Bank of America Nearly Fulfills Settlement Obligation

BankofAmericaBank of America has until August 2018 to pay off its consumer relief obligation under its August 2014 settlement with the U.S. Department of Justice and six states.

But it appears that the bank will pay off that obligation two years before the deadline. Professor Eric D. Green, independent monitor of the settlement, reported that the bank had conditionally paid nearly all (97 percent) of its $7 billion consumer relief obligation as of August 2016, according to the monitor’s seventh report filed on the Bank of America’s progress toward fulfilling its settlement obligation.

“Based on credit testing that is underway, it appears that Bank of America is on target to fulfill its obligations under the settlement agreement this year, well ahead of the four-year deadline,” Green said.

The monitor’s staff conditionally approved another $449.8 million worth of consumer relief credit submitted by Bank of America for the period of July and August 2016, which brought the amount of conditionally validated credit up to $6.8 billion. The amount is conditional upon the monitor’s determination that the bank has made all efforts to comply with the settlement agreement requirements.

According to Green, more than half (53 percent) of the loan modifications provided by Bank of America have been to Hardest Hit Areas, or areas designated by HUD to have the highest concentration of distressed and/or foreclosed homes. The monitor reported that a large number of these modifications have been used on loans guaranteed by the VA or FHA.

Green reported that the largest consumer relief category, first-lien principal reduction modifications, have reduced monthly payments for recipients by an average of $599 per month—a 37 percent decrease. The principal reduction on mods has been 50 percent on average, which has resulted in a decline of 176 percent in average LTV ratio (down to 75 percent) and a decline in the average interest rate from 5.38 percent down to 2.10 percent, according to Green.

“This relief directly and materially assists homeowners struggling to afford to stay in their homes,” Green said.

On August 20, 2014, Bank of America settled with the Department of Justice and six states for a record $16.65 billion to resolve claims that the bank as well as its Countrywide, Merrill Lynch, and First Franklin divisions packaged and sold toxic mortgage-backed securities and collateralized debt obligations in the years leading up to the financial crisis.

Under the settlement agreement, Bank of America agreed to pay $9.16 billion directly to federal agencies and six states; $7 billion in consumer relief, which may include first-lien principal forgiveness or forbearance, second-lien extinguishment, and community reinvestment and neighborhood stabilization; and $490 million for the payment of consumer tax liability as a result of consumer relief.



The Crossroad of Student Loan Debt and Home Equity

Fannie MaeEarlier this month, Fannie Mae along with SoFi, an online personal finance company, announced their Student Loan Payoff Refi solution, a product designed to help consumers pay off student loan debts earlier, allowing for potentially more financial freedom. DS News sat down with Jonathan Lawless, VP of Product Development and Affordable Housing for Fannie Mae, to discuss the solution and the anticipated outcome of implementation.

Lawless is responsible for developing solutions and leading several key offerings from Fannie Mae to address challenges in access to credit; including HomeReady™ the company’s flagship affordable mortgage product, and FM Connect, an end-to-end, dynamic reporting tool for Fannie Mae’s customers.

What is the Student Loan Payoff Refi solution?

The program is an opportunity for people that have equity in their home and also have student debt or have co-signed on student debt that typically carries a higher rate that you would on a typically mortgage. The concept that we have developed is to be able to leverage that equity, take cash out of your home, and increase the balance on your home loan to pay off the balance on your student debt. As a result of doing so, your overall interest rate on both pieces of debt go down and will save consumers money in the long run.

What were the motivations driving the creation of this solution?

We had been looking at a lot of solutions to help our lenders reach the next generation of homebuyers and the biggest obstacle we continue to hear from our partners in the industry are that the burdens of student debt are causing people to become homeowners later in life or choose not to become homeowners at all. As we were thinking through a variety of solutions to this issue, we were looking at the total amount of housing equity that existed in today’s market, something approaching about $8 trillion. That really dwarfed the $1.4 trillion in student debt that is out there in the market. Our first thought was how can we leverage existing equity to help pay down some of that debt for today’s new buyers (Millennials). As we explored that concept, we thought “Well borrowers who are co-signed on their kid’s student debt could potentially consolidate that debt into their own mortgage thereby freeing up the next generation to become homeowners.” We approach SoFi to understand the process around refinancing and just how big a market opportunity a product like that might have.

