Mortgage rates dip, but above record lows

Average rates on 30-year, fixed-rate mortgages dropped to 4.82% this week, staying below 5 percent for the tenth week in a row.

MORTGAGE RATES

Rates on 30-year mortgages inched up this week to 4.84 percent after matching an all-time record low last week, according to Freddie Mac's weekly nationwide survey. Rates have been below 5 percent for eight consecutive weeks.

MORTGAGES

The U.S. House voted Thursday to outlaw "liar loans," ballooning mortgage payments and other bank practices that prey on consumers. Under the bill, banks would have to verify a person's credit history and income, and make a reasonable effort to determine that a loan can be repaid. However, the Senate does not have similar legislation pending.

MORTGAGE RATES

Rates on 30-year mortgages dipped this week to 4.82 percent after rising a week earlier, and are again close to record lows. "The housing industry is starting to exhibit some positive signs," Freddie Mac's chief economist said in a statement.

MORTGAGE RATES

Rates on 30-year mortgages inched higher this week to 4.87 percent after two straight weeks of record lows, but still remained at attractive levels for borrowers looking to refinance their home loans.

Mortgages

While many small banks are in decent financial shape, there are exceptions, making it difficult for homebuyers seeking a trustworthy lender. One factor to consider: Banks that expanded quickly during the boom could be on shakier financial footing. In Florida, for example, the FDIC seized Riverside Bank's nine branches in February.

MORTGAGE RATES

Rates on 30-year-fixed mortgages climbed to 5.25 percent this week after recent economic reports were better than expected, according to Freddie Mac's weekly nationwide survey.

MORTGAGES

Buying a house doesn't necessarily require getting a 30-year, fixed-rate mortgage. More people are exploring alternative financing plans as it gets harder to secure a conventional bank loan

30-year mortgage rates drop to five-week low

WASHINGTON (AP) – Oct. 24, 2008 – Rates on 30-year U.S. mortgages dropped sharply this week, falling to the lowest level in five weeks.

Mortgage giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages averaged 6.04 percent this week, down from 6.46 percent last week. The sharp decline pushed 30-year rates down to the lowest level since they stood at 5.78 percent the week of Sept. 18.

Analysts attributed the decrease to an easing of inflation concerns, which now have been replaced with rising worries that the country could be headed for a prolonged recession. Interest rates generally fall in periods of economic weakness.

Rates on 30-year mortgages hit a high for the year of 6.63 percent in late July and then dropped below to a seven-month low of 5.78 percent the week of Sept. 18.

According to the Freddie Mac survey, rates on other types of mortgages were mixed this week.

Rates on 15-year fixed-rate mortgages, which are popular with people who are refinancing, fell to 5.72 percent, compared to 6.14 percent last week.

Rates on five-year adjustable-rate mortgages fell to 6.06 percent, down from 6.14 percent last week. However, rates on one-year adjustable-rate mortgages rose to 5.23 percent, up from 5.16 percent last week.

The mortgage rates do not include add-on fees known as points. The nationwide fee for 30-year, 15-year and five-year mortgages averaged 0.6 point. One-year mortgages averaged 0.5 point.

A year ago, the nationwide average rate on 30-year mortgages stood at 6.33 percent, 15-year mortgage rates averaged 5.99 percent, five-year adjustable-rate mortgages were at 6.03 percent and one-year adjustable-rate mortgages stood at 5.66 percent

Candidates continue debate on relief for mortgage holders

WASHINGTON – Oct. 9, 2008 – Republican John McCain on Wednesday touted his plan to have government buy up bad mortgages, while Democrat Barack Obama said his rival’s approach would hurt taxpayers and help bad lenders.

A day after the second presidential debate was dominated by exchanges on the sagging economy, McCain told supporters in Pennsylvania his $300 billion plan would help struggling homeowners obtain “manageable mortgages.”

His plan would direct the Treasury secretary to buy the mortgages directly and use funds from the $700 billion financial bailout approved by Congress last week. The bailout package currently calls for the government to buy mortgage-backed securities and allow – but not require – direct purchases of mortgages.

