MLO105607 40831
click here to go to my Mortgage Express web page
.
History repeats itself or something like that. Before October 2010 the FHA upfront premium was 2.25%. Of course it never got any attention since it got financed into the loans. It dropped to 1% for a year or so and now is going back up to 1.75%. They are also up-ing the monthly amount from 1.15% to 1.25%.
Here’s a payment comparison for a $200,000 purchase under old and new FHA mortgage insurance rules at today’s 3.75% 30-year fixed rate. As you can see, there is a $33.16 increase in the monthly obligation. This difference is not massive by itself but with continued rule tightening, it will definitely impact some buyer decisions and will make mortgage insurance on conventional loans more competitive for borrowers with at least 5% down.
Pre-April 1st 2012 case numbers
1.0% up-front MIP = $1930
Financed amt = $194,300
PI payment = $902.75
1.10% Monthly MIP = $178.11
TOTAL PI+MIP payment = $1080.86
Post-April 1st case numbers
1.75% up-front MIP = $3378
Financed amt = $196,378
PI payment = $909.46
1.25% Monthly MIP = $204.56
TOTAL PI+MIP payment = $1114.02
Fitch Ratings and Moody's Investors Service both affirmed their top-notch ratings of the U.S. during the week, although Moody's assigned a negative outlook to its "Aaa" rating. The S&P news was pretty much anticipated by the market. The downgrade by S&P generated anxiety in the global equity financial markets, but others point to the fact that investors don’t really have anywhere else to put their money, even with the yield on our 10-yr T-note down to 2.34%! Now only four major countries have the AAA rating: Canada, Germany, France, and the United Kingdom. Is US debt now the best of the worst?
Some investors may be forced to sell Treasury securities as they are required to hold only AAA-rated assets. But what, exactly, does a rating agency’s opinion matter? They’d like investors to believe that the source of their power is the accuracy of their opinions, but what seems to matter to a greater degree is the extent to which their ratings have been embedded in various rules and regulations across the financial world. In 1975 the SEC began to use such ratings to calculate how much capital broker-dealers should be required to hold, and designated a few firms as "nationally recognized statistical rating organizations," or NRSROs. Now NRSRO ratings are embedded in thousands of regulations and private contracts, if not more, determining what securities money-market funds would be permitted to own, how much collateral counterparties would have to put up in trades, among countless other matters.
Rating agencies have been viewed by many in the mortgage banking world as miss-rating hundreds and thousands of mortgage-backed securities, therefore contributing to the credit crisis in which we find ourselves. The “whip” has come down on brokers, lenders, servicers, banks, and to some extent investment banks, but rating agency’s business models have not changed much. And given how often their ratings appear in rules and regulations of banks, federal agencies, money managers, etc., it may not be feasible or practical to eliminate ratings. But there is an inherent conflict of interest when a security issuer pays the rating agency to rate one of its securities.
The detrimental role of credit rating agencies Moody’s, S&P, and Fitch was noted in the U.S. Financial Crisis Inquiry Commission’s report said “the three credit rating agencies were key enablers of the financial meltdown." A European Parliament report highlighted three key problems in the industry: lack of competition, over-reliance on external ratings in the regulatory framework, and no liability for ratings by the agencies. Further, ratings changes are lagging indicators: downgrades or upgrades mostly reflect information already analyzed and digested by financial markets. In response, regulators and legislators on both sides of the Atlantic drafted new rules to reduce the intrusion of rating agencies in the regulatory framework. New entries into the business such as Kroll or Rapid Ratings, are trying to address that issue.
If the changed rating leads to hundreds of billions of additional borrowing costs, it will become a self-fulfilling prophecy for the US government (instead of spending on improving our economy, it will spend more on interest payments to debt-holders) and the consumer (who will pay more in taxes to cover the increased expense – some believe that the government merely takes money from one group and gives it to another, and the average consumer will bear the brunt).
At this point, S&P’s reasoning about the inability of politicians to address the real issue of fiscal sustainability is generally viewed as correct, and most traders think that the short-term effect on Treasury yields of S&P’s decision will be small. But is it really the role of the rating agencies to influence or determine political strategy? Perhaps - there is no inducement for politicians to be fiscally responsible, and it seems that fiscal responsibility is not a path to reelection.
excerpted from Rob Chrisman's blog
My history of allergies goes back about 25 years – longer if you count possible genetic disposition (both my Dad and Brother have asthma). After my tree pollen allergy symptoms became enough of a nuisance to require it, I sought out the best Anchorage had to offer in both AMA and Natural medicine specialists. There was the 1.5 years of immune-therapy plus prescriptions for every eye-drop, nasal mist and pill that they had to offer. None of these were very effective. A few years ago I discovered the Chinese herb concoction called Xanthium-12 and it worked OK the first year about half as good the next and not at all the third. A daily dose of local honey has also been tried which I like but had no allergy benefits for me.
Across this time I tried various air cleaners, especially in the bedroom at night and of course I’ve used a neti pot. This year I’ve taken the “clean room” concept to a new level where the sleeping room is closed to outside air at night, the air cleaner is running and I’ve showered off the accumulation of stuff on my body before retiring. This has been the most helpful of anything I’ve tried. I retire with stuffy nose, itchy eyes, etc. and awaken with those symptoms pretty much gone. If this success continues over the next year or so I will declare a victory of sorts.
