Four Housing Issues To Watch in 2011.


Original Post Date: December 29, 2010

By: Nick Timiraos

Perhaps the biggest question facing the housing market in 2011: Is this the year housing actually hits bottom?

Home prices are expected to fall another 5% in 2011, though there are some who say price declines could be much worse. Here’s our list of four issues to keep an eye on in 2011 (or take a look-back at last year’s list):

1. Jobs: Call it a cop out because it’s so obvious, but without more tax credits to juice sales, the housing market needs job growth.

First, who’s going to buy a house when they’re not certain they’ll have a job in six months and when it looks like home prices are likely to fall another 5%?  Mortgage rates spent much of 2010 at a level that hadn’t been seen since the Eisenhower administration, but it didn’t do to increase buyer demand.

A crummy job market means that more homeowners risk falling behind on their payments, which would add to the supply of lower-priced foreclosed homes–further depressing prices. Foreclosures are already expected to pick up in 2011, though the rising supply could be offset somewhat by very low levels of new home construction.

If jobs pick up, demand picks up and many of the other problems facing the housing market can more easily take care of themselves. If it doesn’t, prices will fall further, and more homeowners will fall underwater, or owe more than their homes are worth.

2. Foreclosure delays: In September, some of the nation’s largest banks, including units of Bank of America Corp. and J.P. Morgan Chase & Co., suspended foreclosures due to potentially fraudulent document-handling procedures. Foreclosure filings were down sharply in November, a sign that the foreclosure machinery is proving to be slower to restart than the banks’ initial folks-there’s-nothing-to-see-here guidance.

Banks say that foreclosure-document problems are a technical problem and that they haven’t evicted anyone who wasn’t delinquent. But regulators and state prosecutors have launched a series of reviews and Investigations could shed more light on abuses, such as misapplied or excessive fees, by servicers, their attorneys and other third-party vendors. Meanwhile, some real-estate legal analysts have warned that problems may be more severe if loans weren’t properly recorded or transferred during the process of bundling mortgages and selling them as securities.

If foreclosures are more difficult and expensive to process, banks and investors could step up bulk sales of loans or foreclosure alternatives such as short sales, where banks approve sales for less than the amount owed.

3. Washington: Next month, the Obama administration is set to issue an initial set of recommendations for how to remake Fannie Mae, Freddie Mac, and the broader mortgage market. Deficit hawks also have their sights set on scaling back the mortgage-interest deduction, though immediate action isn’t expected.

Meanwhile, regulators are also writing new rules on provisions outlined in the Dodd-Frank Act that will clarify how banks must retain some of the risk on loans that are bundled and sold off as securities and define what constitutes a “qualified residential mortgage” that is exempt from such rules.

Other questions loom: Will regulators and policy makers get more aggressive about banks’ treatment of second mortgages, which have hindered efforts to modify mortgages or to avoid foreclosures through short sales? Will policy makers (pay particular attention to the states here) take more vigorous measures to slow foreclosures or rework mortgages?

4. Lending standards and rates: The government continues to dominate the mortgage-lending landscape, with more than nine in 10 new loans backed by Fannie Mae, Freddie Mac or government agencies such as the Federal Housing Administration. Policymakers might try to create more room for private lenders to return by allowing expanded conforming loan limits to fall in September. If mortgage rates continue to rise, that could lead buyers to scale back their purchases, putting pressure on home prices.

While some analysts have raised red flags over the FHA’s finances and say that loans with 3.5% down payments are leading the agency to take on too much risk, others worry about tighter lending standards that could further pinch demand. Fannie and Freddie are raising fees that could hit borrowers with down payments of less than 25%.

Readers, what other issues are keeping you up at night about the housing market in the year ahead?

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New federal law guts tax credits for energy-efficient home improvements


Original Post Date: December 26, 2010

By: Kenneth R. Harney

Reporting from Washington —

The $858-billion federal tax bill signed into law by President Obama on Dec. 17 was a mixed bag for American homeowners, with elements of both the Grinch and Santa squeezed into the same bulging package.

The goodies for select groups were well-publicized — unemployment benefits extension, payroll tax cuts, continuation of the Bush income tax rates and favorable estate tax treatment for wealthy individuals, among others. The bill even pushed back the expiration date for the tax deductibility of mortgage insurance premiums for another year.

