NHLA Blog

The Obama administration announced a sweeping plan that includes the creation of a Consumer Financial Protection Agency (CFPA). And, for the first time, non-bank mortgage companies would be subject to regulation from the federal government.

These aren’t companies making a few small loans. Almost half of the subprime loans issued between 2005 and 2007, at the height of the bubble, were made by non-depository mortgage lenders, currently regulated at the state level.

Click to Enlarge
Home Mortgage Disclosure Act data acquired from the National Institute for Computer-Assisted Reporting

Loans from those companies dwarf the totals made by institutions overseen by the five federal regulators — the Federal Deposit Insurance Corporation, the Federal Reserve, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the National Credit Union Administration.

The Office of Thrift Supervision regulated the next largest group of lenders, which made $220 billion in subprime loans. OTS regulates federal thrifts, including IndyMac, which was seized by the FDIC in July 2008. Also on the OTS roster was Washington Mutual, whose collapse in September 2008 stands as the single biggest bank failure in American history. The agency is slated to fold into the Office of the Comptroller of the Currency under the administration’s plan.

The Federal Reserve was responsible for regulating entities that made more than $200 billion in subprime loans.

Under the administration’s plan, the CFPA’s enforcement authority would apply not only to the federally-regulated institutions, but also to the mortgage companies that, it states, now “fall into a regulatory ‘no man’s land.’” The plan emphasizes that federal regulation would be a “floor, not a ceiling,” and the states would remain “the first line of defense” for supervision of non-bank lenders. But enforcement of the major fair lending laws, including the Truth in Lending Act and the Fair Debt Collections Practices Act, would rest with the CFPA.

Now, all those lenders will be subject to the same rules – if the administration’s plan passes Congress. The CFPA has a head start on the hill: A bill to create a similar agency was introduced by Senator Durbin in March. And Elizabeth Warren, the Harvard University law professor running the Congressional Oversight Panel on TARP – the Troubled Asset Relief Program – has long endorsed the creation of a Financial Products Safety Commission. 

Nine of the top Eleven non-depository mortgage companies featured in the Center’s Subprime Top 25 are no longer lending.

On June 25 House Reps Childers (D-MS) and Miller (R-CA) introduced a bill calling for an 18 month moratorium on the Home Valuation Code of Conduct.  On June 22, NAR President, Charles McMillan wrote a memo to NY A.G., Andrew Cuomo expressing his support on behalf of the 1.2 million members of NAR for the 18 month moratorium.  The proposal (H.R. 3044) also drew support from NAMB (The National Association of Mortgage Brokers).

Support for the moratorium is centered around the tsunami of complaints flooding in about delayed closings, canceled sales, and higher costs passed on to consumers as a result of HVCC being in place for two months, which could delay a housing recovery that seems to be forming.

Our work with all parties involved in mortgages and appraisals would also suggest wide sweeping support for a moratorium that would allow time to better refine the intended approach and understand the consequences.

You can express your opinion on a poll sponsored by Mortgage Daily News at:

http://www.mortgagenewsdaily.com/forums/t/52787.aspx

At the time we expressed our support for HR 3044, the poll was displaying 92% in support and 7% that did not support the moratorium.

New construction housing starts had the best month since Nov of 2008, while still down 278,000 starts from this time last year and now running at over a 400,000 annualized pace. 

These are all-time lows since being tracked into the early 60's. 

While not the best news if you are in the home building business, this is good news for the housing markets.  It does appear that a bottom has been reached in a level of new housing starts that can be absorbed in the current demand and sales rates. 

Some perspective... remember 2003 to 2005?  The housing starts were running at or over 2 million annualized starts.  We are down 10 fold from those highs.

Last week builders KB Home and Lennar, while reporting no material pickup in demand nationally, did report that they are seeing signs that the headwinds against them are diminishing.  KB in particular is betting on the smaller home and first-time buyer market- which appears to be a good bet demographically.

