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Kenneth Harney via Washington Post

When you apply for a mortgage to buy a house, how often does the lender ask detailed questions about monthly energy costs or tell the appraiser to factor in the energy-efficiency features of the house when coming up with a value?

Hardly ever. That’s because the big three mortgage players — Fannie Mae, Freddie Mac and the Federal Housing Administration, who together account for more than 90 percent of all loan volume — typically don’t consider energy costs in underwriting. Yet utility bills can be larger annual cash drains than property taxes or insurance — key items in standard underwriting — and can seriously affect a family’s ability to afford a house.

A new, bipartisan effort on Capitol Hill could change all this dramatically and for the first time put energy costs and savings squarely into standard mortgage underwriting equations. A bill introduced Oct. 20 would force the big three mortgage agencies to take account of energy costs in every loan they insure, guarantee or buy. It would also require them to instruct appraisers to adjust their property valuations upward when accurate data on energy efficiency savings are available.

Titled the SAVE Act (Sensible Accounting to Value Energy), the bill is jointly sponsored by Sens. Michael Bennet (D-Colo.) and Johnny Isakson (R-Ga.). Here’s how it would work: Along with the traditional principal, interest, taxes and insurance (PITI) calculations, estimated energy-consumption expenses for the house would be included as a mandatory underwriting factor.

For most houses that have not undergone independent energy audits, loan officers would be required to pull data from either previous utility bills — in the case of refinancings — or from an Energy Department survey database to arrive at an estimated cost. This would then be factored into the debt-to-income ratios that lenders already use to determine whether a borrower can afford the monthly costs of the mortgage. Allowable ratios probably would be adjusted to account for the new energy/utilities component.

For houses with significant energy-efficiency improvements built in and documented with a professional audit, such as a home energy rating system study, lenders would instruct appraisers to calculate the net present value of monthly energy savings — i.e., what that stream of future savings is worth today in terms of market price — and adjust the final appraised value accordingly. This higher valuation, in turn, could be used to justify a higher mortgage amount.

For example, Kateri Callahan, president of the Alliance to Save Energy, a nonprofit advocacy group and a major supporter of the new legislation, estimates that a typical new home that is 30 percent more energy efficient than a similar-sized, average house will save about $20,000 in utility expenses over the life of a mortgage. Under the Bennet-Isakson bill, appraisers would be required to add those savings to the current market valuation of the house. In this instance, Callahan says, the increase in value would be about $10,000.

Dozens of housing, energy and environmental groups have endorsed the new legislation including appraisers, large home builders, the U.S. Chamber of Commerce, the U.S. Green Building Council, the Natural Resources Defense Council, green-designated real estate brokers, the Institute for Market Transformation and the National Association of State Energy Officials, among others.

Business groups such as the U.S. Chamber are backing the legislation because they see it as an employment generator that requires no federal budget outlays, no new taxes or programs. A joint study by the American Council for an Energy-Efficient Economy and the Institute for Market Transformation estimated that 83,000 new jobs in the construction, renovation and manufacturing industries could be stimulated by the legislation if the new underwriting rules were phased in over a period of years.

But not all interest groups are lining up behind the bill. The National Association of Realtors expressed concern that it might hamper a real estate recovery by complicating the mortgage process. “NAR supports efforts to promote energy-efficiency in housing and believes it’s something that all consumers should strive toward,” the group said. “However, we believe that homeowners should move toward energy efficiency at their own pace, without a mandate that impedes their ability to qualify for a mortgage or causes them to incur substantial additional costs to purchase a home, especially while the housing market continues to recover.”

Another group whose members and clients could be affected by the bill, the Mortgage Bankers Association, declined to comment for the record, saying it is still evaluating the bill’s provisions.

But one might ask: In a fractious, polarized Congress, could this bill actually make it through this session? The co-sponsors are optimistic and supporting groups say there is substantial bipartisan support — a rarity — for the idea in both the House and Senate.

In the meantime, for homeowners who think their energy-efficiency and cost-saving improvements should be worth something, there is no rule barring you from asking a qualified appraiser or a lender to assess the added market value of those features. You can get your house rated and documented and insist they do precisely that.

