Given such huge losses should the money you pay for homeowner’s insurance go up?

A firm “no” comes from Joanne Doroshow, executive director of the Center for Justice & Democracy.

“The damage from hurricanes is already modeled, planned for, and paid for by homeowners premiums,” said Doroshow, “and rates are not supposed to rise after these events.” In other words, insurance companies are supposed to understand risk, collect cash in advance, invest cautiously and have reserves available to pay off claims when something like hurricanes Katrina or Hugo come along.

Doroshow explained that “in the wake of Hurricane Andrew in 1992, insurers changed the way they set prices for hurricane coverage.In lieu of using the prior 20 to 40 years of recent history to set the prices by state, the industry adopted scientific modeling. These models project, by segment of the coastline called reaches (the anticipated storm damage for different category hurricane storms). The projections are for at least 10,000 years of virtual experience based on the best hydrological, meteorological, actuarial and other inputs available.

“This means,” said Doroshow, “that the 10,000 years of projected experience includes periods of many and very large hurricanes (like a category 5 storm making a direct hit on Miami and causing $200 billion of insured loss) and also periods where no hurricanes make land fall, like recent years.”

The bottom line is that insurance companies employ lots of actuaries and weather professionals to set their rates. Huge reserves should be in place. If company predictions preparations are wrong the result should be smaller dividends rather than higher premiums.

Why Home Insurance Rates Should Not Soar After Hurricane Irene is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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And who will benefit? That would be the nation’s private lenders, TARP money recipients and payers of executive bonuses. Let me explain:

FHA Reserves

Every insurance program is supposed to have a reserve account to pay off claims. The FHA mortgage loan program is really an insurance plan — the government insures loans made by private lenders. In exchange for a lower down payment borrowers pay both an up-front mortgage insurance premium and an annual insurance premium (MIP).

The Mutual Mortgage Insurance(MMI) fund is supposed to be a reserve equal to 2 percent of all outstanding FHA loans. The money for the MMI fund comes from the collection of FHA insurance premiums. The higher MIP premium — that additional .25 percent — will boost FHA reserves.

But is that necessary?

“The MMI fund,” says FHA Commissioner David H. Stevens, “has been below the two percent threshold in our last two annual actuarial reports to Congress.”

It is now 2011. Just how long would it take for the fund to reach the magic 2 percent level without any premium increase?

“Under conservative assumptions of future growth of home prices,” HUD told Congress last year, “and without any new policy actions, FHA’s capital ratio is expected to approach two percent in 2014 and exceed the statutory requirement in 2015.”

If the FHA does not raise the annual premium, does not increase costs for new borrowers by $360 a year, the reserve will reach 2 percent around 2014. In effect, without the premium increase the FHA expected to collect more reserve money then it paid out in claims otherwise reserve levels could not increase.

Other Reserves

No less important, HUD has a variety of reserves in addition to the MMI — and they are growing. Again, from last year’s report to Congress:

HUD says that “due in large part to the performance of recently originated loans, FHA’s total capital resources increased by $1.5 billion since last year, to $33.3 billion, and are at their highest level ever – $5.5 billion greater than predicted last year. If the economy were to suffer a further significant downturn, recovery of the capital ratio could be delayed beyond the projected timeframe. However, even in the actuaries’ worst-case stress test scenario, FHA’s capital resources remain sufficient to cover projected claim losses and FHA would not require a taxpayer subsidy, an improvement over last year’s assessment and due to new loans having higher credit quality than had been anticipated.”

$10 Billion

The reality is that the FHA is doing remarkably well. As Commissioner Stevens just testified, the “FHA is projected to generate approximately $9.8 billion in receipts for the U.S. Treasury in FY 2011, a significant increase compared to the $565 million of receipts generated in FY 2009.”

Apparently, bulking up the Treasury with almost $10 billion in FHA program dollars is not enough.

Who Benefits?

Raising the annual mortgage insurance premium will do little to strengthen a reserve system which is not actually in trouble. What higher premiums will do is discourage FHA financing and refinancing while driving more borrowers to the happy hands of private-sector lenders.

Most importantly, higher FHA premiums will not get to the root of the mortgage meltdown. Toxic loans created by lenders in the private sector devalued all homes. The result is that individual claims against mortgage insurance programs both public and private are larger than would otherwise be the case because homes generally have less equity. Had national lenders been properly regulated by federal authorities there simply would not have been a mortgage meltdown, falling home values or now a public love-fest with the safe and secure FHA program.

A Gift To Lenders

The Administration, says Mr. Stevens, will “ensure that the private market — not FHA — picks up that new market share.”

One way to “ensure” private lender success is to make the FHA program artificially less attractive. This is precisely what’s being done with the higher FHA premium. In effect, the government is tilting the marketplace to favor private lenders at the expense of average borrowers.

But why should the government guarantee private lenders a higher market share?

Apparently private-sector lenders can’t compete with the FHA by offering better mortgage products or lower mortgage costs. Instead, the government is picking marketplace winners by making the FHA program less competitive, less attractive and more expensive.

Higher FHA mortgage premiums unneeded and unjustified is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The government is now trying to address this scenario, something which is common across the country, especially for those who bought during the past few years with little or nothing down, have toxic mortgages or who live in communities which are in the eye of the foreclosure storm.

The basic idea of a so-called FHA short refinance is to replace current loans with new and shiny FHA mortgages. The government’s plan is great news for homeowners, if it will work. But will it work? And if the plan does work will the government get stuck with a lot of FHA mortgages that will soon default?