In looking to the future, what outcomes are expected to result from this solution?

We see about 8.5 million consumers who have a home, have equity, and also have student loan debt. So, the idea is that people who have their own student debt or who have taken out a parent plus loan and have a home will be able to save money. Ultimately aside from freeing up the next generation to become homeowners, the idea is that a lot of people can just save money on a monthly basis and as a result of lowering their overall debt obligations, they will also be able to perform better on their mortgages going forward.


New Treasury Secretary Pick Outlines Plans for Dodd-Frank

Hedge fund manager and former Goldman Sachs partner Steven Mnuchin confirmed to CNBC on Wednesday morning that President-elect Donald Trump has nominated him for the position of Secretary of the U.S. Department of the Treasury.

Trump’s choice of Mnuchin, 53, who served as the President-elect’s national finance chairman during his campaign, is considered controversial because Mnuchin has never worked in government and his roots in Wall Street would seem to conflict with Trump’s anti-financial industry sentiment during his campaign.

One area where he does agree with Trump, however, is the need for reduced regulation. Mnuchin laid out a number of his initiatives on CNBC’s Squawk Box, should the U.S. Senate confirm him as the 77th Treasury Secretary. One of those is to roll back the Dodd-Frank Wall Street Reform and Consumer Protection Act, which passed in 2010 and is considered by the Obama Administration to be one of its greatest achievements. In various speeches and interviews throughout his campaign and since his election, Trump has vowed to overhaul the controversial financial reform law.

“We (Mnuchin and Trump’s choice for head of the U.S. Department of Commerce, Wilbur Ross, also announced on Wednesday) have been in the business of regional banking, and we understand what it is to make loans,” Mnuchin told CNBC. “That’s the engine of growth to small- and medium-sized businesses. The number one problem with Dodd-Frank is it’s way too complicated and it cuts back lending. So we want to strip back parts of Dodd-Frank that prevent banks from lending, and that’ll be the number one priority on the regulatory side.”

Mnuchin told CNBC that the U.S. economy can sustain a growth level of between 3 and 4 percent. In fact, he called sustained economic growth “our most important priority.”

“It is absolutely critical for the country,” Mnuchin said. “We absolutely can have sustained growth at that level. To get there, our number one priority is tax reform. This will be the largest tax change since Reagan. We’ve talked about this during the campaign. Wilbur and I have worked very closely together on the campaign. We’re going to cut corporate taxes, which will bring huge amounts of jobs back to the United States. We’re going to get to 15 percent, and we’re going to bring a lot of cash back into the U.S.”

In an interview with Fox Business after the announcement of his nomination, Mnuchin said he believes that the controversial government conservatorship of Fannie Mae and Freddie Mac should end and that the private market should have more of a share in the mortgage market.

“We will make sure that when they are restructured, they are absolutely safe and don’t get taken over again. But we’ve got to get them out of government control,” Mnuchin said, according to Bloomberg.

“A resolution of the conservatorship of Fannie and Freddie appears likely with Mnuchin as Treasury secretary,” says Tim Rood, Chairman of The Collingwood Group“His experiences at Dune Capital, particularly the IndyMac/OneWest purchase and turn around, will most certainly influence his decision-making calculus.”

Five Star Institute President and CEO Ed Delgado said of the nomination of Mnuchin for Treasury Secretary: “I anticipate that with this new appointment, Treasury will continue to promote the department’s mission by encouraging a strong economy and creating economic growth and stability. As the economy further recovers from the Great Recession it is imperative that the housing industry and Treasury work in hand and hand to ensure housing and economic prosperity.”

Mnuchin left Goldman Sachs in 2002 after 17 years with the global investment banking firm to become vice chairman of hedge fund ESL, and he later became CEO of another hedge fund, SFM Capital Management. In 2009, Mnuchin and a group of investors purchased the failed Pasadena-based IndyMac bank from the FDIC for $1.5 billion after the mortgage meltdown and renamed the bank OneWest. In the years immediately following the crisis, OneWest’s foreclosure practices generated considerable controversy, particularly in California.