But other provisions in the bill could be bad news for homeowners interested in remodeling projects to conserve energy next year. The legislation slashed the popular tax credits for energy-efficient remodeling from 30% of an improvement’s cost ($1,500 maximum per taxpayer) to just a 10% credit with a $500 maximum for expenditures on insulation materials, exterior windows and storm doors, skylights, and metal and asphalt roofs that resist heat gain.

The bill also clamped new dollar-specific limits on key improvements that previously had been eligible for 30% credits. These include a $150 tax credit limit on the costs of energy-efficient natural gas, propane and oil furnaces, and hot water boilers, plus a $300 credit limit on the costs of central air conditioning systems, electric heat pump water heaters, biomass stoves for heating or water heating, electric heat pumps, and natural gas and propane water heaters.

The legislation also limits tax credits for energy-efficient windows installed during 2011 to a total of just $200 — down from the previous $1,500. On top of this, it prohibits taxpayers who have taken total tax credits in past years exceeding $500 from claiming any additional credits on energy-conservation projects they undertake in the coming year.

The net effect of all this, say home building and remodeling experts, will be to severely diminish consumers’ interest in energy-efficient home improvements. Donna Shirey, chairwoman of the Remodelers Council of the National Assn. of Home Builders and president of a contracting firm in the Seattle area, said the gutting of energy-efficiency credits “is a big step backward. It’s bad for the environment, bad for consumers and, of course, bad for jobs in our industry. We’re heading the wrong way here, sending absolutely the wrong message.”

David Merrick, president of Merrick Design & Build in Kensington, Md., and government affairs chairman of the National Assn. of the Remodeling Industry, said the $1,500 credit, which is set to expire Dec. 31, has had the effect of “opening people’s eyes to energy-conserving features they could incorporate” into home improvement projects that they might have previously ignored.

The credit, he said, has provided incentives for homeowners to ask about the long-term savings they could achieve by upgrading insulation, installing new high-efficiency windows and the like.

Now, with a $500 credit maximum, Merrick said, “I doubt that many people will see things that way. They’ll just go back to remodeling their bathroom or kitchen,” and be less willing to spend extra money on energy-saving improvements as part of the project.

Merrick added that from a contractor’s point of view, “the $500 credit will be virtually worthless — not worth the paper it will take us to process” the documentation required by the government.

Barb Friedman, Merrick’s vice chairwoman on the remodelers’ committee and president of Oswego Design & Remodeling Inc. in Lake Oswego, Ore., said that 70% of all housing units in the country are 30 years old or older, and that most have significant energy inefficiencies caused by their age alone.

“The $1,500 credit was a step in the right direction” toward providing owners financial incentives to reduce some of these inefficiencies, “but $500 is more like a drop in the bucket,” she said.

The Alliance to Save Energy, a Washington, D.C.-based coalition of business, government, environmental and consumer groups that lobbied unsuccessfully for retention of the credits as they were, said the forthcoming cutbacks in the homeowner credit program would be a loss felt far beyond the remodeling industry.

Alliance President Kateri Callahan said, “We’re sorely disappointed that Congress did not see fit to make the incentives more generous. That would have increased their use by consumers, to the benefit of our economy, energy security and environment.”

The outlook for restoration of the credits in the new Congress? Call it lights out. There’s virtually no chance of another big tax bill supporting energy-efficiency improvements moving ahead on Capitol Hill in the near future.

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Americans devour trio of home-buyer tax credits


Original Post Date: December 26, 2010

By: Lew Sichelman

Reporting from Washington —

Without the home buyer tax credits put into place by Congress to boost the struggling housing market, prices would be 10% lower than they are now, according to an analysis by a Mississippi-based information technology firm. But at what price?

The Joint Committee on Taxation estimates that the three credits could result in total revenue losses to Uncle Sam of about $22 billion through 2019.

About 1 million buyers claimed $7.3 billion in interest-free loans under the first credit. And they will begin repaying the government next year, according to the Government Accountability Office.

But about 2.3 million people claimed $16.2 billion in tax credits that don’t have to be paid back under the second and third credits. And those figures are likely to increase because the Internal Revenue Service is still processing returns and more claims will be made during the 2011 tax-filing season.