Other links of interest on this topic:

Historical Starts: http://forecasts.org/data/data/HOUST.htm

Forecasted Mortgage Rates into 2012: http://forecasts.org/fha.htm

The overall message from the Fed on Wednesday is positive for those worried about inflation and higher interest rates. 

With a subdued view on inflation risk, the Fed is likely to leave interest rates low for the foreseeable future.

1.) They voted to leave the Fed Funds Rate unchanged within its target range of 0.000 - 0.250 percent.

2.) They reiterated their plan to support the mortgage market to the tune of $1.5 trillion.

3.) They gave a slight upgrade to their view on the economy stating; "the economic contraction is slowing".

4.) They emphasized deflation concerns expecting inflation to remain subdued for some time.

5.) Business continues to reduce capital spending.

6.) Job losses continue to mount nationally.

7.) The prices of energy and commodities have been rising.

The Making Home Affordable program currently allows Fannie Mae and Freddie Mac insured loans to be refinanced to a loan-to-value ratio of 105% to afford homeowners with values less than they owe, the opportunity to refinance for lower rates and payments.

The FHFA - The Federal Housing Finance Agency - recently announced that it is "looking at going significatnly higher than 105%".  According the James Lockhart, FHFA director, "the 105% ceiling has kept too many borrowers on the sidelines".

Fannie and Freddie report refinancing 80,000 homeonwers under this special program so far.  The Obama administration has estimated it will refinance at least 4 million homeowners who have loans that are owned or guaranteed by either Freddie or Fannie.

Stay tuned as more is sure to be forethcoming soon.

Congress passed the Mortgage Disclosure Improvement Act last year.  As part of this Act and in May of this year, the Fed approved a new rule to ensure that consumers receive cost disclosures earlier in the mortgage process and it goes into effect on July 30.

Starting with applications taken on July 29, lenders must comply with this new law and deliver the Truth In Lending documentation to the customer within three (3) business days (which was already law).

Highlights Of What Is New:

1. Lenders cannot collect any fees before the delivery- except for the credit report.

2. Lenders must wait a minimum of seven (7) business days after delivery of the TIL before closing the loan.

3. If the finance charge or annual percentage rate (APR) changes, the lender must provide a new disclosure and wait another three (3) business days to close the loan.  There are some "emergency" situations that would allow the borrower to waive this right.

Legislation was recently introduced that would expand the existing $8,000 First-Time Homebuyer Tax Credit. 

Under this new proposal all homebuyers would qualify, not just new or first-time homebuyers.  Additionally, it would eliminate the existing income qualifications.

It appears to have bipartisan support, including that of Banking Committee chairman Chris Dodd, D-Conn.

Remember, the existing First-Time Homebuyer Tax Credit is set to expire 12/1/09.

Stay tuned and review the links on our website on this topic.

http://www.nationalhomeloanadvocates.com/UseTaxCreditForDownpayment

http://www.nationalhomeloanadvocates.com/TaxCreditStatePrograms

http://www.ncsha.org/section.cfm/3/34/2920

Last week we gave you a half a dozen ideas to help your kids learn about managing their money. Here we add to that list, rounding it out with another six simple steps you can use to teach your children good personal finance skills.

Let children make spending decisions. It’s never too early to teach your kids to spend their money wisely and to show them how to be bargain shoppers. Take them to different stores and explain how the same items may cost more or less depending on where you shop and which brand you purchase. Let them learn for themselves the difference between paying a premium for a brand-name item or spending less for a generic by allowing them to make their own decisions.

Open a savings account. This may be one of the best ways to teach children the benefits of saving for the long-term. Open a basic savings account for them so they can deposit a portion of their allowance, birthday money or other funds into the account. Go over the monthly statements with them, and help them see how their money earns interest over time. For older children, this can also provide an opportunity to introduce the concept of compounding.

Discuss the benefits of using credit wisely. Explain to your children how “borrowing” money comes with consequences. When you use your credit card, remind them that you still need to pay the full amount for your purchases when the bill comes due. Illustrate this point by showing them how much more you will actually pay when interest charges are added to the bill. You can also set a good example for them by paying your entire bill each month and not carrying a balance that would incur interest.