Or you can invest in documented improvements that save on utility expenses — a worthy goal in its own right — and hope that the federal agencies see the light and change their underwriting and valuation procedures before you go to sell. Sooner or later, this is going to happen.

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By Elyse Cherry via Los Angeles Times

President Obama recently announced that the federal government will take steps to reduce interest rates on mortgages for some existing homeowners. Unfortunately, that won’t help millions of U.S. homeowners already in foreclosure and millions more about to join them.

The current foreclosure crisis is not due to poor choices by individual homeowners. Most people caught up in it fell prey to a national bubble and bad lending practices. These taxpayers – schoolteachers and medical technicians, salesclerks and mechanics, veterans and parents of soldiers in Iraq and Afghanistan – are often simply people who got in over their heads. They deserve a second chance.

One reason the mortgage industry hasn’t done more, its leaders say, is that it fears creating a "moral hazard" – the concept being that if homeowners in default are given too much help, other homeowners might be tempted to deliberately default in order get the same help. That hasn’t been the experience of Boston Community Capital, a 27-year-old nonprofit, community development finance institution I’ve led for 14 years.

As part of its Stabilizing Urban Neighborhoods initiative, Boston Community Capital has renegotiated many mortgages on foreclosed homes, and we’ve seen no evidence that doing so sets off a flood of voluntary defaults. We believe our model could be applied much more widely in this national crisis.

Foreclosure isn’t something a homeowner chooses if it can be avoided. Today, a good credit score is required for countless transactions, and foreclosure destroys a person’s credit score. In many states foreclosed homeowners can’t qualify for another mortgage for many years, nor can they easily rent houses, qualify for college and car loans, or even get some jobs.

Since 2009, Stabilizing Urban Neighborhoods has prevented the eviction of almost 150 Massachusetts households by securing reduced mortgage payments that line up with homeowners’ real incomes – rather than with the value set by a real estate bubble that burst long ago.

Our formula is straightforward. We negotiate with the lender’s representative to buy foreclosed homes at current, distressed market values – often 50 percent less than the amount paid by the homeowner. We then resell the homes to their current occupants with a new 30-year mortgage at a fixed interest rate of 6.375 percent (a rate that, although higher than the best loans available to people with excellent credit, is far lower than the rate that the high-risk clients we assist could get elsewhere – if they could get other loans at all).

We qualify our clients by closely analyzing their finances and employment situations. We work with local nonprofits to understand client histories. Even after accounting for reserves, emergency repairs and closing expenses, we are able to lower monthly housing expenses and the overall cost of a home loan to affordable levels. On average, homeowners pay about 40 percent less per month.

We require homeowners to share any future potential appreciation with our neighborhood nonprofit if the market rebounds, discouraging speculators and people who aren’t serious about keeping their homes from coming to us.

Our initiative cannot solve every foreclosure problem. Some would-be participants don’t have enough income to sustain even a sharply reduced mortgage payment. Some in the mortgage industry, citing moral hazard, refuse to sell us homes at their current values because we plan to keep foreclosed homeowners in the homes. At times, we have been outbid for a home we were trying to save, but we won’t spend more on a home if that would mean we would have to offer our borrowers new mortgages that were still too high for them to manage.

Our Stabilizing Urban Neighborhoods initiative is not a bailout or a charity. It is a sustainable model that can offer relief to a substantial percentage of homeowners in foreclosure and relieve mortgage industry gridlock. The Open Society Foundations and others have provided us planning funds to explore other locations across the country where our model might work. The approach is best suited to areas that have suffered substantial depreciation in housing prices, that have high levels of foreclosures, and that have trusted, long-standing community organizations interested in entering partnerships to administer the program. We estimate that our approach could help 1 in 5 homeowners whose homes have significantly dropped in market price, and who are either late in paying their mortgages or in foreclosure.

Renegotiating realistic mortgages that keep people in their homes helps homeowners and neighborhoods. It also helps the mortgage industry, which must come to grips with the fact that many of its borrowers can’t afford to continue to make payments on mortgages that were entered into during the bubble. Our strategy could work on a far grander scale – the kind of scale that, say, Bank of America, Citigroup, HSBC or Wells Fargo or others could adopt.