The second version of the home-buyer tax credit was the most frequently used, accounting for some 1.7 million claims — about half of all claims to date — and totaling about $12.1 billion, the GAO reports.

The third version of the tax credit was aimed at move-up buyers as well as first-timers who were the targets under the first two. And of the 600,000 who have claimed that credit, nearly one-third are so-called longtime owners.

Buyers in California were the most active. More than 378,000 people in the country’s most populous state have claimed the credits, amounting to almost $2.8 billion.

Texans were next in line at the IRS’ tax-credit window, followed by Floridians. Almost 290,000 buyers in the Lone Star State have claimed $2.07 billion in credits as of July 3, and nearly 214,000 buyers in Florida have claimed more than $1.5 billion worth.

And let’s not forget the 14,132 individuals who, according to the Treasury Department‘s inspector general’s office, filed erroneous or fraudulent claims.

An audit by the office found, among other things, that 67 individuals used the same house number to claim the credit, 1,295 of the claimants were incarcerated at the time they supposedly bought houses and one “buyer” was just 4 years old.

And here’s a special shout out to the 87 IRS workers who claimed the credit despite the fact that they had owned houses within the previous three years, making them ineligible.

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Mortgage Rates Spike, With 30-Year at 4.83%


Original Post Date: December 16, 2010

By: Mark Gongloff

Surging Treasury yields continue to drag mortgage rates higher, keeping pressure on the housing market.

The average rate on a 30-year, fixed-rate mortgage hit 4.83% in the week ending Thursday, the highest since May, according to Freddie Mac’s weekly survey of mortgage rates.

Rates have rebounded sharply in recent weeks from record lows in October. Yields on Treasurys have surged recently, and mortgage rates generally track those yields, which move inversely to Treasury prices.

The 10-year Treasury note, which most directly affects 30-year mortgage rates, rose early Thursday to 3.556%, its highest level since early May.

“Market concerns over stronger economic growth that, in the near term, could lead to an increase in inflation have sparked a rise in bond yields, and mortgage rates have followed,” said Freddie Chief Economist Frank Nothaft.

The jump in rates has likely snuffed out a refinancing boomlet that began this fall, when the 30-year mortgage rate was on its way to a record low of 4.17%, set in November. Higher rates have made it unattractive for millions of homeowners to refinance. It has also made home purchases less attractive.

Freddie Mac’s survey rates tend to lag moves in Treasurys. Other measures, such as those from data tracker HSH Associates, have rates already approaching 5%.

Thirty-year mortgage rates rose in the latest week from the prior week’s 4.61% average , but were down slightly from 4.94% a year ago. Rates on 15-year fixed-rate mortgages were 4.17%, up from 3.96% in the previous week but down from 4.38% a year earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.77%, up from the prior week’s 3.60% but down from 4.37% a year earlier. One-year Treasury-indexed ARMs were 3.35%, up from 3.27% the prior week but down from 4.34% a year earlier.

To obtain the rates, the mortgages required payment of an average 0.7 point. A point is 1% of the mortgage amount, charged as prepaid interest.

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Homeowner Perks Under Fire


Original Post Date: December 16, 2010

By: S. Mitra Kalita and Nick Timiraos

The U.S. government has long subsidized homeownership through tax deductions and loan guarantees. Now, it is re-examining whether it can afford to underwrite the American Dream.

Earlier this month, a presidential deficit commission proposed reducing the mortgage-interest deduction, the largest government subsidy for housing. Next month, the White House will propose an overhaul of mortgage titans Fannie Mae and Freddie Mac amid a broader debate over how widely the U.S. should guarantee mortgages. Today, it backs nearly nine in 10 new loans.

Taken together, the proposals could set in motion the largest shift in government support for housing since World War II. Already, the Obama administration has suggested it wants to turn away from the heavy emphasis in recent years on simply increasing the homeownership rate, which critics say helped inflate the housing bubble.

To be sure, Congress has repeatedly fended off efforts to pare back the mortgage tax break, arguing it makes homeownership more affordable. And any quick moveby Washington to pull back support for housing carries risk.

The real-estate industry is warning that any policy changes could be disastrous for the fragile housing market, dissuading would-be buyers and depressing prices further. Even modest price declines could leave millions more Americans underwater, owning homes worth less than they owe on mortgages. That could undermine the economic recovery by depressing consumer demand and lengthening the construction-industry downturn.

