Obama Travels to Nevada to Tout Refinancing Plan

By Kevin Wack MAY 11, 2012 5:01pm ET

President Obama traveled to a couple’s home in Reno, Nevada, on Friday in his effort to pressure Congress into passing legislation that would allow more Americans to refinance their mortgages.

Standing on the driveway outside the home of Val and Paul Keller, Obama said, “I’m calling on Congress to give every responsible homeowner the chance to save an average of $3,000 a year by refinancing their mortgage.”

The Kellers have a $168,000 mortgage on their home, which is currently only worth $100,000, according to the White House. Unable to get a new loan, they heard about the Obama administration’s refinancing program – known as the Home Affordable Refinancing Program, or Harp – when eligibility was broadened last year.

“So they called their lender, and within a few months, within 90 days, they were able to refinance under this new program that we set up. Their monthly mortgage bill has now dropped $240 a month,” Obama said.

The White House used the couple’s car port as a backdrop because they fit the administration’s narrative about more Americans being able to refinance in the last several months.

Harp has been considered by many to be a disappointment. Through February, 1.1 million homeowners had taken advantage of the program, which is far below a 2009 estimate that it could help as many as 5 million households.

But since last fall, refinancing activity has intensified. The White House said Friday that nationwide refinancing applications have increased by 50% since the administration announced it was making the program available to more borrowers. That rate has been even higher in states with some of the sharpest drops in real estate values, such as Nevada, Arizona and Florida. (The data released by the Obama administration did not show how many of the refinancing applications were approved, or how many of the applications were for Harp refinancing.)

Still, Obama is pushing congressional Republicans to approve three bills that would further expand eligibility for refinancing.

One of the bills, sponsored by Sen. Dianne Feinstein of California, would allow homeowners whose mortgages are not backed by Fannie Mae or Freddie Mac to participate. Under the legislation, those borrowers would be able to refinance into government-backed loans.

Shaun Donovan, secretary of the Department of Housing and Urban Development, argued Friday that the proposal is a matter of fairness.

“Most families have no idea whether they have a Fannie Mae or Freddie Mac or a private label securities mortgage,” Donovan said on a conference call with reporters.

The White House originally proposed covering the estimated $6 billion cost of the Feinstein legislation by imposing a fee on the largest financial institutions, but that idea was dropped this week with little fanfare.

Instead, the legislation calls for its projected cost to be covered by extending higher guarantee fees on government-backed mortgages for an additional year.

An extension of the payroll tax cut passed by Congress late last year imposed higher guarantee fees on Fannie and Freddie mortgages until October 1, 2021. The Feinstein legislation would extend the higher fees for 12 additional months.

But Donovan said that the Obama administration is open to other ideas on paying for the legislation.

“What I would say is we are open to looking at and working with Congress on alternatives,” he said. “So we’re not taking a particular position on the pay-for at this point.”

Regardless, the Feinstein bill faces long odds, given the strong opposition of congressional Republicans to the idea of expanding the federal government’s exposure to the housing market.

A second refinancing bill, sponsored by Democratic Sens. Robert Menendez and Barbara Boxer, appears to have a somewhat better chance of passage, at least in the Senate.

That bill would address barriers that are still preventing some homeowners with Fannie and Freddie loans from refinancing.

FHA mortgages are poised to get more expensive

The FHA plans to impose limits on the amount of money that home sellers can contribute at closing and to raise mortgage insurance premiums.

March 11, 2012|By Kenneth R. Harney

Reporting from Washington – If you’re considering buying a house with an FHA mortgage and expect the seller to help out with your closing costs, here’s a heads-up: The Federal Housing Administration plans to impose significant restrictions on the amount of money that sellers can contribute at closing in the near future.

On top of that, the FHA also will be raising its mortgage insurance premiums during the coming weeks, increasing charges for new purchasers across the board.

You might ask, why hit us with additional financial burdens right now, just as housing is showing modest signs of recovery in many areas and the spring buying season is getting underway?

One big reason: Over the last six years, the FHA has been the turnaround champ of residential real estate, offering down payments as low as 3.5% despite the recession and housing bust and growing its market share to 25%-plus from 3%. The program is financing 40% or more of all new-home purchases in some metropolitan areas and is a crucial resource for first-time buyers and moderate-income families, especially minorities. With a maximum loan amount of $729,750 in high-cost areas, it is also a force in some of the country’s most expensive markets – California, Washington, D.C., New York and parts of New England.