Foreclosure and eviction are lengthy and expensive. As more homes become owned by lenders, those institutions will bear increasing responsibility for paying local property taxes, insurance and maintenance costs, as well as steep fines if they fail to comply with local building codes and city ordinances.

The groundless fear that helping some borrowers will lead to an avalanche of new foreclosures has discouraged sensible and systemic solutions to the foreclosure crisis. Allowing the mortgage industry to hide behind this fiction has created a genuine hazard – to neighborhoods, to communities and to the nation’s economic health.

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Brian McKay via Monitor Bank Rates

Mortgage rates are barely changed this week over last. Today’s mortgage rates on 30 year mortgage loans are averaging 4.13%, a slight increase from last week’s average 30 year mortgage rate of 4.11%. Average mortgage rates on 15 year mortgages are higher this week averaging 3.42%, an increase from last week’s average 15 year mortgage rate of 3.39%.

Compare current mortgage rates from several lenders by using our rate tables here: Current Mortgage Rates . Unlike most websites, no personal information is needed to view a list of mortgage rates.

30 year jumbo mortgage rates are averaging 4.61%, up from last week’s average 30 year jumbo mortgage rate of 4.55%. 15 year jumbo mortgage rates are averaging 3.89%, down from last week’s average 15 year jumbo mortgage rate of 4.90%.

Mortgage Rates

Conforming Adjustable Loans – Today’s Mortgage Rates

1 year adjustable mortgage rates today are averaging 3.79%, up from last week’s average 1 year adjustable jumbo mortgage rate of 3.77%.

3 year adjustable mortgage rates today are averaging 2.60%, down from last week’s average 3 year adjustable mortgage rate of 2.74%.

5 year adjustable mortgage rates are averaging 2.78%, a decrease from the prior week’s average 5 year adjustable rate of 2.82%.

Current 7 year adjustable mortgage rates are averaging 3.12%, no changed from the previous week’s average 7 year adjustable mortgage rate.

10 year adjustable mortgage rates currently are averaging 3.60%, unchanged from last week’s average 10 year adjustable rate.

Adjustable Jumbo Loans – Mortgage Rates Today

Current 1 year jumbo adjustable mortgage rates are averaging 4.50%, up from last week’s average adjustable jumbo mortgage rate of 4.05%.

3 year adjustable jumbo rates today are averaging lower at 3.42%, down from last week’s average 3 year jumbo adjustable rate of 3.49%.

5 year adjustable jumbo mortgage rates and refinance rates currently are averaging 3.03%, up from last week’s average jumbo adjustable rate of 3.02%.

7 year jumbo adjustable mortgage rates and refinance rates today are averaging 3.57%, unchanged from last week’s average 7 year adjustable home loan rate.

10 year jumbo loan rates and ‘refi’ rates are averaging 3.97%, up from the prior week’s average 10 year jumbo home mortgage loan rate of 3.96%.

Conforming Interest Only Adjustable Loans – Current Mortgage Rates

3 year interest only adjustable mortgage loan rates and refinancing rates are averaging 2.85%, down from last week’s average interest only mortgage loan rate of 3.15%.

5 year IO adjustable loan mortgage rates and mortgage refinance rates are averaging 2.93%, down from last week’s average five year interest only mortgage rate of 3.18%.

7 year interest only adjustable mortgage rates and refinance rates are averaging 3.44%, down from last week’s average 7 year interest-only mortgage interest rate of 3.54%.

Interest Only Jumbo Loans – Today’s Mortgage Rates

Today’s 3 year jumbo interest only adjustable loan rates are averaging 3.58%, down from last week’s average jumbo adjustable interest only rate of 3.67%

Current 5 year adjustable jumbo interest only rates are averaging 3.43%, a decrease from last week’s average IO home mortgage interest rate of 3.44%.

Today’s 7 year jumbo interest only adjustable rates are averaging 3.79%, unchanged from last week’s average jumbo 7 year home mortgage loan rate.

Home Equity Loan Rates – Today’s Home Equity Rates

10 year home equity loan rates are averaging 6.45%, unchanged from last week’s average home equity loan rate.