“It would be a huge blow to the real estate industry,” said Chris Summers, a realtor in Medfield, Mass. “This has been the cornerstone of making homeownership an attainable American Dream.”

But analysts at housing-research firm Zelman & Associates said in a note to clients that real-estate industry groups had “grossly misrepresented” the benefits of the deduction and the impact of any change. “To say it’s going to ‘kill the industry,’ you’re saying people aren’t going to buy houses if they can’t deduct the interest,” said Dennis McGill, director of research.

Mr. McGill said that if changes in the deduction were phased in gradually, it wouldn’t hurt housing demand and would decrease prices only marginally in certain markets. The market could digest the deficit panel’s proposal “fairly reasonably,” he said.

Already-jittery buyers are watching closely. “I wouldn’t want to be the last one who bought a house before they announced it was all over,” said Dick Klem, a 66-year-old federal worker and avid boater looking to buy a waterfront home in the Northern Virginia suburbs. He estimated the mortgage-interest deduction could save him $10,000 annually on a property he looked at about three weeks ago.

While the deduction wasn’t created with homeownership in mind—Congress made all interest tax-deductible when it approved a federal income tax in 1913—it helped fuel a postwar home-buying boom during which the government also guaranteed a steady supply of cheap, fixed-rate mortgages. In 1940, about 44% of Americans owned their homes. Last year, about two-thirds did.

Economists say the deduction now mostly encourages wealthier Americans to take on more debt. That’s because the deduction applies only to the roughly one-third of taxpayers who itemize their returns, typically those with higher incomes.

They say industrialized nations such as Canada and the U.K. have achieved comparable rates of homeownership without such incentives. The U.K., for example, gradually reduced its mortgage-interest break over 12 years, scrapping it for good in 2000 without hurting homeownership rates. Likewise, credit- card balances saw little effect from the repeal of the deductibility of credit-card interest in 1986.

“This represents a move toward neutrality and getting the government out of the business of allocating investment through the tax system,” said Eric Toder, co-director of the Washington-based Urban-Brookings Tax Policy Center. “Economists have for a long time been worried about a system that encourages people to buy bigger homes instead of, say, buy stocks or invest in a business.”

While the deduction makes homeownership more attractive in certain markets with abundant housing supply, it only does so for higher-income borrowers, according to a recent study by economics professors Christian Hilber and Tracy Turner at the London School of Economics and Kansas State University, respectively. In denser urban areas with limited housing stock, the deduction actually reduces homeownership, because it inflates home prices, the study found.

Moreover, in the run-up to the housing bubble, “notions of what homeownership meant changed,” said Raphael Bostic, a senior official at the Department of Housing and Urban Development. The goal of homeownership increasingly tilted toward owning something that could go up in value, as opposed to having a place to live that “you can manage for the long haul,” he said. “Investment overshadowed consumption.”

President Obama has proposed small cuts in the mortgage-interest deduction for top earners in the past, but many housing-market observers agree that this time around could be different, because of swollen U.S. budget deficits. Mortgage deductions will reduce tax revenue in 2012 by $131 billion, according to White House estimates.

Currently, the deduction allows taxpayers to deduct interest paid on mortgages up to $1 million for first and second homes, and up to $100,000 in additional home-equity borrowings. The deficit panel seeks to replace that system with a flat 12% tax credit for interest on mortgages up to $500,000 for first homes. Other tax proposals would partly offset the costs of the change for many taxpayers.

Property-tax deductions are also on the chopping block, which could make homeownership more costly. And the panel’s proposal has implications for sellers of homes, such as taxing capital gains the same as ordinary income. Currently, the profits that sellers make on houses—up to $500,000 for married taxpayers, $250,000 for single—can be excluded from the capital-gains tax.

The White House said last week it might incorporate the panel’s proposals for a tax overhaul in next year’s budget.

In new Wall Street Journal/NBC News poll Wednesday, 60% of Americans found it totally or mostly acceptable to eliminate the mortgage deduction on second homes, home-equity loans and any portion of a mortgage over $500,000.

The government also confronts tough choices over how to unwind its massive support for the mortgage market without destabilizing housing. Federal policy has fueled home buying by backstopping mortgages, particularly the 30-year, fixed-rate mortgage, through the Federal Housing Administration, as well as Fannie and Freddie, which have racked up huge losses for the government in recent years.

