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February 13th, 2012

Mortgage rates hold steady after ‘robo’ settlement reached

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int rate QMarkThe post below is taken from the latest issue of HSH.com’s Market Trends newsletter, an examination of the mortgage and housing markets from the week prior. Sign up today.

In a week where a “landmark” foreclosure-abuse lawsuit finally came to a close, mortgage rates held close to record-low levels. One happenstance is good for potential homebuyers, the other not so much.

Inasmuch as $25 billion in penalties for perceived wrongdoing must be paid, and the money ultimately must come from somewhere, we can only be left to conclude that the cost of mortgages will eventually be higher than it would be absent the settlement.

Mortgage rates remain a positive force for housing

HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator (FRMI)–found that the overall average rate for 30-year fixed-rate mortgages rose by three basis points (.03 percent) from the previous week, rising to an average 4.21 percent.

The FRMI’s 15-year companion also gained by three basis points (.03 percent) to finish the weekly survey at an average 3.49 percent.

Conforming 30-year FRMs move just a single basis point higher for the week, finishing at 4.02 percent.

FHA-backed 30-year mortgages declined by another one hundredth of a percentage point to a new record low of 3.83 percent, while the overall average for 5/1 Hybrid ARMs increased by two basis points to move back over the 3 percent mark to 3.01 percent.

Who is the ‘robo’ settlement actually helping?

And what of the foreclosure and loan servicing “abuse” settlement, which ran longer than a year, with tens or possibly even hundreds of millions in legal costs?

Well, homeowners who weren’t directly subject to any kind of foreclosure abuse might be able to get as much as $20,000 chopped off their loan balance, if they are in trouble or in danger of becoming so and if their loan is not a GSE or FHA-backed model.

That’s expected to eat up maybe $17 billion to $20 billion of the settlement, while another $3 billion to $5 billion is expected to be distributed in the form of checks to up to perhaps 750,000 folks who lost their homes to foreclosure between 2008 and 2011. Other funds will provide some refinance opportunities for certain borrowers, and most of the rest will go to states for foreclosure prevention programs and such.

Is the ‘robo’ settlement helping the wrong folks?

While there is no doubt some benefit to formalizing and organizing the process of foreclosure and better monitoring of the process, the fact is that the settlement changes little.

When the suit was first raised last year, we believed then as we do now that parties who were actually “abused” by servicers or during the foreclosure process–and especially any who wrongfully lost their homes–should have full redress under the terms of the law. That said, where are the borrowers who were making payments per the terms of their contracts whose homes were taken from them? If they exist, what is $2,000 to them? Conversely, why should a borrower who lost their home to foreclosure for failing to make payments (sometimes for years) be eligible for compensation at all? Does the fact that a human did or did not fully review the paperwork during the foreclosure process change that simple fact? It does not.

Principal reductions: No immediate relief

Principal reductions are all well and good, but they are being offered to folks who haven’t been “abused” by the system per se, but are as much victims of the downturn as anyone else who owns a home. That said, if the house is underwater by perhaps $50,000 (a working figure, according to CoreLogic), the homeowner will remain underwater for many years yet to come. Although it does move the needle closer to zero for some, it fails to solve the problem.

Also, if the loan isn’t re-amortized after the principal reduction (that is, if the $20,000 is simply treated as a one-time prepayment), there will be zero effect on the borrower’s monthly payment, which is stipulated in the loan contract. Rather, the value will come in total interest savings from shortening the loan term. That’s great, but is not immediate relief of any sort. It would, however, change the mix of principal and interest due in a borrower’s payment, moving them toward solvency at a slightly accelerated pace.

What’s in store for this week?

We thought rates would tick a little higher last week and they did. That might be the case again this week, just enough to again keep us a whisker or two above record lows. We expect to roll out a new two-month forecast next week, so check back!

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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