Refinance .net » Government Regulations

Low Interest Rates are Going Away

Finance Editor — Wed, 03 Jun 2009 21:50:00 +0000

In the past few weeks the market has seen average rates on 30 year
mortgages rise from 4.75% to 5.27%. That’s a jump of half a percent – a
whopping 11% rise in the cost of money for a typical borrower. If you
are thinking about refinancing, and missed doing it in the past couple
of months, you probably need to get to it soon. If simple economics
are coming back into vogue, rates are probably going much higher rather
than lower..

The underlying cause isn’t a secret. Rising government debts, and
expectations of an economic recovery,
are pushing up long-term interest rates on government debt. The yield on
the 10-Year Treasury, which was barely 2% near the end of last year,
surged to 3.67% late last week. Rising treasuries, drive up rates on
all other long term loans.

This surge in mortgage rates is likely to bring pain throughout the
mortgage market. It makes it difficult to refinance an existing home
loan, and by raising the costs of ownership of newly sold homes will
make it tougher on both buyers and sellers of existing properties.

If rates are 11 percent higher, then the cost of buying that house just
got 11 percent more painful. Marginal sales become harder to make and
you’ll see more downward pressure on housing prices and sales volume
throughout the market.

Unfortunately, if you were slogging through a refi when rates jumped,
you are probably stuck with a new higher price. Gone are the days when
lenders would lock in rates at the beginning of the loan process. In
todays more regulated market, rates aren’t locked until near the end of
the process. Until your home appraisal is in, and your income proven,
you are at the mercy of changing rates. With the new, more closely
managed process adding weeks to a loan origination, more borrowers are
at greater risk of finding the loan they started working towards is not
the loan that eventually gets written. Rates today are still pretty reasonable by historic standards, but
there isn’t much certainty in today’s home loan market.

In the borader scope of the economy, the Fed’s intervention in the
markets might solve short term credit access and liquidity problems,
but are likely creating new long term structural problems. “When you
print new money to buy up treasury bonds you are just trading one
Federal IOU for another” said Howard Witkin, president of BestRate.Net.
Ultimately everything rests on the confidence in the underlying strength
and credit worthiness of Washington. As the fed tries to replace
trillions in treasuries and mortgage backed bonds with greenbacks, it
risks transfering the skepticism of those into skepticism of the dollar
itself. “The mint is going to have to run 24/7 to print enough money
to cover the promises being made daily by the White House and the Fed.”

Some borrowers are now looking instead at adjustable rate mortgages, or ARMs.
While the teaser rate might look good, in the end you are taking on
all of the lenders inflation risks onto yourself. In years to come
those risks look to be very substantial, Rising adjustable rates will put
new borrowers under water. That’s a story we’ve already heard. And it
wasn’t a pretty one.

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Homeowner Affordability and Stability Plan – The Federal Bailout for Homeowners

Finance Editor — Wed, 04 Mar 2009 18:25:15 +0000

The US Treasury department released new details this week on its upcoming program to encourage lenders to modify loans for homeowners.

The program includes annual payments to the lenders of up to 1000 for approving the modification and additional bonuses if the homeowners are still in their home five years from now. Investors need not apply. As long as your mortgage is owned by Fannie Mae or Freddie Mac they will even reduce your principal to get you into the program.

Under this program, interest rates can go as low as 2% to get the payments down to an affordable 2% of the family income.

Here’s the Treasury department summary of the program:

Homeowner Affordability and Stability Plan

Executive Summary

Read the Homeowner Affordability and Stability Plan Fact Sheet HERE
Read Support Under the Homeowner Affordability and Stability Plan: Three Cases HERE

The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.

* Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.

* Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments â€“ with nearly 6 million households facing possible foreclosure.

* Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.

1.
Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable

2.
A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

3.
Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

The Homeowner Affordability and Stability Plan is part of the President’s broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner Affordability and Stability Plan are:

1. Affordability: Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices

Â· Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have â€“ through no fault of their own â€“ seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.

Â· Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year:

o Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 â€“ making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% â€“ reducing their annual payments by over $2,300.

2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

* Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income â€“ particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes â€“ providing families with security and neighborhoods with stability.

* No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home â€“ it will not aid speculators or house flippers.

* Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.

* Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.

* Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:

+ A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.

+ “Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive “pay for success” fees â€“ awarded monthly as long as the borrower stays current on the loan â€“ of up to $1,000 each year for three years.

+ Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.

+ Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.

+ Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration — together with the FDIC — has developed an innovative partial guarantee initiative. The insurance fund â€“ to be created by the Treasury Department at a size of up to $10 billion â€“ will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.

* Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC’s pioneering work. The Guidelines will be used for the Administration’s new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans’ Affairs and the Department of Agriculture.

* Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities

o

Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance

o

Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options

o

Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds

o

Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:

* Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.

o Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.

o Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.

* Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
* Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements â€“ by $50 billion to $900 billion â€“ along with corresponding increases in the allowable debt outstanding.
* Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
* No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.

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MORTGAGEE LETTER 2008-21 – Hud explains its Loan Modification Rules to Lenders

Finance Editor — Wed, 04 Mar 2009 02:08:58 +0000

When you take a few minutes to read the internal guidelines of lenders on setting up loan modifications, you often find reference to “MORTGAGEE LETTER 2008-21″ where the Department of Housing and Urban Development lays out for lenders the rules of setting up a loan modification compliant with regulations. We thought we would print the actual letter MORTGAGEE LETTER 2008-21 in its entirety here for our readers. Not nearly as obtuse and gobbledygooky as you would expect from a federal doc. Enjoy.

August 14, 2008
MORTGAGEE LETTER 2008-21

TO: ALL APPROVED MORTGAGEES

ATTENTION: Single Family Servicing Managers

SUBJECT: FHA Loss Mitigation Program Updates

The Federal Housing Administration (FHA) is pleased to announce several changes to its Loss Mitigation Program that will strengthen both the Loan Modification and Partial Claim Initiatives.

While these changes are designed to address borrowers who are facing serious defaults, most delinquencies can and should be resolved through early intervention. Mortgagees are reminded of the critical importance of early and constructive contact with delinquent borrowers and the requirement to notify borrowers of the availability of default counseling by HUD-approved counseling agencies.

Loss Mitigation Program Changes

This Mortgagee Letter announces three changes to the existing Loss Mitigation program designed to give mortgagees additional latitude to help borrowers cure defaults and retain homeownership. The changes noted below are effective immediately.

First, with respect to Loan Modifications, mortgagees may use the Treasury 10-year constant maturity as a basis for establishing the maximum interest rate for loan modifications. The maximum interest allowable should be calculated as 200 basis points above the monthly average yield on United States Treasury Securities, adjusted to a constant maturity of 10 years. Mortgagees shall refer to the rate that is in effect as of the date of execution of the loan modification. For information on the 10-year monthly constant maturities, please refer to the statistical release H.15, which is available on the following web site: http://www.federalreserve.gov/releases/h15/data.htm

Next, where loss mitigation is being attempted after foreclosure has been initiated, mortgage servicers and mortgagors have advised that foreclosure related costs and legal fees are often impediments to successful loss mitigation. Many mortgagors who are able to resume making monthly mortgage payments frequently do not have sufficient funds to reimburse the mortgagee the legal fees and foreclosure costs incurred prior to qualifying for loss mitigation and therefore are denied participation.

Effective with this Mortgagee Letter, the Department will begin allowing legal fees and foreclosure costs related to a canceled foreclosure action to be incorporated into either the Loan Modification or the Partial Claim subject to the following requirements. This guidance expands and supersedes, in relevant part, the guidance provided in Loan Modifications section F (page 21) and Partial Claims section F (page 26) of Mortgagee Letter 00-05.

For Loan Modifications, legal fees and related foreclosure costs may now be capitalized into the modified principal balance. For Partial Claims (PC), mortgagees may now include legal fees and foreclosure costs related to a canceled foreclosure in the Partial Claim.

Mortgagees are reminded that all such foreclosure costs must reflect work actually completed to the date of the foreclosure cancellation and the attorney fees should not be in excess of the fee schedule that HUD has identified as customary and reasonable for FHA claim reimbursement. Late fees should not be capitalized in a Modification or included in a Partial Claim. As the goal in providing the mortgagor either a Loan Modification or a Partial Claim is to bring the delinquent mortgage current and give the mortgagor a new start, the mortgagee should waive all accrued late fees.

Please refer to Mortgagee Letter 2005-30 (or any subsequent guidance issued by FHA on reasonable and customary foreclosure costs) for the fee schedule for legal fees that HUD has identified as customary and reasonable for FHA claim reimbursement. Lenders should perform a retroactive escrow analysis at the time of the loan modification to ensure that the delinquent payments being capitalized reflect the actual escrow requirements required for those months capitalized.