“We must go to the heart of the problem, and right now that problem is a housing crisis,” McCain said.

Obama has said he wants the government to consider such a move, but he has not called for a mandate. His campaign said a key difference between McCain’s proposal and the new government bailout program is that lenders would absorb losses that would otherwise go to taxpayers.

“The biggest beneficiaries of this (McCain) plan will be the same financial institutions that got us into this mess,” Obama economic policy director Jason Furman said.

McCain policy adviser Douglas Holtz-Eakin said the Republican wants direct action so homeowners get relief quicker. He said the McCain plan could affect as many as 10 million mortgage holders.

In Indiana, Obama again sought to link McCain to President Bush. “It is time to turn the page on eight years of economic policies that put Wall Street before Main Street.”

The campaigns also followed up the debate with new television advertisements. Obama’s spot criticizes McCain’s plan for health care tax credits, saying it would lead to taxes on employer-based benefits.

McCain’s ad, meanwhile, questions Obama’s qu

McCain would buy bad homeowner mortgages

WASHINGTON – Oct. 8, 2008 – Republican presidential candidate John McCain is proposing a $300 billion program for the federal government to buy up bad home mortgages and allow homeowners to keep their houses.

McCain said: “Until we stabilize home values in America, we’re never going to start turning around and creating jobs and fixing our economy and we’ve got to get some trust and confidence back to America.”

In an unusual step, McCain announced the plan during Tuesday’s debate. He said that as president he would direct the federal government to purchase mortgages directly from homeowners and mortgage providers. The loans would be replaced with fixed-rate mortgages, ostensibly at a loss to the government.

“Is it expensive? Yes,” McCain said.

Habitat finds rare opening in mortgage crisis

DENVER – Oct. 7, 2008 – Jessi Graham had struggled to find affordable housing in Denver. Then, in part because of the nation’s depressed housing market and sluggish economy, her dream of owning her own home got a boost from Habitat for Humanity.

The non-profit organization helps make homeownership possible for low-income families. It has seen decreases in land prices anywhere from 30 percent to 40 percent in the past year, mostly in Western and Southern states – and thus an increase in the properties it can afford to acquire, says Stephen Seidel, Habitat’s national director of field operations.

For Graham, a single mother, Habitat’s unexpected benefit from a struggling market meant her two children would no longer have to deal with constant moves and cramped living spaces after moving into their Habitat home in Denver.

“My children will now be able to consistently have their friends, their rooms and ... somewhere to come back to and call home,” she says.

The home Graham and her family moved into was one that the Habitat for Humanity of Metro Denver purchased when land prices were just starting to fall, says Robyn Burns, communications and marketing manager for the affiliate. The Denver chapter, which builds about 40 homes each year, has seen a 35 percent reduction in the per-unit land cost during the past two years, executive director Heather Lafferty says. Elsewhere:

• In Minneapolis-St. Paul, foreclosed homes are being made available for the local Habitat affiliate to purchase, spokeswoman Sharon Rolenc says.

The Twin Cities Habitat for Humanity, which housed 47 families last year, is looking to purchase between four and six foreclosed homes from St. Paul. Within the next year it is looking at rebuilding homes in Minneapolis, some of which have been foreclosed, Rolenc says.

• In Sacramento, prices are not falling enough to present opportunities to local affiliates, Ken Cross of the Sacramento Habitat for Humanity says.

• In Fort Worth, lot prices decreased by 30 percent to 40 percent in the past year for the Trinity Habitat for Humanity, executive director Gage Yager says.

• In Miami, the local affiliate has been receiving calls from residents trying to sell their homes and recently began looking into purchasing foreclosures, communications director Michelle Marcos says. It already has purchased one, she says.

• In Dallas, the Habitat affiliate for the past two years has been working to purchase lots that have come on the market at prices that are much more affordable, says Cyndy Lutz, director of real estate.

