Purchase Mortgage Market Share Shrinks to 15-month Low

The market share of purchase mortgages that closed in October reached its lowest level since August 2011.  Only 31 percent of all mortgages that closed last month were used to purchase a house versus 69 percent to refinance, according to the latest origination report from Ellie Mae released today.

The FHA loan market share also reached the lowest level since Ellis Mae began issuing the report 15 months ago.  Only about 19 percent of all mortgages closed in the month were FHA loans and 74 percent were conventional.  The decline in FHA market share, which was 24 percent a year ago, comes as FHA announced it will raise its annual premium an average cost of about $13 per month per borrower next year in order to reduce a $16.3 billion net worth deficit uncovered in the agency’s annual audit.

The closing rate for all loans jumped four points in October, rising to 54.5 percent of all applications, the highest closing rate in a year.  The closing rate for refinancing was 51.3 percent and for purchase loans rose to 61.2 percent, slightly higher than the September rate and a sign that borrowers are in better shape with credit, down payments and documentation.

Average FICO scores, loan-to-value ratios and debt-to-income ratios for all types of loans didn’t vary much from September, suggesting that lenders are not loosening standards.

Average time to close increased from 50 to 54 days from September for October for all loans.  All of the increase came from refinancings, which increased from 53 to 57 days.

The Ellie Mae Origination Insight Report provides monthly data and insights from a robust sampling of closed loan applications that flow through Ellie Mae’s mortgage management software and Ellie Mae Network™. In 2011, the total volume of mortgages that ran through Ellie Mae’s Encompass360 mortgage management software was approximately two million loan applications, or 20 percent of all U.S. mortgage originations.

source: thenichereport.com

Foreclosure cancellations surge in Golden State

The number of foreclosures canceled by banks surged 62% across California last month, the same month major mortgage servicers were required to comply with new rules outlined by this year’s National Mortgage Settlement.

Banks in the Golden State canceled 15,539 scheduled auctions last month, according to a report by website ForeclosureRadar.com. That was a 36.7% drop from the same month last year.

Sean O'Toole, founder of ForeclosureRadar, wrote in the October report that the increase was most likely due to the effective banning of dual tracking in the state. Dual tracking refers to the practice by banks of pushing a borrower through the foreclosure process while at the same time negotiating a loan modification.

“This is another example of where changes in foreclosure trends are driven by government intervention, and not necessarily economic recovery. While the impacts are still unclear, the elimination of dual tracking may avoid some unnecessary foreclosures, but will lengthen the foreclosure process and delay ultimate recovery. Expect further impacts to foreclosure trends in the months ahead.”

There has not been a comparable spike in California foreclosure cancellations since December 2011, when banks were under heavy scrutiny by state and federal regulators for improperly foreclosing on troubled borrowers. That scrutiny resulted in the big mortgage settlement earlier this year — of which California was the biggest beneficiary.

The settlement, and a series of California laws backed by State Atty. Gen. Kamala D. Harris, resulted in effectively banning dual tracking. O’Toole said banks are probably canceling foreclosure sales so that they will not be in violation of any laws.

Before the ban on dual tracking, a bank would often give a homeowner a trial loan modification and continue to postpone the foreclosure auction. By keeping the trustee sale in place, but postponing it, the bank could foreclose immediately if a trial modification did not work out.

But consumer activists railed against this practice, saying that it confused homeowners, strung them along and in some instances resulted in unnecessary foreclosures. Consumer activists had tried to pass legislation banning the practice in California, but the measures had failed until Harris put her weight behind them.

source: latimes.com

The Importance of Mortgage Loan Insurance

Mortgage Loan Insurance is intended to protect the lender from default on the part of the borrower, plain and simple. However, the Canada Mortgage and Housing Corporation (CMHC) designed mortgage loan insurance for more than just protecting the banks. The CMHC wanted homeowners to have a greater ability to enter the housing market, at an earlier time and with better success. After all, more privately owned housing means more jobs, more consumer activity, more money being spent and so on. If there are more jobs and more spending, then the economy benefits. In short, the risk to lenders has been removed, leaving them in a better position to offer lower interest rates and smaller payments.

When the CMHC laid out their plan for mortgage loan insurance (MLI), it included the stipulation that if the buyer had less than 20% of the purchase price as a down payment, the insurance was required. Before the advent of MLI, The Canadian Bank Act prohibited federally regulated lending institutions from lending to those with less than that 20%. Now the banks can finance up to 95% of the purchase price, provided MLI is purchased. The change meant so many more people who had previously given up on owning a home, now had hope.

For those who already own a home, MLI provides options for those wanting to renovate, refinance or move to another home. CMHC MLI's are portable from an existing home to a newly purchased one, and sometimes without having to pay the initial premium on the new home. Additionally, the self-employed who are seeking to finance the purchase of a new home are now able to do so without providing traditional forms of proof of income. Even those who are new to Canada are eligible. Existing homeowners who wish to incorporate energy efficient elements into their home (NRCan energy assessment rating must rise by at least five points) are entitled to an extended amortization period – without a surcharge and with a ten percent insurance premium rebate. There are even further benefits for borrowers purchasing a second home or income property.

Now that we know the importance of MLI, how does it translate into numbers? Well, for starters it depends on a few calculations. Your lender will do them for you, but if you want an idea ahead of time then begin with calculating the Gross Debt Service (GDS). The GDS estimates the most expenses you can afford each month, more specifically the expenses related to running the home. To qualify for an MLI, the total GDS should not be more than 32% of your gross household income. Next is calculating your Total Debt Service (TDS), which estimates the most debt load your income will support. The TDS should not be more than 40% of your gross monthly household income. Then use an online mortgage calculator to enter the information along with your total monthly income along with other factors, and you will be provided with the maximum allowable mortgage you will qualify for.

The MLI premium rate will then be calculated as a percentage of the total loan with the size of the down payment taken into account. For example, if you require the lender to finance 80% of the cost of the home then your premium will be 1% of the total loan. If your purchase requires 95% financing on the part of the lender, the premium will be 2.75% of the total loan amount. Thus, the lower the amount financed, the lower the insurance premium.

In June of 2011 the CMHC reported their findings of recent survey which asked 3512 mortgage buyers about their goals in paying off their debt. A whopping 39% said they had purposefully set their payments higher than the suggested amount so they could pay off the debt faster. A further 20% reported making a lump sum payment since the date their mortgage took effect. The summary statement offered by the CMHC was that Canadian homebuyers have "a high level of financial literacy". The statistics offered by the corporation is certainly a good sign, and any proud Canadian homeowner should give them self a pat on the back.

Furthermore, the harder homeowners work to pay their mortgage down, the more equity they build in their home. Clearly the opportunity to purchase sooner than what was previously possible (through the installation of the MLI), homeowners have taken the chance to go further than even the lender anticipated. As of 2009, the CMHC reported that Canadian homeowners' equity position sits at an average of 74% while their American counterparts were at 43%. The importance of the MLI is certainly clear now, isn't it?
The Canadian Equity Group Inc was formed by a group of mortgage professionals in December of 2001 with the vision to expand the mortgage market and to be a front-runner with major banking institutions. We predict very soon that more than 75% of all mortgages in Canada will be placed through the services of a mortgage broker. If you want to find the best mortgage rates, visit us online today!
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