15 year home equity rates are averaging 6.41%, no change from last week’s average home equity loan rate.

Home Equity Line of Credit – Current HELOC Rates

Home equity line of credit rates currently are averaging 4.81%, unchanged last week’s average rate HELOC rate

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Emily Philips via MetLife

NEW YORK, Oct 31, 2011 (BUSINESS WIRE) — MetLife, Inc. MetLife announced today that it provided, through its real estate investments department, a $350 million, five year, fixed rate mortgage for the office condominium unit at the Bertelsmann Building, located at 1540 Broadway in Manhattan. MetLife, which provides loans on office, multi-family, industrial and retail properties, has a $40 billion* commercial mortgage portfolio.

"We are pleased to be providing financing for such a high quality asset as 1540 Broadway," said Robert Merck, senior managing director and head of real estate investments for MetLife. "We originate, underwrite and manage each investment with a long-term view, and we are well positioned to identify and complete attractive financing opportunities in top-tier markets such as New York."

The Bertelsmann Building is a 44-story, 907,000 square foot, Class A office building located in Times Square. The building is leased to several high quality tenants, including Viacom, Pillsbury Winthrop Shaw Pittman LLP, Duane Morris LLP, and Yahoo!. The borrower is a joint venture between affiliates of Edge Fund Advisors and HSBC Alternative Investments.

In addition to providing financing for 1540 Broadway, MetLife was the lead lender on a $725 million loan for Boston Properties’ 59-story, 1.6 million square foot, Class A office tower and retail property located at 601 Lexington Avenue in Manhattan. MetLife provided $375 million of the total $725 million loan, joining with Prudential Mortgage Capital Co. and New York Life.

Through its real estate investments department, MetLife oversees a well diversified real estate portfolio of approximately $60 billion*, which is one of the largest in the U.S. and consists of real estate equities, commercial mortgages and agricultural mortgages. MetLife is a global leader in real estate investment and real estate asset management, with a vast network of regional offices that keep in close contact with major real estate markets. For more information, visit http://www.metlife.com/realestate .

MetLife, Inc. is a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers in over 50 countries. Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Asia Pacific, Europe and the Middle East. For more information, visit http://www.metlife.com .

This press release may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results.

Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining the actual future results of MetLife, Inc., its subsidiaries and affiliates. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements. Risks, uncertainties, and other factors that might cause such differences include the risks, uncertainties and other factors identified in MetLife, Inc.’s most recent Annual Report on Form 10-K (the "Annual Report") filed with the U.S. Securities and Exchange Commission (the "SEC") and Quarterly Reports on Form 10-Q filed by MetLife, Inc. with the SEC after the date of the Annual Report under the captions "Note Regarding Forward-Looking Statements" and "Risk Factors", MetLife, Inc.’s Current Report on Form 8-K dated March 1, 2011 and other filings MetLife, Inc. makes with the SEC. MetLife, Inc. does not undertake any obligation to publicly correct or update any forward-looking statement if we later become aware that such statement is not likely to be achieved. Please consult any further disclosures MetLife, Inc. makes on related subjects in reports to the SEC.

 

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Matthew Campione via Forbes

Around 11 million homeowners, about 25% of all homeowners, owe more debt on their homes than the homes are worth, hence the term “underwater mortgage”. Most were victims of the housing bubble (2004-2008) fueled by easy financing that artificially inflated prices while people were buying houses, or borrowing against their existing homes. The interest rate on these mortgages in most instances is in excess of 6.5% but the homeowners do not qualify for refinancing at current interest rates as low as 4%. This means the homeowner is paying hundreds of dollars and in some instances thousands of dollars more each month than he would otherwise pay if he could refinance at current rates.

Lenders may have already written off a portion of these loans for financial or tax reasons, but the borrower is still treated as owing the entire amount with monthly payments still due per the terms of the mortgage, including payments on amounts the lender may have treated as a loss.  Every month the lenders get the borrowers to make payments on the underwater loans, the lenders receive a windfall of interest payments well in excess of current market interest rates. Lenders actually prefer to keep the homeowner captive to the terms of the mortgage and debt in excess of home value. Imagine how much is being paid on underwater mortgages each month to the satisfaction of the lenders. Every month a homeowner writes a check on an underwater mortgage is another victory for the lender.

