Mortgage Market

The Federal Reserve does not foresee a broader economic impact from the growing number of mortgage defaults and home foreclosures, its chairman said yesterday. And he cautioned that heavy-handed regulation of lenders could have the unintended effect of adding to the strain on the troubled housing market. With Congress preparing to take up legislation that would more closely monitor mortgage lending, Ben S. Bernanke contended that any new rules must be narrowly written. Speaking before the Federal Reserve Bank of Chicago in his most comprehensive remarks yet on the mortgage market's recent problems, Bernanke said regulation must "walk a fine line" between protecting consumers and making sure that people who deserve credit can get it. "Rules are useful if they can be drawn sharply, with bright lines," he said.

WASHINGTON -- The Bush administration said yesterday that it would support allowing two government-sponsored mortgage giants to buy and sell "jumbo" mortgages, a move that could boost housing markets in expensive locales. Treasury Secretary Henry M. Paulson Jr. told the House Financial Services Committee that the White House would support giving Fannie Mae and Freddie Mac the power to buy and sell high-value loans. "There is little question that allowing [Fannie and Freddie] to securitize jumbo mortgages would give a short-term lift," Paulson said at a hearing where lawmakers sought suggestions for remedying the mortgage industry's ills.

THE AMERICAN home mortgage industry is on the verge of a historic shift that will alter the interest rates that millions of new loan applicants are asked to pay.Large numbers of homebuyers will end up with lower mortgage rates than they'd get under today's pricing system. But some will be required to pay more.Welcome to the new world of "risk-based pricing," a concept that will begin touching individual homebuyers and owners who refinance across the country within the next few months.The mortgage industry traditionally has forced borrowers with the best credit to subsidize the interest paid by borrowers with less-than-perfect credit.

WASHINGTON - The reverse-mortgage market is expanding once again. Sometime this year, a second, nationally distributed loan program should make its way to a lender near you. For the first time, many borrowers will have at least two loans to choose between, one of which may offer far more cash than the other.Reverse mortgages are for older people who need extra funds to live comfortably. The money comes out of home equity, with no current repayments required. It's definitely a loan but it feels very much like tax-free income.

In a move to expand its inner-city lending, PNC Mortgage is launching an alliance with Freddie Mac and Baltimore officials and setting up shop in the city to lend an anticipated $20 million in mortgages this year -- mostly to low- and moderate-income borrowers.PNC will offer loans geared toward making homeownership in the city more affordable, said Larry Costello, spokesman for PNC, the mortgage banking unit of PNC Bank Corp."PNC is extremely committed to Baltimore and helping more residents in all communities become homeowners," Mr. Costello said.

Dear Mr. Gisriel:I have a large principal balance due and a substantial number of years left on the mortgage on my house. Do you recommend increasing my savings for retirement or paying off the mortgage sooner?Joan BallBaltimoreDear Ms. Ball:The ideal solution would be to increase your retirement fund and try to pay off your mortgage early. But if I had to choose, I would recommend that you continue to build your savings or invest a portion of your savings in an IRA, which is tax-deferred, or in stock mutual funds, which have some risk but which might yield more than the interest from a typical savings account.

Washington -- If you're one of the millions of American homeowners with a less-than-perfect credit file, you should know about a major legal deadline looming in the mortgage market.Lenders nationwide are gearing up this summer for the High Cost Mortgage Act, which takes effect Oct. 1. On that date, consumers will get new federal Truth-in-Lending protections when they refinance their home or take out a home equity loan with rates or fees that qualify as "high cost."Though aimed primarily at loan-scam artists who prey on unsuspecting homeowners, the law cuts a far wider swath.

WASHINGTON-- Picture this money-saving scenario for 1996 if you plan to shop smart for a new home. The sellers of the property you want to buy have listed it for $225,000 -- a price their real estate agent insists is backed up by a comparative marketing analysis she's prepared of similar houses for sale.But you bring to the negotiating table a new, high-tech weapon that blows away the sellers and their Realtor: a professional appraisal of the property, complete with detailed sales comparables and a cost-to-reconstruct and lot valuation analysis.

Q: Is it advisable to pay off a mortgage on my home by taking the money out of savings and paying off the $46,000 balance due, or leave it and pay monthly payments until the mortgage is paid off?A: The tax deductions you can take for paying interest on a mortgage usually make it more valuable to keep a mortgage and make the regular monthly payments rather than take money out of savings and pay the mortgage off early.The interest payments that make up most of the monthly mortgage payments are tax-deductible, as are the real estate taxes and all the points paid to your lender at closing.

When Dr. Claudio Levin built his French country-style house five years ago, he took an 11.5 percent mortgage. When he refinanced last summer, his rate was reduced to 9 percent. Now he's refinancing again, and his rate is down to 7.5 percent."It's easy," said Dr. Levin, a Reisterstown internist. "It's no hassle. And I don't have to lay out any cash."Like Dr. Levin, thousands of American homeowners have found it worthwhile to go through the mortgage refinance pipeline once, twice or even three times during the past 18 months to cut their monthly payments or shorten the term of their loans.