Instead of behaving like a “land vulture,” waiting to swoop in on deals, Lutz says, the non-profit uses the opportunity to forge partnerships with local builders in Dallas and secure Habitat’s future with the community after land prices eventually rise.

Despite the good prices available, the situation is by no means a “good thing,” Lutz said.

“We don’t approach this market with any glee at all; anything that’s bad for the economy is bad for Habitat for Humanity,” she says.

Bank of America settles lawsuit over bad mortgages

SPRINGFIELD, Ill. – Oct. 6, 2008 – Facing a lawsuit over deceptive mortgage practices, Bank of America Corp. (who now owns Countrywide Financial Corp.) has agreed to modify tens of thousands of loans to keep people in 11 states from losing their homes, the Illinois attorney general’s office said Sunday.

Borrowers stuck with mortgages they can’t afford could see their interest rates reduced or have the loan principal cut. Some might qualify for having to pay nothing but interest for a decade. Even people who can’t afford to keep their homes with such changes will be able to get help moving to a new home.

“This is going to provide a tremendous amount of relief,” said Illinois Attorney General Lisa Madigan.

Her office and officials from California negotiated the settlement. Nine other states have also joined the settlement, and other states could sign on, said Deborah Hagan, chief of Madigan’s Consumer Protection Division.

If all 50 states were to join, the settlement could provide $8.7 billion in relief to 400,000 borrowers, Hagan said.

In California alone, the settlement will offer $3.5 billion in relief. For Illinois, that would translate to $190 million. The total for the 11 states was not immediately available.

The settlement applies to people who obtained their mortgages through Countrywide Financial Corp., which Charlotte, N.C.-based Bank of America purchased in June, at the same time Illinois and California sued the company.

“Countrywide’s lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn’t understand and ultimately couldn’t afford,” California Attorney General Jerry Brown Jr. said in a statement Sunday.

The other states joining the settlement are Arizona, Connecticut, Florida, Iowa, Michigan, North Carolina, Ohio, Texas and Washington.

Bank of America will launch the new mortgage aid program in December, said Barbara Desoer, president of Bank of America’s mortgage, home equity and insurance services. In a statement, she called it “a comprehensive program that provides more solutions than ever before to assist trouble borrowers and put them back on the path to sustained home ownership.”

The mortgage aid includes revising customers’ payments so they don’t exceed 34 percent of income. Other options include reducing interest rates and adjusting principal so that borrowers don’t wind up actually losing equity under some payment plans.

Countrywide will not charge loan modification fees and will waive prepayment penalties.

Madigan said she hopes the settlement could serve as a model for steps that other lenders could take to make up for misleading mortgage practices. She stressed that the agreement involves no tax money but will help people keep their homes and keep money flowing to lenders

“This settlement will help homeowners stay in their homes, which ultimately helps investors and also helps communities,” said Madigan, a Chicago Democrat.

Assembling America’s mortgage team

WASHINGTON – Oct. 6, 2008 – Retired and on his first family vacation in years, Herbert M. Allison Jr. sat with his wife and adult sons eating lunch on a veranda in the Virgin Islands when an urgent caller rang with a confidential inquiry.

It was Treasury Secretary Henry M. Paulson Jr. The government was preparing to seize struggling mortgage finance giants Fannie Mae and Freddie Mac. Would Allison, a former chairman of TIAA-CREF, consider leading one of them? “He outlined the seriousness of the situation, and over the phone I told him I’d do whatever he wanted,” Allison said.

The next day, Friday, Sept. 5, Allison boarded a water-taxi to the airport, got on a plane, landed in Washington, and with a rucksack and his tropical attire, arrived on the steps of the Treasury Department. He was quickly chosen to be Fannie Mae’s new chief executive. The announcement of the takeover would come on Sunday and he would start Monday.

In the month since the government seized the companies, Allison has joined new Freddie Mac chief executive David Moffett, a former U.S. Bancorp chief financial officer, and James B. Lockhart III, the regulator who hired both men and oversees their operations, in forging the team charged with an ambitious mission: Stabilizing the nation’s ailing mortgage market and lowering borrowing costs for everyday Americans.