But during the same span of rapid growth, the FHA’s insurance fund capital reserves have steadily deteriorated – far below congressionally mandated levels. Delinquencies have been increasing. According to the latest quarterly survey by the Mortgage Bankers Assn., FHA delinquencies rose to 12.4%, compared with a 4.1% average for prime (Fannie Mae-Freddie Mac) conventional fixed-rate mortgages and 6.6% for VA loans.

As a result, the FHA is under the gun – with Congress and within the Obama administration – to get its own house in order, cut insurance claims and rebuild its reserves. The upcoming squeezes on seller contributions and bumps in premiums are steps in this direction.

The seller-contribution cutbacks could be painful, particularly in areas of the country where closing costs and home prices are relatively high.

Here’s what’s involved: Traditionally the FHA has been uniquely generous in allowing home sellers – including builders marketing new construction – to sweeten the pot for purchasers by chipping in money to defray closing costs. The FHA now allows sellers to pay up to 6% of the price of the house toward their buyers’ closing expenses. Fannie Mae and Freddie Mac, by comparison, cap contributions at 3%. The VA’s ceiling is 4%.

Under newly proposed rules, the FHA cap would drop to the greater of 3% of the home price or $6,000. In sales involving houses priced at $100,000 or less, this wouldn’t change anything ($6,000 equals 6% of $100,000). But on all sales above this threshold, the squeeze would get progressively tighter.

On a $200,000 home, a buyer could today ask the seller to pay for $12,000 of a long list of settlement charges including all prepaid loan expenses, discount points on the loan, interest rate buy-downs and upfront FHA insurance premiums, among others. Under the proposed cutback, the maximum amount would be slashed in half.

On many home transactions, the reductions would force sellers to lower their prices to enable cash-short buyers to get through the closing. In other cases, sales might simply be too far of a stretch for some purchasers.

The proposed cuts are open to public comment through the end of this month but are highly likely to be adopted in much the same form soon afterward. The FHA also is restricting the types of “closing costs” that sellers can pay. Six months’ or a year’s worth of interest payments or homeowner association dues in advance no longer will be permitted – a serious blow to many builders who use these as financial carrots.

Beyond these changes, FHA also plans significant increases in insurance premiums – upfront premiums will rise to 1.75% from 1%, effective April 1, and annual premiums will increase by 0.1% on all loans under $625,000 and 0.35% on mortgage amounts above that, effective June 1.

William McCue, president of McCue Mortgage Co. in New Britain, Conn., which does a sizable percentage of its business with the FHA, said the cumulative effect of all these increases “will not just crowd first-time buyers out of the FHA market, it will prevent them from owning a home that, absent these new costs, would be affordable.”

Bottom line: Nail down your FHA money and seller-contribution negotiations as soon as you can because later looks a lot more expensive.

FHA mortgages are poised to get more expensive

The FHA plans to impose limits on the amount of money that home sellers can contribute at closing and to raise mortgage insurance premiums.

March 11, 2012|By Kenneth R. Harney

Reporting from Washington – If you’re considering buying a house with an FHA mortgage and expect the seller to help out with your closing costs, here’s a heads-up: The Federal Housing Administration plans to impose significant restrictions on the amount of money that sellers can contribute at closing in the near future.

On top of that, the FHA also will be raising its mortgage insurance premiums during the coming weeks, increasing charges for new purchasers across the board.

You might ask, why hit us with additional financial burdens right now, just as housing is showing modest signs of recovery in many areas and the spring buying season is getting underway?

One big reason: Over the last six years, the FHA has been the turnaround champ of residential real estate, offering down payments as low as 3.5% despite the recession and housing bust and growing its market share to 25%-plus from 3%. The program is financing 40% or more of all new-home purchases in some metropolitan areas and is a crucial resource for first-time buyers and moderate-income families, especially minorities. With a maximum loan amount of $729,750 in high-cost areas, it is also a force in some of the country’s most expensive markets – California, Washington, D.C., New York and parts of New England.

But during the same span of rapid growth, the FHA’s insurance fund capital reserves have steadily deteriorated – far below congressionally mandated levels. Delinquencies have been increasing. According to the latest quarterly survey by the Mortgage Bankers Assn., FHA delinquencies rose to 12.4%, compared with a 4.1% average for prime (Fannie Mae-Freddie Mac) conventional fixed-rate mortgages and 6.6% for VA loans.

As a result, the FHA is under the gun – with Congress and within the Obama administration – to get its own house in order, cut insurance claims and rebuild its reserves. The upcoming squeezes on seller contributions and bumps in premiums are steps in this direction.