Encourage children to invest in the market. You can introduce your kids to the financial markets by helping them purchase shares of companies they are familiar with in their everyday lives. You should explain to them that the market can fluctuate and review account statements together so they see the up and down activity. Kids can even follow their stocks in the paper each day, giving them something to look forward to and helping establish a sense of ownership.

Teach children to be charitable. You can assist them in finding a good cause that they can understand. Encourage your children to donate to charitable organizations, and share with them your experiences of giving to charity. This will help them see they can derive great satisfaction from sharing their money with those in need, and also teach them important habits that they will carry with them for the future.

Use resources available in your area. Beyond the lessons you can teach them at home, your kids can participate in valuable learning experiences through various other sources. There are many financial literacy programs available for children; start by checking with your local children’s museum or neighborhood schools to find resources to help them learn. You can also look on agedwards.com for more information.

While you’ve undoubtedly thought of other ideas to teach your children about money, these simple steps can help you get them started. The important thing is to teach them early on, so you can help them establish good habits that will stay with them for the long run.

This article was written by Wachovia Securities and provided to you by Justin Latvenas CRPC®, Financial Advisor in Marlton, NJ at 800-395-8537. For More information please visit the team website at www.harmandharm.wbsec.com

You can also reach Justin at Justin.Latvenas@Wachoviasec.com

Wachovia Securities is the trade name used by two separate, registered broker-dealers and nonbank affiliates of Wachovia Corporation providing certain retail securities brokerage services: Wachovia Securities, LLC Member, NYSE/SIPC, and Wachovia Securities Financial Network, LLC (WSFN), Member FINRA/SIPC.

The accuracy and completeness of this article are not guaranteed. The opinions expressed are those of the author(s) and are not necessarily those of Wachovia Securities or its affiliates. The material is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Provided by courtesy of Justin Latvenas, a financial advisor with Wachovia Securities in Marlton, NJ for more information, please call Justin Latvenas at 800-3958537. Wachovia Securities LLC, member FINRA and SIPC, is a separate nonbank affiliate of Wachovia Corporation. ©2008 Wachovia Securities, LLC.

Investments in securities and insurance products: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

After a series of increases starting Memorial Day, mortgage rates finally took a dip starting Thursday last week. It was a welcome surprise for home buyers who have recently gone under contract. Same for homeowners looking to pull the refinance trigger.

Versus mortgage rates last Wednesday afternoon, many lenders are already reporting rates down by -.50% in rate. 

The drop in rates over the last few days has lowered annual mortgage payments by roughly $180 per $100,000 borrowed.

Rate dips like this aren't expected, of course, bringing us to the one of the most important axioms of shopping for a mortgage rate: You can't shop for good luck. This is because mortgage rates are inherently unpredictable.

• On some days, rates are higher
• On some days, rates are lower
• On some days, rates are unchanged

Occasionally, there are days when rates are all three.

The recent rate dip may not last. There is still a belief that the amount of stimulus injected into the economy will cause inflation and rising interest rates.

If you have an interest rate offer that fits your goals, you should lock.  Historically we are still at very low rates.  See chart below.

10 states with the highest number of foreclosures account for nearly 77% of the nationwide foreclosures filings in May.

Or another way to look at it... 20% of the states account for 80% of the foreclosure filings.  The Pareto Principle (aka 80/20 rule) continues to carry on!

State      # Foreclosure Filings    Compared to April

CA                92,249                        - 1%

FL                58,931                         +50%

NV                17,157                        +23%

AZ                16,865                        + 4%

MI                13,891                         +29%

OH                11,360                        - 9%

IL                 10,942                         -20%

GA                10,516                        - 9%             

TX                  9.813                        -13%

VA                  5,385                        -14%

*Source Realtytrac.com

Nationally foreclosure filings were down 6% from April and up 18% compared to this time last year.  Foreclosure filings and REO activity is expected to spike in the coming months as the foreclosure delays and moratoria implemented by various state laws come to an end.