The three men inherit companies that have been under heavy stress – first with accounting scandals, then with the sharp downturn in the housing market that caused massive losses and forced the government to intervene. Morale is low, and employees are asking questions such as: Do I work for a government agency or a private company? Do I have a long-term future here, or is the era over when you could join Fannie Mae or Freddie Mac, earn a steady living and do good things for the nation’s housing market?

District-based Fannie Mae and Freddie Mac of McLean – congressionally chartered public companies – have always wrestled with conflicting ideological and commercial mandates. Some lawmakers blame them for the nation’s ills, even as policymakers including Paulson and President Bush press them to buy more mortgages to support the market. Others want the firms to do more to help people avoid foreclosures and continue to support low-income housing – all without saddling taxpayers with greater costs.

Lockhart, Allison and Moffett’s relationship will guide how well the firms are able to accomplish this.

Fannie Mae and Freddie Mac help provide liquidity to the mortgage markets by buying and guaranteeing loans and packaging them into securities that can be sold to investors. This activity helps free lenders to make more loans and keep the mortgage machinery well-oiled.

In recent days, the new chief executives have been working toward fulfilling a government goal of boosting purchases of mortgages by up to $20 billion a month. Allison and Moffett have been on the phone with mortgage executives at the largest banks, letting them know that Fannie Mae and Freddie Mac are willing to buy back mortgage securities if it would help ease stressed balance sheets.

The companies are looking at other ways to help lenders. Before the federal takeover, Fannie Mae and Freddie Mac had to raise prices on loans so that the additional profits could offset losses from toxic assets in the companies’ portfolios. Those higher prices would be passed on to borrowers. Lockhart, director of the newly created Federal Housing Finance Agency, told Allison and Moffett that they no longer had to worry about pricing those costs in; the government has created a program to provide capital to the companies if losses mount. The companies have since canceled scheduled increases in mortgage fees.

“Do they have to make up for all the losses from previous years by really inflating the margins on the new business?” Lockhart said. “The answer to me is no.”

Allison and Moffett have taken comfort in this tabula rasa approach. “Jim and I have agreed that it’s totally a blank slate,” Moffett said. Allison said, “I’ve told everyone here that we can’t do anything about past losses.”

Although Fannie Mae and Freddie Mac are under government control, Lockhart said he wants them to remain competitive. Insomuch, he gives the companies loose guidelines, such as a quantity of mortgages to buy, and lets each firm’s management decide how to do so. He then signs off on their plans.

And he keeps a close eye. In the first few weeks of government control, Lockhart assigned about 15 liaisons to be paired with each of the senior executives at the companies. Allison’s liaison, Len Reid, a former director of supervision at FHFA’s predecessor who was plucked out of retirement, sits in a conference room next door. Moffett is paired with Chris Dickerson, a senior FHFA officer who works in a room down the hall. The FHFA liaisons attend almost every key meeting, relaying information back to Lockhart, whom Allison and Moffett talk to every day or so.

The search for new chief executives began several weeks before the government’s takeover. Lockhart, a longtime government official and financial services executive who joined FHFA’s predecessor agency in 2006, worked with Ken Wilson, a Paulson deputy from Goldman Sachs, to generate a list of potential new chief executives to replace Daniel Mudd of Fannie Mae and Richard Syron of Freddie Mac. Lockhart scrapped a Nantucket vacation as government examiners poured through the companies’ books. Moffett flew up from his home on Amelia Island, Florida, to talk to Lockhart about playing some role in Fannie Mae and Freddie Mac, but it wasn’t clear what it would be.

On Friday, Sept. 5, as Moffett and Allison arrived in Washington, Paulson and Lockhart were sitting side by side at FHFA headquarters telling Mudd and Syron they would have to step aside and the government would take over the companies. Syron immediately complied; Mudd was reluctant but consented.