Without that support today, rates could be at least two to three percentage points higher, said Michael Farrell, chairman of Annaly Capital Management, a New York-based, mortgage-bond investor. The Obama administration has signaled support for maintaining some type of limited government guarantee to keep mortgage markets operating smoothly. But less government backing of mortgages could mean higher down payments, which are common in other countries, and higher interest rates for borrowers.

“The most likely scenario is that government intervention will make homes slightly harder to sell over the next few years,” wrote Lisa Marquis Jackson, vice president at John Burns Real Estate Consulting, in a note to the firm’s homebuilder clients last month.

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Is Your Credit Card Keeping You From Refinancing?


Original Post Date: December 14, 2010

By: Jessica Silver-Greenberg

Mortgage rates, after hitting record lows this summer, are rising. But the rates are still tantalizing for borrowers looking to refinance out of an onerous loan. For the week ended Dec. 9, the average rate for 30-year fixed loans was 4.46%, according to Freddie Mac, up from 4.17% in early November Yet refinancing activity has continued to slump from its summer highs, according to the Mortgage Bankers Association.

Why aren’t more borrowers jumping on the refinance bandwagon? Some are discovering that relatively tiny medical debts—even mistaken ones—can damage their credit scores, making refinancing less attractive. (See “Hidden Medical Debt Trips Up Homeowners,” Dec. 11.) For other homeowners looking to refinance, reduced credit limits are impeding their path.

In anticipation of the Credit Card Accountability, Responsibility and Disclosure Act passed last year, banks went on a credit pruning spree, cutting available credit lines on millions of borrowers, says Beverly Harzog of, a consumer-education website. Last year, for example, American Express and J.P. Morgan Chase & Co. reduced credit lines for borrowers in areas hit hardest by the subprime mortgage collapse.

Reductions in available credit have a powerful impact on credit scores, says Ms. Harzog, causing them to plummet precipitously. Low credit scores can knock borrowers out of the refinancing race, as banks impose high closing costs on customers with less than pristine credit. Credit scores are partially determined by how much of available credit a borrower uses, otherwise called the “utilization rate.”

Even if borrowers are vigilant about paying their bills on time, they can still see their available credit slashed. In October, Bank of America reduced the available credit on Phillip Dampier’s card to $11,000 from more than $21,000 after the Rochester, N.Y., resident’s online payment wasn’t credited. While the bank later waived the late fee, it wouldn’t reinstate his original credit line. The 43-year-old Mr. Dampier was shocked when the reduction torpedoed his credit score by 76 points.

“It was like a one-two punch,” he says. He and his wife were thinking about refinancing their home, but don’t feel that they can now, given Mr. Dampier’s lowered credit score.

Jodi Przanowski, a 46-year-old customer-service supervisor, can’t refinance the mortgage on her Lake County, Ill., ranch house, because her debt-to-income ratio skyrocketed after issuers reduced the available credit on five of her cards. “Even though I’ve never paid late, it looks like I’ve maxed out my cards,” says Ms. Przanowski. In September, Best Buy reduced the available credit on her store card to $700 from $3,000. “It’s a huge drop, and now I can’t refinance my mortgage which is at 6%,” she says.

If homeowners are thinking about refinancing, they should pay close attention to their utilization rate. Pay down as much credit-card debt as you can, says Ms. Harzog—but don’t permanently close out existing credit-card accounts, since that can also ding your credit score.

Lenders have gone too far in tightening credit standards, says Brian Wickert of Wisconsin-based Accunet Mortgage. “No one thinks that banks should dole out low rates to everyone,” he says, “but the underwriting process has gone too far in the opposite direction.”

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Some condo owners may lose FHA financing


Original Post Date: December 12, 2010

By: Kenneth R. Harney

Reporting from Washington

Tens of thousands of condominium unit owners around the country may not know it, but their ability to sell or refinance could be jeopardized by a rolling series of federal government deadlines.

On Wednesday, an estimated 2,200 condominium projects missed an eligibility deadline involving sales or refinancings using Federal Housing Administration-insured mortgages. The deadline was originally set by FHA for recertification or approval of these projects, but at the last minute the agency agreed to extend eligibility for most of them — 23,000 projects — into next year, with a series of rolling expiration dates. A group of 2,200 condo projects around the country received extensions only until the end of this month.

