(Rob Carson sent this in. He's snowed in at home today.)

The Federal Reserve’s dramatic cuts to lending rates have so far done little to help South Sound consumers, mortgage brokers in the Tacoma area said Thursday.

Home loan costs did not drop significantly with the Fed’s most recent cut on Tuesday, they say, and loans are still only available to those with excellent credit, lots of equity and proof of employment.

“Our phones are definitely ringing,” said Kevin Tinsley, president of All Tech Mortgage in Lakewood, “but we’re not able to help as many people as we could in previous booms.”

Tinsley said his business is up about 50 percent over a month ago, with much of the interest coming from people who took out loans 10 or 12 years ago and are interested in refinancing.

However, he said, those who want to refinance find the guidelines have changed since they took out their loans.

“There are a few more hoops people have to jump through,” he said. “We’re having to run people’s credit before we can even quote them a rate.”

Tinsley said his clients tend to be in upper income levels but, even so, only about 40 percent of them qualify for the lowest rates.

Jack Hansmann, loan officer at Capital Resources in Tacoma, said the Fed’s rate cuts may have made matters even worse.

“They’re doing the exact opposite of what they should do,” Hansmann said.

Lowering rates makes lenders even less willing to loan, he said.

“When rates get too low, there’s no money in it,” he said. “There’s just risk.”

Darcy Hansen, a loan officer at Financial Services Northwest, Inc. in Tacoma, estimated that the number of people calling her office has doubled since last week.

“Lots of people are calling in,” she said. “There’s a lot of interest out there.”

However, rates available to consumers are directly tied to the fed rates, Hansen pointed out, and they remain basically unchanged since last week.
Even so, there is significant interest among consumers, Hansen said.

“Everyone is under the impression they will come down further.”

Here is some more bad news for the housing industry.

More people in Washington are behind on their mortgage payments this quarter, according to data from the Mortgage Bankers Association.

The delinquency rate for residential mortgage loans in Washington rose to 3.38 percent at the end of the second quarter, up from 2.98 percent at the end of the first quarter. The amount of loans being foreclosed in the state also rose to 1.04 percent from 0.89 percent.

Washington is still doing much better than most of the country, ranked for the quarter at No. 45 in delinquencies and No. 44 in foreclosures started. The state also has 14 percent nonprime borrowers, compared to 19 percent nationwide, according to the D.C.-based group.

California and Florida continue to be the hardest hit. The two states accounted for 39 percent of all foreclosures in the second quarter.

The national delinquency rate for the second quarter was 6.41 percent, a jump last year's 5.12 percent. This quarter's rate is the highest since the agency began recording statistics in 1979.

"The national foreclosure numbers continue to be driven by the hardest hit states continuing to get much worse," said Jay Brinkman, MBA's chief economist and senior vice president for research and economics, in a news release.

A popular lending option for low- and moderate-income home buyers soon will go away.

Private down payment assistance, which allowed the seller to contribute up to 6 percent toward the buyer’s purchase, was banned as of Oct. 1 under the national mortgage bill signed this week by President Bush. Such down payments were used for loans insured by the Federal Housing Administration.

But it turns out the FHA, along with the Internal Revenue Service, had long criticized the down payment programs because of their relative high failure rate and for supposedly inflating the price of the home to cover the seller’s contribution to the down payment.

Doing away with the programs eliminates one of the few remaining ways borrowers still could get into a home with little or no money down, said David Erickson, president of the Washington Association of Mortgage Brokers.

“There are instances where it works and where it’s done wrong and that shouldn’t be tolerated,” he said.

No-money-down options still available, he said, include loans made through the Department of Veterans Affairs and a USDA program for rural properties. The zero-down mortgage might make a limited comeback once the market settles down, he said.

“If it comes back, it will be extraordinarily restrictive,” he said.

Mortgages in recent years that required little money from the borrower shoulder much of the blame for today’s housing and credit market slowdown.

But Nicole Rosen, a mortgage broker in Roy, said this week that the soon-to-be-banned down payment assistance helped prospective buyers as housing prices outpaced their ability to save. Rather than taking options away from borrowers, she said resources should be used to better educate them.

“I think it’s going to be absolutely devastating to the industry as a whole. FHA’s own estimate is that down payment assistance comprises about 40 percent of their transactions,” she said. “If the seller is willing to give you equity in the house, I don’t see why we’re closing the door on that.”

Sellers who participated in the down payment programs made a donation to an organization, such as The Nehemiah Corporation of America, that would then give it to the buyer.