Finally, in response to the industry’s request to provide adequate time for the mortgagee to complete all required actions related to a loan modification, the Department provides the following clarification. When establishing a loan modification, it is acceptable for mortgagees to include all payments due including an additional month in the loan modification.

Consider the following example. The mortgagor is due for the January 2008 and all subsequent payments. The mortgagee completes its loss mitigation evaluation on June 27, 2008. To allow adequate time to complete the loan modification, obtain all required signatures and provide adequate notice to the mortgagor of the new payment, the mortgagee may include the payments due for July 2008 and August 2008 in the loan modification. The mortgagor will begin remitting payments due under the modified mortgage effective with the installment due September 1, 2008.

Any questions regarding this Mortgagee Letter or requirements for use of the partial claim and loan modification authorities may be directed to HUD’s National Servicing Center (NSC) at 888-297-8685 or hsg-lossmit@hud.gov.

Sincerely,

Brian D. Montgomery
Assistant Secretary for Housing -
Federal Housing Commissioner

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Banks are Hung Over Like Drunken Sailors after Credit Binge

Finance Editor — Mon, 02 Feb 2009 21:08:11 +0000

Financing.Org has a short piece covering President Obama’s remarks this weekend. In his remarks, the president makes it clear that he’s pushing banks to use a significant portion of the government’s bailout money to open up consumer and business lending. But the portion of his remarks that I found most telling was his acknowledgement that many banks were effectively insolvent and were unlikely to survive when they are compelled to truly recognize the lost values in their loan portfolios.

Here are the quotes:

Obama said today that the U.S. is suffering from a â€œmassive hangoverâ€ from years of risk-taking and that some banks remain â€œvery vulnerable.â€ In an interview on NBCâ€™s Today show, he said itâ€™s likely some banks havenâ€™t fully disclosed their losses.

â€œTheyâ€™re going to have to write down those losses, and some banks wonâ€™t make it,â€ he said. Referring to the administrationâ€™s plan for the financial industry, he said â€œI do have confidence weâ€™re going to get it right but itâ€™s not going to be overnight.â€

Here’s how Bloomberg reported the story:

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Get Your Liar’s Loan Done before 2010

Finance Editor — Sat, 31 Jan 2009 02:57:41 +0000

One of the most devastating factors in the national collapse of confidence in the home mortgage marketplace is the pervasive fraud that infested the mortgage brokerage system. In the good old days George Bailey made home loans to his neighbors and community. He knew who he was lending to, and had a pretty solid idea of what they were capable of paying and what the homes in the neighborhood were worth.

In the recent mortgage and housing boom, significant percentages of home loans were originated by independent brokers. As salespeople their interests didn’t always align with the interest of the lender or the borrower. In many cases the drive to “get the loan done”, and the multithousand dollar commissions for doing so influenced brokers and their clients to stretch the truth to qualify. Lenders were just as anxious to create loans they could package and sell. Since the loan was being sold off to an invisible investor, the risk would soon leave the lenders books. Overall it created a tremendous incentive to cheat in ways large and small to get the loans written and placed.

Unfortunately, it is very difficult to underwrite for fraud. The rating agencies judging the quality of the bonds based on these mortgages could easily understand the likelihood of default in a standard marketplace, they didn’t account for the weakness and deceptiveness of the underlying data. Unfortunately there has been no easy way to easily identify trends of loan failures and tie them back to individual participants in the system. Next year that will change. Starting in January 2010 the Office of Federal Housing Enterprise is requiring a system where every participant in the loan origination process will be assigned an id number, and those numbers will be attached to the loan. Once in place the system will allow regulators to look at the aggregate loan performance of any appraiser, broker, banker and identify those whose loans are statistically bad, fraudulent or under-performing.

When combined with more stringent standards for borrowers to prove their actual incomes, the new standards should grind much of the fraud out of the origination process. So if you are gonna cheat, get it over with now.

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Housing Value Returns to March 2005 Levels

Finance Editor — Thu, 29 Jan 2009 02:45:04 +0000

The Federal Office of Housing Enterprise released its statistics on the prices of homes nationwide. The report is a month by month and broken down by the nine national census districts. The data is based on the purchase prices of houses backed by Fannie Mae or Freddie Mac. So they have pretty complete underlying data to build their analysis. The current report shows statistics up until the end of November 2008, so prices are probably lower now than the report reflects. They note that prices nationwide have dropped 8.7% in the year preceding the report, and were down 1.8% in the last 30 days.