What this means, say lenders and condo experts, is that unsuspecting unit owners nationwide could suddenly be cut off from an increasingly important source of mortgage money. In some markets where FHA accounts for 75% or more of first-time home purchases, condo sellers could be severely handicapped. In parts of the country with heavy concentrations of condos, such as California, Florida, New England, Washington, D.C., and the urban Midwest, the effects could even depress sales prices.

“This is a travesty” unfolding, said Jon Eberhardt, president of Condo Approvals LLC, a national consulting firm based in Torrance. “You’ve got thousands of people out there with no idea” that FHA financing could evaporate for them in the near future.

“This is going to be a big problem,” said Steve Stamets, a loan officer with Union Mortgage Group in Rockville, Md., with numerous condo clients. “I expect you will have frantic sellers pushing management companies” to get their condo buildings approved.

The eligibility issue dates to November 2009, when the FHA published new rules on the types of condo projects acceptable for mortgages on unit sales and refinancings. The rules were the outgrowth of a review that found the FHA — essentially a government-owned insurance company — had approved thousands of projects over the previous two decades but possessed inadequate current information on their underlying homeowners associations’ budgets, legal documents, insurance coverage, renter-to-owner ratios, delinquencies on condo fee payments, the amount of commercial space and a variety of other characteristics that could affect a project’s financial stability.

The 2009 guidance spelled out toughened standards in these areas and set up timetables for taking fresh looks at projects before sanctioning additional unit financings. Condo projects that had been approved by the FHA before October 2008, the guidance said, would have to submit the information required for renewed approval by Dec. 7, 2010, or lose eligibility for FHA financing.

FHA officials issued bulletins and notices during the last year to lenders, condo management companies and consulting firms warning them about the approaching deadline. Ultimately, however, according to FHA officials, roughly 25,000 projects nationwide missed the cutoff. Officials said they had no estimate on the number of individual units affected, but clearly it’s a sizable multiple of 25,000. For example, Eberhardt said, the average condo project in California contains 85 units.

Rather than abruptly eliminate financing for such a large and important segment of the country’s housing market, FHA relented and announced the revised schedule of expirations.

Though the precise expiration schedules were not immediately available, FHA officials said they planned to notify condo associations, management companies and lenders on the specifics shortly.

What can owners do? Tops on the list, according to FHA officials, is to get in touch with the leaders of your homeowners association. Ask them to do what’s necessary to get the project through the approval hoops. Large mortgage lenders can also get the ball rolling if they want to finance a unit in the project.

Costs for a recertification or approval can run from just under $1,000 to more than $3,000. Time for approvals may be a much more significant factor, however. Eberhardt says his firm can assemble documents and create a package for the FHA in about five days, but the process can extend for an additional 45 days to more than 60 days if the FHA staff is overwhelmed with applications. That just might happen in the coming weeks as unit owners begin learning about their financing cutoff deadlines.

Meanwhile, your sale or refinancing could be put on hold.

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Lenders may closely monitor borrowers for life of a loan


Original Post Date: December 12, 2010

By: Lew Sichelman

Reporting from Washington —

The day is coming when lenders will no longer turn their clients loose after they leave the closing table, never to be heard from again unless someone misses a payment or two.

Think of it as crisis intervention. Rather than waiting for previously solid borrowers to ask for help, lenders will monitor their borrowers over the life of their loans, looking for signs of trouble before borrowers even realize a problem is at hand.

It won’t happen this year, or even next. Lenders are too busy right now cleaning up the current mess of bad loans. But Sanjeev Dahiwadkar, president and chief executive of IndiSoft, a Columbia, Md., mortgage-technology company, believes it won’t be too long before lenders begin keeping tabs on their customers for as long as their loans are on the books.

“That ship has already started sailing,” Dahiwadkar says. “Historically, servicers have always waited for problems to materialize before trying to do something about them. But they are going to be watching their portfolios much more closely in the future.”

IndiSoft writes computer programs for the default-management business, the underbelly of the lending community that works to turn nonperforming loans into performing assets. The company’s clients include everyone who has a stake in saving problem loans: the investor that purchases the loan from the funding lender, the servicer that collects the payments on behalf of the investor and the insurance company that promises to cover part of the investor’s losses should the borrower stop paying.

