Federal Mortgage Banks Show Cracks

The mortgage crisis is seeping into one of the last dry corners of the mortgage business, the regional network of Federal Home Loan Banks, which provide U.S. banks with hundreds of billions of dollars in low-cost funding to support lending to home buyers.
The little-known network has grown in importance as banks lose access to other sources of funding because of the credit crunch. The volume of outstanding loans provided by the home-loan banks has increased by 58 percent since the beginning of 2007, to more than $1 trillion at the end of September. But several of these banks hold mortgage-related investments that have plummeted in value. The losses are draining the capital foundations of the home-loan banks, forcing them either to reduce their lending -- making mortgages more expensive and harder to get -- or to raise additional capital. The money could come from taxpayers. The Treasury Department created a program in September that for the first time allows the home-loan banks to borrow directly from the federal government. That hasn't happened yet, but some financial experts said it's looking increasingly likely.
A report from Moody's Investors Service this week, citing "the demonstrated importance of the [home-loan banks] to the banking system through the credit crisis," concluded that the government was likely to provide the necessary support to keep loans flowing. The 12 home-loan banks are collectives chartered by the federal government and owned by member financial firms. The government's sponsorship allows the collectives to borrow money at low cost, which they lend to banks of all sizes, from giants such as Bank of America to small community lenders. Nearly all U.S. banks are members of at least one of the collectives. As with other banks, federal regulators require the home-loan banks to keep a certain amount of money as a capital foundation to support their lending. The home-loan bank in Seattle, which serves the northwestern United States, said this week that the declining value of its investments probably dropped its capital below a level required at the end of the year, though a final determination won't be made until the bank completes its fourth-quarter bookkeeping. The home-loan bank in Pittsburgh warned yesterday that it, too, was in danger of dropping below a capital threshold. And Moody's estimated that six more home-loan banks could follow Seattle and Pittsburgh. The most immediate impact is that the collectives are paying less to their members. Several of the collectives have suspended dividend payments. The 12 collectives had paid about $1 billion in dividends to member banks during the first nine months of the year. The payments are an important source of revenue, particularly for smaller banks. Many banks also hold relatively large amounts of stock in the collectives. In normal times, the banks can sell that stock back to the collectives, redeeming their investments. But several of the collectives have announced moratoriums on redemptions, freezing access to the money.
And if the situation continues to deteriorate, the collectives could require their members to make additional investments. The collectives got into trouble by investing $76.2 billion in private mortgage securities, packages of mortgages not guaranteed by Fannie Mae or Freddie Mac. The market value of those securities had dropped to $62.7 billion at the end of September and has almost certainly continued to fall. The Pittsburgh collective, for example, spent $8.8 billion on securities that declined in value to about $6.4 billion by the end of December. The banks have not sold the securities, so they have not incurred a loss, but accounting rules require them to acknowledge some of the loss in value and set aside capital in a proportionate amount. As a result, the Pittsburgh bank is running short on capital. At the end of September, it had $2.6 billion more than the minimum required by federal regulators. The bank estimates that it exceeded the minimum by only $72 million at the end of December.

Private mortgage insurance deductible from the tax

The private mortgage insurance makes it possible the borrower to acquire a mortgage in which the installment is less than twenty percent. The borrowers pay the mortgage deprived out of their pocket. Now, the private mortgage insurance is deductible from the tax for residents of the USA.

In fact, the mortgage insurance is government or private. If the mortgage insurance is government or private, the mortage insurance is deductible from the tax.

To acquire the mortgage insurance is an alternative for the mortgage of Piggyback traffic. The mortgage of Piggyback traffic is punt simply a mortgage. The borrower acquires another mortgage on the mortgage for the installment.

The deductible one from the tax applies for the modest purchasers of income. That means that the borrower gains up to $100.000. If the borrower would gain above the $100.000, the borrower can only deaden the private mortage insurance partially.

Moreover, the deductible one from the tax applies only to the new mortgage. The financing of mortgage must have to occur in calendar year 2007. Unless the borrower made a refinancing of mortgage for the mortgage or after the calendar year 2007, one will not allow the deductible one from the tax.

They is good news to the million Americans. The million Americans pays the mortgage insurance. The mortgage insurance countermands only outside when the stockholders' equity at the paid house or the entire amount goes more than twenty percent of the principal quantity.

In a paramount way, the mortgage insurance will be made available with this turning from the events.

Like the tax reduction of interest of mortgage, the tax reduction of mortage insurance profits from the million American. Now, the borrowers or the owners at the house have a choice between the interests of mortgage of the mortgage or the premiums of mortgage insurance like tax reduction.