Pricing softness differs from region to region with the Western District weakest and the MountainWest region strongest. Read the report here.

Overall, while the market is weak and prices soft, it is important to realize that housing has not become worthless, its just returned to the value it held in 2005. So don’t panic. Back then those prices seemed amazingly high, and historically they still are.

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We’ll Go Second IRS Tells Struggling Lenders

Finance Editor — Fri, 19 Dec 2008 03:12:21 +0000

Nothing is ever as simple as you think it is. What’s the likelihood that a homeowner falling towards forclosure on his mortgage might also be behind on his income taxes? Actually its pretty common, and unfortunately, it can put a family in a world of hurt.

Here’s the circumstance: if you fall far enough behind on paying your federal income taxes, either personally, or as a small businessperson, the IRS can file a Tax Lien against all of your personal property. That includes your house. And that tax lien takes precedence over your mortgage. That means the IRS can seize your home and sell it to cover your tax debt. If there isn’t enough money to pay back the lender, they are just out of luck. Unfortunately, that means no lender will want to carry a mortgage on your home. Which means you can’t possibly refinance your way out of an exploding mortgage and into a nice new safe mortgage.

Today the IRS announced that they are willing to “subordinate” their lien to your mortgage. If the house gets sold, the lender is protected and gets to go first. The IRS has over 1 million current tax liens against US residents, so a lot of families got a load of relief today.

Read more about the story here at the Journal or here in the IRS Newsroom

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Option ARMs – The Time Bomb Loan Warnings Were all Ignored

Finance Editor — Thu, 04 Dec 2008 06:44:56 +0000

In 2005 the comptroller of the currency, John C. Dugan, was among the first to sound the alarm that interest only and negative amortization loans were a looming threat to the stability of the mortgage banking system. Speaking to a consumer advocacy group, Dugan painted a troublesome picture of option-ARM lending. Many buyers, particularly those with bad credit, would soon be unable to afford their payments, he said. And if housing prices declined, homeowners wouldn’t even be able to sell their way out of the mess.

Flexible payment loans, called Option ARMs are adjustable rate mortgages with several flexible payment options. Generally they allow a homeowner to make a full payment according to a standard payoff schedule, or to pay only the interest with no payment towards the loans principal, or even a lesser “negative amortization” amount which would allow some of the interest owed to add to the original principal. These loans existed for only one reason, to create a lower initial payment structure to allow a buyer to acquire a property that she couldn’t afford. Unfortunately, the low payments always had a sunset provision, in the case of many homeowners, a true drop dead provision. At the end of two years or perhaps three, the loans would reset to the higher full payoff paced payment which the borrower generally couldn’t afford. The only possible salvation to a homeowner in these time bomb loans was to refinance or sell. In a down market, with tight credit, these homeowners are facing a perfect storm with no way out. The risk was never a mystery, it was just ignored.

Warnings came from all sides of the mortgage market.

We expect to see a huge increase in defaults, delinquencies and foreclosures as a result of the over selling of these products,” Kevin Stein, associate director of the California Reinvestment Coalition, wrote to regulators in 2006. The group advocates on housing and banking issues for low-income and minority residents.

But bankers, afraid of having their opportunities limited fought the regulations. “To conclude that ‘nontraditional’ equates to higher risk does not appropriately balance risk and compensating factors of these products,” said Lilian Gavin, the Chief Investment Officer of Downey Savings which carried over 50% of its loan portfolio in these products. Downey insisted these loans were safe â€” maybe even safer than traditional 30-year mortgages.

In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

_Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.

_Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.

_Regulators proposed a cap on risky mortgages so a string of defaults wouldn’t be crippling.

_Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.

_Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.

Those proposals all were stripped from the final rules. None required congressional approval or the president’s signature.

“In hindsight, it was spot on,” said Jeffrey Brown, a former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending.

Unfortunately for the rest of us, the regulators bent to the banks and the financial fallout has trashed everything.

