Fannie Mae offers financing incentives to buyers ready to live in foreclosed houses

By Kenneth R. Harney February 19, 7:00 AM

If you’re planning to shop for a home in the coming few weeks, here’s a an early-spring come-on that might save you some money if you qualify.

Fannie Mae, the largest mortgage investor in the country, has a bulging portfolio of houses acquired through foreclosures. Roughly 31,000 of these properties are listed on its “HomePath” (www.homepath.com) resale marketing site. To move them quickly out of inventory, Fannie temporarily is offering qualified owner-occupant purchasers – but not investors – cash incentives toward closing costs of 3.5 percent of the purchase price. But you have to submit your initial offer no later than March 31 and close by May 31.

What sort of houses are we talking about? Visit the site and you’ll see. They run the gamut – from a one-bedroom condo unit in San Diego to a four-bedroom, four-bath single family home in suburban Montgomery Village, Md. Some states have thousands of HomePath listings online: Florida has nearly 12,000; Illinois, 4,360; Ohio, 2,800; California, more than 2,300; Washington state, nearly 1,800; and Nevada, around 1,400. Asking prices range from $30,000 to $600,000 or more. On a $400,000 house, the 3.5 percent closing-costs incentive would amount to $14,000.

To ensure that buyers who intend to occupy its homes get an opportunity to fully check them out and bid without competition from investment groups offering all-cash deals, Fannie has instituted what a “First Look” program. It essentially prohibits bids from investors during the first 20 days after listing (30 days in Nevada). After that, investors are free to jump in. Each First Look listing includes a countdown clock that indicates the number of days remaining before bidding is opened to all comers.

The 3.5 percent closing-costs offer is available only during active First Look periods from mid-February through March, so there’s not a lot of time to get involved. Bidders will need to indicate upfront that they want to be considered for a closing-costs discount.

Who is eligible? Number one, you’ve got to be a bona fide owner-occupant purchaser and commit to live in the house as a primary residence for at least a year. You’ll need to fill out a certification to that effect, a document that can be found on the HomePath site. Properties are not available in all states.

You don’t have to be a first-time buyer, though the Fannie program is likely to attract substantial numbers of them. The 3.5 percent discount helps with one of the biggest problems faced by first-timers: upfront cash.

As with most home purchases, you’ll need to be able to qualify for mortgage financing. Though Fannie may end up owning or securitizing the loan you obtain, it won’t be financing you directly. On HomePath purchases, you shop for a mortgage just as you would on any other house. Ideally, you nail down a financing source and get prequalified for mortgage money up to a specific dollar limit at current interest rates. If you’ve already located a First Look property and qualify, the lender is likely to take the 3.5 percent closing-costs incentive into consideration in evaluating your application.

While you shop on HomePath, however, keep this important factor in mind: These are foreclosed, previously occupied homes. Though some of them are repaired, painted and spiffed up before they are listed, many could use some additional work. They are sold “as is,” and that’s built into the pricing. Fannie identifies what it calls “improved” properties on the HomePath site – those that have undergone significant repairs – with either the Home Depot logo, when repairs have been made by contractors from that company, or with a hammer-and-roof symbol, when repairs have been completed by independent contractors hired by Fannie.

If you can’t find the First Look house you want, don’t give up. Freddie Mac, the other giant federal mortgage investor, also has thousands of foreclosed homes it’s trying to dispose of – and its own “First Look” program – at its “HomeSteps” (www.homesteps.com) marketing site. Freddie has its own spring incentive promotion: On bids received by April 15, the company is offering $500 that buyers can use to pay condo association dues, flood insurance or home warranty premiums. In addition, Freddie offers mortgage financing options in some areas. If you qualify, that could mean a loan with no mortgage insurance, no appraisal and a 5 percent maximum down payment.

Definitely worth checking out.