On Saturday, Moffett and Allison were ushered into meetings at Treasury and FHFA, a block from the White House. Lockhart explained the troubles of Fannie Mae and Freddie Mac and what they needed to do under new leadership. “It wasn’t a balance-sheet discussion, but how could they continue the mission, how to securitize the mortgages, and keep that going,” he said.

Lockhart told Allison and Moffett he wanted to give them independence in their new roles, but it was clear who was boss. “The authority was very clear to me … In the absence of a board, [Lockhart] serves as the board,” Moffett said.

As Paulson and Lockhart gathered in the FHFA auditorium to announce the takeover Sunday, Sept. 7, Allison and Moffett began introducing themselves to senior executives. On Monday, they started work. By mutual agreement between Lockhart and the new chiefs, several executives, including the chief business officers and chief lobbyists at both companies, were soon let go.

At the same time, the men worked on a new retention strategy to try to ensure that the companies’ employees, shocked by the stunning decline of the companies’ share prices, would not leave en masse. FHFA hired a consultant to come up with suggestions, which included cash bonuses. Allison and Moffett thought the suggestions were a bit stingy and asked that the amounts be increased and the duration of the payments be decreased. Lockhart not only agreed, but pushed for an even more generous offer. In the end, some employees can receive up to 150 percent of what they would have gotten in the old Fannie Mae and Freddie Mac regimes, paid out over slightly more than a year.

Allison and Moffett held town-hall meetings with thousands of employees. Paulson attended as well. At Freddie Mac, Moffett was asked by one employee whether he plans to live in the Washington area. This was a sensitive question because Syron had commuted many weeks from his home in Massachusetts. Moffett said he did plan to move, and the employees thundered in applause. “I was surprised that there was such a big round of applause because I don’t know any other way to do this, except to live here and be here all the time,” Moffett said.

Since then, the new chief executives have been confronting less symbolic – and more fundamental – issues. Reviewing Fannie Mae’s accounting, Allison decided the company had to be more forthright in how it reports information about the liquidity of certain assets.

In company disclosures, Fannie Mae made reference to about $90 billion in assets – ranging from super-safe certificates of deposit to more risky unsecured corporate notes – as “liquid investments,” suggesting they could be easily bought and sold at the company’s will. Allison decided it would be better to characterize these assets simply as “other investments.”

“I felt that in the liquidity portfolio we should break out the various groups of assets, so readers could see what securities are truly sellable on short notice and which ones might take a little longer to trade,” Allison said.

The chief executives and Lockhart still have much to work out at the companies and with their own relationship. “I’m getting fully immersed in the business. I’m in fact-finding mode. I’ve been in listening mode,” Moffett said.

Most members of the companies’ boards have resigned, but Lockhart has hired new chairmen who are to recruit new board members. Fannie Mae’s chairman is Philip A. Laskawy, former chief executive of big-four accounting firm Ernst & Young. Freddie Mac’s is John Koskinen, a turnaround specialist, former deputy mayor of the District and former deputy director of the Office of Management and Budget.

Last week, FHFA lawyers huddled separately with Fannie Mae and Freddie Mac lawyers to figure out how to respond best to probes by the FBI, Justice Department and Securities and Exchange Commission. They wanted to find a way to cooperate fully without bringing business to a halt – as they had been paralyzed by earlier accounting scandals.

Meanwhile, New York Stock Exchange officials visited FHFA headquarters for a meeting with Lockhart and Allison (Moffett phoned in from the West Coast). Even though the firms have been seized by the government, their shares are still outstanding and listed on the exchange. The exchange, however, has rules about financial reporting and board structure to remain listed, and it wanted to know whether FHFA and the companies planned to fulfill them. They said they did.

Fannie Mae backs off on fee hike

WASHINGTON – Oct. 3, 2008 – Mortgage finance company Fannie Mae, seized by the federal government last month, is canceling a fee hike for new mortgages.

Fannie Mae said Thursday that a fee introduced last year will remain at 0.25 percent of the total loan amount. It had been scheduled to rise to 0.5 percent on Nov. 1. For a $200,000 loan, that’s a savings of $500.