A statement from Scott Syphax, CEO of The Nehemiah Corp., on Wednesday said the organization would fight to get the down payment assistance program reinstated.

“We hope that Congress and President Bush wake up with a clear conscious tomorrow, knowing that millions of Americans will awake to a law that leaves them with zero alternatives for attaining homeownership,” the statement said.

From a lender’s point of view, Rich Bennion, executive vice president of Seattle-based HomeStreet Bank, said money contributed by a borrower tends to make a better loan than one without.

“On another hand, I’m an advocate for home ownership and I’m an advocate for tools to aid the buying and selling of homes, so part of me feels like I hate to see this go away. But I think there are other avenues to address situations where people need a down payment,” he said.

He pointed to mortgage assistance through the Washington State Housing Finance Commission and gifts, such as money from a parent, that the FHA allows a borrower to use as part of a downpayment.

The big national mortgage bill received congressional approval this weekend and should be signed shortly by President Bush. While the legislation provides financial backing for Fannie Mae and Freddie Mac and often is termed a mortgage rescue bill, there are elements that could have an impact on you and the local real estate market.

Here are some notable parts of the soon-to-be law, thanks to stories from the Washington Post and CNN:

• Permanently increases the size of home loans that Fannie Mae and Feddie Mac can buy and the FHA can insure to $625,000 for the priciest markets. You might remember that earlier this year Pierce County’s conforming loan limit grew temporarily from $417,000 to $567,500. The idea behind raising the limits is to move loans in the $450,000+-range from the pricier jumbo loan category to the cheaper conforming rates in areas where home prices have moved beyond the previous limits.
• A tax credit that’s really more of an interest-free loan of up to $7,500 for first-time home buyers on houses bought between April 9 and July 1 of next year. The credit must be repaid.
• The FHA gets $180 million for pre-foreclosure counseling to struggling homeowners.
• Lenders are required to show how high a borrower’s payment could get under the terms of a particular mortgage.
• Homeowners who don’t itemize on their tax returns could deduct a portion of their property taxes, expected to be $500 for single filers and $1,000 for joint or married filers. This would be particularly helpful to homeowners who have no mortgage and, therefore, no mortgage interest to deduct and no other reason to itemize.

Rich Bennion, executive vice president of Seattle-based HomeStreet Bank, said this afternoon that he expects the new conforming loan limit for Pierce County to come in at $522,100. Increasing the limits helps open up lending possibilities to more borrowers, he said.

Also important for the South Sound, he said, is a provision that allows the FHA to streamline the process for making a condominium elibible for an FHA-insured loan. Previously, an entire building would have to meet FHA guidelines, he said.

Though it’s unclear how the FHA will alter its condo-lending requirements, Bennion said he expects the changes to help first-time home buyers.

“That’s significant in our area because increasingly condos and condo converstions are more and more the affordable entry-level kind of housing. They’re less expensive and up til now you couldn’t get FHA loans in the typical condo project,” he said.

J. Lennox Scott, CEO of John L. Scott Real Estate, said this morning in an e-mailed statement that the legislation “is an enormous step forward for homeownership.” He emphasized the opportunity for first-time buyers to take advantage of the tax credit, which he said will help spur home sales activity.

“The ripple effect of increased sales in the more affordable markets will eventually cause a chain reaction of sales up the price points, helping to stabilize the entire housing economy,” Lennox said.

The Federal Reserve today issued new rules intended to rein in shady mortgage lending practices. But at least some of it looks a little late coming to the party.

According to The Associated Press, these are among the new rules:

— bar lenders from making loans without proof of a borrower's income.

— require lenders to make sure risky borrowers set aside money to pay for taxes and insurance.

— restrict lenders from penalizing risky borrowers who pay loans off early. Such "prepayment" penalties are banned if the payment can change during the initial four years of the mortgage. In other cases, a penalty can't be imposed in the first two years of the mortgage.

— prohibit lenders from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value. The borrower need not have to prove that the lender engaged in a "pattern or practice" for this to be deemed a violation. That marks a change – sought by consumer advocates – from the Fed's initial proposal and should make it easier for borrowers to lodge a complaint.

First of all, the new rules apply only to new loans. And I talked this morning with Chris Dunayski, president of Highpoint Mortgage in Puyallup, who said, “It’s interesting because a lot of what was released today sounds great, but a lot of this has already been done by banks themselves.”

