FDIC to test Principal Reduction for underwater Borrowers!!

The Federal Deposit Insurance Corp. is developing a program to test whether cutting the mortgage balances of distressed borrowers who owe significantly more than their homes are worth is an effective method for saving homeowners from foreclosure.

The program would be aimed at a growing population of homeowners who are underwater on their loans, estimated at more than 20 percent of borrowers, or 11 million homeowners. Economists consider these borrowers among the most vulnerable to foreclosure, and some industry officials worry that more of them will simply walk away from their mortgages, or "strategically default," rather than spend a decade or more trying to regain positive equity. >

Under the FDIC program, borrowers would be eligible for a reduction in their mortgage balances if they kept up their payments on the mortgage over a long period. The performance of those borrowers would be compared with borrowers given more traditional mortgage relief packages, such as those that cut the interest rate on loans.

"We're thinking about it in terms of earned principal forgiveness. If you stay current on your mortgage, you would earn a principal reduction. It would only be for loans significantly underwater," said FDIC Chairman Sheila C. Bair.

The program would have a small reach and apply only to loans acquired from a failed bank seized by the FDIC. That would be less than 1 percent of mortgages currently outstanding. The initiative could be launched later this year, FDIC officials said, but a date has not been set.

The effort adds to the growing debate about whether principal reductions should become a larger part of mortgage-relief efforts. Another government program, known as Hope for Homeowners, sought to reduce mortgage balances of underwater borrowers but has floundered since its launch, and legislation to allow bankruptcy judges to cut the principal on a borrower's loan failed in the Senate last year.

Treasury officials have said they are considering proposals to address negative equity but have not offered any specifics. Under the federal foreclosure relief program known as Making Home Affordable, borrowers can receive up to $5,000 to lower their loan balance if they keep up their payments. But that amount would make only a small dent in the problem facing millions of homeowners, housing advocates said. During the fourth quarter of last year, the average underwater borrower owed $70,700 more than the value of their home, according to First American CoreLogic data released this week.>

"Whether homeowners have equity in their home is a key predictor of whether they will default on their mortgage or redefault on a loan modification," said Julia Gordon, policy director of the Center for Responsible Lending. "That's why any serious plan to prevent foreclosures has to include principal reduction for those who owe more than their home is worth."

Lenders have been reluctant to cut the principal balance owed by distressed borrowers, arguing that it would encourage homeowners to become delinquent even if they can afford their mortgage. Instead, the industry has focused on providing mortgage relief by lowering a borrower's interest rate or extending the terms of a mortgage to 40 years. In some cases, a portion of the principal balance is put into a second mortgage that does not have to be paid off until the borrower sells the home or refinances.>

Yet, some in the industry have started to relent. During the third quarter of 2009, 13 percent of loan modifications included a reduction in the borrower's principal, according to a report by the Office of the Comptroller of the Currency. That was up from about 10 percent during the second quarter.

Wells Fargo, for example, has increasingly used principal reductions for homeowners with a risky mortgage, known as "option" ARMs. These loans, also called "pick-a-pay" mortgages, allow borrowers to choose how much to pay each month. Many of these borrowers pay less than the amount of interest due, and the unpaid interest is tacked on to the balance. These loans also tend to be concentrated in places where home prices soared and then plunged precipitously, leaving many homeowners significantly underwater.

Wells Fargo, which acquired many of these loans as part of its 2008 purchase of Wachovia, says it forgave $2.6 billion in borrowers' principal balances for these types of mortgages last year. But even when principal reduction is offered, it will not necessarily be enough to bring a borrower back to full equity, company officials said.


Robert Vaughan
(562) 673-1136

Mortgage Rates Climb!! Dont Miss this Boat!!

Treasury yields on a tear help pull rates higher; 30-year fixed mortgage jumps to 5.95%.

NEW YORK (CNNMoney.com) -- Home mortgage rates jumped in the most recent week, pulled higher by skyrocketing Treasury yields.