Mexican Banorte pulls plug on 20, 30-year mortgages

Banorte, Mexico's fifth largest bank, has stopped offering 20- and 30-year mortgages because of increased market uncertainty caused by the world credit crisis. Mexican banks have escaped much of the fallout from the international financial turmoil but increased risk aversion and a recent rise in defaults has led many to scale back lending growth. "As a bank that receives short-term deposits and lends long term, we need hedging instruments," Banorte (GFNORTEO.MX) chief executive Alejandro Valenzuela said in an interview transcript sent to Reuters on Monday by the bank. "Today, there is no market for those (instruments) with reasonable prices. When it normalizes, we'll begin offering again," Valenzuela said. Yields on the Mexico's 30-year bond , which the government began placing two years ago to give banks and investors a reference for long-term lending costs, surged in the second half of last year as investors shocked by the world financial crisis hauled money out of emerging markets. Since then the 30-year yield has tumbled to 7.70 percent. Mexico's banks are considered well-capitalized. They have not sought to lend to subprime borrowers and have avoided many of the problems plaguing financial groups in the United States and Europe. Still, nonperforming consumer loans have risen sharply in recent months and are expected to climb more as the economy grinds to a halt this year and many Mexicans lose their jobs. Mexico's banking system is dominated by international giants including Citigroup (C.N), BBVA (BBVA.MC), Santander (SAN.MC) and HSBC along with locally-controlled Banorte.

Record Number of Hoosiers Modify Their Mortgages In 2008

Last year saw a record number of Hoosiers trying to save their homes from foreclosure by modifying their mortgages.

The Homeowners Preservation Foundation reports there were 5,000 mortgage modifications in Indiana during the third quarter of 2008. That's four times more than in the same period of 2007.

Mortgage modifications have become a key tool to reducing home foreclosures. Homeowners can make mortgage deals that possibly lower or delay their monthly payments. They make financial sense for mortgage owners because they keep the money flowing from homeowners.

But not all homeowners have been able to save their home through the process. Nearly half of the mortgage modifications result in higher mortgage payments, and some end up back in default.

Credit crunch takes a toll on mortgage brokers

The credit crisis has already taken a big toll on the nation’s largest banks, brokerage firms and finance companies, but it’s also hit small mortgage brokers, including one of Western New York’s most influential.

The former president of the New York Association of Mortgage Brokers last month voluntarily gave up his state license to run Twinstar Mortgage.

The Western New York lender had been in operation since October 1998, and had full-service offices in Buffalo, Fredonia and Lakewood. It has also done business elsewhere in the state.

But despite his reputation, founder and president Gregory A. Krauza said the firm couldn’t sustain its business, as the credit crisis has wrought unprecedented changes on the mortgage industry. Consumers aren’t borrowing, lenders have gone out of business, and there are fewer customers eligible for the fewer loan options.

“It was a very difficult decision to make. A lot of blood, sweat and tears went into building my business into what it was,” he said. “But we were forced to make a choice. I’m not doing enough volume to warrant having my own business.”

Krauza also said the firm struggled to keep up with the ever-changing rules, new regulatory demands, and rising costs of doing business in New York state.

“It has become increasingly difficult for small brokers to secure financing and pay the fees and assessments that it takes to run a small business,” Krauza wrote in an e-mail. “Hopefully, all the good guys will not be forced out.”

Twinstar is just one of a number of small mortgage brokers who have closed their doors or merged with larger competitors in the past two years because they’re unable to survive.

Others locally include Snyder Funding, Greenwich Mortgage, Anderson Funding, and Carmichael Funding, as well as branches of mortgage brokerage and banking companies. Wholesale representatives of large national lenders, who buy loans from brokers, have also been let go, as their firms retrenched or left the business while licking sizable wounds.

And other competitors say they expect the downsizing to continue. “I am so sorry to hear that Greg is surrendering his license,” said Nancy Gascoyne, a broker at MultiSource Funding in Cheektowaga, who is also a past president of the New York Association of Mortgage Brokers. “But I doubt if he is the only one or will be the only one in the coming months.”

The biggest factor is the decline in business volume, first because of the direct results of the subprime mortgage debacle, and now also because of the recession. Billions of dollars in losses and a subsequent credit crunch caused many subprime and “alternative-A” lenders to go out of business, pull back the reins, or withdraw completely, leaving the industry with fewer lenders and less capital.

At the same time, the survivors have taken many products off the market, while tightening underwriting standards sharply for those that remain. Customers who used to be able to qualify no longer can. And some lenders are requiring brokers to do at least a minimum amount of business with them, or not offer their products at all.

The result has been a sharp reduction in loan options and eligibility, especially for borrowers with imperfect credit. And despite the lowest mortgage rates ever, borrowers themselves are being cautious, not wanting to take on more debt while they’re fearing for the security of their jobs. So loan demand is down as well.

If that’s not enough, brokers say, they’re being hammered on the other side by higher regulatory fees and requirements. The state Banking Department is a self-funded agency whose $81 million annual budget relies on examination, application, and other fees, which have risen sharply after the state switched a few years ago from a flat $500 annual fee to an assessment based on size. Last year, Krauza paid $4,000.

And those fees are expected to go up again with the adoption this year of a nationwide mortgage licensing system to register individual loan officers.

“This is not uncommon,” said Michael Bonito, president of MultiSource, and another former president of the state trade group. “The state of New York and the federal government have made it increasingly difficult for small business owners in the mortgage industry to survive in this environment.”

On top of that, the exodus of both large and small players from the industry means the same or higher costs are being borne by fewer entities. Bonito said his company’s fee has already risen from $2,500 in the first year to $4,500 last year, and he expects it to rise again to $7,000 this year, but with half the business volume from 2005.