For the second time in less than a year FHA has modified the mortgage insurance fees for the home loans they insure. Here’s a payment comparison for a $200,000 purchase under old and planned FHA mortgage insurance rules for a 30-year fixed rate loan at 4.75% with minimum required down payment. As you can see, effective this April there is another ±$40 increase in the monthly obligation. This difference is not massive by itself but when combined with the October 2010 increase, the FHA borrower is faced with over $80 more in monthly payments for the same mortgage.
Pre-October 4th 2010 case numbers
2.25% up-front MIP = $4342.50
Financed amt = $197,342.50
PI payment = $1029.43
0.55% Monthly MIP = $90.45
TOTAL PI+MIP payment = $1119.88
Post-October 4th 2010 case numbers
1.0% up-front MIP = $1930
Financed amt = $194,930
PI payment = $1016.85 – slightly smaller due to lower financed amount
0.9% Monthly MIP = $146.20 – larger
TOTAL PI+MIP payment = $1163.05
Post-April 17th 2011 case numbers
1.0% up-front MIP = $1930
Financed amt = $194,930
PI payment = $1016.85
1.15% Monthly MIP = $186.81 – larger again
TOTAL PI+MIP payment = $1203.66
FICO, founded in 1956 as Fair Isaac by engineer Bill Fair and mathematician Earl Isaac, provides consulting services and enterprise decision management systems. They developed the FICO scores, a measure of credit risk, which are the most used credit scores in the world. FICO scores are available in the United States from Equifax; Experian; TransUnion; and PRBC. FICO, like Band-Aid or Kleenex, has become a generic symbol of credit worthiness. Home loan scores can range from 300-850 and are a statistical calculation based upon payment history (35%), credit utilization (30%), length of history (15%), credit type (10%), and recent credit checks (10%). Items stick around for seven years; bankruptcy for ten. The score is intended to predict the liklihood the borrower will have a 90-day late in the next 2 years. Maxing out a card, a 30-day late payment, debt settlement, foreclosure (150 point ding) or bankruptcy (150-200 point hit) all negatively impact FICO. Sometimes folks wonder about whether or not a short sale hurts your credit score as much as a foreclosure (see other articles in this blog), it depends on whether the borrower stays current on their payments and how the lender reports the sale (try for "debt repaid in full"). My thanks to Rob Chrisman and Wikopedia for much of this content.
These comments are from my credit reporting company that works daily with these opportunities.
Most loan modifications we've seen so far under the various Stimulus plans have been interest rate reduction as opposed to principal reduction so that is the experience on which the following comments are based.
What we are seeing with most interest rate loan modifications is that the borrower is instructed by the creditor not to make any payments until the modification process is complete. This can take up to nine months. Once the modification is complete, the delinquencies are removed. The drawback is that even though the delinquencies are removed, the "remarks" on credit reports will read "payment plan in place". This is similar to "consumer credit counseling". We are seeing scores effected similar to the effect of a recent collection account, somewhere around 60 and 100 points, depending on the borrowers overall credit picture. We have also reviewed files where the borrower was instructed to pay until the process was complete. While exactly opposite in structure, the result is the same, damaged credit due to the remark line "payment plan in place".
I am unsure as to how the banks are going to report the credit when the modification is a principle reduction. Currently, it is up to the creditor as to how they decide to report it. Until we see some actual history, we really can't speculate how they will report except to say that it is very likely to be an adverse mark on an individual's credit.
In any of these scenarios the borrower did not meet the obligations of the original contract and therefore their reported credit must reflect that reality so the next credit grantor is aware of the situation.
The best advice that can be given when working out the details of a loan modification with the bank, is to clarify how the loan will be reported by the credit agencies once the loan mod is complete. Again, if coded negatively and attached to a mortgage, it will likely create problems through automated underwriting even if scores remain within guidelines. It is essentially a mortgage that hasn't met the obligations of the original contract.
, here is what one very experienced and knowledgeable underwriter wrote to me: "It used to be that we could 'underwrite' a loan and use common sense to navigate individual circumstances and actually make a decision that a loan was a good credit risk. Then DU and LP (computerized underwriting systems) came along and gave us the laundry list that had to be followed. We were still able to manually underwrite loans for those transactions that did not fit the box. Then the bottom fell out of the business and everyone got scared and new rules came out. Investors and Wall Street were to blame for allowing individuals who were not telling the truth to buy homes. Today investors are pre-underwriting loans prior to purchase and we have to 'march to their tune' including getting pieces of paper that seem ridiculous, but since we need the investor to purchase the loan, we obtain them anyway. Only the most qualified borrowers with all their ducks in a row get loans these days. Manually underwritten loans are subject to scrutiny such as we have never seen before and frankly, we do not have the courage to paint outside of the lines because we cannot afford to have a loan purchase refused. Today, it takes two to three times as long to underwrite a loan and we have checklist upon checklist that help us make sure all of the i's are dotted and the t's are crossed. I have been doing this for over 30 years and frankly we are back to the rules of the early 80's or worse when it comes to documentation."