The average 30-year fixed rate soared to 5.95% from 5.45% last week, according to a weekly national survey from Bankrate.com.

The 30-year rate is often influenced by the benchmark 10-year bond's yield, which has increased steadily to hover around 4% recently. The yield was 2% just six months ago. Investors worry that this has re-ignited inflation fears and threatens the potential for economic recovery.

In an effort to cap mortgage rates, the Federal Reserve in March revealed a campaign to buy back $300 billion in Treasurys in hopes that it will spark demand and keep yields -- and therefore, mortgage rates -- in check.

Mortgage rates fell as refinancings abounded. But those benefits seem to have worn off, as rates have been on a tear in recent weeks.

Although mortgage rates continue to rise, they remain much lower than last year, when the average 30-year fixed mortgage rate was 6.48%.

Adjustable-rate mortgages: Those rising rates have made it difficult for many homeowners to refinance, but ARMs are an option, the Bankrate report noted.

Adjustable-rate mortgages were higher last week, with the average 1-year ARM rising to 5.16% and the 5-year ARM jumping to 5.49%.

"Bankers say ARMs got a bad rap in the mortgage debacle," the report continued, adding that the riskiest loans in the housing bubble --"subprime, low down payment, interest-only, negative amortizing and stated income" -- tended to be adjustable-rate mortgages.

But the meltdown happened "because those loan features were layered on top of ARMs," the report said, meaning that it was not the adjustable rates that caused people to default. Rather, home buyers put no money down and "exaggerated their earnings when they applied for stated-income loans."

A few months ago, only about 1% of mortgage applications were for ARMs. Last week, it was 3.4%, the report added.

Other rates: The average 15-year fixed rate mortgage jumped to 5.37% from 5.06% the week prior.

The average jumbo 30-year fixed rate ticked up to 6.96% from 6.68%. Loans are considered "jumbo" when they are too large to be purchased or guaranteed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500). They carry higher rates than smaller "conforming" loans, which do have guarantees.

Have you applied for a loan modification or refinancing under the Obama administration plan? Did you run into roadbloacks or were you able to get a lower monthly payment and avoid foreclosure? We want to hear your experiences. E-mail your story to AffinityLendingGroup@Gmail.com Attn Robert Vaughan


Robert Vaughan
Vice President
(562) 673-1136

Mortgage Rates Jump: Lock in now, or wait???

Grab one now, or hope for lower rates?
Floaters got sunk this week. Anyone who is in the market for a new mortgage, be it a straight-up purchase or refinance, and was letting their rate float in hopes of locking in at a lower rate instead got smacked with a near quarter point rise in the 30-year fixed rate. According to Bankrate’s latest weekly survey (conducted Wednesday morning) the 30-year fixed average was at 5.45%, up from 5.23% That’s the highest level since February, and more than a half point above the 4.9% borrowers in early April could snag.

So what’s a floater to do now? Well, if you’ve lost your betting mojo, lock in and be happy. Yes, happy. Let’s remember that 5.45% is still seriously good. It was only one year ago that the average 30-year fixed rate was 6.1%. And long term, it is all but assured that a 5.45% fixed rate is going to look darn nice. It may take some time before the Fed gives up the fight and has to let rates rise to attract buyers for all the debt we now have to pay off, but it will happen. So while today’s 5.45% is high relative to a month or two ago, it is likely to be one you will boast about in the coming years.

Okay, enough of the long-term perspective. What if you’re still in betting mode and wondering about the next few weeks and months? Well, that’s one big crap shoot. The recent spike has been caused by action in the 10-year Treasury market (the 30-year fixed rate tends to follow movements in the 10-year note.) Late last week the bond market started worrying about inflation and servicing the federal deficit, and one thing led to another and the 10-year Treasury yield shot from 3.4% last Thursday to above 3.7% during trading yesterday (Thursday) before closing lower at 3.67%. Plenty of market watchers are expecting the trend line on the 10-year Treasury to keep moving up. But here’s where it gets interesting: there’s not as clear a picture if a continued rise in the Treasury will automatically cause the 30-year fixed to also rise.

