Mortgage interest rates moved a little higher during the past week, but overall this has been a great year for rates according to mortgage finance giant Freddie Mac on Thursday.

The average rate on a 30-year fixed rate mortgage inched up to 5.03 percent, excluding points, from 5.00 percent the week before. One year ago, however, the average rate was more than a point and a half higher at 6.46 percent.

The average rate on a 15-year FRM grew to 4.46 percent, up from 4.43 percent last week and one-year adjustable rate mortgages carried an average rate of 4.57 percent, up slightly from 4.54 percent.

“Interest rates for 30-year fixed mortgages have averaged just below 5 percent this year, which is the lowest 10-month average since the survey began in 1971,” said Frank Nothaft, Freddie Mac vice president and chief economist. “As a result, refinance activity has accounted for almost seven out of ten mortgage applications on average this year.”

So why didn’t rates move much this week? According to a survey from BankRate.com, the incoming economic data sent mixed signals to the mortgage markets, as investors quickly bought up securities at a government debt auction early in the week, then consumer confidence and new home sales were down.  But then again, existing home sales showed strong gains, jumping up 9.4 percent in September from the previous month.

And although it is anyone’s guess what will happen to interest rates in the coming week and month, by historical standards there is no doubt that rates are fabulously low. If you are a potential homebuyer sitting on the fence, pre-boom home prices coupled with today’s rates make now a really good time to buy.

Home buyers again saw mortgage rates rise this week alongside word that the economy is beginning to improve. According to the Wall Street Journal, rates for a 30-year home loan rose above 5 percent for the first time since September, rising to 5.03 percent. Rates for 15-year fixed rate and five and one-year adjustable rate loans also saw a rise in numbers. 15-year fixed rate mortgages climbed from 4.43 percent to 4.46 percent, while five-year adjustable rate loans rose from 4.42 percent to 4.40 percent. The rates for one-year adjustable rate mortgages are at 4.57 percent, up from 4.54 percent a week ago.

While the fact that the Federal Reserve felt confident enough to raise the rates is encouraging, the drop in mortgage applications and refinances put a damper on this news. According to the Washington Post, new home purchases dropped to a 402,000 annual pace, or 3.6 percent, in September. It was the first time since March that new home sales declined from month-to-month. The number of mortgage applications fell 5.2 percent in the third week of October, while lenders saw a 16 percent drop in applications from homeowners looking to refinance.

The news of the decline in mortgage applications for new home purchases is a bit discouraging for the housing industry. The $8,000 tax credit for first-time home buyers had helped provide an incentive to purchasers and drive new home purchases. However, with the tax credit ending and no definite word yet on an extension combined with the continuing rise in mortgage rates, the numbers may not improve for a while.

Rising home prices may also be playing a part in the declining number of applications. While an increase in home prices does signal growing buyer confidence and an economic upswing, it may be discouraging some buyers from purchasing a new home. Even as economists state they are beginning to see improvement in the economy, the public has not yet tended to agree, and rising home prices are likely to play a contributing factor in the decline of buyers applying for mortgage loans.

The mortgage rates for this week are still significantly below where they were a year ago, and are considered to be very low when compared to longer-term historical numbers. The low mortgage rates are a positive for the housing industry as buyers lock in their loans at lower rates. Unfortunately, with consumer confidence still not lining up with increasing economist confidence, the rise in rates may mean a dip in sales until confidence increases.

The Federal Housing Administration is set to implement a new set of rules November 2,  pertaining to mortgages made for condo-buyers. The new guidelines are aimed at protecting the FHA from mortgage fraud as well as minimize its risk of loss on condo foreclosures, but they will probably have the undesirable effect of preventing many buyers from entering the housing market.

Here’s what the FHA plans to change:

“Spot Approvals”  -  it used to be that the FHA would approve individual condo units for mortgages, without having to approve the entire condominium building/project. Now the whole thing will have to check out before someone can get an FHA-approved loan. The FHA said in a statement that the “processes have been streamlined, eliminating the need to approve units on a ’spot loan’ basis,” but lenders say that this could seriously reduce the available condo choices for buyers.