A helping hand on mortgages

Kenneth R. Harney Feb 14, 2014

WASHINGTON – Parents, grandparents and young adults know the problem only too well, Heavy student-debt loads, persistent employment troubles stemming from the recession – plus newly toughened mortgage underwriting standards – are all standing in the way of vast numbers of potential first-time homebuyers in their 20s and 30s.

But are there effective techniques that family members, friends, even employers can use to bridge the generational gap by offering a helping hand – without hurting their own finances in the process? You bet.

First, some sobering numbers

1. Citing Census Bureau data on homeownership by age, demographer Chris Porter of John Burns Real Estate Consulting calculates that Americans who were 30 to 34 years of age in 2012 – those born between 1978 and 1982 – had the lowest homeownership rate of any similarly aged group in recent decades, 47.9 percent. By contrast, Americans born between 1948 and 1957 had a 57.1 ownership rate by the time they hit the 30 to 34 bracket. This is despite record low mortgage rates and bumper crops of bargain-priced foreclosures and short sales.

2. Debt-to-income ratios increasingly are mortgage application killers for would-be first timers. Adoption nationwide last month of a new federal 43 percent maximum debt-to-income ratio for “qualified mortgages” is particularly poorly timed for young purchasers. Because of large student debts, which average $21,402 but sometimes balloon into six figures, they may not be able to meet the 43 percent standard for years.

Typically they’re already paying out large amounts on credit cards, auto loans or leases and their student debt – about 30 percent of current monthly income for those 21 to 30 years of age as of 2012, according to a new research report from research economist Gay Cororaton of the National Association of Realtors. Factoring in the monthly cost of a typical mortgage for an entry-level purchase, the debt-to-income ratio as of 2012 for these individuals exceeded 60 percent, Cororaton estimates. Even with a 5 percent increase in income per year, they will not be able to qualify under the 43 percent debt-to-income test until 2019.

That’s a long time to postpone a purchase. Yet consumer research consistently finds that the overwhelming majority of Americans in their 20s and 30s would like to own a home, once they’re able to put together the financial pieces to make it feasible.

So what are some of the solutions available to help bridge the gap? The most popular is also the oldest: Growing numbers of relatives are stepping in with gift money to help defray the down payment and the closing costs – 27 percent of first-time purchasers last year, according to one industry estimate. Down payment gifts do not address the crucial debt-to-income ratio problem, but for young buyers who can get close to the 43 percent mark for conventional loans (Fannie Mae and Freddie Mac) or slightly higher at the more flexible FHA or VA, they can be extremely important. Rules on gifts vary among funding sources, but there are some shared basics: The money cannot be disguised as a gift if it is actually a loan; there needs to a formal gift letter that spells out the purpose of the gift and the specific transaction for which it is to be used; the source of the funds and the capacity of the gift-giver to provide the money need to be documented. For down-payment help outside the family tree, check out www.downpaymentresource.com.

But an increasingly important and fast-growing resource is turning the gift concept on its head: Rather than simply handing over their cash with no repayment arrangements, family members are becoming mini-lenders themselves. With a little professional assistance, they are providing either second mortgages or first mortgages that are custom-designed to deal with whatever financial hurdles – including paying off student loans to reduce debt-to-income ratios – their young relatives are confronting. Properly structured, these loans provide annual returns to family members well in excess of money-market funds or bank deposits, and open the door to homeownership for their kin.

The largest player in the field, National Family Mortgage (www.nationalfamilymortgage.com), has structured and serviced more than $155 million of intra-family transactions in the past two years and is on track, according to founder and CEO Tim Burke, to do $150 million in volume during 2014. “There is a lot going on” in this field that can help entry-level buyers strapped with student-loan debt, says Burke.

Check it out.

Getting an earful on servicers

Kenneth R. Harney Feb 7, 2014

WASHINGTON – Got problems with the company that services your home mortgage – the one that collects your payments, keeps track of your escrow account and lets you know when you’re late?

So your monthly numbers don’t look right? You got blown off by servicing personnel when you tried to get inaccuracies in your account corrected?