The big wildcard is Ben Bernanke and his merry band at the Federal Reserve. The Fed has been actively buying up long-term Treasuries and mortgage backed securities in an effort to help keep yields low. When rates started rising the past few weeks the Fed signaled it wasn’t too concerned; in fact it seemed to be cheered by the notion that those slightly rising rates were a sign the economy was gaining a bit of strength. But now there’s a sense that the continued rise-capped by the big spike this past Wednesday-could refocus the Fed’s effort to push yields down; it has yet to use up even half the money it has allotted for the buyback programs, so it’s got plenty of gunpowder ready.

That could be good news for rate floaters; assuming the Fed is still worried that rates rising too quickly and too far will put the kibosh on the already anemic credit market recovery, it’s a decent argument to assume the Fed will soon ramp up its repurchases in an effort to push yields back down after their recent spike.

As David Rosenberg, the former Merrill Lynch economist now at Gluskin Sheff noted on Thursday morning:

“It’s one thing to have a Treasury yield backup when mortgage rates are still declining, but that is no longer the case. The yield on the 30-year fixed-rate is already up 20 basis points from the lows; 1-year ARMs have jumped 17bps. This is not what the Fed wants to see.”

Indeed, the recent rate uptick has sent a chill through the still frigid housing markets. According to the Mortgage Bankers Association, mortgage applications dropped 14.2% this week compared to a week prior.

The bet’s yours, floaters: lock in now at what still qualifies as a terrific interest rate, or put your money on the Federal Reserve pushing yields down in the coming weeks. Which way are you leaning?

Thanks for checking out my blog If you know anyone that is facing a Hardship or they have questions about refinance solutions please contact me direct at (562) 673-1136

Robert Vaughan
Vice President
Affinity Lending Group

Breaking News - The Fed is Buying Down The Rates

Learn How You Can Maximize This "Once in a Lifetime" Opportunity

The Federal Reserve launched a bold $1.2 trillion effort yesterday to lower rates on mortgages and other consumer debt, spur spending and revive the economy. To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

Fed Chairman Ben Bernanke and his colleagues wrapped a two-day meeting by leaving a key short-term bank lending rate at a record low of between zero and 0.25 percent. Economists predict the Fed will hold the rate in that zone for the rest of this year and for most _ if not all _ of next year.

The decision to hold rates near zero was widely expected. But the Fed's plan to buy government bonds and the sheer amount _ $1.2 trillion _ of the extra money to be pumped into the U.S. economy was a surprise.

"The Fed is clearly ready, willing and able to be the ATM for the credit markets," said Terry Connelly, dean of Golden Gate University's Ageno School of Business in San Francisco.

Wall Street was buoyed. The Dow Jones industrial average, which had been down earlier in the day, rose 90.88, or 1.2 percent, to 7,486.58. Broader indicators also gained.

And government bond prices soared. Heralding a coming drop in mortgage rates, the yield on the benchmark 10-year Treasury note dropped to 2.50 percent from 3.01 percent _ the biggest daily drop in percentage points since 1981.

The dollar, meanwhile, fell against other major currencies. In part, that signaled concern that the Fed's intervention might spur inflation over the long run.

If the credit and financial markets can be stabilized, the recession could end this year, setting the stage for a recovery next year, Bernanke has said in recent weeks. The Fed chief and his colleagues again pledged to use all available tools to make that happen, and economists expect further steps in the months ahead.

Robert A Vaughan
Vice President

Would You Walk Away???

With 1 in 5 homeowners underwater, many pundits predict a flood of people walking away from their homes. Five readers talked to us about why they are - and are not - sticking around.


Fewer walking away than you think

Almost 20% of homeowners - or 8.3 million people - are "underwater" on their mortgages, owing more than their properties are worth. Another 2.2 million are near that drowning point, known as "negative amortization."