The Washington-based company first introduced the so-called “adverse market delivery charge” of 0.25 percent in late 2007 as the housing market slumped and the company tried to shore up its finances.

The decision comes nearly a month after the company, the largest buyer and backer of U.S. mortgages, was seized by the federal government along with its sibling company, Freddie Mac. The companies’ top executives were ousted as part of the takeover.

In recent months, Fannie and Freddie have hiked several fees for borrowers without sterling credit, while asking for bigger down payments. Real estate agents, mortgage brokers and homebuilders have all complained that the moves were stifling the housing market.

Fannie Mae Chief Executive Herb Allison said in a statement that the company is “evaluating all of our risk-management, underwriting guidelines, pricing and costs.”

30-year mortgages rise to 6.10 percent

WASHINGTON – Oct. 3, 2008 – Rates on 30-year mortgages have risen for a second straight week, climbing to the highest level in a month.

Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 6.10 percent this week, up slightly from 6.09 percent last week. It was the highest level since 30-year mortgages averaged 6.35 percent for the week ending Sept. 4.

Financial markets have been turbulent in recent weeks as demand for safe-haven Treasury securities has pushed those yields down sharply while rates on other types of corporate bonds have been pushed higher by growing concerns about whether the bonds will be repaid.

Those crosscurrents have been reflected in mortgage rates, which also have been on a rollercoaster, hitting a high for the year of 6.63 percent in late July and then dropping below 6 percent in mid-September.

The recent turmoil in credit markets has pushed those rates up from a seven-month low of 5.78 percent on Sept. 18, to above 6 percent for the past two weeks.

Other rates were mixed this week, according to the Freddie Mac survey.

Rates on 15-year fixed-rate mortgages, which are popular with people who are refinancing, edged up to 5.78 percent, compared to 5.77 percent last week.

Rates on five-year adjustable-rate mortgages dipped slightly to 6 percent from 6.02 percent last week. Rates on one-year adjustable-rate mortgages were unchanged at 5.16 percent.

Frank Nothaft, chief economist at Freddie Mac, noted that the rise in mortgage rates from lows hit two weeks ago had dampened a spurt in refinancings. The Mortgage Bankers Association reported that loan applications fell 23 percent last week.

The mortgage rates do not include add-on fees known as points. The nationwide fee for 30-year, 15-year and five-year mortgages averaged 0.6 point. The average fee for one-year adjustable-rate mortgages was 0.5 point.

A year ago, the nationwide average rate on 30-year mortgages stood at 6.37 percent, 15-year mortgage rates averaged 6.03 percent, five-year adjustable-rate mortgages were at 6.11 percent, and one-year adjustable-rate mortgages stood at 5.58 percent.

On the Net: Freddie Mac: http://www.freddiemac.com

New program allows subprime mortgages to become a fixed-rate FHA

WASHINGTON – Oct. 2, 2008 – A new program rolled out by HUD yesterday could help more homeowners avoid foreclosure. Under the program, the lender of an existing subprime mortgage forgives part of the debt as if it’s a short sale, and the balance of the mortgage is rolled into a fixed-rate FHA mortgage. Unlike earlier programs, however, the HOPE for Homeowners program is aimed more at lenders than homeowners.

“For families struggling to keep up with their mortgage payments, this program will be another resource to refinance into a loan they can afford,” says HUD Secretary Steve Preston. “FHA remains a safe and affordable alternative to the high-priced mortgage loans that threaten homeowners’ ability to retain their homes. We strongly encourage borrowers to work with their lenders to determine if HOPE for Homeowners is the right program for them.”

The Economic and Housing Recovery Act of 2008 authorized the HOPE for Homeowners program. The HOPE for Homeowners Board of Directors was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage.

The program began yesterday and ends Sept. 30, 2011. It’s available only to owner- occupants. In many cases, banks will have to write down the existing mortgage to 90 percent of the new appraised value of the home.

