Mortgage rates drop again
By Holden Lewis • Bankrate.com

It was a busy week in the world of mortgages. First, let's talk about rates.

The benchmark 30-year fixed-rate mortgage fell 10 basis points, to 5.7 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.48 discount and origination points. One year ago, the mortgage index was 6.53 percent; four weeks ago, it was 5.65 percent.

The benchmark 15-year fixed-rate mortgage fell 9 basis points, to 5.07 percent. The benchmark 5/1 adjustable-rate mortgage fell 9 basis points, to 5.17 percent.

Mortgage rates didn't move much in the days before today's release of the June employment report, as mortgage bond investors hedged their positions. The consensus estimate on Wall Street was that the employment report would show that the economy shed about 365,000 jobs in June. If the number of jobs lost was to be substantially higher than that, mortgage rates might fall; if the number was to be much lower, the result could be higher mortgage rates.

More eligible for refis
In other news, the Obama administration expanded the number of people who will be eligible for mortgage refinancing. The Making Home Affordable refinancing program will now be available for loans of up to 125 percent of the property's value. Previously, the limit had been 105 percent.

Weekly national mortgage survey

Results of Bankrate.com's June 3, 2009, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

Theoretically, at least, this could be a boon for homeowners in the states that were hardest hit by the housing bust: Arizona, California, Florida and Nevada. Home values have plummeted in those states; some homeowners owe more than 105 percent of their homes' current values but less than 125 percent. They might be able to refinance into lower-rate or fixed-rate mortgages.

Here's how the revised program guidelines make a difference. Let's say someone in Fort Myers, Fla., bought a house in 2006 for $220,000 and borrowed $200,000. Now the house is worth only $170,000, and the owner still owes almost $200,000.

Until now, this homeowner could not have refinanced under the Making Home Affordable program. Refis were limited to 105 percent of loan to value -- in this case, the maximum loan would have been $178,500, which is 105 percent of $170,000.

Now, this hypothetical owner has a chance to refinance, because she owes about 118 percent of what the house is currently worth -- well within the 125 percent limit.

"Big deal," says one Florida mortgage broker, who points out that such a loan would have so many fees added by Fannie Mae or Freddie Mac that it wouldn't make sense to do the refi. Fannie's and Freddie's risk-based fees could easily top 6 percent of the loan amount, or around $12,000. Many potential refinancers are likely to reject such an offer.

Simple mortgages
On another front, the Obama administration proposed a bill to create an entity called the Consumer Financial Protection Agency. The consumer protection divisions of various federal regulators would be moved to this agency, which would, in the words of the bill, "seek to promote transparency, simplicity, fairness, accountability, and access in the market for consumer financial products or services."

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Among other things, the new agency would come up with guidelines for "standard consumer financial products or services" -- in other words, plain-vanilla loans. Lenders would be required to offer plain-vanilla mortgages while pitching riskier, alternative mortgages.

Also, the agency would be directed to simplify and shorten all of those disclosures you get when you apply for a mortgage.

Modify to higher payments?
Finally, two federal regulators released data on mortgage modifications as of the end of March. The news is grim: When homeowners get mortgage modifications, they tend to fall seriously behind on their payments again within a year.

For example, of the people who got their mortgages modified in the first three months of 2008, about 52 percent were at least two months' behind on their mortgage payments 12 months later, according to the Comptroller of the Currency and the Office of Thrift Supervision.

The agencies imply some hope for improvement. Until this spring, the vast majority of mortgage modifications didn't result in a lower monthly payment. It's hard to fathom why lenders would increase monthly payments when modifying mortgages for homeowners who had fallen behind, but that's what they routinely did.

That changed this year. "Modifications during the first quarter of 2009 resulted in lower monthly principal and interest payments on 54.1 percent of all modified loans, as servicers focused on achieving more sustainable mortgage payments," the agencies report.

Still, 18.5 percent of modifications resulted in higher monthly payments in the first quarter of this year. That's an improvement compared with six months earlier, when one-third of mortgage modifications resulted in higher payments.