Increase in Mortgage Applications

Based on the information from Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey, there was an increase in the mortgage application by 0.2 percent last week.

The Market Composite Index, which is a gauge of the number of mortgage loan applications, was up by 0.2 percent to its peak level since June 8 this year on a seasonally adjusted basis. Similarly, it was up by 0.2 percent from last week on an unadjusted basis.

The Refinance Index was up by 0.8 percent from last week to its peak level since April 17 of this year. However, the slight increase in refinancing was only subdued by a 6 percent decrease in government refinance applications, although conventional refinance activity was up nearly 2 percent.

The Purchase Index decrease almost 2 percent on a seasonally adjusted basis from the previous week. In the same way, the unadjusted Purchase Index decreased from the previous week.

There was an increase in the refinance share of mortgage activity to 81 percent of all the applications from one week earlier to its peak level since January 20 of this year. In contrast, there was a drop in the adjustable-rate mortgage share of activity to 4.1 percent of all the applications from one week earlier.

For a 30-year fixed rate mortgage with conforming balances, the average contract interest rate was up from 3.74 percent to 3.75 percent, along with points increasing from 0.43 to 0.51 for 80 percent loan-to-value (LTV) ratio.

For a 30-year fixed rate mortgage with jumbo loan balances, the average contract interest rate was up from 3.99 percent to 4.01 percent, along with points increasing from 0.28 to 0.32 for 80 percent LTV loans.

For a 30-year fixed rate mortgage backed by FHA, the average contract interest rate was still the same at 3.52 percent from one week earlier, along with points increasing from 0.52 to 0.55 for 80 percent LTV loans.

Fannie Mae and Freddie Mac Still Will Not Forgive Mortgage Loans

On Tuesday, the regulator of Fannie Mae and Freddie Mac declared that they are planning not to forgive a part of the principal on delinquent mortgage loans they guarantee. In spite of the offer by the U.S. Treasury Department to give incentive payments for writedowns, Fannie Mae and Freddie Mac will still opt out of loan forgiveness programs.

The Federal Housing Finance Agency (FHFA) has control over both Fannie Mae and Freddie Mac, which are government-owned mortgage-finance companies. After doing months of study FHFA’s acting director Edward J. DeMarco said they verified that both companies will still be prohibited from giving loan modifications.

FHFA finally settled on decision after encountering pressure from activist groups and congressional Democrats to reserve the current regulation. Those who are against the decision said offering mortgage loan writedowns would allow more families to keep their houses from foreclosure.

In order to motivate FHFA to modify its policies on the loan forgiveness programs, the U.S. Treasury Department presented Fannie Mae and Freddie Mac a maximum of 63 cents per dollar of principal reduction. The money would be derived from the unspent funds of the Troubled Asset Relief Program (TARP).

However, DeMarco said during his statement that the possible merit was too little and doubtful in relation to unspecified costs and risks.

The main justification why FHFA refused the notion of loan forgiveness programs is because debt would accumulate for taxpayers. FHFA’s study revealed that, under most circumstances, taxpayers would lose money since the program would get funds from the Treasury Department. DeMarco said that the regulator has the task to evaluate how additional help would affect taxpayers.

In contrast, according to Treasury Secretary Timothy Geithner, DeMarco’s decision to advocate the existing policy on loan forgiveness is not the best for the United States. He added that the use of principal reductions would provide assistance to a large number of distressed homeowners.

Another Mortgage Help Center by Fannie Mae

Because the housing market and mortgage financing industry is still suffering from stress, a satellite office that will provide assistance to homeowners wanting to avoid foreclosure has been opened by Fannie Mae.

The satellite office is located across the Citizens Business Bank Arena, where the San Bernardino freeway intersects the Ontario freeway. This location was chosen so that Inland Empire clients will have more access to counselors that can help them get unemployment forbearance or help in short sales and other activities related to foreclosure.

According to Allan Armijo, manager of the Los Angeles and Inland Empire Mortgage Help Center, the satellite office will help minimize miscommunication with loan servicers and creates a comprehensive outlook of the overall process. Moreover, Armijo said that they believed Inland Empire was a strategic place to build a satellite office to further help the area.