Well, move over. You’ve got lots of grumpy company. As of Jan. 31, just under half of the 187,818 complaints filed with the federal watchdog Consumer Financial Protection Bureau concerned mortgage foul-ups, and the vast majority of these involved servicing, loan modification and foreclosure activities by servicers.

But sometimes the problems go beyond run-of-the-mill ineptitude. As part of its statutory functions, the CFPB sends investigators into the offices of mortgage servicing firms to check their accounts for evidence of what it calls “unfair and deceptive practices.” In their latest series of visits and supervisory audits, bureau auditors found shenanigans that might horrify unsuspecting homeowners

1. Abuses in mandatory cancellations of private mortgage insurance premiums. Servicers are required by federal law to stop collecting insurance premiums, which can run into the hundreds of dollars a month, once the principal balance on a mortgage reaches 78 percent of the original value of the property. But some servicers don’t follow the letter of the law. In one case, according to the CFPB, a servicer invented a requirement out of whole cloth – that premium payments could be canceled only if a loan was more than two years old. But there is no such requirement in federal law. Investigators also found cases where sticky-fingered servicers did not return excess mortgage insurance payments to the borrower within the 45 days that federal law requires.

2. “Biweekly” mortgage payment plans that weren’t really biweekly. The biweekly payment alternative, which some servicers charge fees to set up, requires half a month’s payment every two weeks rather than a full payment once a month. Since there are 26 two-week periods in a 52-week year, payments properly credited to principal and interest biweekly can accelerate payoff of the loan and over time, potentially saving the borrower thousands of dollars in interest charges. But CFPB investigators found that one company, which it did not identify, marketed deceptive biweekly payment programs to its mortgage customers. Rather than the promised biweekly crediting of payments, the servicer instead “submitted payments monthly and retained the extra money” in its own accounts until the end of the year, at which point it made an extra monthly payment. The net result was less beneficial for the borrower than promised.

3. Poor reporting on loan accounts to the national credit bureaus. Though servicers have a legal responsibility to correctly report the payment status of their customers’ loans to the bureaus, investigators found that in some cases servicers misreported mortgages whose payments had been modified – lowered – by lenders as being in foreclosure. They also reported some short sales – where the lender agrees to accept less than the full amount of the debt owed and a new owner purchases the house – as foreclosures. Both types of erroneous reports cause devastating hits to borrowers’ credit scores.

4. Abuses in transfers of servicing. Though complaints by consumers when their servicing is switched from one company to another have been commonplace for years, investigators found that some servicers mistreated customers whose loans had modified payment terms. Rather than honoring the modification terms, servicers insisted on independently determining that the lower payments were offered “properly” – either on a trial basis or permanently – by the previous servicer. This produced needless delays and paperwork to torment homeowners.

But it’s not only the CFPB that is turning up servicing issues like these. Kevin Stein, associate director of the California Reinvestment Coalition, says his group’s surveys of housing counselors suggest that servicers’ practices continue to pose serious problems, especially for non-wealthy homeowners, people of color, handicapped individuals and those who have sought or obtained loan modifications.

According to Stein, botched transfers of servicing appear to be an increasing source of pain for consumers, as are lost documents and so-called “dual tracking,” where servicers pursue foreclosures at the same time they are considering borrowers for a possible loan modification.

What should you do if your mortgage servicer gives you the runaround despite having seriously messed up your mortgage account? Consider joining the thousands of fellow owners who have filed complaints with the CFPB (www.consumerfinance.gov). Unlike other federal agencies, the bureau follows up on your complaint, contacts the servicer promptly and tries to mediate your dispute.

A hybrid in your housing future?

Kenneth R. Harney Jan 31, 2014

WASHINGTON — Higher mortgage rates for 2014? Count on it. Could this be the year to check out hybrid mortgages, which haven’t been popular lately? Maybe.