It is in this environment the lender plays on the homeowner’s fears and takes advantage of his moral predisposition to pay what he owes. It is obvious that if most people stopped paying on their underwater mortgages lenders would no longer have the luxury of letting the homeowners twist in the wind. Of course, this will not happen because most people fear the stigma of foreclosure and bankruptcy and do not want to be among the first to default in what may not be a mass movement. So most borrowers will act the way lenders are counting on already.

If the President and Congress really want to help these homeowners, a program much broader than HARP (Home Affordable Refinance Program) should be established. For example, legislation could provide for a new subset of a Chapter 11 or 13 bankruptcy for underwater mortgages only, but without the stigma of the B(ankruptcy) word. Under this program underwater mortgages would be modified based on the fair market value of the home, and the net worth and income of the homeowner.

Continuing with this example, homeowners that meet the following criteria would be eligible to participate: (1) home value less than 85% of the mortgage, (2) annual PITI (principal, interest, property taxes and insurance) greater than 30% of homeowner’s adjusted income (mostly cash income less taxes and other specified permitted expenses), and (3) an adjusted net worth (e.g., excluding certain assets that would be exempted in a conventional bankruptcy) less than 25% of the mortgage amount. If the home value is at least 75% of the mortgage the interest rate would be reduced (not below current market rates) and principal amortization would be deferred (not beyond the original mortgage term) so that PITI would be no more than 30% of adjusted income. If the value of the home is less than 75% of the debt the principal amount of the debt would be reduced so that the home value is not less than 75% of the reduced mortgage. The reduction of debt would be further limited so as not to increase the homeowners adjusted net worth in excess of 25% of the reduced mortgage. The interest rate reduction and deferral of principal amortization discussed above would also apply to the reduced mortgage so PITI is no more than 30% of adjusted income. In situations where a mortgage cannot be modified as discussed above because 30% of adjusted income cannot support payments on a modify mortgage, the program would allow for a short sale with the borrower no longer liable for all or part of the remaining loan balance.  Most important, this program would allow the borrower to immediately reduce PITI payments to no more than 30% of adjusted income until the debt restructuring is completed thereby discouraging lender procrastination. The establishment of the program itself may make lenders more willing to work with homeowners outside the program.

This program would not create a windfall for the borrower. Borrowers with substantial income or substantial net worth will still be expected to honor their loan obligations or pursue existing alternatives. However, I suspect such legislation would not be popular with lenders, parties who provided guaranties related to securitized debt, Freddie Mac and Fannie Mae. But like the pig in the python, it is time for our economy to digest the underwater mortgage problem.

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Paragon Financial Limited, via Market Watch

The Paragon Report Provides Equity Research on PMI Group & Radian Group

NEW YORK, NY, Oct 25, 2011 (MARKETWIRE via COMTEX) — Mortgage Insurers continue to struggle as the aftermath of the recession and economic slowdown weighs on their recovery. Matthew Howlett, an analyst at Macquarie Group Ltd, argues that Mortgage Insurers probably won’t "be able to handle a sustained increase in delinquencies" that would come with another recession. The Paragon Report examines investing opportunities in the Property & Casualty Insurance Industry and provides equity research on PMI Group, Inc. PMI -14.58% and Radian Group, Inc. RDN -3.34% . Access to the full company reports can be found at:

http://www.paragonreport.com/PMI

http://www.paragonreport.com/RDN

Last month a report released by the Office of the Comptroller of the Currency revealed that the number of homeowners behind on their mortgages rose during the second quarter of 2011. Early-stage delinquencies, which count mortgages that are between 30 and 59 days delinquent, increased 0.4 percent in the second quarter, the report said. More serious delinquencies — mortgages that are 60 or more days delinquent — and delinquent mortgages to bankrupt borrowers also increased slightly in the second quarter after falling for the previous five quarters.

The Paragon Report provides investors with an excellent first step in their due diligence by providing daily trading ideas, and consolidating the public information available on them. For more investment research on the Property & Casualty Insurance industry register with us free at http://www.paragonreport.com and get exclusive access to our numerous stock reports and industry newsletters.