Months ago, he said, banks began requiring many borrowers (and providing incentive for others) to include tax and insurance payments in the monthly mortgage payment. Qualifying borrowers based on the higher, adjusted rate they’ll pay down the road is new but not so useful in the near term as 30-year fixed mortgage rates are as good or better than adjustable-rate mortgages, he said.

Happily, today’s mortgage interest rates appear a little lower than they were this time last week. But with so much economic uncertainty, it’s anyone’s guess where rates will head in a month or a year.

According to Bankrate, the average rate for a 30-year fixed mortgage today is 6.16 percent compared to 6.3 percent last week. While hovering above 6 percent counts as a historically low rate, it’s a bit higher than rates landed by a lot of buyers in recent years. And let’s not forget that just two weeks ago, the AP reported an average rate of 6.42 percent for 30-year mortgages.

The possibility of northward rate movement is one of the main factors in the "buy now" argument made by agents and mortgage brokers. But how much more would you pay each month, if rates increased?

I used a mortgage calculator at Bankrate to figure the monthly payment on a $300,000 mortgage and the total interest paid with rates ranging from 5.75 percent to 8 percent.

Here’s what it looks like:

5.75 percent
Payment: $1750.72
Total Interest: $330,258.68

6.0 percent
Payment: $1798.65
Total Interest: $347,514.57

6.25 percent
Payment: $1847.15
Total Interest: $364,974.58

6.5 percent
Payment: $1896.20
Total Interest: $382,633.47

6.75 percent
Payment: $1945.79
Total Interest: $400,485.94

7.0 percent
Payment: $1995.91
Total Interest: $418,526.69

8.0 percent
Payment: $2201.29
Total Interest: $492,465.74

We all know that lower interest rates translate to lower payments, but looking at the rates laid out like this shows what a difference a full percentage point can make. A monthly payment on a 30-year mortgage for $300,000 increases by $197.26 from a loan with 6 percent interest to a loan with 7 percent interest.

If you want to play with Bankrate's mortgage calculator, you can find it and others here.

No-money-down mortgages, largely believed to be at the heart of today’s home-financing woes, are getting a new life, according to a Wall Street Journal story this week that focuses largely on the participation of new home builders in such programs.

Bellevue-based Quadrant Homes, which has several Pierce County projects, was mentioned for its $500 promotion: the company’s site says $500 gets you into a home, if only you can give up your latte habit.

Peter Orser, Quadrant president, was unavailable to comment today and his media representative said no one else from the company could comment. (Orser also was not quoted in the WSJ piece.)

So what are your thoughts on 100 percent mortgage financing? Are no-money-down mortgages an OK way to go? Can the housing market sustain itself without bringing in buyers who have little or no money to put down? Is it even realistic, given today’s housing prices, for first-time buyers to have a 10 percent or 20 percent down payment? (Pierce County’s median home price in May, according to the Northwest Multiple Listing Service, was $259,739.)

Here’s more from the Wall Street Journal story.

The offers — including "100 percent financing" — are made possible due to down-payment assistance programs run by nonprofit organizations. These programs are funded largely by home builders and also by private homeowners desperate to sell. The seller-funded groups provide enough down-payment money to buyers that they can qualify for a mortgage backed by the Federal Housing Administration, which requires at least a 3 percent down payment.

Supporters of the down-payment programs say they help the FHA fulfill its goal of assisting first-time home buyers. But critics say the programs will burden the government agency, and taxpayers, with bad loans. The FHA, which essentially is filling the void left by the collapse of the subprime market, renewed a push to eliminate the programs this month, after warning that above-average default rates for seller-assisted down-payment programs will force the agency to request a government subsidy for the first time in its 74-year history. The agency says it will need $1.4 billion next year.

The FHA estimates that down payments provided by nonprofit groups account for 34 percent of all 200,000 loans backed by the FHA so far this year, up from 18 percent in all of 2003 and less than 2 percent in 2000. And the agency says that borrowers are two to three times as likely to default on their payments when they receive a down payment from a nonprofit.

Gov. Chris Gregoire announced today plans to fine Countrywide Home Loans $1 million and revoke the mortgage company’s state license for what she said was predatory and discriminatory lending.

The state Department of Financial Institutions sent Countrywide a list of charges earlier this week as it continues its investigation, according to a release from the governor’s office. The Associated Press said Countrywide did not respond to a phone call earlier today for comment on the governor’s action.

In its investigation, the department examined hundreds of loan files and looked at the differing rates borrowers received, credit scores, loan types, borrower income and other factors. DFI says in its statement of charges that Countrywide sold less favorable loans to minority borrowers.