The seller-contribution cutbacks could be painful, particularly in areas of the country where closing costs and home prices are relatively high.

Here’s what’s involved: Traditionally the FHA has been uniquely generous in allowing home sellers – including builders marketing new construction – to sweeten the pot for purchasers by chipping in money to defray closing costs. The FHA now allows sellers to pay up to 6% of the price of the house toward their buyers’ closing expenses. Fannie Mae and Freddie Mac, by comparison, cap contributions at 3%. The VA’s ceiling is 4%.

Under newly proposed rules, the FHA cap would drop to the greater of 3% of the home price or $6,000. In sales involving houses priced at $100,000 or less, this wouldn’t change anything ($6,000 equals 6% of $100,000). But on all sales above this threshold, the squeeze would get progressively tighter.

On a $200,000 home, a buyer could today ask the seller to pay for $12,000 of a long list of settlement charges including all prepaid loan expenses, discount points on the loan, interest rate buy-downs and upfront FHA insurance premiums, among others. Under the proposed cutback, the maximum amount would be slashed in half.

On many home transactions, the reductions would force sellers to lower their prices to enable cash-short buyers to get through the closing. In other cases, sales might simply be too far of a stretch for some purchasers.

The proposed cuts are open to public comment through the end of this month but are highly likely to be adopted in much the same form soon afterward. The FHA also is restricting the types of “closing costs” that sellers can pay. Six months’ or a year’s worth of interest payments or homeowner association dues in advance no longer will be permitted – a serious blow to many builders who use these as financial carrots.

Beyond these changes, FHA also plans significant increases in insurance premiums – upfront premiums will rise to 1.75% from 1%, effective April 1, and annual premiums will increase by 0.1% on all loans under $625,000 and 0.35% on mortgage amounts above that, effective June 1.

William McCue, president of McCue Mortgage Co. in New Britain, Conn., which does a sizable percentage of its business with the FHA, said the cumulative effect of all these increases “will not just crowd first-time buyers out of the FHA market, it will prevent them from owning a home that, absent these new costs, would be affordable.”

Bottom line: Nail down your FHA money and seller-contribution negotiations as soon as you can because later looks a lot more expensive.

CFPB Plans to Limit Mortgage Origination Fees, Compensation

By Kate Davidson MAY 10, 2012 8:04am ET

WASHINGTON – The Consumer Financial Protection Bureau outlined rules Wednesday that would place new restrictions on mortgage origination points and fees, as well as originator compensation.

The proposals, which are mandated by the Dodd-Frank Act, would require originators to reduce interest rates when customers elect to pay discount points; offer consumers a loan product with no discount points; and would ban origination charges that vary with the size of the loan.

The agency plans to formally propose the rules this summer and finalize them by January 2013.

“Mortgages today often come with so many different types of fees and points that it can be hard to compare offers,” CFPB Director Richard Cordray said in a press release. “We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them.”

The rules would also impose new requirements on originators themselves, including brokers and loan officers, and would build on a Federal Reserve rule that prohibits compensation that varies with loan terms.

The agency detailed the rules in documents released Wednesday that will be reviewed by a panel of small business experts. The CFPB, which also issued a list of questions for panel participants, must convene the panel pursuant to the Small Business Regulatory Enforcement Fairness Act.

The SBREFA process, which must be completed before a formal rule is proposed, could take a few months.

A panel is expected to meet in the next few weeks, a senior CFPB official said Wednesday, after which the bureau has 60 days to prepare a report on its findings that would be released in conjunction with the notice of proposed rulemaking.

The agency said the rules – which would include an implementation period – would simplify mortgage points and fees, and make it easier for homeowners to understand mortgage costs and compare loans so they can choose the best deal.

The proposals would require that any discount point that a consumer elects to pay be “bona fide,” meaning that consumers must receive at least a certain minimum reduction of the interest rate in return for paying the point. It would also require that borrowers be offered a no-discount-point loan.

“This would enable the homebuyer to better compare competing offers from different lenders,” the agency said in a press release.

Under the proposal, brokerage firms and creditors would only be allowed to charge flat origination fees, rather than origination fees that vary with the size of the loan. Those are often confused with discount points, the agency said.

The proposed rules are separate from the qualified mortgage rule the bureau is considering, which would require mortgage originators to verify a borrower’s ability to repay a loan unless it meets the definition of a so-called qualified mortgage. But the senior CFPB official noted that the “bona fide” point concept is also an element of QM, and the agency thought it would be helpful to include the provision in these rules as well.