Maximums on FHA-Loan Holders in a Condo Project - In the past there was no limit, but now the FHA plans to only allow a maximum of 30 percent of condo owners to have the government-backed loans. This means that some buyers, especially those with lower credit scores and smaller down payments, may be kept out of certain condo projects because there are already too many of such homeowners in the building. Again, this will limit available condo options.

Requirements for Sold Units - Although there have been no limitations, the FHA will now require that half of the units in a condo project be sold before it will insure any loans for that building. While this protects the FHA against loss, it creates a catch-22. FHA buyers cannot buy until 50 percent of the project is sold, but it will be hard in many cases for condo builders to sell 50 percent of the units without FHA loan-backing for that first half. This requirement is still more lenient than that of Freddie Mac and Fannie Mae, which require that 70 percent of the project must be sold before they will make loans to new buyers.

Owner-Occupancy Rules - Now only 50 percent of a condo projects’ units must be owner-occupied, instead of the former 51 percent rule. This change doesn’t promise to make a huge difference in the condo market.

Overall, if these new rules go into effect on schedule, they will probably slow the housing market recovery by many months.

According to Diane E. Thompson of the National Consumer Law Center, homeowners, lenders and investors usually lose money when a home forecloses but mortgage servicers (those that manage mortgages and collect mortgage payments) do not. She says:

“Servicers may even make money on a foreclosure. And, usually, a loan modification will cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no penalty, but potential profit, if the home is foreclosed.”

The National Consumer Law Center argues that mortgage companies have more incentives and reason to foreclose on homes when homeowners have difficulty making payments than they have reason to modify the loan. Thompson indicates that this comes from the ability of private rule makers to decide how the servicer can account for potential losses and profits. According to data from the Inside Mortgage Finance publication, more than 2/3 of mortgages issued since 2005 have been securitized; and private rule makers have great influence over securitized mortgages owned by investors. In this situation, a servicer can manage the mortgage from the collection of the monthly payment to the foreclosure proceedings and have the ability to decide whether a foreclosure or loan modification is “in the best interest of the investors” of the mortgage.

According to the Huffingtonpost :

When a homeowner is delinquent on a mortgage that’s been securitized, the servicer must front the late payment to the investors. When a home is foreclosed, the servicer is typically first in line to recoup losses. But if a mortgage is modified, the servicer typically loses money that isn’t necessarily recoverable. That’s part of the reason why the Obama administration created a $75 billion program to limit foreclosures. The money is to be distributed to servicers who successfully modify home loans, with the hope that the incentives to modify outweigh the incentives to foreclose.

Today, the Obama administration announced two new programs to help a small segment of the U.S. housing industry get back on its feet, all with the promise that the taxpayer will not have to foot the bill.

HFAs Getting Help:
State and local housing finance agencies, also known as HFAs. They originate home loans for first-time homebuyers and lower-income buyers. They also provide refinance loans for rental properties. According to National Council of State Housing Agencies President Susan Dewey, the HFAs create between 100,000 and 200,000 new mortgages every year (this represents about 1 percent of the total mortgage market). They are also known for making very safe long-term loans with very low default rates. “Performance of HFA loans has materially outperformed most other loan types, especially when controlling for borrower profile,” according to a Treasury Department fact sheet. They create tax-exempt bonds based on their mortgage securities to pay for their operations.

Why HFAs Need Help:
Dewey says the HFAs have only issued $4 billion in bonds this year. In 2008 they issued $10 billion and in 2007 the total was $16 billion.

“With the market upheaval, we’ve been unable to sell new mortgage bonds for a year,” Bob Kucab, the executive director of the North Carolina Housing Finance Agency, said in a statement accompanying the release. “Despite all the ingenuity we can muster, we’re now helping only about a quarter as many first-time buyers as normal.”

The Obama/Treasury Plan:
1. The Treasury Department will buy HFA-backed securities issued by government controlled finance giants Freddie Mac and Fannie Mae.
2. Freddie and Fannie will provide the HFAs with a credit program to refinance the debt from their existing bonds at better rates and terms.

The hope is that these measures will provide the HFAs will the money needed to fund more new mortgages.

