Uncle Sam’s New Guide to Mortgage Shopping

My guess is that the typical American puts more thought into the search for a flat-screen TV than into the choice of a mortgage lender.
By: James R. Hagerty: WSJ.com
Shopping for a TV is fairly straightforward. You read reviews online or in Consumer Reports; you eyeball a few models in the store to see if the image looks sharp; then you buy from whichever merchant has the lowest price. If the TV doesn’t work, the merchant gives you a new one.

Shopping for a mortgage is more complicated, less fun and infinitely more dangerous to your long-term financial interests. At the end of the process, you probably have no idea of whether you got the best deal available. Was the upgrade on those cherry kitchen cabinets really worth the high rate and fees you paid to the lender affiliated with your friendly home builder? Probably not, but that salesman sure was persuasive, and you were glad to be relieved of spending the next three days shopping for mortgages.

Now help is on the way from a most unlikely source: The U.S. Department of Housing and Urban Development, or HUD.

Federal rules that take effect Friday mandate a standard, three-page Good Faith Estimate that urges consumers to shop around for the best loan and helps them compare lenders’ offerings. The rules, announced by HUD in November 2008 but just taking effect this week, are an update of the Real Estate Settlement Procedures Act, a 1974 law known as Respa. (See WSJ story.)

One difficulty of shopping for mortgages is that the lender with the lowest rates often isn’t offering the best deal. High fees can wipe out the benefits of low rates, and little-noticed features such as prepayment penalties might blow up on you later on. Even for members of Mensa, it’s hard to compare different combinations or rates, “points” (paid in exchange for a lower rate), fees and other terms. Lenders often sprinkled in lots of confusing charges, such as processing and messenger fees, to pad their margins. Dickering over theses “junk” fees distracted borrowers from the bigger picture of total costs.

All of these complexities favor lenders, of course. The more confused you get, the less likely you are to realize you just got fleeced.

To address those problems, the new estimate form requires lenders to wrap all the fees they control into one “origination charge.” That lets you compare one lender’s fees with another’s. Jack Guttentag, a finance professor emeritus at the University of Pennsylvania’s Wharton School, recommends that borrowers focus on two items as they shop: the interest rate and the “adjusted origination charge,” which includes any points paid to lower the rate.

Good Faith Estimates have been around for decades, but there was no standard format. Under the new rules, lenders and mortgage brokers are required to give consumers the standard estimate forms within three days of receiving a loan application.

Lenders aren’t allowed to increase the origination fee from the estimate. Some additional charges, including title services and recording charges, can increase by as much as a combined 10%. Estimates for other charges, such as homeowner’s insurance and other services provided by third parties selected by the borrower, aren’t subject to such limits.

Title insurance typically is the largest fee, and the new forms let consumers know they don’t have to accept the insurer suggested by the lender. Mr. Guttentag says title insurance can be “vastly overpriced” and consumers should take the time to shop for it.

Settlement firms, which organize the closings of home sales, will be required to issue a new version of the HUD-1 form used in closings. This new HUD-1 includes a comparison of the estimated and final costs, as well as a summary of the loan terms.

Will all this make a big difference? Mr. Guttentag, who has been exposing the tricks of lenders and brokers for decades, thinks the new rules will help, though they aren’t a cure-all.

Much depends on whether Americans want to put in a bit of effort rather than simply accept the often biased mortgage advice of a real estate agent, home builder, broker or banker. The real estate agent may urge you to use an affiliate of his firm, or recommend the lender most likely to grant a loan quickly rather than the one with the best terms. The builder wants you to use his in-house lender. The brokers and loan officers are working for themselves, not for you.

When you’re trying to pick a new TV, you don’t rely on a TV manufacturer to give you an impartial review of the alternatives.
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Plan to demolish building on Wilshire Boulevard is opposed by L.A. Conservancy

The conservancy says the 1965 Columbia Savings building at La Brea Avenue is worth saving. Area residents worry that a planned 482-unit apartment and retail complex would add to congestion.
By: Cara Mia DiMassa: latimes.com
The stretch of Wilshire Boulevard between downtown and the Miracle Mile was for decades a center of commerce, with buildings once occupied by such business powerhouses as Union Bank, Texaco, IBM and Getty Oil.