A basic cost-benefit analysis predicts that these people will abandon their homes and accept foreclosure. But there is little data measuring whether that logic holds true. In fact, Eric Johnson, a business professor at Columbia University, believes it doesn't. After years of studying behavioral economics - essentially the economics of choice - he argues that people will simply not make such rational decisions.

"There are two effects that suggest [walk aways] won't happen so easily," he says. "The first is the endowment effect. People tend to value their own house above its market price. Owners don't want to sell at a loss. They have what we call a loss aversion."

The second is that people weigh the importance of immediate outcomes more heavily than long-term effects. Walking away involves upfront expenditures of time, money and effort, while the benefits of walking away are back-loaded.

"People are impatient and weight present costs and benefits more, so they will walk away less often than we might think.

I want to Thank you for checking this Blog out and if you have any questions or no someone that has suffered a hardship and is having trouble paying there mortgage. Please pass this contact information.

Robert Vaughan
Vice President

Fannie, Freddie to ease mortgage payments?

WASHINGTON (Reuters) -- The Obama administration is crafting a mortgage-rescue program that would see Fannie Mae and Freddie Mac ease payments for hundreds of thousands of borrowers and offer a model for Wall Street to do the same, sources familiar with the plan said.

Late last week, officials from the Treasury Department and Department of Housing and Urban Development worked with the companies' regulator to agree on standards for who could get relief and how they might coax other finance companies to follow their lead, said two industry sources familiar with the deliberations.

Those discussions were still going on over the weekend with Treasury officials trying to weigh the merits and costs of several possible approaches, said one source familiar with the talks.

Washington's two largest foreclosure-prevention initiatives of the last 12 months have fallen flat with only a handful of borrowers having been helped despite promises that hundreds of thousands would qualify.

Officials hope to clear the red tape and rigid terms that have doomed past mortgage-aid efforts without burdening taxpayers with many billions of dollars in funding costs.

"They want to get rid of all the high-cost mortgages out there and figure that there are 1.5 million people who could stay in their homes this year if their loans were modified," said one industry source who asked for anonymity. "But it's just really complicated and expensive to do these kind of workouts."

Since Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) were nationalized in September, the government-controlled companies have been retooled as agencies for delivering housing aid. Both put a moratorium on foreclosures late last year, and are pioneering programs to let borrowers rent their homes after default.

But while Fannie Mae and Freddie Mac have had some success with stopgap measures to keep people in their homes, the companies' effort to rewrite home loans announced in November has been a disappointment, industry sources said.

Fannie Mae and Freddie Mac own or insure 31 million mortgages -- about 58 percent of all U.S. single-family home loans -- but only a fraction of their borrowers qualify for a refinancing program that was meant to save several hundred thousand. A similar initiative run by the Department of Housing and Urban Development that promised to help 400,000 borrowers has only reached a few hundred.

Policy-makers agree they must relax the terms of any new foreclosure-prevention effort and are trying to identify which tardy borrowers could keep up payments under a new home loan, said two industry sources.

Fannie Mae and Freddie Mac will likely be the cornerstone of an administration mortgage-aid program that will tap between $50 billion and $100 billion from the government's $700 billion financial rescue fund.

The money would be used to underwrite failing loans and give mortgage companies a subsidy to follow the lead of the two government-controlled companies, industry sources said.

Officials are also discussing how fresh legislation from Congress could buttress their efforts by clearing some accounting and legal hurdles that obstruct loan modifications, the sources said.

Treasury Secretary Timothy Geithner could nod to the evolving plans Tuesday when he lays out the administration's thinking on how to use the funds remaining in the $700 billion program, although details might take longer to work out.

RobertAVaughan.com
Vice President

Snag a great deal on a short sale!!

Short sales - where a lender agrees to take less than it's owed on a mortgage - are rising sharply. Here's how you can profit.

Money Magazine) -- When Brian Gavitt, a physician, and his wife Gayleen, a stay-at-home mom, started to eye homes in Sacramento last winter, they knew they were looking in the hardest-hit areas of the housing bust. So the couple, who were relocating from Lansing, figured they could land a fantastic bargain in no time at all.