Mnuchin’s hedge fund, Dune Capital Management, of which he currently serves as CEO, became involved in Hollywood motion pictures years ago, financing such box office hits as “X-Men” and “Avatar.”

“If he gets the post, Mnuchin will bring a lot of mortgage expertise to the Treasury Department,” says Rick Roque, President of Menlo. “He bought Indymac, renamed it OneWest and then sold that company to CIT Group in 2015. That kind of experience, in addition to his experience in sub-prime origination, retail origination, and correspondent channels will prove to be very valuable to the non-depository mortgage banking market.”

Click here to view the full transcript of Wednesday’s CNBC interview with Mnuchin and Ross.


Congress could be homeowners’ Grinch this Christmas

WASHINGTON – Nov. 28, 2016 – Could it be a grim and grinchy December for thousands of homeowners facing ongoing challenges with their mortgage payments and property values? Could popular deductions for mortgage insurance premiums and energy-efficient home improvements abruptly vanish?

That’s the way things are shaping up in the closing weeks of the post-election lame duck congressional session. Republicans controlling the tax-writing committees in the House and Senate say they have no plans to extend expiring tax code provisions such as mortgage debt forgiveness for financially troubled owners, mortgage insurance write-offs used by moderate-income first-time buyers, and deductions for purchases of energy-saving windows, insulation and other improvements.

All three benefits terminate Dec. 31. Unlike previous years when Congress extended them, this year is different. There is strong sentiment, especially in the House, that a comprehensive overhaul and simplification of the tax code should be the priority, rather than piecemeal, end-of-the-year extensions of special interest provisions that complicate that objective.

The failure to pass so-called “extenders” would be especially painful for large numbers of underwater owners who are unable to complete short sales, loan modifications or foreclosures before year-end. Many of them could face crushing tax demands from the IRS, or be forced to declare insolvency or file for bankruptcy.

Under the federal tax code, when a creditor cancels a taxpayer’s debt, the IRS treats the amount forgiven as income, taxable at ordinary rates. But in 2007, as foreclosures and short sales began to explode across the country, Congress enacted a temporary exemption for homeowners who received cancellations of mortgage debt as part of their loan modification deals with lenders. That exception has been extended periodically by Congress ever since.

Over the years it has provided crucial relief to thousands of owners, many of whom fell behind on their loans because of job losses and medical bills. And although the total volume of short sales and foreclosures has declined since the height of the Great Recession, 3.6 million owners nationwide remained underwater as of mid-year – their home values were less than their mortgage balances, according to analytics firm CoreLogic.

David Berenbaum, CEO of the Homeownership Preservation Foundation, a nonprofit group that helps financially challenged owners work out their mortgage problems, told me that his group is expecting 300,000 “hotline” calls for help from troubled owners in 2017, and that fully one-quarter of them are underwater. In Maryland, Illinois and New Jersey, 40 percent of owners requesting help remain underwater, he said.

In a letter to Sen. Johnny Isakson (R-GA), a member of the tax-writing Finance Committee, Berenbaum said “failure to extend the mortgage debt forgiveness tax provisions will reduce the options available to these distressed homeowners” and have “a chilling effect on short sales.”

Congress’s failure to extend the deduction for mortgage insurance premiums would be another blow to homeowners. Under current rules, married owners filing jointly with adjusted gross incomes no higher than $100,000 ($50,000 for single filers) can write off mortgage insurance premiums they pay on their loans. On incomes up to $109,000 ($54,500 filing singly) they can deduct lesser amounts using a phase-down schedule.

In a letter to the Republican and Democratic leaders in both houses last week, three major trade groups – the Mortgage Bankers Association, the National Association of Home Builders and the National Association of Realtors – called for retention of the current deduction, along with mortgage debt forgiveness. On a $200,000 home, they said, moderate-income buyers are now able to deduct between $600 and $1,000 using this provision, money that is often important to their family budgets.