In more recent years, it's been transformed into a residential hub, with a construction boom of mid-rise condo and luxury apartment buildings.

Yet for all of the momentum - more than two dozen residential developments either have been completed or proposed for the corridor - a backlash is now gaining steam, and it's centered on a mid-century former savings and loan building at Wilshire and La Brea Avenue.

The squat building, with a ribboned facade and a stained-glass skylight, is an example of a type of architecture that was prevalent in the years after World War II, when financial institutions pushed for bold buildings to symbolize their own emergence from staid practices and reputations.

Preservationists have joined with some residents in an effort to save the structure, which they consider architecturally significant, a gem of Modernist design that the public has only recently begun to appreciate. They have filed a request with the state of California to give the building landmark status.

Some residents are backing the request, saying the boom in mid-rise apartment complex construction along Wilshire has gone too far.

But the developers say that the building's significance has been overstated and that the neighborhood would be better served with the 482-unit apartment and retail complex they have proposed for the site.

Dale Goldsmith, a land-use attorney representing BRE Properties, the building's owner and developer, said the project "will reflect the demographics of the area."

At a hearing of the Los Angeles City Council's Planning and Land Use Management Committee on Tuesday, Councilman Dennis Zine called the project "well worth it for the community."

The committee approved the developer's plan Tuesday, sending it to the full council for final approval, which is expected as early as later this week.

But that, said Mike Buhler, the Los Angeles Conservancy's director of advocacy, is short-sighted.

He said that the city failed to consider the historical significance of the building and that the developer could put the structure, which is only a portion of the block that BRE wants to develop, to an alternate use such as a restaurant, store or gym rather than demolish it.

"We were surprised that the draft environmental impact report refused to recognize the building's significance in any way," Buhler said.

Should the building be recognized by the state as architecturally significant, the city would have to go back and reconsider that as a part of the environmental impact report. A hearing on the state matter is scheduled for Jan. 29, and the conservancy is asking the city to delay a vote on the Wilshire-La Brea project until after then.

The Columbia Savings building, which opened in 1965, is at the center of the conservancy's "60s turn 50" initiative.

The effort recognizes a class of buildings in Los Angeles from that era whose significance has not been widely acknowledged.

The building, which most recently served as a church, isn't mentioned in the city's definitive architectural guide, and the City Council overturned a recommendation by the city's Cultural Heritage Commission supporting the application for state landmark consideration.

The BRE design for the block, bordered by Wilshire, La Brea, Sycamore Avenue and 8th Street, calls for a public pocket park as well as undulating edges and double rows of trees - all efforts that Goldsmith said were aimed at softening the building's effect on the neighborhood and keeping it from being too monolithic. A previous proposal called for a structure at Wilshire and La Brea to be 17 stories; that was scaled down to seven stories after community objections.

The back-and-forth over the project comes on the heels of a profound change in the Wilshire Corridor, with sleek glass-and-steel towers being added to the cityscape while formerly shuttered office towers have been rehabbed as residences.

Goldsmith said he's worked on five projects in the area, and BRE finished the 5600 Wilshire project, just west of La Brea, earlier this year.

Because Wilshire is considered a transit corridor - with rapid bus lines and Metro stops - and because it's one of the few places in the city where high-rise towers are allowed, many developers see the changes along the boulevard as a symbol of the city's evolution.

The economic slowdown has had little effect on their progress, and longtime residents worry that the growing number of people along the corridor will put added pressure on transportation and infrastructure that is already struggling to keep up.

In a letter to the city planning department, resident Susan Baker objected to what she called "the Manhattanization" of her neighborhood, and she worried that the Wilshire-La Brea project would bring more traffic and noise pollution.

"This entire area is becoming overbuilt with brand-new apartments," Baker wrote. "Who $ay$ we have to have $till more?"