The part about the bargain turned out to be true. The Gavitts bought a five-bedroom house in the upscale Natomas Park neighborhood ("Even now, you don't see FOR SALE signs up anywhere," says Gayleen.) And it was a steal at $300,000, a full $200,000 less than they would have paid just two years ago.

The amount of time it took to land the deal was another story. It was more than six months from when the Gavitts first saw their dream home to the moment they held the keys in their hands. The reason: The home they bought was a short sale.

Not along ago, few people had even heard of a short sale, which occurs when the bank agrees to discount the loan balance for a seller who owes more on his mortgage than the home is currently worth.

If you're in the market for a home today, you're almost guaranteed to be looking at some short sales. Nationwide, 14% of homeowners are currently underwater on their mortgages, calculates real estate website Zillow.com. And in many areas, it's far more: In the Gavitts' zip code, for example, over half of homeowners would owe more than their home is worth if they sold today, calculates Dee Schwindt, the Gavitts' realtor.

The good news is that short sellers are likely to still be living in the home and some may even be current on their payments. That means these aren't the run-down, distressed properties that you often find among foreclosures; in fact, there's a good chance that some of the most deluxe homes for sale in your market are underwater.

Before you get too excited about buying a short sale, know that they generally aren't, well, short. For the sale to go through, the seller's lender must approve the price and agree to take the shortfall as a loss. That extra step can cause the process to drag on three times as long as a normal home sale.

But as the Gavitts discovered, the hassles can be well worth it. Some buyers and realtors don't want to deal with short sales, leaving many choice homes with very few bidders. So if you're willing to brave the intricacies of the process, you'll be far more likely to land the home you always wanted. The key to snagging a good deal is knowing how to avoid the land mines.

Know what you're getting into. In a short sale, you are dealing with several parties: the sellers, their agent and the sellers' lender. That's why a short sale can take anywhere between two and six months to execute, compared with about 30 days for a typical sale. Though many banks are willing to take a loss on a mortgage in a short sale if it means avoiding an even bigger loss in a foreclosure, with so many owners trying to unload properties, the lender's negotiators are flooded with short-sale offers. So if you're moving or selling another property, keep in mind that you'll likely need to budget for a few months' worth of rental payments so you have somewhere to live in the interim.

Find the right pro. Lenders often make realtors who work on short sales take a hit on their commission, so some brokers may be loath to show you the listings. But don't even think about going solo. These deals take a lot of work and persistence, says Loni Parmelly, author of Success in Short Sales. Before you sign up with an agent, ask him how many short sales he's closed. If he hasn't done at least two, find someone more experienced.

Weed out candidates. In most cities, home listings will indicate in the description whether the property is a short sale. Ideally, you want to knock off ones that come with extra complexities. If possible, pass on any home that has more than one lien against it; having to negotiate loans with two lenders can greatly increase the amount of time it takes to complete the deal. Also avoid homes where the seller has other offers. That's because if another offer is pending, the seller's agent isn't likely to even submit yours for approval until the first one is rejected, meaning you'll have to wait for another negotiation to play out before you even get a chance.

Set the right price. The first step is to have your agent submit your offer to the seller. Don't just rely on the current list price to come up with your initial bid, says Bill Richardson, a district sales manager for the Keyes Co. Realtors in Boca Raton, Fla. The seller's agent may have far underpriced it in hopes of attracting buyers, but the bank likely won't accept a lowball offer. Ask your agent to determine the home's fair market value by searching comparable sales in the area, with an emphasis on other short sales and foreclosures (or get a rough estimate yourself at zillow.com). If the fair market value is lower than the list price, set your offer 10% lower than that.

At this point, you'll also want to get pre-approval for a mortgage; many banks won't even consider your offer if you don't have one, says Schwindt.