The Cost:
The HFAs will pay fees to participate in the new programs, which will supposedly cover the costs, but some reports have said that the initiative could cost taxpayers as much as $35 billion.

Treasury Assistant Secretary for Financial Institutions Michael Barr said there are some risks involved, but he didn’t expect taxpayers to take any losses for these programs.

“The expected cost to the government is zero,” Barr said of both programs. It seems unlikely, but perhaps…

International credit ratings agency Fitch Ratings improved its outlook on the U.S. housing market in its recent “Chalk Line” report, but that’s not saying much considering it still expects housing starts and new home sales to continue to plunge downward through the end of the year.

“During the first 12-15 months off the bottom, the housing recovery may appear jaw-toothed as substantial foreclosures now in the pipeline surface as distressed sales, while meaningful new foreclosures arise from Alt-A and option adjustable-rate mortgage resets,” wrote managing director and lead U.S. homebuilding analyst Bob Curran.

The new forecast includes a 36.7 percent decrease in total housing starts in 2009, up from a previous prediction of 43.3 percent. The new projection calls for a 21 percent decline in new home sales, up from the earlier forecast of 30 percent. And existing home sales are now expected to move up 1.1 percent this year to almost 5 million, a change from Fitch’s last prediction of flat sales.

Why the more “upbeat” outlook? Fitch says it took into consideration increased affordability, a slowing of builder cancellation rates, shrunken builder inventories, an uptick in consumer confidence and an increased demand for new homes from those who have been sitting on the sidelines.

Why are the numbers still trending downward though? According to Fitch there is still a great risk of a new wave of foreclosures on the way, home prices continue to decline, and the first-time homebuyers tax credit that has artificially inflated sales for the past two quarters is due to expire in December.

“There is also a negative psychology that remains relatively pervasive. For many, the expectation or fear is that home prices are vulnerable to further declines and buying now might be a mistake,” Curran wrote. “This psychology applies to all types of buyers but especially applies to trade-up and second-home buyers.”

So, we may be in for many more ups and downs across the market for at least the foreseeable future!

According to Reuters, First American CoreLogic has announced their development of the largest National Fraud Data Repository. This revolutionary collection of records can assist clients, either businesses or individuals, with the ongoing battle against mortgage fraud, while continuing to improve and build the best performing anti-fraud programs available.

Here are some of the highlights of what their data base includes and offers:

1. 65% of annual loan applicants’ information which totals over 80 million.
2. The largest compilation of fraud data reports and records; this data is received from nearly 40 investors and lenders having applicant records from 2005 to date.
3. The only fraud data compilation of foreclosures, repurchase indicators, default, and charge-offs that is strong and accurate enough to establish exact scoring models of pattern-recognition.
4. 17 different lenders contribute daily updates on lien information and applications that are part of the Multi-lien Closing Alert Program of First America.
5. The mortgage industry’s most reliable collection of payoff, title, and lien release data which assists with targeting different methods of fraud for first and second liens.
6. Foreclosure records plus community and property fraud reports.
7. Exclusive third-party loan information from numerous retail branches, appraisers, account executives, brokers and loan officers.

First American CoreLogic’s Fraud Data Repository is being hailed by some experts as one of the most reliable analytical and scoring products available or ever established.

It sounds like an oxymoron: “US recession over, unemployment seen at 10 pct” was the title of a Reuters article today. I know that a recession is technically defined by two consecutive quarters of real GDP decline, but it just doesn’t seem like a recession should be “over” until most Americans feel like it is over. The article reported the findings of a recent survey from the National Association for Business Economics (NABE) that polled 44 professional forecasters, with 80 percent of them saying they believed that the economy had grown in the third quarter, effectively “ending” the recession.

“The great recession is over,” NABE President-Elect Lynn Reaser said. “The vast majority of business economists believe that the recession has ended, but that the economic recovery is likely to be more moderate than those typically experienced following steep declines.”

Yet most of those same analysts believe that “ordinary Americans will probably not see much difference as unemployment will remain high well into 2010.”