In addition to rules limiting points and fees, the proposals would impose strict screening and qualification standards on mortgage loan originators, which includes mortgage brokers and loan officers who take applications from consumers seeking to buy a home.

The Dodd-Frank Act requires that originators be qualified, and the new rule would subject them to new standards for “character, fitness and financial responsibility,” screen for felony convictions, and require new training related to the types of loans they originate, the press release said.

Dodd-Frank also codified a rule that the Fed issued in 2010 prohibiting loan originators from steering borrowers into higher priced loans so they could earn more money. The statute required CFPB to issue similar rules, and a senior CFPB official said this proposal closely aligns with the Fed regulation, which bans the practice of varying compensation based on interest rates or certain other loan terms.

The bureau is taking comments from the public through its website and through email at this address.

New Rules May Curtail Some Fees in Mortgage

May 9, 2012 By EDWARD WYATT

WASHINGTON – The Consumer Financial Protection Bureau said it planned to propose tighter mortgage lending regulations that would limit the ability of banks and mortgage brokers to charge certain transaction fees, possibly ending one of the most abusive costs levied on consumers when they buy a house.

Bureau officials said that the rules, which were released Wednesday ahead of formal introduction this summer, would ban mortgage companies from charging origination fees that vary with the amount of the loan.

Those fees are sometimes referred to as origination points and are disclosed in a blizzard of documents and fees that most home buyers face at closing. But they can easily be confused with the upfront discount points that borrowers often pay to secure a lower interest rate.

The consumer bureau also said it would require that lenders offer a reduced interest rate when a consumer opted to pay upfront discount points and would require lenders to offer a loan option without points. During the financial crisis, some lenders charged the points without lowering the interest rate.

Changing that rule, the bureau believes, will make it easier for consumers to weigh offers from multiple lenders.

“Mortgages today often come with so many different types of fees and points that it can be hard to compare offers,” Richard Cordray, the director of the consumer bureau, said. “We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them.”

The proposals were intended to fulfill requirements of the Dodd-Frank Act, which was enacted in response to the financial crisis. They were not a surprise to banking groups, but those groups still expressed dismay, saying that they essentially repeat changes that the Federal Reserve put in place just two years ago to address some of the same problems.

“They are adding a whole new set of additional rules and regulations onto what we already have,” said Rod Alba, a vice president in the mortgage markets division of the American Bankers Association, an industry group. “It is this rapid succession of rule-making after rule-making that is so worrisome to banks.”

Consumer groups, however, said the proposals were necessary to protect borrowers from being taken advantage of in what is usually the largest single financial commitment in their lives.

“The provisions in Dodd-Frank were added in response to specific abuses that were well documented during the mortgage boom,” said Barry Zigas, housing director for the Consumer Federation of America. “Too often, home buyers found that the fees they were being charged were not as advertised.”

The proposals outlined Wednesday will be reviewed by the public and a small-business panel to be convened by the consumer bureau. The panel is required by Dodd-Frank as a way of trying to limit the effect of new regulations on small businesses.

After taking comments, the bureau will formally propose the rules this summer and, after another round of comments, hopes to make them permanent by January.

Consumer bureau officials said that unscrupulous mortgage lenders sometimes tried to disguise origination fees by calling them origination points. Expressed as a percentage, the origination fee paid then varied with the amount of the loan.

But bureau officials said that because the fees covered paperwork that was the same whether the loan was for $100,000 or $1 million, they were proposing that mortgage brokers and creditors be allowed to charge only flat origination fees. That in turn will promote competition among mortgage lenders and brokers and lower consumer charges, the officials said.

Mr. Alba of the bankers association said that whatever origination fees were charged, they were reflected in the loan’s annual percentage rate, which is disclosed on the mandated forms that a home buyer is given at closing. “To the extent that any of the fees are outrageous, they will be reflected in the pricing disclosures that are in place today,” he said.

Other provisions required by Dodd-Frank are also being proposed by the consumer bureau, including qualification and screening standards for loan originators. Those proposals are intended to make different types of originators – banks, thrifts, mortgage brokers and nonprofit organizations – subject to the same qualification requirements.

Dodd-Frank also prohibits the payment of incentives by mortgage lenders to the loan originators. and requires the consumer bureau to write a rule prohibiting it. The Federal Reserve issued a rule in 2010 to address the issue; the consumer bureau rule will incorporate the Fed’s guidance while trying to clarify some issues, the bureau said.