Jim O'Sullivan, president of the Miracle Mile Residents Assn., said he saw residents divided about the Wilshire-La Brea project: Some welcomed the development of the building and the area around it, and others objected to even more construction in their area.

But he said that almost everyone worried what effect the economy would ultimately have on their area. Already, he said, he's noticed that potholes are not fixed as quickly, and streetlights can be out of order for weeks.

"I think at the moment, everybody is just holding their breath with what is going on in the city and elsewhere," O'Sullivan said. "We're trying to figure out what happens next."
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Mortgage Applications in U.S. Increased 2.1% Last Week, MBA Index Shows

Mortgage applications in the U.S. rose last week, led by a gain in purchase applications as mortgage rates approached historic lows.
By: Bob Willis: Bloomberg.com
The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan rose 2.1 percent to 613.7 in the week ended Nov. 27 from 601 the prior week.
The group’s gauge of purchases gained 4.1 percent, a second consecutive advance, while its measure of refinancing climbed 1.7 percent.

Cheaper borrowing costs and a tax credit for first-time homebuyers are giving demand a lift and may pave the way for a self-sustaining housing recovery. An unemployment rate that is forecast to exceed 10 percent through the first half of 2010 is one reason why any improvement is likely to be uneven.

“The combination of falling rates, the tax credit extension and improved affordability point toward a rebound in housing demand,” Michael Larson, a housing analyst at Weiss Research in Jupiter, Florida, said before the report. “Purchase applications should enter 2010 with the wind at their back.”

The purchase index rose to 232.3 from the prior week’s 223.1. The measure reached a 12-year low in mid-November. The mortgage bankers’ refinance gauge increased to 2866.4 last week from 2818.7, today’s report showed.

The share of applicants seeking to refinance loans rose to 72.1 percent of total applications last week.

Rates Fall

The average rate on a 30-year fixed-rate loan declined to 4.79 percent last week, the lowest since May, from 4.83 percent, according to the mortgage bankers group. The rate reached 4.61 percent at the end of March, the lowest level since the group’s records began in 1990.

At the current 30-year rate, monthly borrowing costs for each $100,000 of a loan would be $524, or about $43 less than the same week a year earlier, when the rate was 5.48 percent.

The average rate on a 15-year fixed mortgage fell to 4.27 percent from 4.32 percent. The rate on a one-year adjustable mortgage declined to 6.56 percent.

President Barack Obama on Nov. 6 extended the deadline for a tax credit of as much as $8,000 for first-time buyers to April 30, and added buyers who have owned a home for at least five years.

The tax credit, together with foreclosure-driven declines in prices and low rates, has helped boost housing sales from record low levels this year.

Mounting Joblessness

Even so, unemployment at a 26-year high is making most people reluctant to buy a home. Tighter credit standards are making it harder to get mortgages for those who want to buy.

Homebuilders, while seeing signs of improvement, remain cautious. Beazer Homes USA Inc. had a 2.4 percent gain in new orders in its fiscal fourth quarter, helping it post its first quarterly profit in three years, the Atlanta-based builder said Nov. 10.

“Elevated unemployment and rising foreclosure activity make it difficult to predict when and to what extent the housing market will sustainably recover,” Chief Executive Officer Ian McCarthy said in the statement.

The Washington-based Mortgage Bankers Association’s loan survey, compiled every week, covers about half of all U.S. retail residential mortgage originations.
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Obama administration pushes to make mortgage modifications permanent

New guidelines follow complaints involving restructured mortgages meant to keep homeowners from foreclosure. Lenders and servicers could face sanctions if requirements are not met.
By: Jim Puzzanghera: latimes.com
The Obama administration today announced a renewed push to get mortgage companies to convert hundreds of thousands of temporarily restructured home loans into permanent ones by the end of the year to help keep struggling homeowners from falling into foreclosure.

As part of its aggressive action, the administration is summoning executives from the nation's top mortgage servicers to Washington next week to prod them to speed up their efforts.