High delinquency rates have plagued Mortgage Insurers. PMI Group said on Saturday that the main subsidiary of the company has been seized by Arizona insurance regulators, and will begin paying only 50 percent of claims. Under a court order obtained by Arizona regulators, "the Arizona Department of Insurance now has full possession, management and control of PMI," the company said in a brief statement.

The seizure of Arizona-based PMI Mortgage Insurance Co comes two months after two PMI units were ordered to stop writing new business due to their failure to meet capital requirements.

The Paragon Report has not been compensated by any of the above-mentioned publicly traded companies. Paragon Report is compensated by other third party organizations for advertising services. We act as an independent research portal and are aware that all investment entails inherent risks. Please view the full disclaimer at http://www.paragonreport.com/disclaimer

SOURCE: Paragon Financial Limited

Copyright 2011 Marketwire, Inc., All rights reserved.

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Paul Gores, Journal Sentinel

Although the private mortgage insurance industry continues to lose money amid the lingering foreclosure crisis, Milwaukee’s MGIC Investment Corp. is in far better condition than a competitor that was seized by regulators last week, analysts said Monday.

Claims on mortgage defaults had sapped capital at Arizona-based PMI Mortgage Insurance Co. to the point that regulators in that state took control of the company and ordered it to pay claims at only 50 cents on the dollar.

Mortgage insurers pay lenders part of their costs when borrowers default.

MGIC, which has not had a profitable year since 2006 and last Friday reported a third-quarter loss of $165.2 million, nonetheless is prepared to handle losses, analysts said.

"MGIC is clearly in a better position than PMI was," said Thane Bublitz, a financial industry analyst for Thrivent Asset Management in Appleton.

MGIC raised about $1 billion in new capital in 2010, and the parent company intends to contribute $200 million to its insurance operations. Company investor relations spokesman Michael Zimmerman said Monday that even under a more stressful scenario, MGIC would expect to have resources to be able to pay its mortgage insurance policy obligations.

In addition, the company has – and is seeking an extension of – waivers to ease capital requirements needed to write new business if its risk-to-capital ratio would no longer meet normal standards. MGIC also has in place a subsidiary which, if needed, could issue new policies while the current one handles policies already in its portfolio.

PMI had been under regulatory scrutiny as its capital fell, and was ordered by regulators in August to stop selling new policies.

Jim Ryan, an analyst with Morningstar Inc. in Chicago, said MGIC is "certainly nowhere near as bad off as PMI was even three months ago."

As competitors are restricted from issuing new mortgage insurance, a stronger company such as MGIC could benefit, Ryan said. New policies are desirable because they provide new revenue and, under today’s restrictions, are less risky than those from the mid-2000s that continue to go into default.

"These are all things that work in their favor," Ryan said.

Still, how MGIC fares in the long run depends on the duration of the downturn in housing, analysts said. MGIC doesn’t appear to need additional capital at the moment, but could down the road, they said.

"If the housing market doesn’t stabilize and start improving, then that’s when they may get into trouble," Bublitz said.

He noted, however, that "fundamental trends" have been improving for MGIC.

While Ryan stressed that MGIC isn’t in the same boat as PMI, he said the housing market remains in a malaise – something MGIC can’t control. He said "it’s possible, but it’s not inevitable" that MGIC would need to raise additional capital.

 

 

 

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David Reilly, Wall Street Journal

The government’s latest move to bolster housing marks yet another transfer from savers to borrowers.

Such transfers have been the norm since the Federal Reserve instituted its zero-interest-rate policy in late 2008—shifting funds away from the likes of depositors, bondholders and pension funds to debtors. The latest iteration came Monday, when the Federal Housing Finance Agency unveiled changes to a program meant to make it easier for underwater homeowners who are current on payments to refinance into a lower-rate mortgage.

The thinking is that this will reduce defaults. Or as FHFA said, "Such refinances bring benefits to borrowers, to housing markets, and to [Fannie Maeand Freddie Mac] and taxpayers."

