Following the July 4th Independence Day celebrations, we may add a loan term extension of up to 40 years for a category of defaulting borrowers this fall. Really.
Ginnie Mae, the main government mortgage funding arm of agencies such as the Federal Housing Administration and the Department of Veterans Affairs, released a press release on June 25 announcing a 40-year mortgage securitization pool with no loan size limits.
The incredible requirement for this mortgage renewal is that already modified mortgages “were caused by default or reasonably foreseeable default”.
For example, mortgages in COVID-19 Forbearance may or may not have been modified.
Mortgages in mortgage service provider-approved COVID-19 forbearance plans are not deemed to be in the area of default in any way, shape, or form. Currently, unchanged forbearance balances are typically posted back to the mortgage and become a balloon payment at the end of the 30 year loan term.
“Last year’s challenges call for meaningful solutions to keep people in their homes, which is a priority for (US Secretary of State for Housing and Urban Development, Marcia) Fudge,” said Alanna McCargo, Fudge senior advisor. “As interest rates rise, this 40-year feature will open up more options to reduce payments to help homeowners.”
Ginnie Mae’s big idea is to help homeowners with COVID-19 emergencies.
OK. But what are the drawing rules like?
Does the new 40 year mortgage payment with the balance added have to be lower than the payment now? Does the already defaulting borrower have to prove that the already changed loans were related to COVID-19? Does the borrower need to document, defend and explain what will be different this time to prevent another round of defaults?
Perhaps it is a way to prevent future foreclosures that could come years from now when the 30 year modified mortgage balloon payment comes due. Or maybe it’s a shameless foreclosure booth.
At 3% interest, a 30-year fixed-rate mortgage of $ 500,000 has a principal and interest payment of $ 2,108.
Assuming 40 years at the same interest rate, the payment is $ 1,789, which is about an 18% decrease in payment. Once you start cutting back on previously unpaid mortgage payments, the monthly mortgage payment savings will quickly diminish.
What kind of investor in their right mind would like to buy mortgages from a proven pool of failed borrowers, likely with low equity at the same interest rate that the borrower is currently paying? FHA requires a minimum down payment of 3.5% and VA supports loans with no down payment.
After all, tenant evictions by the Center for Disease Control were postponed for another month to July 31. And COVID-19 borrowers on mortgages owned by Fannie-Freddie will have access to lower interest rates and simpler terms, according to an announcement from their conservator and regulator, the Federal Housing Finance Agency, Dec.
When I asked for details, a HUD spokesperson referred me to Ginnie Mae. Ginnie Mae spokesman Douglas Robinson said, “I can only tell you what’s in our press release.”
US Department of Veterans Affairs spokesman Gary Kunich said in part, “VA is aware of the change that Ginnie Mae is making. As soon as the moratorium on foreclosures and evictions for VA-covered loans ends, VA will provide appropriate guidance. “
The 40-year mortgage has been around in the conventional mortgage world for decades. Today you can get a 40-year fixed-rate mortgage even for jumbo loans starting at 3.375% with an interest-only feature for the first 10 years. This applies to purchases and refinancers, but not to modified mortgages in default mode.
Aside from COVID-19 Forbearance, what’s the point of sheltering homeowners who for some reason have a proven history of failing to make their home payments? If there are no consequences for not paying, where does it end?
How fair is that to responsible, financially fit tenants trying to break into their homes?
What are the lessons for the future of the home? Is this a message that you can keep your home with or without paying your mortgage?
Freddie Mac rated news: The 30-year fixed rate averaged 2.98%, 4 points lower than last week. The 15-year fixed rate averaged 2.26%, 8 basis points lower than last week.
The Mortgage Bankers Association reported a 6.9% decrease in mortgage application volume from the previous week.
Bottom line: For example, suppose a borrower receives the average 30 year fixed rate on a compliant loan of $ 548,250, the payment last year was $ 26 higher than this week’s payment of $ 2,306.
What I see: Well-qualified borrowers locally can obtain the following fixed-rate mortgages at 1-point costs: a 30-year FHA at 2.25%, a 15-year conventional at 1.99%, a 30-year conventional at 2.625%, a 15 -year conventional high balance ($ 548,251 to $ 822,375) at 2.125, a 30-year conventional high balance at 2.75%, and a 30-year fixed jumbo at 2.875%.
Eye-catcher credit of the week: A 15-year fixed price of 2.37% with no costs.