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Paying points wise in today's market

By Jack Guttentag, Monday, January 12, 2009.

Current stresses in the home loan market have changed the ground rules for borrowers in many ways. A recent article focused on the confused state of affairs in the market for jumbos, which are loans larger than $417,000. Jumbos are priced higher than smaller loans even when they can be purchased by Fannie Mae and Freddie Mac, and are priced much higher when they can't.

This article reports on the results of an online shopping exploration I did on Dec. 12. I priced conforming loans of $400,000 that can be purchased by Fannie and Freddie, and $800,000 (jumbo) loans that cannot. more...

Some loan mods better than others

By Jack Guttentag, Tuesday, January 6, 2009.

"Do borrowers have any say over the type of loan modification they get? What kind of modification should they look for?"

Mortgage modifications are changes in the terms of a mortgage loan designed to make it more affordable to the borrower. Generally, modifications are available only to borrowers in default or in imminent danger of default. The purpose is to cure or avoid the default, thereby avoiding foreclosure.

In general, borrowers must take the modification they are offered, as they have very little bargaining power. more...

Should seniors pay off mortgage?

By Jack Guttentag, Monday, December 29, 2008.

The financial crisis has torpedoed the retirement planning of many seniors. Those foolish enough to have followed the advice of investment advisors who preached that homeowners should convert all their home equity into investments, now find that their home equity is negative because of declining home prices. At the same time, the value of any common stock they purchased by mortgaging their houses up to the hilt is probably way down because of the sharp decline in stock prices. more...

FDIC loan mod plan flawed

By Jack Guttentag, Monday, December 22, 2008.

"Do you have an opinion about the FDIC plan to jumpstart loan modifications as a way to reduce foreclosures?"

Yes, I admire FDIC, under the leadership of Sheila Bair, for taking the lead in attacking the root source of the financial crisis: the vicious cycle of declining home prices and foreclosures. I share FDIC's view that the way to break that cycle is to modify mortgage contracts in ways that enable borrowers in distress to return to good standing and stay there -- AND to do enough of them to make a difference. more...

Jumbo loans, where art thou?

By Jack Guttentag, Monday, December 15, 2008.

Between May 4, 2007, and Nov. 7, 2008, the spread in wholesale interest rates between a $417,000 loan eligible for purchase by Fannie Mae and Freddie Mac and a $418,000 loan that is not eligible increased from 0.28 percent to 2.97 percent. Loans eligible for purchase by the agencies are called "conforming loans." Loans larger than $417,000 are called "jumbos," and borrowers who need one today face a perplexing array of choices.

Until July 1, 2008, the agencies could not purchase jumbos. However, as the private secondary market in jumbos deteriorated in late 2007 and early 2008, Congress passed the Economic Stimulus Act of 2008 in February 2008. Among other things, that bill authorized the agencies to purchase jumbos in high-cost areas. more...

Goodbye piggybacks, risky loans

By Jack Guttentag, Monday, December 8, 2008.

In mid-2007, I began to compile new data on wholesale mortgage interest rates that promised to provide better insights into the market than any existing data source. The rates are those quoted by wholesale lenders, who offer their loan programs through mortgage brokers and mortgage banks. In offering these programs to borrowers, the loan providers add their retail markups, which can vary widely between different programs and different lenders. Wholesale price data thus has less statistical "noise" than retail data.

Recently, I decided it was time to take a hard look at the data to see what they say about the evolution of the financial crisis. The beginning point for the data is May 4, 2007, and the end point is Nov. 7, 2008. The interest rates quoted all assume zero points. more...

Financing closing costs may be unwise

By Jack Guttentag, Monday, December 1, 2008.

Many mortgage borrowers are tempted to finance their closing costs, that is, adding the costs to the loan amount. This could be attractive to borrowers who can earn high returns on their free cash, or those who don't have any free cash. Financing closing costs is very costly, however, if the larger loan increases the price of the mortgage. more...