Energy savings through home improvements are also on the chopping block. Currently owners can write off expenses on insulation, high performance windows, hot water heaters and the like with a $500 lifetime cap. Come Jan. 1, they won’t.

Bottom line: The outlook is dim for all three of these popular tax benefits. Though December legislative miracles happen, the odds this year are long. Don’t bank on them for 2017.

© 2016 the Boston Herald, Distributed by Tribune Content Agency, LLC.


Buyers afraid of rising rates? Put it in perspective

NEW YORK – Nov. 21, 2016 – Homebuyers already have challenges, and rising mortgage rates have sparked concerns that they could stall some sales if they buyers already faced financial constraints after the 30-year fixed-rate mortgage hit its highest level in more than a year last week.

“It’s kind of sad, because you’re helping out a first-time buyer who is in need of these low rates and doesn’t have the personal liquidity to offset (the change) if the rates rise,” one lender in New York told CNBC. He says that he has two clients struggling with the higher rates. “One is on the bubble, but one is almost a dead deal.”

Still, it’s important to keep perspective: Mortgage rates remain historically low.

The higher rates may hamper some buyers, not just because of a $50 difference in mortgage payments but because they may have a more difficult time qualifying due to lending’s strict debt-to-income ratios.

“I tell people, interest rates are 80 percent psychological and 20 percent math,” loan officer Jason Anker, vice president at Salem Five Bank in Waltham, Mass., said. “I do the math for them and their next reaction is, ‘Oh that’s all?’ Forty dollars a month, $75 a month? They initially think it’s going to be a lot more painful than that. … My advice to clients right now is to be extremely defensive.”

Buyers cannot lock in a mortgage rate until they have a signed contract on the sale of a home. But they should realize: A lot of data suggests that mortgage rates will edge higher in the coming weeks, in part because the Federal Reserve is expected to raise its lending rate in December. While mortgage rates don’t follow Fed moves precisely, rates could move higher as investors sell out of the 10-year Treasury bond market and head into the stock market.

“In the short term, some prospective buyers may rush to lock in their rate and buy now, while others – especially those in higher-priced markets – may be forced to delay as a larger monthly payment outstretches their budget,” says Lawrence Yun, chief economist for the National Association of Realtors®.

Source: “Higher Mortgage Rates Scuttle Some Sales,” CNBC (Nov. 21, 2016)

Mortgage rates keep rising after Trump’s election win

Mortgage Rate Trend Index

Mortgage rate experts polled by last week disagree on what will happen next: 33.3% predict rates will go higher; 33.3% say rates will go lower; and 33.3% foresee little change over the short term.

WASHINGTON (AP) – Nov. 28, 2016 – Long-term U.S. mortgage rates continued to surge last week in the aftermath of Donald Trump’s election win.

Mortgage giant Freddie Mac said Wednesday that the average rate on a 30-year fixed rate loan shot up to 4.03 percent, the highest since July 2015 and up from 3.94 percent a week earlier. The rate on 15-year home loans climbed to 3.25 percent, up from 3.14 percent last week and highest since January.

Long-term U.S. interest rates have climbed since Trump was elected Nov. 8. That is largely because bond investors believe the president-elect’s plan to cut taxes and spend massively on roads, bridges, airports and other infrastructure could ignite inflation. When they foresee rising inflation, investors demand higher long-term rates and pay lower prices for bonds.

The yield on 10-year Treasury notes has risen from 1.87 percent on Election Day to 2.38 percent Wednesday.

The expectations of economic stimulus from tax cuts and higher infrastructure spending that are driving up interest rates have also pushed stocks higher. On Wednesday, the Dow Jones industrial average closed above 19,000 for the first time.

Still, rising mortgage rates pose a threat to the housing market. Low mortgage rates have helped fuel a rally in home sales. The National Association of Realtors said Tuesday that sales of existing homes rose 2 percent in October to a seasonally adjusted annual rate of 5.6 million – strongest pace since February 2007.

That’s also helped lift home prices. The median price of a previously occupied U.S. home has risen 6 percent over the past year to $232,200.

Higher mortgage rates, along with rising house prices, could eventually reduce demand for housing.