Here’s what they think will happen with the housing market: the downturn is almost over and two-thirds of the survey respondents believe that home prices will bottom out this year. They expect the Fed to leave its target interest rate alone until late spring 2010, with the rate only rising to 1 percent by the end of next year.

Well, at least that should help keep mortgage rates low. Or at least give them the potential to remain low.

I don’t know how effective these professional forecasters are at foretelling the future (I guess they are good enough to make a living at it), but good news and increased confidence tend to have a positive impact on the markets regardless of whether or not they are based on reality. So here’s to faking it until we make it!

Rates on 30-year fixed rate mortgages dropped below 5 percent last week and continued to fall this week, creating a dramatic stir in refinancing.

According to mortgage finance company Freddie Mac, the average rate on a 30-year FRM sank to 4.87 percent, excluding points, during the week ending Thursday, down from 4.94 percent. The 15-year FRM rate also dropped, falling to 4.33 percent from 4.36 percent, and the one-year adjustable rate mortgage averaged 4.53 percent, up from 4.49 percent.

There seems to be something special about long-term rates under 5 percent, as refinance activity has surged up 38 percent during the three weeks ending October 2 when rates were below that threshold. The same thing happened in May when rates were under 5 percent for several weeks. Some estimate that refinance requests rose by as much as 30 percent at that time.

It must be something about hearing that rates are near “record lows” that stirs homeowners to take the initiative to refinance into better loan terms and lower monthly payments.

“The wave of homeowners taking advantage of low rates by refinancing is a smart move on the individual level, and it’s possible these refinances could help the housing market in the long term,” said Stan Humphries, chief economist at Zillow.com, based in Seattle, Washington as quoted in a Reuters article. “If homeowners are getting out of risky mortgage products and into more traditional products, that could help stem future foreclosures marginally.”

The rates are still only helpful for those who qualify for refinances, and approximately one in four homeowners today are underwater in their mortgages, often keeping them from taking advantage of the falling rates.

Home purchases do not seem to be as affected by the drop in rates, as they only rose 13.2 percent in the latest week according to the Mortgage Bankers Association.

Many of the same U.S. mortgage lenders that contributed to the real estate boom by lending money to buyers without verifying their ability to make the payments now seem to be targeting seniors with reverse mortgages. Brokers are often given a financial incentive whenever they sell a reverse mortgage, which contributes to misleading claims to encourage more customers to sign their name to this type of mortgage – according to a report released by ConsumerLaw.org called “Subprime Revisited.”

“This market is designed to serve seniors, so when we find abuses cropping up and migrating from the subprime market to the senior market, that sounds an especially loud warning bell,” said Rick Jurgens, an advocate at the NCLC, who contributed to the report.

A reverse mortgage is for people who are at least 62 years old who need extra cash. They make it possible for seniors to take out the equity in their homes with either a lump-sum payment, a line of credit tied to the home, or through checks. Lenders offer reverse mortgages because they know they’ll get that money back when the homes sell when the borrowers move or pass away.
The problem with reverse mortgages is when lenders falsely describe them to potential senior borrowers as “lifetime income.” Even though cross-selling of other financial products and annuities with reverse mortgages was banned in 2008, some lenders are still participating in the cross-selling of expensive products that lead the customer to believe are necessary. According to the Housing and Urban Development department’s website, in 2008, reverse mortgages were given to more than 100,000 seniors to the tune of more than $17 billion borrowed from home equities.

Reverse mortgages may at times be a good financial choice, but critics of the lending practice recommend enhanced borrower counseling before awarding these loans, along with the creation of higher standards for lenders and brokers offering such loan programs.

When seniors use reverse mortgages to tap into the equity of their home and the values of those homes drop (as has been the case in the past few years), they end up receiving less money than expected.

John Dugan, head of the Office of the Comptroller of the Currency said at an American Bankers Association conference in June,

“Risks that contributed to the collapse of the subprime mortgage market also are a concern in the sale of reverse mortgages. While reverse mortgages can provide real benefit, they also have some of the same characteristics as the riskiest types of subprime mortgages - and that should set off alarm bells.”

As the government strives to improve the current mortgage crisis, it seems there is another one looming in the near future!