State Program Preventing Foreclosures

Mortgage default rate has plunged by 52% over past year

By James Thalman

Deseret News Published: July 25, 2008

About 10,000 moderate-income Utahns who purchased homes with the help of the state's first-time buyer assistance program are not only getting through the mortgage foreclosure storm, their default rate has actually dropped by more than half over last year. The default rate among moderate-income and first-time homeowners who have lower-than-market interest rates through Utah Housing Corporation has dropped by 52 percent the past fiscal year that ended June 30. That's one foreclosure for every 4,857 households. During the same period, according to Utah Housing figures released Monday, foreclosure rates statewide increased by 141 percent. That's one foreclosure for every 600 households, a rate that is lower than the current national foreclosure rate of one in every 501 but still 10th-highest nationwide in the rate of default increases the past year. Utah is 10th in the country in increased rate of foreclosures, according to the housing market monitoring company Realty Trac. The interest break provided to Utah Housing customers is a factor in the decline in foreclosures compared to the national boom in them, company administrators said Monday. But the main reason Utahns who bought homes, financed rental properties or developed special needs housing through Utah Housing have fared better is a combination of responsible lending practices and purchasers buying what they could actually afford. Utah Housing, which was established by the Legislature in 1975 and has provided less than the going loan interest rate to about 60,000 Utahns, historically has had many fewer delinquencies and foreclosures compared to the rest of the state. "Moderate-income and first-time homebuyers do not need any surprises when it comes to making their monthly house payments," said Utah Housing President William Erickson. "All of our loan payments are fixed over the life of the loan and not subject to fluctuations like the adjustable or variable rate stuff out there that has led to the subprime mess." Purchasers themselves must have a verifiable history of good credit and steady employment in order to qualify for Utah Housing funds. "Utah Housing wants having a mortgage to be a positive experience for our customers, because it has finally allowed them the American dream of home ownership," Erickson said. The company has found several ways to achieve that goal, he said, noting that it offers programs to fund down payments and closing costs that often total around 6 percent of the loan amount. Homes built by students are discounted for buyers, and the agency also underwrites rent-to-own purchases. The agency essentially is the state's version of the national Fannie Mae and Freddie Mac loan security agencies established by the federal government. Fannie and Freddie are in trouble with subprime loans, but Utah Housing is in an enviable position of not being part of the housing bubble, either when real estate was booming or when it burst, he said. In addition to providing below-market rate mortgages for modest-income homebuyers, Utah Housing also partners with developers to finance affordable and subsidized rental properties around the state. Special needs housing, such as shelters for victims of domestic violence, elderly, physically and mentally challenged, among many others, are also provided through Utah Housing

Good News: Fed Takes Over Fannie Mae & Freddie Mac

It's wabbit season, duck season, wabbit season, duck season - NO, its Refi-season - read on! Mortgage Bonds are soaring higher on yesterday's announcement that Fannie Mae and Freddie Mac will come under control of the government. This announcement came as the government felt both these institutions will no longer be able to meet their mission statement which is to provide liquidity, stability and affordability in the housing markets.
Fannie Mae and Freddie Mac both have issued many Bonds which over time mature, and Fannie and Freddie need to pay back the principal on the maturing Bonds. The way they raise capital to pay these maturing Bonds is to issue new Bonds. This happens every month. And as long as Fannie and Freddie can sell new Bonds this system works well. But the problems in the mortgage industry have reduced investor appetite to purchase these Bonds...and that's where the trouble begins. Without the ability to sell new Bonds, Fannie and Freddie are less able to meet the capital requirements to pay off the maturing Bonds. And that's the big fear. If Fannie and Freddie were to default and become insolvent, it would throw the beleaguered mortgage and housing markets even deeper into the abyss.
Additionally, the recent lack of appetite for Fannie Mae and Freddie Mac Bonds caused the two mortgage giants to have to do something to make their Bonds more attractive...so they offered their Bonds at higher yields to gain more investor interest. However, since they couldn't go back and raise rates on loans that had already been closed, it sucked even more profits out of Fannie and Freddie, reducing capital even further, and exacerbating the problem.
That's why the Treasury has stepped in and said that they will back the payments on these Bonds. This action has given investors a lot of confidence to step in and now buy Mortgage Bonds. Think about it. For a higher rate of return, investors can now buy Mortgage Bonds with the same guarantee as lower yielding Treasury Bonds. This is causing a nice rally in pricing this morning - which combined with the break above the 200-day Moving Average - leads to attractive rates and what could be the aforementioned refinance season ahead.