Fannie Mae said they have the biggest foreclosure prevention process in the United States for its mortgage clients. Also, it has provided assistance for more or less 1 million homeowners either preserve their houses or keep away from foreclosure from the year 2009.

At present, there are more than 265,000 Fannie Mae-backed loans in the Riverside and San Bernardino County. More than 13,000 of it are already delinquent.

The Greater Los Angeles Mortgage Help Center, since its start of operation in October 2010, has already assisted 2,300 client borrowers get a non-foreclosure solution. 63 percent of this found a mortgage solution to stay in their homes. In the year 2011, it assisted 852 borrowers stay in their homes.

The staff of the Inland Empire satellite office will be by Neighborhood Partnership Housing Services, which is a local nonprofit partner. According to Clemente Mojica, president and chief executive officer of the Ontario housing services agency, it will provide three full-time counselors, two intake officers and a receptionist.

Mortgage Lenders Target Borrowers With High Equity and Deposit

Although banks are reducing the cost of mortgage rates, experts say that the majority of these are aimed at lower-risk borrowers who are capable of making a large down payment.

Last Tuesday, the lowest-ever five-year fixed-rate mortgage at 2.95 percent was released by the Royal Bank of Scotland. This is lower in comparison with Santander and HSBC’s deals, which have a rate of 2.99 percent.

Similar to Santander and HSBC’s deals, RBS’ five-year fixed mortgage is only offered to borrowers who have equity or a down payment of a minimum of 40 percent. Moreover, RBS’ rate can be obtained by borrowers through payment of a fee worth £2,495.

According to Ray Boulger of mortgage broker John Charcol, even though the fee is higher compared with other deals, it will provide a good price for borrowers with mortgages of no less than £100,000.

Another competitive deal is a five-year fixed-rate mortgage at 3.39 percent offered by Nationwide Building Society. The mortgage is for borrowers who have equity or down payment of 30 percent or above, and it comes together with a £499 fee for purchases, £299 for first-time buyers, and £999 for remortgages.

Although the majority of the competition has been focused on attracting borrowers who have a large amount of down payment, there are a few lenders who also target first-time buyers.

Lloyds Banking Group said last Monday that it will offer £5bn to first-time homeowners by the end of this year. Moreover, it has lent to 25,000 first-time buyers in the first half of 2012, and targets to increase this to 50,000 by the end of this year.

In contrast, HSBS said early summer that it would lend more to first-time buyers from £3bn to £4bn.

According to Ben Thompson of Legal & General Mortgage Club, an increase in mortgage lending will encourage growth and boost competition. However, Thompson added that there is still limited assistance for borrowers with little equity.

Decrease in Mortgage Lending

For the month of June, repayments of housing loans exceeded new lending for the first time since the same period of the previous year. Consequently, there was an increase in total lending to individuals by £0.3bn, which is the smallest increase in approximately a couple of years.

However, there was a decrease in the number of new mortgages approved for home buyers to 44,192, which is the lowest in 18 months. Moreover, approved mortgages but not yet lent decrease by 10 percent on June in the previous year.

In the previous week, the same figures were also issued by the British Bankers’ Association (BBA). BBA said that the decline in mortgage approvals was brought about by the wet weather in the month of June. Some events that also had an effect in the market include the Diamond Jubilee and Euro 2012 football tournament.

According to figures from HM Revenue and Customs (HMRC), although there was a decline in the lending activity, house sales across the UK increased for the month of June. Specifically, sales for the first half of this year was 11 percent higher compared with sales in the previous year.

This inconsistency is due to the fact that over 40 percent of home sales happen with no need for buyers to take on a mortgage. Therefore, completed sales can increase despite the decrease in borrowing.

Based on the recent figures from Bank of England, banks were planning to limit their mortgage lending much more in the following months, especially to borrowers with small down payments.

Due to the ongoing recession and euro crisis, a warning that lending might keep on declining this year was given by Mark Harris, chief executive of mortgage broker SPF Private Clients.

In addition, Harris said that although rates have dropped, loans with cheap rates are only available to borrowers that are capable of paying large deposits.