Currently, IndiSoft’s technology comes into play the day a borrower stops paying. But Dahiwadkarsays the company is working on programs that monitor borrower behavior so that if a life-changing event such as a divorce or layoff occurs, an IndiSoft client can take whatever steps are necessary to make sure the borrower continues to make timely payments as promised.

The client might choose to simply monitor a particular loan more closely than it would otherwise, perhaps sending a friendly reminder a few days after a payment is due rather than waiting until it is 30 or 60 days late. Or it could take bolder steps such as calling the borrower to make sure that all is well and offering help right away instead of when the borrower is 90 days behind.

Right now servicers are so overwhelmed trying to work through the millions of mortgages that are in some stage of the foreclosure process that slow-paying or minimally late-paying loans are getting little or no attention.

Worse, most borrowers tend to stick their heads in the sand when they get behind, figuring that they’ll solve their problems on their own. But even when borrowers call in an attempt to avert a potential crisis, short-handed servicers typically relegate them to the end of the line because they have their hands full with more extreme situations.

Eventually, though, the foreclosure mess will clear. And when that happens, Dahiwadkar believes that stakeholders will become far more proactive in managing risk than they are now. Instead of reacting to problems as they occur, he says, they will look for a pattern of behavior — clues, if you will — that indicate a problem is on the horizon.

This goes far beyond the latest underwriting wrinkle of reevaluating a would-be borrower’s credit just before the mortgage closes to make sure that the person hasn’t taken out any other loans or run up other bills that would impinge on the ability to make house payments. And it could go way beyond monitoring for life events such as a major medical issue.

For example, the lender might ask you to sign a document at settlement that gives the servicer the right to run periodic credit reports to see whether you are having any difficulty paying your bills. If the servicer knows you’ve missed a couple of credit card payments or you are late on your auto loan, it might call to find out what’s up.

But permission to monitor your credit goes even deeper than that. If all of a sudden you start paying your bills on the 15th of the month instead of the first, for example, programs developed by IndiSoft or other technology companies will alert the servicer, which can then step up its surveillance.

“There are different ways to analyze risk,” Dahiwadkar says. “A change in behavior is something to be cautious about. So if a payment pattern changes, it could be a trigger for putting a loan on a ‘watch’ list.”

Then, if you don’t seem to be handling your finances well, the company might offer credit counseling so you don’t also fall behind on your mortgage. Or if you’ve been laid off, the servicer could offer to rework your loan or allow you to miss a few payments until you get back on your feet.

But Dahiwadkar says servicers and other stakeholders will be watching their borrowers’ behavior much more closely so they also can separate those who are truly experiencing financial difficulties from deadbeats simply refusing to pay.

If someone stops paying the mortgage but continues to make credit card payments on time or takes on new debt — a second mortgage, for example, a car loan or a loan from a finance company — the IndiSoft executive says, “It’s pretty certain you are dealing with a borrower who is not paying because he doesn’t want to, not because he can’t.”

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Hidden Medical Debt Trips Up Homeowners


Original Post Date: December 11, 2010

By: Jessica Silver-Greenberg

Two erroneous $11 doctor bills stopped Jeanne White from refinancing her home.

The 49-year-old resident of Colleyville, Texas, pays 7% on the mortgage for her three-bedroom house. In October, she says, she was shocked to learn that the two medical bills, which had been turned over to a collection agency, had caused her credit score to fall to 680 from 757—making refinancing far too expensive.

“I was told I’d have to pay $14,000 in closing costs to get a 5.5% interest rate,” Ms. White says, substantially more than she would have paid with a higher credit score. When Ms. White, a retired sales manager, contacted the doctor’s office, she found out the bills had been issued in error.

Ms. White’s case is hardly an isolated one. Otherwise well-qualified borrowers with good loan-to-value ratios and steady employment are increasingly finding it difficult to refinance because of medical billing mistakes marring their credit, say mortgage bankers and real-estate agents.

Jeanne White of Colleyville, Texas, saw her refinancing costs skyrocket after her credit score was dinged by two disputed $11 doctor bills—and is now in limbo as interest rates rise.

Rodney Anderson, executive director of Supreme Lending, a mortgage bank in Plano, Texas, calls medical debt the single biggest roadblock for would-be refinacers. “People have no idea that they still owe small amounts which later end up on their credit report,” he says.