There’s also new audit rules, consumer protection regulations, and the expensive requirement for brokers to post a bond that the state can call upon to pay fines or fees.

“The increased regulations, fees and general decline in business will have many negative effects on the mortgage business,” Gascoyne said. “The unfortunate reality is that the consumer will be the ultimate victim.”

In the meantime, Krauza has taken a position as general manager of Route 60 Homes, a designer and builder of modular and manufactured houses. He still has his registration as a mortgage loan officer.

Homeowners refinance at lower mortgage rates

When state employee Tim McManus of Sacramento peers into the future, he sees 4.5 percent interest.

"I'm hoping it will go down more. One more drop," says the Pocket homeowner with a first mortgage at 6 percent and a second at 7.75 percent.

Sacramento's Debbie Fernandez has already locked in at 4.875 percent. That will knock $300 a month off payments for a house she bought in Houston in October. The rate then was 6.25 percent.

But Fernandez, a nurse, is still shopping.

"I hope we can do better."

Roseville tech worker Robert Gage is also waiting for the right moment to refinance.

"I can get 4.5 percent for two points," he said. "I'm hoping for 4.75 percent with no points. That's what my goal is."

As 2009 opens, the "refi" chase is on in neighborhoods across the country and across the region.

This new suburban sport was launched by mortgage rates that in recent weeks have fallen to lows not seen in almost four decades, offering potential to shave millions of dollars in debt from Sacramento-area households. Thirty-year fixed rates are suddenly floating in a zone of 5 percent and below – before fees – bringing a rush of curiosity and applications, area mortgage brokers, bankers and credit unions say.

It's still not clear if lenders will be as willing to play the game as borrowers. Tightened credit rules, diminishing home values and other economic factors will have a big effect on how many actual refinancings take place.

But the flood of interest is already stressing an industry that has been greatly downsized over the last two years. Nationally, it could be overwhelmed by a deluge of refinancings, said Jim Paterson, partner and broker at Gold River-based Mortgage Consultants Group.

"There will be a period when rates drop, a true drop in rates, when it will take longer to get a loan," he said. "It will add two weeks to the process."

Government moves markets

The catalyst is Federal Reserve action to buy $600 billion in mortgage debt from government mortgage giants Freddie Mac and Fannie Mae, analysts say. The government intervention aims to make mortgage funds cheaper and more plentiful to help revive the nation's battered economy.

"All of our channels, the Internet, call centers and branches are experiencing significant increases in application volume," said California-based Bank of America spokeswoman Jumana Bauwens.

The push is prompting the bank to shift 300 staffers from its home equity operations to mortgage lending, she said.

Chico-based Tri Counties Bank is also seeing "a big pickup in refinancing," said Chief Executive Officer Rick Smith. "As these rates have hit sub 5 (percent), everyone seems to want to come in."

Yet for all the reported frenzy, it's still too early to tell if there is – or will be – a 2003-like refinance "boom," said Terry Halleck, president and chief executive of Sacramento-based The Golden 1 Credit Union.

"The past couple of weeks, applications have gone up about 300 percent from a year ago. It's huge. The real question is whether people will complete the loan or are just rate-shopping," she said.

The lack yet of a real boom is partly because many homeowners still believe rates may go lower as the economy weakens. And unlike 2003, many borrowers won't qualify for today's tightened credit rules.

"I had to jump through every hurdle on my loan," said Fernandez, who is moving back to Houston. "They're really scrutinizing people."

Other owners also lack adequate home equity to refinance. And today's lower rates only apply to loans under $474,950 in most of the region.

But so many homeowners are browsing, Halleck said, that Golden 1 is starting an application fee "to filter out the people who aren't serious."

That's not the only problem for lenders in a volatile rate environment. Paterson said lenders are also seeing a rash of people "breaking" or walking away from their rate locks as a better rate comes along.

That can cost a lender $800 in "hedging" costs on a $200,000 loan, he said. Halleck said Golden 1 doesn't generally allow people to break their locks because of the cost.

Mortgage Modification: Do They Deliver?

Homeowners in foreclosure are often desperate to modify their mortgages but most have been unsuccessful. A local firm promises help -- for a price.

My Safe House in Oceanside promises to modify mortgages but they don't have a license to do that, according to the Better Business Bureau.

"We are seeing a tremendous amount of scam and fraud in this area," said Sheryl Bilbrey of the BBB. "This company has an F rating. It's a licensing rating. We know companies in this category are required to have a license. These guys don't."

The address of My Safe House in Oceanside is also home to a number of other web sites, run by Gary Bobel. One site, First Federal, promises a 98% success rate in mortgage modifications and a money-back guarantee -- something experts say is impossible.

Bobel says he doesn't need a license to operate, and stood by his company's claims, "I would not take the money if I could not help them."

When San Diego 6 News was there, all we saw was a phone-room and a tote-board listing the numbers of people who had paid $2995 to the unlicensed firm.

Karlee Mariel worked for Bobel back in December.

"I was hired to be on the phone all day long," described Mariel. "I don't want people who are losing their homes to be taken advantage of or experience any more hardship."