Just when you thought the refinance market was completely out of steam, a slew of bad news might be just the ticket to resuscitate it.
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Home prices may rise soon as more and more people start filling out mortgage application forms. If you’re putting off plans to buy a home, hoping for lower mortgage rates, then now may be time to reconsider.
In a recent Reuters report, consumer demand for housing and refinancing loans rose in the week ended January 6, indicating a potentially bullish market throughout the year.
The Mortgage Bankers Association’s (MBA) mortgage application index, a major gauge of ongoing housing market activity, went up by almost 5 percent last week.
Despite a modest increase of 4 basis points for 30-year mortgage rates (4.7 to 4.11 percent) in the last week of 2011, refinancing applications still grew more than 3 percent while home purchase loan applications rose by a whopping 8.1 percent.
Statistics also show that the share of refinancing in total amount of mortgage loans dropped by 1.1 percent, indicating a strengthening national economy.
The MBA survey covers three-fourths of the entire US housing market.
The Good News and the Bad
Positive development in the housing market serves as a major indicator of the economic improvement, a welcome respite for the average American who has been tormented by a stagnant economy since it crashed in 2008.
However, with the simple law of supply and demand, a constantly increasing number of mortgage applications will inevitably cause another housing boom, which will drive home prices up north.
Citing an earlier post, mortgage rates was already at a historic 60-year low in the last weeks of 2011. However, recent developments indicate that this record may not be broken anytime soon. That is, the 6-month forecast of stable home prices may be cut short. These figures may go up in no time.
When is the right time?
There are many other factors to take into account before you start filling out forms, such as your current employment situation, your current debts, and other financial contingencies. However, considering the probability of a near-term housing boom, delaying the purchase of a home may translate into higher interest payments, coupled with subsequent increases in real estate prices.
If you need more help in deciding when to buy a home, Paradigm Mortgage Services will be glad to help.
A federal housing agency considers temporarily eliminating interest in mortgage debts held by bankrupt homeowners.
In a report from the Financial Times, the Federal Housing Finance Agency (FHFA) said it was seriously considering proposals for setting interest rates to zero for mortgage loans for borrowers who:
- Are undergoing Chapter 13 Bankruptcy proceedings
- Owe more than their home’s value
- Acquired the loan via government-controlled home loan financier, AND
- Secures approval from the pertinent bankruptcy judge
The proposal, called the “principal paydown plan”, will relieve debt-ridden Americans from interest rate payment for a period of five years. Through several studies, real estate market research firm CoreLogic found out that almost 11 million US homeowners – or 25 percent – have negative equity on their homes. This translates to more than two-thirds of a billion dollars worth of negative equity in the entire United States.
Principal Paydown Plan: The Pros and Cons
A Boost for the Debt-Ridden
Of course, this plan is good news for those who are underwater. Zero interest loans, while not entirely erasing debt, is a great way to help distressed Americans make ends meet. Moreover, studies show that many housing experts feel that this proposal may even serve as the panacea for today’s national economic woes.
Lack of incentive for lenders et Al
However, the proposal seems to be a zero-sum game. Yes, it may help borrowers but what’s in it for lenders and the rest of the pack? Financial institutions are businesses that care about their bottom-line, so this plan may actually serve as an impetus for these money managers to find new and more creative ways to get around the law.
There’s no other choice
Eleven million families are already underwater, and very few of them know how to swim. For advocates, the proposal serves a middle ground between the interest of these debtors and that of corporate America. In short, it’s better than no relief at all.
The Principal is still there
Others argue that the problem is like having four flat tires on an SUV in the middle of nowhere. The spare tire won’t be enough to put the car back on the road. The proposal addresses nothing but the interest and rate a miniscule part of the debt equation vis-à-vis borrowed principal. That is, it’s not quite enough.
The FHFA told the media is already under discussion in back rooms of Congress, but it still has a long way to go before it gets signed into law. However, for an extremely large number of Americans, this proposal may actually serve as their long awaited glimmer of hope.
The Federal Reserve now officially blames mortgage servicers for the chronically problematic housing sector, saying these companies make the housing market harder to fix.
In a United Press International Report, Federal Reserve Governor Sarah Bloom Raskin said, “Severe misconduct that has been uncovered in the mortgage servicing sector [should] be addressed,” adding that an alarming number of mortgage servicers are negligent and misleading in their business practices.
What are Mortgage Servicers?
Mortgage services are private companies who receive mortgage payments from homeowner-borrowers. They are the same companies that compute for interest rates in adjustable-rate loans, negotiate with borrowers who are on the verge of default, and administer foreclosures if need be. Contrary to popular belief, these institutions are usually distinct from the lender, as the latter typically sells mortgage loans to investor companies like Freddie Mac and Fannie Mae, who will then package these loans into mortgage-backed securities.
What did they do wrong?
Throughout the past several years, mortgage servicers have been grilled for shady business practices, to the detriment of borrowers and the economy as a whole.
Let’s cite the two most (in)famous issues:
- Unwillingness to lower rates despite high risk of default – In 2009, the New York Times reported the despite calls from the White House, mortgage servicers did little in the way of giving consideration for financially troubled borrowers, even if impending default is almost certain. Instead, these companies let borrowers stay delinquent for as long as possible, so that the former can milk the system through various fees like insurance and legal services. Furthermore, these companies may have actually encouraged foreclosures, since they get to keep all the payments made, the junk fees, and the proceeds from foreclosed homes –all at the same time.
- Falsifying Legal Documents and Circumventing Legal Requirements – In another NY Times article, mortgage services were also castigated for “robo-signing” a countless number of mortgage foreclosures. Basically, independent research showed that thousands of foreclosure proceedings that were enacted in the peak of the subprime mortgage crisis were actually based on documents that were either dubious in nature or simply incomplete. Because of this, many people lost their homes without being afforded the right to due process.
Aside from these, some mortgage servicers even went so far as to defy the Servicemembers Civil Relief Act, which protects military personnel from civil suits while they are on active duty. Just last year, JP Mortgage Chase admitted to having overcharged thousands of active military personnel, and that’s just the tip of the iceberg. However, until recently, the Federal Reserve has stayed mum on these controversies.
Raskin’s announcement may be long overdue, but it is good news that the Federal Reserve – the bank of banks – is starting to crack down on these corporations who take advantage of the less fortunate.
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