‘The Rates Are the Bait’

Despite record-low mortgage rates, refinancing activity has been lower this year than many in the industry would have expected. Last month, applications for refinancing fell 18% from their 2010 high in August, according to the Mortgage Bankers Association, even as rates for 30-year fixed-rate loans hit a record low of 4.17% in the second week of November. (They rose to an average 4.61% this week.)

“The rates are the bait,” says Brian Wickert, president of Wisconsin-based lender Accunet Mortgage. “But when consumers begin to refinance, there are real impediments spoiling the refi party.”

Earlier this month, Mr. Anderson says, he counseled a client whose $42 medical debt meant he would have to pay $4,200 in points to refinance his $300,000 mortgage.

Some 14 million Americans have errors on their credit report because of medical collections, according to the Commonwealth Fund, a Washington-based nonprofit focused on health-care research. These routinely small-balance blemishes, which can go unnoticed for years, can be a death knell for refinancing because they can cause outright refusals—or make closing costs so high that borrowers opt not to refinance at all.

Until she tried to refinance, Ms. White says, she had no idea about the overdue medical bills, which were from a visit earlier this year to an orthopedist. She has since disputed the charges, which will be removed from her credit reports within 30 days, but is worried about rising interest rates. “I’ll have missed the window,” she says.

Disputed Hospital Bills

For Debra Thomas, it was a disputed hospital bill that derailed her plans to refinance her Baltimore home. She wanted to use the savings from refinancing her $160,000 mortgage to renovate her kitchen, deck and patio. But when the 62-year-old approached several lenders in April, she says, the banks required more than $12,000 in closing costs to secure a lower rate because of her credit score.

It turns out that an unpaid $343 hospital bill incurred during a short stay in Maine was sent to a collection agency. Until she was contacted by the agency last year, Ms. Thomas says, she had no idea she owed any money. She is disputing the bill since she says she never received any notification of money owed.

“Other than this error, my credit is excellent, and I clearly would have paid the bill had I known about it,” she says. “Now, this whole other part of my life is impacted.”

Pricier “jumbo” loans—those of more than $729,750 not backed by government-sponsored agencies like Fannie Mae or Freddie Mac—can prove especially difficult to refinance. Investors’ appetite for such loans has waned, which means that banks typically have to keep these loans on their books.

A bill wending its way through Congress could provide relief for homeowners with medical-debt troubles. The Medical Debt Relief Act, which passed the House this fall and is now in the Senate, would remove settled medical debt from credit reports after 45 days, instead of the customary seven years.

Yet borrowers shouldn’t wait for relief from Washington, says Mark Rukavina, executive director of the Access Project, a Boston-based health-advocacy group, since the chances are slim that the bill will be signed into law anytime soon. Instead, they need to take action themselves.

“Don’t assume that your credit score is pristine, and be vigilant about checking it for these medical bills,” Mr. Rukavina says, adding that borrowers should also contact a medical provider’s office immediately after a visit to ensure that all outstanding bills are covered.

If homeowners are thinking about refinancing, they should pay close attention to their so-called utilization rate. They need to pay down as much credit-card debt as they can, says Beverly Harzog of, a consumer-education website. Also, they should beware of closing existing credit-card accounts because those factor into a credit score.

“In this environment,” says Greg McBride, a senior financial analyst at, “borrowers have to be more assertive about making the case to lenders that they are a good borrowing risk.”

Posted in Uncategorized

Mortgage Rates Rise to 4.66%


 Original Post Date: December 8, 2010

By: Nick Timiraos

Mortgage rates rose again last week to their highest level since July.

The 30-year fixed-rate mortgage averaged 4.66% last week, up from 4.56% two weeks ago. That’s still below the year-to-date average of 4.74%, but it’s up from a low of 4.21% in October.

Rising rates are likely to further crimp refinance activity, which was down 1% for the week and down 8% from year-earlier levels.

But rising rates could encourage some fence-sitting buyers to close deals, and home-purchase mortgage applications jumped by nearly 2% last week, sending activity to its highest level since May.

Rates are closely tied to the 10-year Treasury, which has been on the rise over the past few weeks and jumped in recent days after the tax-cut compromise struck by the White House and congressional Republicans.

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