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Mortgage Blog

Oct 14

Jump-Starting the Home Market - Some Specific Proposals

The last post argued that a roll-back of Fannie/Freddie lending terms to where they were before the financial crisis was needed to prevent a second round of home price declines. In addition to benefiting homeowners and the economy, this would reduce Fannie/Freddie losses on both old and new loans, which makes it a requirement of responsible conservatorship.

This entry and the one that follows will discuss a few of the many specific changes in underwriting rules that are needed.

Modify Rigid Affordability Rules

The post-crisis rule that every mortgage loan must be affordable to the borrower was a knee-jerk reaction to the excesses of the bubble period, when many adjustable rate loans to sub-prime borrowers were not affordable past the initial rate period -- usually 2 years. The blanket affordability requirement that emerged is preventing loans from being made that are safe to the lender and useful to a borrower who can't meet affordability tests.

Mortgage loans are distinguished from all other loans by their collateral, and for a long period in our history, lenders based their decisions only on the collateral value. Incorporating credit and income affordability into the decision process was an advance, but making affordability an absolute requirement was a step backwards.

As previously mentioned, there are many different situations where low-rate, adjustable loans are in the interest of borrowers facing temporary problems. If the property value is sufficient, there is every reason such loans should be made.

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Oct 7

Jump-Starting the Home Market -- and the Economy

Policy proposals for dealing with our current depressed economy are largely at an impasse. Monetary policy has gone about as far as it can go while fiscal policy is hamstrung by political constraints on any measures that enlarge the Federal debt. Housing policy, in contrast, has enormous expansionary potential that can be released merely by revising or eliminating some of the many unproductive rules governing how home loans are granted.

These rules originate from Fannie Mae, Freddie Mac and in some cases from FHA. In combination, these agencies touch about 95% of all home loans being written today. Most of the rules apply to who is and who is not qualified to borrow, and among those qualified, to how much extra they have to pay for deviations from pristine status. The liberalized rule changes would reduce expected losses to the agencies because the additional housing demand that resulted from them would stabilize home prices.

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Jun 30

Now may be a GREAT time to shop around for Homeowners Insurance

Home prices have declined -- in some markets as much as half what a property might have sold for before the housing downturn. So why hasn't your homeowners policy changed as well?

Insurance experts are quick to point out that insurance is not based on the market value of property, but on the cost of rebuilding the property after it is destroyed. That cost includes not only labor and materials to rebuild, but also the cost of demolition and the removal and disposal of things that can't be reused.

"Market values are decreasing, but the cost to replace has gone up," says Elaine Baisden, vice president of national property for Travelers Insurance.

That said, homeowners insurance might not have to be as pricey as your insurance agent would like it to be. Consider these homeowners insurance basics, as well as some ways to trim its cost.

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Jun 30

Why are the Mortgage Rates rising with Unemployment being so low?

Mortgage rates jumped this week as investors put aside their concerns about a potential Greek debt default and became somewhat more confident in the U.S. housing market.

The benchmark 30-year fixed-rate mortgage rose 5 basis points this week, to 4.71 percent. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.43 discount and origination points. One year ago, the mortgage index was 4.75 percent; four weeks ago, it was 4.69 percent.

The benchmark 15-year fixed-rate mortgage rose 3 basis points, to 3.86 percent. The benchmark 5/1 adjustable-rate mortgage rose 9 basis points, to 3.45 percent.

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