing credit crunch could drag the economy into a recession.

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source: thenewstribune.com

Banks move to lock in low subprime rates

WASHINGTON – A coalition of major banks with exposure to problem subprime mortgages is finalizing a plan to freeze hundreds of thousands of adjustable-rate home loans at low introductory rates. That would prevent the loans from adjusting to much higher rates, which could trigger mass defaults and foreclosures.

If subprime ARMs were to reset, many homeowners could be forced into costly foreclosure proceedings that could prevent a rebound of slumping local housing markets. That could spread to other industries, potentially even tipping the economy into recession.

The coalition met last week at the Treasury Department and briefed Treasury Secretary Henry Paulson and federal banking regulators on their progress toward creating an industrywide approach to subprime loans, mortgages given to borrowers with weak credit.

“Treasury was encouraged by the progress we heard from mortgage-industry participants,” said Jennifer Zuccarelli, a Treasury spokeswoman.

The rescue package targets adjustable-rate subprime loans for owner-occupied homes, not loans for investment properties. Eligible homeowners must be current on their payments and face costly resets that they can’t afford. How they must prove that they can’t afford the higher rates hasn’t been revealed.

The plan would be voluntary for lenders, but the banks involved in the discussions hold, directly or indirectly, about four out of every five subprime adjustable-rate mortgages, or ARMS.

The banks’ plan recognizes that, absent a proactive move, many subprime ARMs could reset next year to 12 percent or more from current rates of 7 percent to 9 percent.

“I think there is a basic assumption here that there is money that is going to be lost one way or the other,” said Wayne Abernathy, the executive director of financial institution policy at the American Bankers Association.

Nigel Gault, an economist with forecaster Global Insight, said, “I think there’s a realization among investors that maybe getting some interest, even if it wasn’t the interest (rate) envisaged under the terms of the mortgage … is better than having to go through the foreclosure process. Stemming the number of foreclosures may reduce the severity of the overall downturn in the housing market.”

One key point in the talks has been to limit who can get a workout.

“The test is to come up with a plan that doesn’t spook the secondary market,” said Abernathy, who wasn’t at the meeting but is familiar with the issues.

Traditionally, banks held home loans on their books. But over the past decade, there’s been an explosion in the secondary mortgage market, where home loans are sold and bundled together with other loans to be sold again as mortgage bonds. This process is called securitization, and this market has seized up amid concerns that massive foreclosures are coming that will slash the bonds’ value.

Paulson and other regulators met with representatives from Washington Mutual, Wells Fargo & Co. and Citigroup. The meeting brought together loan underwriters, the trade group American Securitization Forum and mortgage servicers who place the loans into the secondary market.

Wall Street analysts believe there are roughly 1.5 million subprime loans resetting next year, with a value exceeding $350 billion.

Federal regulators believe there are 2 million “exotic” ARMs that have low introductory teaser rates and that 30 percent of them are already behind on payments.

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source: thenewstribune.com

Lowest prices, lowest sales

The kind of houses you might think would sell the fastest in Pierce County are suffering the worst in today’s slower real estate market.

Sales for the least-expensive homes – those priced under $250,000 – declined through mid-November in 16 of the county’s 17 areas more than the overall drops in each area, according to Multiple Listing Service statistics provided by Dick Beeson, a Windermere broker and MLS director. These homes, which are more plentiful this year than last, represent a relative bargain in Pierce County, where the median home price in October was $266,157, according to the Northwest Multiple Listing Service.

Real estate agents say the drop in purchases of the region’s most affordable homes speaks to tougher lending requirements, which make it more difficult to get financing, excluding potential buyers who might previously have stretched beyond their means to buy.

Countywide, sales for under-$250,000 homes dropped by 31 percent through Nov. 13 compared to the same period in 2006. Sales for all county homes declined 24 percent.

A market without qualified buyers for the lowest-priced homes impacts move-up buyers who are unable to sell, Beeson said. At a decline of nearly 23 percent, homes priced $250,000 to $349,999 had the second-biggest drop in sales countywide. By contrast, homes at the next price level, $350,000 to $499,999, saw a 16 percent decline.

“If you can’t unlock the equity of the least expensive homes, you can’t buy the second-price home,” Beeson said.

Parts of the county particularly hard-hit in sales for the under-$250,000 category include North Tacoma (-42 percent), the Lake Tapps-Bonney Lake area (-34 percent) and the Roy-McKenna area (-39 percent).

Re/Max agent Dianna Carol, who specializes in East Pierce County homes, has three listings under $250,000, one that’s been on the market three months and now has three offers. She recommends that sellers offer a one-year home warranty, and she tells them to be sure their home is clean and tidy.

“There are so many homes on the market, and it’s so competitive,” she said.

The multiple-offer manufactured home in Graham, at $156,000, sits on one-quarter of an acre. Buyers, she said, were attracted by the price, the land and a large garage that can hold an RV and a car.

Interest rates that have drifted a bit higher than during the recent boom years also restrict some buyers from the market, said Sharon Benson, an agent for Coldwell Banker.

“With a higher interest rate, you can buy less house,” she said. “If you buy a $1 million house, the impact is higher. However, if you’re buying that kind of house, you can afford it.”

Al Morken, a consultant in Lakewood who compiles real estate statistics, also attributed steeper sales declines for less expensive homes to changes in how mortgages are financed. Lending guidelines in recent months require more documentation and, often, heftier down payments.

And, up until recently, home buyers could get mortgages with low initial rates without qualifying for the higher rate that arrived two years into the loan.

“The money was easy for so long,” Morken said. “For the most part, I think a lot of those people couldn’t have bought a home.”

