(Read More: Map: Tracking the US Real Estate Recovery)

The settlement’s monitor, former North Carolina Banking Commissioner Joseph A. Smith noted, “a significant increase,” in consumer complaints in the second half of 2012.

In a February 2013 report he reported 5,700 consumer complaints submitted to his office, about half of which related to problems with loan modifications or customer service.

The banks have extended close to $46 billion in gross relief to more than 550,000 borrowers under the settlement so far, according to the Office of Mortgage Settlement Oversight. Thousands of borrowers have had their mortgage principal slashed under the settlement, which should reduce future delinquencies. Negative equity is a primary driver of new delinquencies, a fact all too clear in a new report Monday from Lender Processing Services.

“Looking at the March data, we see that borrowers with equity are actually outperforming the national average—at 0.6 percent, this group is quite close to pre-crisis norms,” said Herb Blecher of LPS Applied Analytics, which released the delinquency report Monday.

(Read More: Housing Recovery Shows Up In Job Gains)

“The further underwater a borrower gets, the higher those problem rates rise. Borrowers with loan-to-value (LTV) ratios of just 100-110 percent are actually defaulting at more than twice the national average. For those 50 percent or more underwater, we see new problem rates of 4 percent.”

Article source: http://www.cnbc.com/id/100710946

Now, facing a $16 billion shortfall, the FHA has raised premiums and will raise them yet again next month. FHA loans are becoming increasingly expensive.

(Read More: Housing Jobs Jump, Where Are the Workers?)

Meanwhile, as the housing market improves, private mortgage insurers are starting to remove overlays on higher loan-to-value loans, meaning the percentage of the home value that is mortgaged. Low LTV’s and high credit scores were the rule recently for the private insurers, but that may now be loosening, making these loans cheaper than FHA.

“FHA is certainly becoming more expensive,” noted Craig Strent, CEO of Apex Home Loans in Bethesda, Maryland. “The increase in low down payments is reflective of first time buyers coming off the sidelines and entering the market. We’re going to see more of this trend in the next couple of years as the economy improves and renters start to once again see the benefit of buying over renting. FHA has become more expensive and the mortgage insurance companies are the beneficiary of that, which is really not a bad thing as it means the private market is insuring the lower down payments rather than the government.”

(Read More: Home Buyers Are Back, but Where Are the Houses?)

The stocks of mortgage insurers like MGIC and Radian spiked in the first months of this year, as home prices improved and FHA policy changes designed to shrink its share of the market were announced. There is currently a bipartisan effort in the U.S. Senate to reduce the FHA’s role, and in the House of Representatives a hearing is being held Wednesday looking at, “the competitive advantages the Federal Housing Administration has relative to private mortgage insurers and how those advantages contribute to the crowding out of private capital in housing finance,” according to the House Financial Services Committee release.

Despite the advantages, FHA’s share is already shrinking, as Fannie Mae’s is rising. In the first quarter of 2012, loans with between 3 and 10 percent down payment made up 15 percent of Fannie Mae’s business for home purchase loans (not refinances). In the second quarter it rose to 17 percent and in the third to 18 percent. Fannie Mae has not reported its fourth quarter yet, but that share is expected to rise again. While a credit thaw is part of it, as mortgage interest rates rise and fewer borrowers apply to refinance, lenders are simply looking for more business.

Article source: http://www.cnbc.com/id/100548913

“There is a huge population that have benefitted from adjustable rate mortgages. When the rates adjusted, they adjusted down. Those homeowners have been riding those low, one-year arms. If they start to hear about rates going up, they may come out of the woodwork to lock into fixed rates,” says Strent.

That may be, but 88 percent of loans outstanding today are fixed, according to the Mortgage Bankers Association. Just 12 percent are adjustable rate. Even if rates do not rise any higher than they are today, which they may not, they would have to fall below last year’s lows to see the high refinance volume of 2012 continue in 2013.

(Read More: Link Between Credit and Mortgages: Not What You Think)

“The refi apocalypse is upon us,” says Mark Hanson, a mortgage analyst in Northern California. “The thought is that there are a bunch of homeowners on the fence who haven’t refi’d who will all jump in thinking they will miss out. The theory is 100 percent nonsense. The series will simply plunge. That’s because after 16 months of sub 4 percent rates — and every bank loan officer and mortgage broker doing everything they can after a long mortgage banking income drought that ended with Twist — there is nobody left to refi. In fact, the only reason refi applications stayed flat in Q3 and Q4 was because they passed a new law allowing refinances regardless of the LTV [loan to value]…the HARP unlimited LTV refi.”

While the Federal Reserve does not set mortgage rates, a signal that the economic recovery is improving and even the slightest hint that the Fed could end its purchases of mortgage-backed securities, could push rates slightly higher.

“The Fed likely won’t use its statement to markets to finger a specific date on which QE3 will end, but that won’t stop investors from guessing. If the herd believes that QE3 will terminate within the next 6 months, mortgage rates will likely rise. If QE3 is believed to extend into 2014 and beyond, mortgage rates will likely fall,” writes Dan Green of Waterstone Mortgage in his blog.

(Read more: What to Expect from Interest Rates This Year)

While refinances may suffer under even slightly higher rates, more important to the housing recovery is new mortgages to purchase homes. Purchase applications are still running at half the rate they were in 2007, when last the Dow hit a new high. Small moves in mortgage rates do affect purchasing power, but lending standards are a far bigger driver today. New regulations for lenders and a consolidation of lending overall to the mega-banks are certainly slowing, and in some cases stalling, the process for some would-be buyers.

(Read More: Cities That Are Most Prepared for Retirement)

Article source: http://www.cnbc.com/id/100420382

Yesterday a lot of folks, including myself, were slightly incensed at the announcement by mortgage insurer PMI that it is launching a pilot program offering cash bonuses to borrowers who stay current on their mortgage payments.

I went on a tirade about how ridiculous it is to pay people to meet their legal, contractual obligations, how it enables bad behavior. Don’t get me wrong, I still believe that.

Today, however, I learned something that made me understand a bit more why the mortgage insurers, and the lenders and investors participating in a similar bonus program, are running so scared:

Between 12 and 24 percent of always performing loans, depending on the asset type, exhibit LTVs (loan to value ratios) that are higher and have risen more steeply than those of defaulted loans, raising the specter of a renewed increase in strategic defaults should previous default trends hold true—Moody’s ResiLandscape

Researchers at Moody’s say that a loan’s LTV is a “strong predictor of its propensity to default,” and if history serves as a model, the higher the LTV, the more risk of default.

After the end of the home buyer tax credit, the average home price for always-performing loans originated since 2005 began falling again, according to Moody’s, which consequently turned falling LTVs around, pushing them up as borrowers lost more equity in their homes.

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