Credit squeeze, credit freeze, credit system seizures: Everybody knows how severe and painful the global financial breakdown has been - with banks unwilling to lend even to other banks. But what about mortgages and real estate? Can you still get a home loan with less than a 20 percent or 30 percent down payment? Or with a credit score below 720? Absolutely. It would be a big stretch to label housing the sunny side of the market at the moment, but there's a lot more light there than in most other financial sectors.

In the current credit squeeze, if you have less than a 20 percent down payment, there's pretty much only one major source of mortgage financing available: the Federal Housing Administration, the Depression-era home loan insurance agency that still offers 3 percent down, 30-year fixed-rate mortgages with consumer-friendly credit standards, even on jumbo loans in high-cost areas. But there is a potentially troublesome problem looming for FHA: New loan volume is exploding - tripling in the past 12 months alone - and Congress just handed the agency the responsibility for virtually all the government's efforts to keep economically distressed homeowners out of foreclosure by refinancing their unaffordable loans.

WASHINGTON - The Bush administration, moving to prevent an economic cataclysm, urged Congress yesterday to grant it far-reaching emergency powers to buy hundreds of billions of dollars of distressed mortgages despite many unknowns about how the plan would work. Treasury Secretary Henry M. Paulson Jr. made it clear that the upfront cost of the rescue proposal could easily be $500 billion, and outside experts predicted that the bill could reach $1 trillion. The outlines of the plan, described in conference calls to lawmakers yesterday, include buying only from U.S. financial institutions - but not hedge funds - and hiring outside advisers who would work for the Treasury, rather than creating a separate agency.

The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building. Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults. The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier.

Congressional action to assist mortgage giants Fannie Mae and Freddie Mac, and the failure of California bank IndyMac, gave bloggers plenty of targets this week. A sampling of the commentary: Q.: What's your diagnosis of what happened to Fannie Mae and Freddie Mac? A.: First of all, they had too little capital to withstand adverse circumstances. And the adverse circumstances were the severe downturn in housing, the decline in house prices, and the rising default rate on mortgages. I don't know of anyone who early enough was saying that there would be a major national decline in house prices, so I can't hold them to that standard, but I can hold them to a standard of holding adequate capital to be able to withstand unforeseen circumstances.

WASHINGTON -- The Federal Home Loan Bank system won permission yesterday to double the amount of capital that it can spend to purchase mortgage bonds in an effort to boost home lending and revive the nation's housing market. The Federal Housing Finance Board approved a plan that would allow the 12 privately financed, government-sponsored Federal Home Loan Banks that the system regulates to purchase about $100 billion in mortgage bonds over the next two years. The home loan banks will snap up more newly issued mortgage bonds, or securities, which are packaged by the government-sponsored enterprises Fannie Mae and Freddie Mac. The effort supports the sagging housing market by ensuring that there is enough cash in the system, so that lenders are willing to lend and borrowers to borrow.

Almost everything seems to be going wrong for the American economy at once. People are buying less, but most things are costing more. Mortgage rates are rising, the dollar is falling and prices of key commodities such as oil are leaping from one record high to the next. Yesterday, the dollar plumbed new lows against the Japanese yen, the euro and other major currencies; the price of an ounce of gold rose above $1,000 for the first time, and lenders raised home loan rates once again. Government figures showed retail sales fell in February as consumers cut back on cars, furniture and electronics.

The collapse of PHH Corp.'s deal to sell itself is a lesson for these credit-crunched times: If you're in the mortgage business, don't count on anyone getting the money to buy you - no matter how decent your prospects look. PHH agreed in March to sell out for $1.8 billion to General Electric Co., which wanted the company's Baltimore County-based vehicle fleet leasing arm and had agreed to immediately resell PHH's mortgage business to the Blackstone Group. But the complex deal began to unravel in September as the outlook for mortgage companies sharply worsened.

Thousands of Americans may be losing their homes to foreclosure or facing hefty mortgage payment resets, but Congress appears to be in no rush to offer help. While the House has passed several major housing relief measures in recent weeks, the Senate hasn't managed to pass even one. On the eve of the two-week Thanksgiving recess, the House approved by a bipartisan vote the most sweeping reforms of the national mortgage system in more than two decades. Meanwhile, the Senate stalled legislation that would strengthen the Federal Housing Administration's mortgage programs - a key resource for consumers who need to refinance out of adjustable-rate loans with rapidly escalating monthly payments into affordable fixed-rate mortgages.

Distress in the mortgage market is stirring up a wave of new relief bills on Capitol Hill, including one that would allow homeowners to tap into their retirement accounts - penalty-free - to bring their loans current or to refinance. One major reform bill appears stuck in neutral, however: the Federal Housing Administration Modernization Act, which would raise loan limits in high-cost areas of California and the East Coast, and cut down payments. It is considered a crucial relief-measure for consumers who need to refinance out of adjustable-rate loans into lower-cost, fixed-rate mortgages.