It also is sending what administration officials described as three-person "SWAT teams" to the offices of those firms to help them obtain the necessary documents from borrowers and trouble-shoot problems.

"In our judgment, servicers to date have not done a good enough job in bringing people a permanent modification solution," Assistant Treasury Secretary Michael Barr said.

The administration is hoping to embarrass mortgage servicing companies into doing more to make trial modifications permanent by highlighting those that are not performing well. But it also could levy penalties or other sanctions against laggards based on the agreements they signed to participate in the program.

"Servicers that don't meet their obligations under the program are going to suffer the consequences," Barr warned.

The moves come amid complaints of bureaucratic nightmares from people who have received the short-term reductions in their payments but have been unable to get their servicer to make the changes permanent. The mortgages have been altered under the administration's $75-billion Home Affordable Modification Program, which uses financial incentives to get banks and other mortgage holders to reduce the payments for homeowners who meet certain qualifications.

The program has temporarily modified more than 650,000 mortgages as of Oct. 30, with an average monthly payment reduction of $576. But few of those three-month trials are estimated to have been made permanent. As of Sept. 1, only 1,711 trial modifications had become permanent, according to the oversight panel monitoring the $700-billion Troubled Asset Relief Program. TARP money is used to fund the program.

The Treasury Department, for the first time, will release its own numbers next week. But Barr said the number was "low."

About 375,000 of the trial modifications are eligible to be made permanent by the end of the year. About a third of the homeowners with those temporary reductions have submitted the needed documents, including current income statements, so servicers can decide on permanent modifications, said Phyllis Caldwell, head of the Treasury Department's Homeownership Preservation Office.

"These homeowners, who took the time and effort to complete documentation, deserve a decision by their servicer," she said.

The administration's new plan focuses on increasing accountability by mortgage servicers. The leading mortgage servicers will be required to submit a schedule of their plans to reach a final decision on each loan for which they have the proper documentation and to send the borrower a permanent modification agreement or denial letter.

Many people in the program have complained of a bureaucratic runaround and inability to get a straight answer on their status from their mortgage holder.

Special account liaisons from the Treasury Department and Fannie Mae will be assigned to the eight largest servicers and monitor the progress as frequently as daily. The administration will require those companies to submit twice-daily updates throughout December on their progress. Mortgage servicers that fail to meet standards they agreed to as part of the program "will be subject to consequences, which could include monetary penalties and sanctions," administration officials said.

The administration also is providing new information for homeowners on its website, www.makinghomeaffordable.gov, including links to lists of documents and a new instructional video, to help them get their trial modification made permanent.
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Guidelines Aim to Ease Short Sales

The Obama administration laid out final guidelines on Monday that should make it easier for some financially troubled borrowers to sell their homes.
By: RUTH SIMON: WSJ.com
The guidelines are designed to encourage the use of short sales, transactions in which the borrower with lender approval sells the home for less than what is owed on the loan.
The program also makes it easier for borrowers to voluntarily transfer ownership of properties through a "deed in lieu of foreclosure."

Short sales can result in higher prices than foreclosures and can be less damaging to local neighborhoods, in part because homes aren't left vacant and exposed to vandalism. But these transactions are often difficult to complete.

Under the plan, borrowers will receive $1,500 from the government if they sell their homes for less than the amount of their mortgages. Mortgage-servicing companies will also receive $1,000 for each completed short sale. The program is open to borrowers who may be eligible for the government's loan-modification program, but don't end up qualifying, or are delinquent on their modification, or request a short sale or deed-in-lieu transaction.

The short-sale program is the latest addition to the Obama administration's $75 billion foreclosure-prevention plan, which includes incentives for mortgage companies and investors to rework troubled loans. The government first said in May that it would include short sales in the program, but it has taken months to finalize the details.

Under the new guidelines, second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens. Investors who hold the first mortgages, meanwhile, can collect up to $1,000 from the government for allowing such payments.

Borrowers who complete a short sale under the program must be "fully released" from future liability for the debt, according to the guidelines.
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