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Home Mortgage Rates Drop on 800 Billion Fed Debt Buyout

Finance Editor — Wed, 26 Nov 2008 16:05:46 +0000

The Federal government expanded its bailout deeper into the consumer and mortgage credit markets. In the past few weeks efforts have focused on capital infusion and solvency. The government has made direct investments into banks- essentially handing them money – so that they would have some operating capital. Now the financial bailout programs are turning to liquidity in the consumer lending market. The effect was felt immediately as home mortgage rates dropped sharply yesterday when the government announced that it will use another 800 billion dollars to buy up consumer debt and mortgages to remove them from the balance sheets of commercial and mortgage lenders. Together with the direct infusion of capital it should loosen up the flow of credit to consumers and businesses. Hopefully this will free up additional credit for small businesses and ease small business financing. Read more about yesterdays infusion here at CNN MONEY

“The feds agreed to spend a half a trillion dollars to buy up mortgage backed securities and another $100 billion to fund lending for Fannie and Freddie; we’re not talking chump change anymore,” said Keith Gumbinger of HSH Associates, a publisher of mortgage information.

Rates averaged 5.77% for the day on a 30-year, fixed rate loan, down from 6.06% Monday, according to Gumbinger. They fell as far as 0.75 percentage points during the day, according to Orawin Velz, Associate Vice President for Economic Forecasting at the Mortgage Bankers Association.

That could save a typical homebuyer more than $90 a month on a $200,000 mortgage.

“The government action was geared to bringing mortgage rates down,” said Velz, “and it did.”

The drop was the largest since early September, when the administration announced that it was taking control of mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), and stemmed from similar market sentiment.

Both actions sought to give confidence to the investment community. Most mortgages are sold to investors in so-called secondary markets but with foreclosure rates so high and expensive write downs of mortgage-backed securities so common over the past several months, investors had fled the mortgage market.

Instead of buying mortgage bonds, they’ve been snapping up Treasurys, a virtually risk-free investment. That showed up in the falling yields of Treasury bonds and the greater difference between Treasury yields and mortgage interest rates.

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Interest Rates are Falling but Banks aren’t Lending

Finance Editor — Fri, 07 Nov 2008 16:17:35 +0000

It’s helpful to remember that ours is a market economy. That means that economic decisions aren’t forced from the top by a government bureaucrat, but rather the reasoned (or sometimes emotional) decisions of millions of individual consumers, business executives, bankers, marketers etc. Reports from a number of sources today hint that even with the push of substantial capital into the marketplace, many businesses are reluctant to borrow, and many lenders are still hesitant to lend. With uncertainty in the real estate market throwing valuations and appraisals off kilter, its hard for lenders and borrowers to strike a deal. General economic uncertainty and the spector of unemployment or business declins, brings into question the ongoing financial stability of potential borrowers.

All in all a situation that needs to unwind through the decisions of millions not just a handful in Washington, Wall street or London.

Here’s what CNNMoney has to say about it.

NEW YORK (CNNMoney.com) — Lending rates fell again Friday, but as the cost of borrowing eases, some government data suggest private lending is not expanding.

The 3-month Libor rate dropped to 2.29% from 2.39% on Thursday, according to Dow Jones, marking the rate’s lowest point since Nov. 12, 2004.

The overnight Libor rate held steady at 0.33%, according to Bloomberg.com. The overnight rate is just a hundredth of a percentage point above the all-time low.

About a month ago, 3-month Libor was at 4.82%, and the overnight rate was at an all-time high of 6.88%. Lower rates are a major boost for the strangled credit markets because more than $350 trillion in assets are tied to Libor.

A number of U.S. government programs aimed at easing funding concerns for banks and encouraging lending between financial institutions have also helped lower Libor rates. Such initiatives include lowering interest rates, injecting capital into banks and providing insurance on all non-interest bearing accounts.

Falling Libor rates are “a very important ingredient” in the recipe for economic recovery, said Michael Strauss, chief economist at financial research firm Commonfund.

“Improvement in the Libor market is an important first step towards getting banks to act like banks again,” Strauss said.

As financial institutions become more confident in lending to each other, they will become more willing to lend to businesses and consumers, according to Strauss.

But with the economy likely in a recession, some indications show the Federal Reserve’s programs and lower rates have not yet encouraged banks and free market investors to lend to businesses.

The Fed announced Thursday that it lent another $100 billion to companies over the past week through a new short-term funding program. In its so-called Commercial Paper Funding Facility, the Fed has provided critical short-term financing to businesses and financial institutions in desperate need of cash.

But in a separate report, Fed data showed the market for commercial paper expanded by just $50.5 billion. Even as the Fed’s program has dragged down borrowing rates, the difference of $49.5 billion between the Fed’s injection and the market’s growth suggests that the commercial paper market would have contracted without the Fed’s involvement.

Read the rest of the story here

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