“That’s why we intend to bring the full weight of the state on Countrywide to rewrite home loans for minority borrowers who may have been misled into signing predatory mortgages,” the governor said in today’s release.

Gregoire’s announcement comes on the same day lawsuits were filed by attorneys general in California and Illinois alleging Countrywide used unfair practices and misleading advertising, according to The Associated Press. Also today, Countrywide shareholders approved the company’s takeover by Bank of America Corp., the AP reported.

Countrywide was among the many lenders dealing in mortgages known as subprime, loans sold to borrowers with shaky credit or other financial troubles. Many point to the proliferation of subprime lending as contributing to today’s weakened U.S. housing market.

A release from the governor’s office said the California-based company also will be required to pay more than $5 million in back assessments.

Along with gas and food prices, rates on 30-year mortgages are on the rise. With Fed chief Ben Bernanke voicing concerns about inflation this month, it should come as no surprise that mortgage rates would move north, at least a little bit.

Any thoughts on where mortgage rates will go in the weeks ahead -- down, steady or up?

Here's what the Associated Press reported today:

Rates on 30-year mortgages kept surging this week, rising to the highest level in nearly nine months, reflecting more concerns about what the Federal Reserve will do to combat a growing inflation threat.

Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 6.42 percent this week. That was up sharply from 6.32 percent last week.

It was the highest level for 30-year mortgages since they averaged 6.42 percent for the week of Sept. 27 and marked the fourth straight week that they have been above 6 percent.

Frank Nothaft, chief economist at Freddie Mac, said the increased concerns about inflation were fueled by reports in the past week showing that both consumer prices and wholesale prices rose by significant amounts in May. This spurred further increases in the futures market where investors place bets on future Fed actions. That market is pointing to a Fed rate increase in September.

In reading the Washington Post credit crisis package I passed along yesterday, I was reminded of a great interactive map that shows the location of nonprime, or the more risky, mortgages.

This mapping tool comes courtesy of the Federal Reserve Bank of New York and breaks down loans by subprime and Alt-A. You can use it a few different ways. By color: Click on one of a dozen buttons on the side to reveal the share of adjustable-rate loans or the number of loans per 1,000 households and the country will be shaded state by state, showing where the most and least are. By number: Click on Washington and all the stats for the state pop up.

There's also a zip code field so you can get even more local with your search.

Find the map here.

If you’re interested in getting a better handle on how the national housing credit crisis came to be check out the three-part series that started yesterday at the Washington Post. The stories trace the boom, bust and aftermath of mortgage financing. (Only the first two are up, stay tuned tomorrow for the last of the three.)

I like how the first story breaks down the concept of a mortgage-backed security, because it can be confusing to understand and difficult to explain yet rests at the core of how the business of home lending got so big and fell so fast.

Here’s a bit of a history lesson, from the first story:

In 1970, when demand for mortgage money threatened to outstrip supply, the government hit on a new idea for getting more money to borrowers: Buy the 30-year, fixed-rate mortgages from the thrifts, guarantee them against defaults, and pool thousands of the mortgages to be sold as a bond to investors, who would get a stream of payments from the homeowners. In turn, the thrifts would get immediate cash to lend to more home buyers.

Wall Street, which would broker the deals and collect fees, saw the pools of mortgages as a new opportunity for profit. But the business did not get big until the 1980s … First Boston, came up with a new idea with a mouthful of a name: the collateralized mortgage obligation, or CMO.

Much of the great stuff in a series like this is in the details: lavish parties thrown by delusionally successful lenders, huge sums lost when not successful, math-wonk immigrants of China and Russia employed to build new math models to price securities, the secret war room set up by Fed Chairman Ben Bernanke, where he quizzed his board in Socratic style to determine how the Fed should respond to the unfolding credit crisis.

A Washington Post story today details the ways in which the U.S. Department of Housing and Urban Development contributed to national home lending problems. In particular, the piece digs into mistakes made by HUD, which oversees Fannie Mae and Freddie Mac, including to require the companies to get more low-income families into home loans.

Here's some of what went wrong, according to the Washington Post story:

The agency neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans, creating a market for more such lending. Subprime loans are targeted toward borrowers with poor credit, and they generally carry higher interest rates than conventional loans.

Today, 3 million to 4 million families are expected to lose their homes to foreclosure because they cannot afford their high-interest subprime loans. Lower-income and minority home buyers -- those who were supposed to benefit from HUD's ations -- are falling into default at a rate at least three times that of other borrowers.

Find the whole story here.