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$200 billion buyout of seriously delinquent mortgages
According to a report from the Royal Bank of Scotland, government-sponsored enterprises (GSEs) will buy $200 billion of serious delinquent loans out of their mortgage-backed securities (MBS) pools over the next several months. The first $42 billion wave of buyouts came March 15, and the remainder should come in April, May and June, according to researchers based at the bank’s operations in the United States. One of the GSEs, Fannie Mae, said in a press statement earlier in March that it expects to continue purchasing delinquent loans in subsequent months until the seriously delinquent loan population is “substantially reduced.” Analysts at Barclays Capital remarked that Fannie will likely begin “buying out loans on a coupon-by-coupon basis, for all products including 10/20s, ARMs, starting with the highest coupons in the April report, and then proceeding to lower coupons in subsequent reports.” The market has become very cloudy, as players are scurrying to figure out the unknown effects, timing and size of the Fed exit from MBS, more buyouts and outcomes from the Home Affordable Modification Program (HAMP), according to RBS.
Consequences to Fannie’s revisions?
A month ago Fannie Mae thought its forecast for mortgage funding would rise 2.8 percent in Q110, but now they’re saying it could drop 17.2 percent. On top of that they slashed their forecast for mortgage originations for 2010 to 1.31 trillion from 1.97 trillion in 2009. That’s 33%. “I still don’t think investors and the media at large have grasped the variety of consequences that a [33 percent] year over year drop in mortgage volume in 2010 will bring. Just think about all the lost jobs and income or how many times ‘mortgage banking revenue’ has driven bank earnings,” warns mortgage industry analyst, Mark Hanson. “A $1 trillion origination year would be down about 66% from the bubble years average and 75% from the peak.” The fact that mortgage rates are so ridiculously low right now, and yet loan volumes and refinances are not gaining, is not a good sign.
Obama’s healthcare bill passed
The House’s passage of health care legislation late Sunday night assures that whatever the ultimate cost, President Obama will go down in history as one of the handful of presidents who found a way to reshape the nation’s social welfare system. Never in modern memory has a major piece of legislation passed without a single Republican vote. Even President Lyndon B. Johnson got just shy of half of Republicans in the House to vote for Medicare in 1965, a piece of legislation that was denounced with many of the same words used to oppose this one. That may be the true measure of how much has changed in Washington in the ensuing 45 years, and how Mr. Obama’s own strategy is changing with the discovery that the “post-partisan” approach to governing he had in mind simply will not work. “Let’s face it, he’s failed in the effort to be the nonpolarizing president, the one who can use rationality and calm debate to bridge our traditional divides,” said Peter Beinart, a liberal essayist who is publishing a history of hubris in politics. “It turns out he’s our third highly polarizing president in a row.”
Peter Wehner, a political adviser to President Bush, said, “In the short term Obama will get a boost, because the narrative is that he came back from the dead and got done what no president has managed to do in 70 years. But once people discover that their Medicare taxes are going up, that there are deeper cuts in Medicare Advantage, that there are court challenges to many provisions, and that the process of getting it passed created a portrait of corruption, it won’t sit well.” Interviewed Monday on ABC’s “Good Morning America,” John McCain repeated House Republican assertions that the transformative legislation amounts to a government takeover of health care. The Arizona Republican declared that Republicans “will challenge it every place we can,” and called the measure “terribly wrong for America.” He said that outside the Beltway, the American people are very angry.
Fraudulent home mortgages
Nationwide, one in every 200 residential loans funded last year, totaling $14 billion, involved fraud, according to First American CoreLogic. Despite what looks like an unsettling amount of shadiness lurking within the mortgage market, the company says the fraud rate has been steadily declining for the past three years and is now about 25 percent lower than when it peaked in the third quarter of 2007. Since then, First American notes, lenders have been more aggressive in curtailing mortgage fraud – a prudent reaction considering banks have been forced to buy back billions of dollars in fraudulent loans sold to investors during the boom, when standards were lower and many loans were made without verifying the applicant’s information. “In 2010, 2011, and 2012 you won’t see nearly the amount of [fraud] reports that you’re seeing today,” said Tim Grace, SVP of fraud analytics at First American CoreLogic. First American CoreLogic says 25 percent of foreclosures show fraud in the initial application, and as much as 70 percent of early payment defaults show indications of fraudulent activity in the application process. The company’s conclusions are based on its analysis of 80 million loans passing through its proprietary national fraud data repository.
Now on to our real estate investing educational section…
FACT Act vs Credit Card Act of 2009
Short sale investors often rely on credit cards to assist in repairs, closing costs and other transactional fees during the buying and selling cycle. Chances are you have heard a great deal of hype surrounding revisions to credit cards but sorting out the fact from the fiction isn’t always easy. Find out what you need to know about the current state of credit with this quick tutorial.
The FACT Act – which stands for Fair and Accurate Credit Transaction Act – went into effect December 4, 2004 and requires credit reports to be fair and accurate. As you might imagine, it hasn’t worked out as well as originally expected which is one reason the current administration has now passed a replacement in the form of the Credit Card Act of 2009.
Under the FACT Act, debt collectors were required to report false information to the credit bureaus and financial institutions are required to follow reporting guidelines established by Congress. Every consumer is entitled to a free copy of their credit report each year in order to review the accuracy of the report but was forced to undergo a long set of criteria in order to correct errors. Meanwhile, credit ratings could be raised on a whim with little to no notification…or justification.
The Credit Card Act of 2009…which actually took effect February 22, 2010…provides some relief from predatory credit card practices but at a cost likely to negatively impact those that use credit wisely. The new provisions disallow these common practices:
1. Limit Retroactive Rate Increases. While this sounds great in theory, don’t get overly excited. Credit card lenders can still raise rates on a new balance at any time with 45 days notice.
2. Revised Rate Hike Notice. As mentioned above, longer notification is now in effect for rate hikes which provides 45 days notification rather than the former 15 day notice. However, this provision does not apply to credit limit changes so be sure to keep an eye on total available credit!
3. Restricts Under-Age Credit Consumers. Short sale investors under the age of 21 may find it more difficult to obtain credit without a cosigner. Plan to prove income.
4. Does Away with Double-Cycle Billing. A nice touch but to offset losses, many credit cards intend to increase fees especially among those that pay their bill in full each month.
5. Establishes Minimum Monthly Payments. Short sale investors that used six or twelve month “same as cash” will be disappointed in learning they now must make minimum monthly payments during the interim. Interest rate charges can still be waived, but the federal government now demands consumers to make some type of payment each month.
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2009.
All Rights Reserved.
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Finally, a blog for Real Estate professionals
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
400 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
* Follow me on Twitter: http://twitter.com/mclaughlinchris
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