Today's Mortgage Rates

Here is the first thing like this I have seen – but possibly not the last:

Approximately 2,700  homeowners who had a loan with Countrywide are getting a check for just over$6,000 and total almost $17 million as a result of a settlement with the Florida Attorney Generals office.

According to the Florida Attorney Generals announcement:

Attorney General Bill McCollum today announced that more than 2,700 people will receive checks from a 2008 settlement his office obtained with Countrywide Financial Corporation. As part of the settlement, Countrywide is offering foreclosure relief payments to eligible borrowers who returned valid and timely Claim Forms and Releases under a program administered by the Countrywide settlement administrator. More than $16.9 million will be distributed this week, and each check will be written for just over $6,000.

“These checks will make a significant difference for Floridians who are trying to save their homes,” said Attorney General McCollum. “This will provide real relief to struggling homeowners and families.”

In July 2008, the Attorney General filed a lawsuit against Countrywide, one of the nation’s largest mortgage companies, for allegedly engaging in deceptive and unfair trade practices. The Attorney General’s lawsuit claimed Countrywide put borrowers into mortgages they couldn’t afford or loans with rates and penalties that were misleading. That lawsuit was resolved in October 2008, and the settlement agreement included a foreclosure relief payment program for Florida homeowners with qualifying Countrywide mortgages.

Also, according to the announcement, some very important information for people who are receiving checks and may have questions:

Important information for check recipients:

• The checks must be cashed on or before May 13, 2010
• The payment under this settlement may be taxable, and recipients should consult a tax advisor if they have any questions concerning their possible tax liabilities as a result of this payment.
• Recipients with any questions about their checks or other matters relating to the settlement should contact the settlement administrator, Rust Consulting, toll free at 1-866-411-6987, or visit http://www.countrywidesettlementinfo.com

This settlement is probably one of many that you will hear about as a result of many lending practices in the early 2000′s. While it seems like a large amount at first glance, when you look at how much revenue was probably generated for Countrywide by doing whatever-it-was-that-was-wrong, it is probably a drop in the bucket.

But something is better than nothing I guess.

By now, hopefully everyone knows that mortgage rates are not determined by the Federal Funds rate – they are determined by the market of buying and selling mortgage bonds.

If you still think that Ben Bernanke sets the mortgage rates by announcing the Fed has raised or lowered interest rates… sorry to break your heart, but it isn’t true.

But recently, the Fed has been buying mortgage bonds – between 10 and 20 billion each week — and that has helped the interest rates on mortgages stay low.

And the program that has allowed the Fed to buy mortgage bonds is coming to an end after spending somewhere around 1.2 trillion over the past year or so.

Experts generally agree that it means the mortgage bond market is going to adjust in a way that results in increased interest rates on mortgages.

Which means that you can reasonably expect mortgage rates to rise this year – although no one can tell you for sure how much they expect them to rise. Some experts say that they may rise only slightly, others say that a 2% jump is not out of the question.

According to the SF Chronicle:

Julian Hebron, branch manager at RPM Mortgage’s San Francisco office, anticipates a bump up to around 5.5 percent by summer with rate volatility all year.

“The Fed isn’t going to start dumping mortgage bonds on April 1, they’re just going to stop buying,” he said. “By that time, improving economic data is likely to push the Fed toward a rate hike bias. This will contribute to higher mortgage rates, slowing refi activity, and less mortgage bond supply. So while the Fed won’t be buying anymore, rates shouldn’t spike immediately because there will be less supply for markets to absorb.”

Christopher Thornberg, principal at Beacon Economics in Los Angeles, thinks the Fed’s withdrawal will have a radical impact.

“Clearly, when they stop printing all that money, it’s going to be a shock to the system. I have to assume that when they pull back on it, it will cause a 100- to 200-basis-points rise” to rates of 6 percent or 7 percent, he said. “When they start selling off the stuff they purchased, which by my guess would come early next year, that would cause another 100- to 150-basis-points rise.”

But it is also possible that the Fed could step in and buy even more mortgage bonds than they the $1.2 (or so) trillion that they have already bought and in his Congressional testimony released last week, Chairman Bernanke said the Fed eventually will take steps to forestall inflation that also are likely to result in higher interest rates for all loans.

So it remains to be seen exactly what the impact of the Fed discontinuing the mortgage bond buying program – but if you are planning your home financing options, you may want to remain on the safe side and expect higher rates coming soon.

When house prices drop, falling values have ripple effects on the economy. Jobs are lost, credit becomes difficult to obtain and people are forced to make tough decisions regarding what monthly bills they can afford to pay.

And increasingly, it appears as if many people are opting to not pay their mortgage — whether by choice or necessity.

According to the Wall Street Journal, people who have an FHA loan are defaulting on their mortgage at consistently higher rates.

Loan defaults crossed the 9% mark in December, ending the year at 9.12%, up from 6.82% one year earlier and 8.94% at the end of November.  Through 2009, the agency had insured 5.8 million loans worth $752.6 billion, or a 24% increase from one year ago.

This number really doesn’t surprise anyone – FHA has made a number of significant moves to increase revenue at the agency, including:

• Changing FHA down payment and credit score requirements
• Investigating lenders with higher than average default numbers
• Reducing allowable seller concessions for new FHA loans
• Raising mortgage insurance premiums

But according to the WSJ article, that may not be enough:

The FHA appears to be outrunning that problem for now. Last week, the Obama administration’s proposed budget said the agency would generate enough revenue from new business to generate a $6 billion overall profit, even though losses in 2011 are expected to hit $19 billion, up from $8 billion last year. The FHA, which has seen defaults rise sharply on loans that it guarantees, doesn’t make loans but instead insures lenders against losses.

Whether or not the moves that FHA has made will be enough to avoid a complete overhaul of the FHA system, I suspect that over the summer many things may change — including the FHA loan program. I have heard talk of getting rid of Fannie Mae and Freddie Mac and if this happens, I suspect there will be a complete overhaul of how housing in America is financed.