Borrower eligibility

Borrowers should contact their lender to determine eligibility. General requirements include:

• The home is their primary residence, and they have no ownership interest in any other residential property, such as second homes.
• Their existing mortgage was originated on or before Jan. 1, 2008, and they have made at least six payments.
• They are not able to pay their existing mortgage without help.
• As of March 2008, their total monthly mortgage payments due were more than 31 percent of their gross monthly income.
• They certify they have not been convicted of fraud in the past 10 years, intentionally defaulted on debts, and did not knowingly or willingly provide material false information to obtain their existing mortgage(s).

How the program works

The Board expects homeowners will participate in the program primarily through their current lender. HOPE for Homeowners includes the following provisions:

• The loan amount may not exceed a maximum of $550,440.
• The new mortgage will be no more than 90 percent of the new appraised value including any financed upfront mortgage insurance premium.
• The upfront mortgage insurance premium is 3 percent and the annual mortgage insurance premium is 1.5 percent.
• The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.
• The existing first mortgage must accept the proceeds of the HOPE for Homeowners loan as full settlement of all outstanding indebtedness.
• Existing subordinate lenders must release their outstanding mortgage liens.
• Standard FHA policy regarding closing costs applies.
• The borrower must agree to share with FHA both the equity created at the beginning of this new mortgage and any future appreciation in the value of the home.
• The borrower cannot take out a second mortgage for the first five years of the loan, except under certain circumstances for emergency repairs.

The costs to the homeowner include the upfront and annual insurance premiums, as well as a share of the equity created by the write-down associated with the HOPE for Homeowners mortgage and any future appreciation in the value of the home. If the home is sold or refinanced, the homeowner will share the equity with FHA on a sliding scale ranging from a 100 percent FHA share after the first year to a minimum of 50 percent after five years.

The lien holder that previously held the highest priority will receive payment up to a proportion of its original interest, not to exceed the amount of available appreciation. This type of delayed payoff will take place until all prior lien holders are satisfied or the amount of available appreciation is exhausted. All remaining appreciation is remitted to FHA.

Troubled home loans didn’t require insurance

WASHINGTON – Oct. 2, 2008 – If the problem threatening to take down the economy is bad mortgages, then why isn’t mortgage insurance taking care of it?

In the 1980s and 1990s, most homebuyers could not get a mortgage with a downpayment less than 20 percent unless they bought private mortgage insurance, or PMI. This insurance covers the lender in case the borrower can’t pay. It wasn’t cheap (about $150 a month for a $235,000 mortgage). And unlike mortgage interest, you couldn’t deduct it on your federal income taxes.

Between 2000 and 2007, lenders offered homebuyers unable to afford a large downpayment several ways to get a house without mortgage insurance.

One of the most common was a “piggyback,” where the borrower took out two mortgages at once. The first mortgage covered 80 percent of the price. The second mortgage, usually with an adjustable rate, covered another 10, 15 or 20 percent of the price. Down payments ranged from 10 percent to nothing.

With house prices rising, it all looked good. Interest paid on both mortgages was tax-deductible. If the second loan was going to set at a high rate, the borrower could refinance with the rising value of the house.

But when the housing bubble popped, so did piggybacks.

“The loans that are in the most trouble are the loans that circumvented mortgage insurance,” said Jeff Lubar, spokesman for the Mortgage Insurance Cos. of America.

Karen Watson, who runs a Dallas mortgage company in Preston Center, said buyers of mortgage securities set the guidelines allowing borrowers to get home loans with no money down and no mortgage insurance. The underwriting and approval process was automated.

Mortgage securities buyers “came in and took on the risk that insurance companies were designed for,” she said.

Mortgage insurers got back in the game after persuading Congress to allow homebuyers to deduct their mortgage insurance payments. That law took effect on Jan. 1, 2007, but expires in 2010.

Watson said she was still offering piggyback mortgages until this spring, when the lenders “changed the guidelines almost ex post facto - ‘We’re not offering these as of yesterday.’”

Despite the mayhem this month on Wall Street, she said mortgages are still being sold.

“People are getting used to the new guidelines, which are the old guidelines,” she said. “We’re doing what we used to do.”