You can count on interest rates going higher because:

1.The Federal Reserve intends to continue reducing its monthly purchases of mortgage bonds and Treasury securities, which will have the side effect of raising rates.

2.The national economy finally appears to be picking up steam, based on the latest quarterly data. Higher growth rates in turn will increase demand for available credit and likely nudge rates higher.

3. New federal regulations for mortgage lenders aimed at avoiding another bust take effect Jan. 10. Not only will loan officers and underwriters scrutinize applicants’ income, debt ratios and credit extra carefully, they’ll likely charge more for borrowers whom they see as a higher risk. Some mortgage economists predict that conventional 30-year fixed-rate loans could go to 5.5 percent before year-end.

So what does this mean for you if you’re thinking about buying a house or refinancing and you want to nail down the most favorable interest rate and terms? Should you shop primarily for a traditional mortgage product that guarantees you a specific rate for 15 to 30 years?

Or should you check out what’s also on the shelf in the way of hybrids — loans that provide you a guaranteed fixed rate for a predefined period of time, say five, seven or 10 years — then convert to a rate that can change annually?

The case for sticking with a traditional, fixed-rate mortgage is straightforward. Though 30-year rates are more than a percentage point higher this month than they were a year earlier, they are still not far off multi-decade lows. Bruce A. Calabrese, president of Equitable Mortgage Corp. in Columbus, Ohio, is adamant: “My advice for home buyers” in the new year, he says, “is to lock [early] into a 30-year fixed” while rates are still under 5 percent. “Take a 30-year fixed at 4.75 percent and be happy” because that’s still far below average rates over the past several decades.

Paul Skeens, president of Colonial Mortgage Corp in Waldorf, Md., agrees. “If fixed [rates] are under 5.5 percent and you are going to live in your home for five years or more, they are still a great deal,” he says. “I’m very partial to fixed rates since I remember when anything under 7 percent was a great deal.”

To illustrate Skeens’ and Calabrese’s historical point, consider these average annual 30-year fixed rates: In 1974, they averaged 9.19 percent nationwide, according to mortgage investor Freddie Mac. By 1984, they were at 13.88 percent. In 1994, fixed rates averaged 8.38 percent; and in 2004, 5.84 percent.

But what if you say: I don’t care about what rates were in previous decades. That was then. I’m here and now. I’m more concerned about being able to afford today’s housing prices on today’s income and household expenses.

Jeff Lipes, a lender in the Hartford, Conn., area and former president of the Connecticut Mortgage Bankers Association, believes that hybrids with fixed rates for between five and 10 years “are fantastic options for borrowers” in 2014, and can lock in rates that are one or more percentage points below competing 30-year fixed loans.

“Most first-time buyers purchase a home that will be sold when the family income increases or the family outgrows the house,” Lipes says. “That usually occurs in the first 10 years, so that is why a [hybrid] is a great option. The borrower saves a lot of money” — sometimes hundreds of dollars a month — “paying a lower rate.”

A check of Bankrate.com’s online rate monitor in late December found five-year hybrids averaging around 3.4 percent nationwide, seven-year hybrids at 3.81 percent and 10-year hybrids at 4.16 percent. Thirty-year fixed rates averaged 4.63 percent.

Ted Rood, senior mortgage consultant with Wintrust Mortgage in St. Louis, says he’s already seeing a shift in demand toward five- and seven-year hybrids. He just closed a seven-year at 3.5 percent on a house in Wyoming for a borrower who fully understood the risk that he could face higher rates at the conversion point in late 2020.

Bottom line for you if you’re in the market: Check out all the options on the menu. If you are comfortable with the potential risks, and the monthly savings advantages of a hybrid are substantial, go for it.

A hybrid in your housing future?

Kenneth R. Harney Jan 31, 2014

WASHINGTON — Higher mortgage rates for 2014? Count on it. Could this be the year to check out hybrid mortgages, which haven’t been popular lately? Maybe.

You can count on interest rates going higher because