Protect yourself. Next, the seller's agent will submit your offer to the seller's lender. At this point, you'll be asked to sign a sales contract. See if the lender will agree to pick up all closing costs as part of the contract, says author Parmelly. Also ask your realtor to specify that you won't do an appraisal or inspection of the property until the offer is approved. That way you won't have to shell out hundreds of dollars until you know you realistically have a good chance of getting the home.

Finally, though most lenders will require you to make some kind of deposit along with the contract, don't put down more than $3,000 before your bid is accepted. That will give you room to put offers on other homes or even to pull out of the sale if it drags on for too long.

Be a pain in the neck. After your offer is submitted to the lender, you're likely to hear nothing for weeks, if not months. This is no time to relax. Call your agent at least once a week, and make sure the seller's agent is contacting the bank's negotiator nearly every day.

"These negotiators may have 400 files on their desk. They'll want to get rid of the squeaky wheels," says Parmelly, who worked as a loan negotiator for lenders for 16 years. To help the seller's realtor in her negotiations with the lender, it's a good idea to have your agent show her which comparable homes you used to arrive at your number.

If the clock keeps ticking and you're reaching the end of your rope, try playing hardball. After months, the lender the Gavitts negotiated with was still dragging its feet and their pre-approved loan rate was about to expire. "We said, 'We need an answer by Friday or we walk,' " Gayleen says. The bank responded by week's end.

Keep your eye on the market. When the bank finally sends its counter-offer, use it as a guideline rather than an ultimatum. Most of the time, the lender's number is based on its own research, that of a local realtor it hires and the outstanding loan balance. Usually its goal is to sell for at least 90% of the home's value, says Amy Bohutinsky, a spokes-person for Zillow.com.

The lender's offer may not be what you'd hoped for, but don't despair: You have a chance to counter. If the market has been flat since your initial bid, try for 5% to 10% less than the bank's number. If the market has been sinking rapidly, however, you may be able to prove that the home's value has shrunk further and offer even less. Once you have the lender's ear, the new offer should take less time to process.

Despite all the legwork and wait, the Gavitts are thrilled with their new home. "I'm glad people are turned off by short sales," says Brian. "It just means more choices for the rest of us."

Have you found a way to pay for your child's college education without taking on too much debt? Did you choose a university based on its lower cost or loan programs, research scholarships, or just save up and pay in full? We want to hear from you. Send your stories to pwang@moneymail.com and you could be featured in an upcoming story.

Robert Vaughan
Vice President

Mortgage Rates Slide in Sour Housing Market!!

30-year fixed mortgage rate falls to 5.48% as Federal Reserve keeps key interest rate near 0%.


NEW YORK (CNNMoney.com) -- Mortgage rates fell over the past week, benefiting from the Federal Reserve's pledge to take all necessary action to stimulate the economy.

The average 30-year fixed mortgage rate fell to 5.48% from 5.59% for the week ended Jan. 28, according Bankrate.com.

The average 15-year fixed rate mortgage slipped to 5.10% from 5.2% and the average jumbo 30-year fixed rate dropped to 7.06% from 7.22%.

Adjustable rate mortgages were lower also, with the average 1-year ARM pulling back to 5.87% and the 5/1 ARM sinking 42 percentage points to 5.41%.

The Federal Reserve kept its key interest rate near 0% Wednesday, and said it is prepared to take additional steps to try to fix the troubled U.S. economy and credit markets.

"The Fed is trying to entice home buyers back into the market," said Greg McBride, senior financial analyst at Bankrate.com. "It'll take time to get buyers back into market, but it's critical to help soak up the inventory of unsold homes."

Despite the lower rates, mortgage applications plunged to levels not seen since November during the week ended Jan. 23, according to the Mortgage Bankers Association.

The Fed said it stands ready to purchase longer-term Treasurys if it determines that such a move will help get credit flowing once again. This may help lower the yield on the government bonds and further lower the rates because most of the rates are based on Treasurys.

Thank you for checking my blog out if you or anyone you know is having difficulty paying there mortgage. They do have options and I can help.

Thank You,
Robert Vaughan