Adam Stein, president of the Washington Association of Mortgage Brokers, pointed out that some homes below the median price require work or upgrades that don’t interest all buyers, which can make them a tougher sell.

But new restrictions in mortgage lending are definitely impacting the availability of financing, he said.

“The middle ground of what really made sense for first-time home buyers has been tightened down so much they can’t get the credit they deserve and should be getting,” he said.

Stein expects lenders to continue to hold back on more-lenient offerings until at least mid-2008 while they recover from losses expected to last into the spring, when, he said, the biggest batches of adjustable-rate mortgages will see higher interest rates.

“I think as long as companies continue to take the write-offs, we’re not out of the woods yet,” he said.

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source: thenewstribune.com

Deal near to freeze ‘teaser’ rates

WASHINGTON – Treasury Secretary Henry Paulson said Monday an agreement was near on a proposal to help thousands of at-risk homeowners avoid foreclosures by temporarily freezing their mortgage rates.

One of the last remaining issues to be resolved, officials said, was the exact length of time the low-teaser rates will be frozen.

Speaking at a national housing conference and in later interviews, Paulson expressed optimism that an agreement could be reached very soon, possibly before the end of this week.

Paulson and federal regulators have been holding talks with some of the country’s biggest banks, mortgage investors and consumer groups trying to strike a deal in an effort to prevent an avalanche of threatened foreclosures in the coming year from sinking the overall economy.

“We are working aggressively and quickly, utilizing available tools and creating new ones, to help financially responsible but struggling homeowners,” Paulson said in a speech to a national housing conference sponsored by the Office of Thrift Supervision.

An estimated 2 million subprime mortgages, loans offered to borrowers with spotty credit histories, are scheduled to reset to much higher levels by the end of 2008. Those resets will push the payment on a typical mortgage up by $350 per month, taking it from $1,200 currently to $1,550.

Some government regulators are pushing for the low “teaser” rates to remain in place for five to seven years, arguing that a longer period of time is needed to allow the depressed housing market to begin recovering and for home prices to stabilize, which will allow homeowners to finance under better terms. But investors, who will see lower payments on the loans, are arguing for a shorter period of time.

Regulators indicated that the rate freezes will only be available for owner-occupied homes to avoid granting the break to real estate speculators although the exact way that determination will be made was still being worked out.

“How you structure (the rate freeze), who gets it and for how long, I think, is what people are struggling with,” Comptroller of the Currency John Dugan, told reporters at the conference.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., said details are likely to be announced later this week.

In his speech, Paulson said he believed the mortgage industry would move to implement the new program quickly and would also adopt benchmarks to measure progress. “As a result, what was a fragmented, cumbersome process can be a coordinated effort which more quickly helps able homeowners.”

Banking industry executives generally praised the initiative. Daniel Mudd, chief executive at Fannie Mae, the nation’s largest provider of home mortgages, called the proposal a “positive step” that would allow many borrowers to avoid foreclosure.

But two Democratic senators running for president criticized the administration’s efforts. Connecticut Sen. Chris Dodd, the chairman of the Senate Banking Committee, said the administration has “repeatedly failed to use the tools at its disposal to protect homebuyers from abusive lending.”

And Sen. Hillary Rodham Clinton put forward her own mortgage program which called for a 90-day moratorium on further loan foreclosures and a freeze that would keep subprime mortgage rates from rising for at least five years. In a letter to Paulson, she said it was “unfortunate that the administration has been so slow to act.”

The administration’s program is being aimed at homeowners who have steady incomes and relatively clean repayment histories who could afford the lower introductory mortgage rates but cannot afford the higher adjusted rate.

The rate freeze is part of an administration program that also emphasizes increased efforts to contact at-risk homeowners and congressional action.

Paulson said the administration was asking Congress to pass legislation that would give state and local governments more authority to temporarily broaden their tax-exempt bond programs to include mortgage refinancing. Currently, such programs are limited to new homeowners but do not include the use of tax-exempt bonds to refinance existing mortgages.

Paulson also called on Congress to pass a number of pending bills that would address the housing crisis in such ways as expanding the availability of Federal Housing Administration insured loans and boosting government oversight of mortgage giants Fannie Mae and Freddie Mac.

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source: thenewstribune.com

Bush plan offers rate freeze to worried homeowners

WASHINGTON – The Bush administration offered hope to beleaguered homeowners Thursday with a five-year freeze in loan rates for those who qualify, even as the number of bad mortgages jumped to the highest level ever.

The plan represented the administration’s biggest action yet to show it is dealing aggressively with the mortgage crisis. The escalating problem is becoming a political issue and threatening to push the country into a recession.

“The holidays are fast approaching and this will be a time of anxiety for Americans worried about their mortgages and their homes,” Bush said. The administration’s efforts, he said, are “a sensible response to a serious challenge.”

The initiative would hold down rates for certain subprime mortgages, which are loans offered to borrowers with spotty credit histories. These loans offer initial “teaser” rates for the first two to three years before rates climb sharply, potentially increasing monthly payments by as much as 30 percent.

Bush released his plan on a day the Mortgage Bankers Association reported that the number of mortgages entering the foreclosure process in the July-September period set a record. Behind those foreclosures is a steep slump in the housing market. After a five-year boom, home sales are plunging and prices declining in many parts of the country. More foreclosures mean more homes dumped on a glutted market.

The housing slump has caused multibillion-dollar losses at some of the largest banks and investment firms and roiled markets. These problems are expected to drag down economic growth to near-recession levels from now into early 2008.

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ource: thenewstribune.com