Prospects brighten for hard-money lenders

By Jack Guttentag, Monday, November 24, 2008.

Like all disasters, the financial crisis has its share of beneficiaries who profit from it. One of them is the hard-money lenders, who lend strictly on the basis of the collateral. These non-institutional lenders require a lot less paperwork than institutions because they don't worry about whether or not borrowers can afford the payments, or whether or not they are creditworthy. They don't bother with income, employment or credit reports.

If borrowers can't pay, the hard-money lenders get their money back through foreclosure. They typically require 30-35 percent down to make sure that there is enough equity available to cover foreclosure expenses. Interest rates are much higher than those charged by institutions, and terms are short. more...

Breaking the financial crisis

By Jack Guttentag, Friday, November 21, 2008.

The main objective of our proposal is to break the back of the financial crisis by sharply reducing mortgage foreclosures while liquefying a major part of the existing mortgage stock. A second purpose is to provide the foundation for a more stable housing finance system in the future.

Proposal For Mortgage Payment Insurance more...

The good and bad about Mortgage Marvel

By Jack Guttentag, Monday, November 17, 2008.

My first impression of Mortgage Marvel (MM) was that it was a multi-lender shopping site, which would make it the fourth new one I have reviewed in 2008; the others are Loan.com, Mortgage Grader and Zillow Mortgage. My second impression was that MM was more of a referral site than a multi-lender shopping site. more...

Loan modifications hard to come by

By Jack Guttentag, Monday, November 10, 2008.

"I have been giving my clients an article you wrote about a year ago advising borrowers having payment problems how to request a modification in their loan contract ... Could you bring it up to date?"

A lot has happened since that article was written. Very shortly thereafter, the HOPE NOW program promoted by Treasury Secretary Henry Paulson began as an effort by housing counseling agencies and mortgage servicers to modify loans on a strictly voluntary basis. Since then, the first recourse of borrowers in trouble has been to call them at 1-888-995-HOPE. I have sent many people to HOPE NOW, with mixed feedback. more...

Mortgage fright spreads like wildfire

By Jack Guttentag, Monday, November 3, 2008.

The mortgage world has suddenly become very frightening to many people who have no real reason to be frightened. Their mortgages are in good standing, and they are not having any trouble meeting their payments, yet they are in distress -- in large part, because so many around them are in distress. Fear is contagious. The only antidote I know is good information.

One important thing that people suffering from mortgage fright often forget is that a mortgage loan is a contract between two parties, and it cannot be violated by either without the permission of the other. If the loan is sold, the purchaser replaces the originating lender as the contracting party and is subject to the contract in the same way. If the servicing of the loan is sold, the servicer as the agent of the owner is required to abide by the terms of the contract, and the same holds if the loan is placed in a pool as collateral for a mortgage-backed security. more...

Regulation couldn't prevent mortgage crisis

By Jack Guttentag, Sunday, October 26, 2008.

When a presidential election falls in the middle of a financial crisis, it is not surprising that we are besieged with misinformation. Much of it is finger-pointing about responsibility for the absence of effective regulation that would have stopped or moderated the crisis. This article aims to provide some perspective on this issue.

Political responsibility for inadequate regulation: There are two sectors where more extensive regulation might have made a difference. These are the investment banks and the government-sponsored enterprises (GSEs) of Fannie Mae and Freddie Mac. more...

Will Treasury's purchase plan work?

By Jack Guttentag, Sunday, October 19, 2008.

This article was written the day after the House approved the revised version of the Treasury/Federal Reserve bailout plan, which had already been approved by the Senate. more...

New title insurer undercuts competitors

By Jack Guttentag, Sunday, October 12, 2008.

In the midst of the worst financial crisis since the 1930s, one that originated in and owes its severity to developments in the home mortgage market, it is nice to be able to report some good news about this market. The newly chartered EnTitle Insurance Co. is now offering title insurance directly to borrowers through its Web site, www.entitledirect.com. The premiums charged by EDI undercut those of existing insurers by about 35 percent. more...

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