I recently posted articles about the new HVCC - Home Valuation Code of Conduct, which puts a wall between appraisers and mortgage lenders.  Read my previous blogs on this topic to learn more about the uproar.  There continues to be daily news of how this is impacting appraisals with lower values.

http://www.mynhla.com/Debate+over+HVCC+Fees

Now a new sort of issue is gaining attention that will continue to drive prices of homes down... potentially prolonging the process of finding a bottom in the housing market. 

That is that appraisers are comparing new homes to foreclosures when looking for comparable sales.  This is not really a new issue, this has been hurting appraisals for over a year now. 

The problem is that bank owned properties typically only fetch 70%-80% of the price the home might otherwise obtain.  Not only is the bank willing to take a lesser than market price to move the home off their balance sheet, but the typical condition of foreclosed homes is less than average.

As the foreclosure moratoriums are being lifted in May and June by the large lenders, we can expect a flood of new foreclosures to hit the market late this summer through the end of 2009... further exacerbating this issue.

Stay tuned.

The National Association of Realtors (NAR) announced that the supply of homes for sale over $750,000 has reached a 3-year supply of homes... meaning it will take over 3-years to sell all of these homes on the market today at the current pace. 

It could get worse before it gets better in this space.  Not only does the rate of foreclosures in this space continue to accelerate, bringing more supply, but lending is tougher in the jumbo market with:

1)  Underwriting guidelines that are more strict

2)  Interest rates that are much higher.

This is not a new dynamic, only that the supply of homes at over 3-years is, the jumbo space has had a lack of liquidity since Q4 of 2007.

Note- The "Jumbo" market is typically considered part of the mortgage segment that is larger than $417,000.  For purposes of this study, NAR used $750,000.

Until recently, prime borrowers were seemingly immune to economic struggles. The rising defaults were among borrowers with blemished, or subprime, credit.

But a lot of those prime loans made in recent years weren't the traditional fixed types but instead allowed borrowers to pay less initially and have higher adjustable payments later. As long as the housing market was good and home prices were rising, they could refinance their loans or sell their properties to pay off their mortgages. But now, with prices falling and lenders getting more strict, homeowners with solid credit are starting to feel the same financial pressure as those with subprime credit.

States With The Most Prime Loan Problems:

1. Nevada: 9.7 percent.
2. Florida: 8.2 percent.
3. California: 7.5 percent.
4. Mississippi: 7 percent.
5. Arizona: 7.2 percent.
6. Michigan: 6.5 percent.
7. Georgia: 6.24 percent.
8. Indiana: 6.21 percent.

Home Price Decline Protection Incentives

The Administration has announced a program update to Making Home Affordable (MHA).  There are two components:

1. Foreclosure Alternatives

2. Home Price Decline Protection Incentives

Foreclosures Alternatives will help to prevent costly foreclosures by providing incentives for servicers and borrowers to pursue short sales and deeds-in-lieu of foreclosure in cases where a borrower is eligible for a MHA modification but is unable to complete the modification process or make the payments.  The program also provides borrowers incentives to cover relocation expenses to homes that are affordable.

Home Price Decline Protection Incentives will provide additional payments for modifications based on recent home price declines, and therefore will incentivize additional modifications in areas where home prices have been falling... reducing the risk of loss to lenders.

In choosing its 2009 Top 100 Places To Live in America, Relocate America focused on areas with stable local economies and markets where housing has avoided major price declines.  Relocate America also comments that they believe these cities are poised to make a faster comeback from the recession than other U.S. cities.

Tulsa, OK, a city with only 3% unemployment and a housing stock that is considered affordable, tops the list.  In fact, the state of Oklahoma had two cities make the top 10 list with Oklahoma City landing in the #10 spot.