Missing from that winners’ list: investors who finance housing markets by purchasing mortgage-backed bonds. They will fund this new effort. Here is how: As homeowners refinance, investors who bought mortgage bonds will be given back their money and will have little option but to reinvest at far lower yields. The transfer is the difference in yield.

Just how big that will be isn’t clear as it is tough to tell how effective the program will be. The original Home Affordable Refinance Program, or HARP, led to refinancings by 894,000 homeowners in about two years. Estimates for how many borrowers could now take part range from 500,000 to three million, while FHFA said it is "very difficult to project the number of mortgages that may be refinanced." Some mortgage bonds traded lower Monday on news of the plan.

Granted, prepayment risk is inherent to mortgage bonds. There is also likely to be little sympathy for bondholders having to give up money to shore up housing. But that ignores that the government is picking winners and losers. Effectively, it is deciding some losses on some things are acceptable, say on 401(k) retirement plans, yet aren’t on others, namely housing.

The government also potentially undermines its own effort to create a housing-finance market independent of Fannie and Freddie. Many mortgage investors may choose to reinvest elsewhere, ultimately shrinking the pool of lenders available to fund that market. In the short term, the Fed may well take their place. That isn’t the basis, though, for a functioning mortgage market underpinned by private capital.

Another unsettling wrinkle: The FHFA is adding an incentive for borrowers to refinance into shorter-maturity mortgages. But in many cases, this will mean a borrower’s monthly payment, including principal repayment, won’t decline. It may actually rise. That undermines the notion that these borrowers are unable to meet monthly payments and need government assistance.

Banks may also benefit depending on how FHFA decides to limit the risk that they could be forced under some circumstances to repurchase shoddily underwritten mortgages.

The biggest issue, though, isn’t necessarily with HARP or similar programs. It is that both parties in Washington are studiously avoiding any real effort to overhaul housing finance and decide what to do about Fannie and Freddie.

 

 

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John Walsh, via Mortgage Professional

The mortgage industry has dealt with sweeping changes over the past few years significantly impacting the mortgage broker and wholesale lending. As a result, the wholesale origination model has been largely redefined. Although many brokers and lenders have left the business, the wholesale channel now has a well-defined regulatory framework with higher-quality and better-skilled mortgage professionals to advise borrowers on their most important financial decision. This is why I believe the mortgage broker will thrive in the coming years.

I see a compelling future for wholesale lending, one that plays a vital role and guarantees that borrowers have access to the most competitive rates and an array of responsible program options. In the absence of wholesale, there is no doubt that consumer choice would be significantly reduced, as the mortgage marketplace would be dominated by a handful of large national lenders. The mortgage broker-to-consumer option helps guarantee healthy competition in the marketplace.
Additionally, mortgage brokers provide borrowers with access to a mortgage professional who will act as their partner, trusted advisor and advocate throughout the lending process. Mortgage brokers are knowledgeable about multiple products from various lenders and can help borrowers navigate the myriad of options to find the loan that is best suited to their needs.

Wholesale lending plays a critical role in ensuring that the mortgage industry does not become too heavily reliant on a select few large lenders, so that borrowers will continue to have plenty of mortgage options for any purchase or refinance transaction. In the coming years, mortgage brokers and lenders need to be committed to ethical behavior, responsible lending, ongoing training and the highest levels of customer service. Together, we must continue to improve, practice responsible lending, and advocate for this important channel and solution for borrowers.

 

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Donal Griffin, via Bloomberg

U.S. regulators’ plan to expand aid to underwater mortgage borrowers may leave consumers with more spending money and boost the economy, said Wells Fargo & Co. (WFC) Chief Executive Officer John Stumpf.

“This could be really helpful,” Stumpf said today at a press club lunch in Atlanta. It may put “more money in people’s pockets. They’ll go out and spend, and get this economy going again.” San Francisco-based Wells Fargo is the nation’s biggest home lender.

Regulators will let qualified borrowers refinance mortgages regardless of how much their houses have dropped in value as the government expands relief efforts for homeowners. The Federal Housing Finance Agency will also enhance the Home Affordable Refinance Program by eliminating or reducing some fees and waiving some risk for lenders, Edward J. DeMarco, the agency’s acting director, said today.

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