New Twist

The government established the Making Home Affordable plan in March 2009 with the intent of refinancing as many distressed borrowers as possible. As of June about 1.3 million homeowners had started three-month trial periods with lower monthly costs and nearly 390,000 borrowers now have permanent loan modifciations.

This is good news for a lot of people because the average monthly loan payment for those in the program fell from $1,422 to $838. This is a big savings, but the Making Home Affordable program cannot save all homeowners. There are borrowers who simply do not have the income to make even smaller monthly payments. Some 520,000 homeowners have started the trials and then washed out. For them, foreclosure almost certainly looms ahead.

But what if the program was changed so that more borrowers could be eligible?

The Treasury Department and HUD have now come out with a new program to extend FHA loans to borrowers with negative equity. Such “enhancements” are scheduled to begin in September.

How It Works

The new program says if you’re a homeowner and owe more than the house is worth the government has a deal for you: Refinance into a sane and solid FHA loan. Here’s what you need to qualify:

1. You must be a homeowner (no investors allowed).
2. You must be current on your existing mortgage and it cannot be an FHA loan.
3. You must have a credit score above 500.
4. The existing first lien holder must write off at least 10 percent of the unpaid principal balance.
5. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of not more than 97.75 percent of the property’s current value.
6. If there’s a second mortgage, then the combined balance of the first and second mortgage cannot be greater than 115 percent of the combined loan-to-value ratio.

7. You don’t qualify if you’ve been convicted of mortgage or real estate crime during the past 10 years (think of felony larceny, theft, fraud, or forgery; money laundering; or tax evasion).

Conflicts

Since the foreclosure crisis first began in 2007 the biggest question for lenders has been what to do with upside-down mortgages, situations where the property is worth less than the loan balance. Under the “enhancement” program, lenders would have to write off 10 percent of the existing mortgage balance to dump their loans.

In the case of the new government effort you’re just not going to see too many distressed homeowners getting new FHA loans. Two huge reasons stand out:

First, the borrower must be current on the loan. If the borrower has been making full and timely payments then the lender has no incentive to write-off a portion of the mortgage. The loan is performing, not distressed. To lenders, there’s no problem to “cure” and no reason to accept a loss. Since lender participation is voluntary you have to wonder why a lender would volunteer.

Second, in situations where there are two loans the junior lender under the program must allow the first loan to be refinanced and not move up to first place. But ask yourself: Why would a second lender agree to such an arrangement without compensation?

End Game

At this time the FHA program insures about 30 percent of all purchase money mortgages and 20 percent of all refinances. Given the rickety state of the housing market, and given common sense, nobody wants to do anything which would undermine the FHA program.

The enhancements announced by the government are unlikely to help many people because the requirements are self-contradicting and nobody wants the FHA to take on a bunch of high-risk loans. While the intention is good, the practical applications are remote and unlikely.

FHA “Short Refinance” — Is This The Way To Reduce Foreclosures? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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One of the reasons given for the take-over was that federalizing the two giant companies would result in lower interest rates.

As the New York Times explained, “the Treasury will force both companies to shrink their portfolios over the long term; they now hold or guarantee about half of the country’s mortgages. In addition, the government plans to buy significant amounts of their mortgage-backed securities on the open market, beginning with the purchase of $5 billion worth this month. This step, never before undertaken by the government, could begin to restore some confidence in the credit markets and lead to lower interest rates for home mortgages.”

Lower rates? This is a claim which is easy to check just by looking at a few dates.

___September 4th — The cost of a 30-year, fixed-rate mortgage is 6.35% plus .7 points according to the Freddie Mac weekly price index. The par price — the price 0 points — is 6.51 percent over 10 years. (The 10-year figure is better than 30 years because investors generally compare mortgages with 10-year securities. Why? Because within a decade most loans are paid off when a home is sold or refinanced.)

___September 7th: Fannie Mae and Freddie Mac are nationalized.

___October 16th — The cost of a 30-year, fixed-rate mortgage is 6.46% plus .6 points. The par price is 6.59 percent.

Would interest rates be higher today if Fannie Mae and Freddie Mac had not been taken over? No one knows. That”s just a matter of speculation — as would be any claim that rates might actually be lower.

What we do know is what has actually happened, and what has actually happened is that interest rates have risen — and two of the largest financial giants in the world remain a part of the federal government.

Fannie Mae & Freddie Mac: Promised Interest Savings Disappear is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: $95 billion, commentary, Fannie Mae, Freddie Mac, interest, News, reserves, savings

If you were called up under Title 32 you may not qualify for VA mortgage financing. Title 32 is apparently used to call up support personnel not going overseas or to the front.

Do NOT make an offer on a property until you have first confirmed your ability to qualify for a VA loan. For specifics, speak with your base housing officer or the VA. Get paperwork that you can show lenders up front, before you go house hunting or refinance, and prequalify for a mortgage.

Can A National Guard Volunteer Get A VA Loan? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: benefits, mortgage, National Guard, qualify, qualifying, reserves, VA

Many loan programs require that borrowers have one or two months of cash on hand in addition to the cash required for a down payment and closing costs. This requirement can generally be satisfied by money in a savings account, checking account, money market account, pension account from which you can make withdrawals or obtain a loan, etc.

For details and specifics, please speak with lenders.

What Are Mortgage “Reserves?” is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: mortgage, reserves