This is a common theme among the cities included in the Top 10 List:

1. Tulsa, OK
2. Dallas/Ft.Worth, TX
3. Pittsburgh, PA
4. Raleigh/Durham, NC
5. Huntsville, AL
6. Houston, TX
7. Albuquerque, NM
8. Lexington, KY
9. Little Rock, AR
10. Oklahoma City, OK

Investment Strategies for Those with Money to Invest

While there are many individuals who have plenty of money to invest, more than a few hesitate to do so because they are unsure of exactly how or where to invest their money. And while it may seem a logical conclusion that the more money you have the more complicated your investment picture becomes, that is not necessarily the case. Financial investment strategies can still be broken down into simple, easy-to-understand terms.

Asset Allocation — One of the most important elements of a successful financial strategy is proper asset allocation. This refers to the mix of investments you have in your portfolio, and it’s important to keep a good balance of different types of investments — like stocks, bonds and cash, for example — diversified across a range of industry groups or sectors. Your ultimate financial objectives, the amount of time you have to invest and your own risk tolerance should all be taken into consideration as you decide exactly how to divide up your funds and where to invest them.

Equity Investment Strategies — When investing in stocks, a good rule of thumb is to diversify your stock portfolio across a number of sectors; you may also want to overweight industry sectors whose stocks you believe are likely to benefit from the current outlook for the economy. Once you have identified these sectors, you can begin to select specific stocks from within them.

You may want to consider stocks that pay dividends, which can give your investment an added boost. Another benefit of these stocks is that you can usually reinvest the dividends you earn directly into the purchase of more stock, and many investment firms even have programs that allow you to do so at no cost.

Another good idea is to select companies that have a solid foundation and have the potential to continue to grow over the long term. While it’s not easy to predict the future, the advice of a financial consultant and a little research of your own should enable you to identify companies that have the qualities necessary to meet your long-term objectives.

Fixed-Income Investment Strategies — When you buy a bond, you are usually promised the return of your principal as long as you keep it until maturity. In addition, you earn interest on your money before the bond matures. There are a wide variety of fixed-income products available. Some can be tax-advantaged, and many generally afford you a fixed rate of return.

Estate Planning — Regardless of your age, an estate plan is a valuable tool that can help preserve your estate in the unexpected event of your incapacitation or even death. It can also ensure your assets are properly managed, according to your wishes, for your heirs. Proper estate planning can even help reduce federal estate taxes for your heirs, so they can more fully enjoy the benefits of the money you have left to them.

While this is just a simple overview of some of the many financial opportunities available to you, it’s important to begin your financial strategy right away. Talk to a financial consultant to find out more about the ways you can tailor your asset management strategies to help you enjoy your money now and in the future.

This article was written by Wachovia Securities and provided to you by Justin Latvenas CRPC®, Financial Advisor in Marlton, NJ at 800-395-8537 and trusted advisor of National Home Loan Advocates, LLC.  For More information please visit the team website at www.harmandharm.wbsec.com

You can also reach Justin at Justin.Latvenas@Wachoviasec.com

Wachovia Securities is the trade name used by two separate, registered broker-dealers and nonbank affiliates of Wachovia Corporation providing certain retail securities brokerage services: Wachovia Securities, LLC Member, NYSE/SIPC, and Wachovia Securities Financial Network, LLC (WSFN), Member FINRA/SIPC.

The accuracy and completeness of this article are not guaranteed. The opinions expressed are those of the author(s) and are not necessarily those of Wachovia Securities/Wachovia Securities Financial Network or its affiliates. The material is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.

Investments in securities and insurance products: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

Credit Line Reduction Impacts

Approximately 1/3 of your credit score is based on how much of your available credit you are using.  This is called your "credit utilization".

The higher the utilization rate you have... the lower your credit score.  The credit scoring models view this as you getting closer to maxing out your credit lines and becoming a higher risk.

Example..  If you have a $10,000 credit line and carry a balance of only $2,500 you have a credit utilization measure of 25%.  If your credit limit is cut to $5,000 then you jump to a credit utilization measure of 50%... lowering your credit score without doing anything on your part.

If, however, your credit card company reduces your credit line on a credit card that you do not carry a balance on... then no impact to your score.

Welcome to the aftershocks of the responses to the economic and credit debacle.