Typically, as mortgage rates rise, buyers feel more of an urgency to purchase a home before rates rise further. That can lead to a short-term spike in sales. But if rates continue to climb, many buyers, particularly those living in pricier coastal markets, could find it tough to qualify for a loan.

“Certainly there are households on the margin where the difference between 3.5 and 4 percent is the difference between qualifying for a loan and not qualifying for a loan,” said Ralph McLaughlin, chief economist at housing data provider Trulia.

Mortgage rates will likely keep rising until there’s some more understanding of where the economy and housing policy are headed, McLaughlin said. But he doesn’t expect U.S. home sales to weaken dramatically unless rates rise to 5 percent.

The Commerce Department reported Wednesday that fewer Americans bought new homes in October, though they are still 12.7 percent higher than they were a year ago. A tight supply of new homes has limited sales.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week.

The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage was unchanged at 0.5 point. The fee on 15-year loans stayed at 0.5 point.

Rates on adjustable five-year loans climbed to 3.12 percent this week from 3.07 percent. The fee was unchanged at 0.4 point.

AP Logo Copyright 2016 The Associated Press, Paul Wiseman. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. AP Business Writer Alex Veiga in Los Angeles contributed to this report.

FHA found financial footing – ready for more buyers

WASHINGTON – Nov. 16, 2016 – The Federal Housing Administration’s (FHA) latest actuarial report finds that it’s on firm financial footing after its reserves fell below federally mandated levels during the Great Recession. As a result, the National Association of Realtors® (NAR) released a statement saying it’s on solid ground and a continued resource to help buyers secure their dream home.

Since the FHA’s Mutual Mortgage Insurance Fund (MMIF) is on a steady financial trajectory, NAR “believes is an opportunity to make FHA’s low-downpayment mortgage option available to an even broader swath of borrowers.”

“The fund has indisputably found its footing,” says NAR President William E. Brown. “That’s good news for taxpayers, and a reflection of FHA’s sound stewardship. It’s clear from this report that FHA can continue taking responsible steps to manage their risk even as they take action to make homeownership more affordable for lower- and middle-income buyers.”

FHA’s MMIF is the pot of money that pays lenders if a homeowner defaults on his mortgage. FHA’s 2016 Annual Report Shows report found that the fund’s “seriously delinquent” rate is at a ten-year low, and the overall economic value of the fund increased by $3.8 billion.

Last year, the MMIF also achieved a capital reserve ratio higher than 2 percent, the minimum mandated reserve ratio under federal law; it now stands at 2.32 percent. It’s only the second time since 2008 that the MMIF exceeded the congressionally required threshold. FHA also reported a 3.2 percent reserve ratio for the “forward” program, which encompasses FHA’s non-Home Equity Conversion Mortgage portfolio.

NAR believes the report would have appeared even stronger if not for weaknesses in its reverse mortgage program – Home Equity Conversion Mortgage or HECM.

In light of the MMIF’s increasingly good health, NAR is encouraging FHA to reduce mortgage insurance premiums to better reflect the risk in the marketplace and fulfill its mission of serving low- and moderate-income borrowers.

According to NAR, the 50-basis-point premium cut announced in January 2015 provided an annual savings of $900 for nearly 2 million FHA homeowners. A recent Federal Reserve study also found that the January 2015 reduction in mortgage insurance premiums had a quick and significant effect on FHA mortgage volume.

However, NAR also recommends additional changes to FHA’s lending program. One major recommendation: Eliminate the “life of loan” mortgage insurance that borrowers must continue to pay until the loan is extinguished or refinanced. Conventional mortgage products traditionally require mortgage insurance only a home reaches a specific level of equity, but FHA loans have no similar mortgage-loan-insurance cutoff date.

“FHA mortgages are an important option for buyers, but high premiums and lifetime insurance requirements can take that option right off the table,” Brown says. “By lowering premiums and eliminating life of loan mortgage insurance, FHA can expand on their work to serve a broad population of homebuyers. We look forward to working with them in the months ahead to bring these changes to light.”

© 2016 Florida Realtors®