More USDA Rural Housing Confusion; Fannie and Freddie Cost Estimates; FHA High Loan Balance Max DTI; Homeowner Outlook
A pirate with an eye patch seemed sad at the bar. The bartender asked, "What's wrong?" The pirate replied, "Arrrgh, they wanted me to be a teacher - but I only had one pupil!"
Learning is a constant activity in mortgage banking. Should an originator or broker shrug and ignore stories about how more than one-third of Americans say it's acceptable under some circumstances to stop paying a mortgage and walk away from the home? ("While 59% of those surveyed said its "unacceptable" to abandon a home loan, 19% said it was 'acceptable' and another 17% said it depends on the circumstances" - this from the Pew Research Center.) Of the respondents, 63 percent own homes and 31 percent are renters. About 14% of home loans were delinquent or in foreclosure at the end of June. The problem is that, of course, "What investor wants to own a pool of mortgages filled with loans to borrowers who don't give a rat's rump about making their payments?" Investor's perceptions can directly impact mortgage rates.
Fannie Mae released its most recent housing survey, which tends to be a little more optimistic. "These findings indicate the return of a more balanced and realistic approach to housing." READ MORE
There are many advantages to home ownership, such as potential appreciation, tax breaks, and forced savings. But if pressed, most folks in the mortgage industry admit that not everyone should be able to buy a home, regardless of government mandates. The American dream of owning a home has lost some of its allure after years of falling home prices and owners facing financial ruin. Per Fannie's study, the number of people who say they consider housing a safe investment continues to decline, falling to 67% in July from 70% in January and 83% in 2003. In the US, 70% said it's a good time to buy, up from 64% in January-but the number of households that say they are more likely to rent than to buy a home rose to 33%. Between households paying down debt and preferring to rent, waiting for prices to level off and begin generally improving, or not being able to buy a house due to stricter underwriting guidelines, perhaps home ownership is returning to a more "normal" equilibrium.
Are Freddie and Fannie "all clear", and done with government/taxpayer
support? It doesn't sound like it. "F&F could cost the government
$53 billion through 2020 or save the government as much as $44 billion,
depending on the accounting principles used, per the Congressional
Budget Office. FULL STORY
The rural home loan saga continues - I pity any agent who relies on this program, as well as any borrower whose fate is determined by the funding. Wells Fargo's brokers received a bulletin, "USDA Suspension of Rural Development (RD) Rate/Term Refinance Transactions for Fiscal Year 2010: Wells Fargo Home Mortgage will suspend all Rural Development refinance registrations until further notice. The USDA has announced that they anticipate exhaustion of 2010 fiscal year funds for RD refinances as of today. Purchase transactions are still available for registration and delivery to Wells Fargo."
PHH, however, told its clients that, "USDA Rural Development Product Once Again Available Effective Friday, September 17, will be available for new registrations. The amount of the guarantee fee has been increased, but is still eligible to be rolled into the total loan amount (up to 103.5% of the appraised value). The guarantee fee for purchases will be 3.5% (previously 2%). The guarantee fee for refinances will be 2.25% (previously 0.5%)." It seems that the USDA has just begun to process previously issued Conditional Commitments at 3.5%, and it may take 10-14 days to work through the backlog of reservations, after which time they will begin issuing Conditional Commitments for new submissions. "USDA loans will not be permitted to lock for less than 60 days (tier 3 & 6 only)."
Starting today PHH is using updated VA guidelines for Interest Rate Reduction Refinance Loans, whereby interior/exterior inspections are required. (Previously, no appraisal was required to be obtained for VA IRRRLs for any investor.) And a minimum representative credit score of 640 is required for all borrowers.
Franklin American updated its FHA Jumbo program, installing a maximum DTI of 45% if the credit score is above 680. In general for FHA loans FAMC expanded guidelines to allow re-sales within 90 days where the acquisition cost has increased 20% or more for certain exempt entities per the Property Flip Waiver, and added new MIP requirements. FAMC's announcement also addressed borrower eligibility, closing costs ("seller's real estate tax proration to be credited at closing may not be considered at the time of underwriting as a source of the applicant's minimum investment or for any other required funds to close"), said that "sweat equity" is not allowed, talked about payment histories, maximum CLTV's for purchase transactions, expanded guidelines to increase the dollar amount of EEM improvements per Mortgagee Letter 2009-18, etc.
Regarding the August refinance program for FHA borrowers... even though HUD sent out a Mortgagee Letter (2010-23) on the topic, doesn't mean that investors are welcoming the loans with open arms. Chase, for example, told its clients that it is "currently evaluating the program and will provide further details as they become available" for the "FHA Refinance of Borrowers in Negative Equity Positions" program.
Speaking of investors - this (unconfirmed) from a reader: "Northstar Alliance just cancelled all active loans in our pipeline last night due to issues with their investor Gateway Bank (which just came out of receivership). I am told this is affecting several lenders. We were just advised to move our entire pipeline and we had loans that closed/signed last week that are now cancelled, which will no doubt upset borrowers. But I thought you could pass on the word to beware of locking/submitting with Gateway's partners." As I said, this is unconfirmed.
Yesterday's Jobless Claims data, although "not bad" is not the kind of data that indicates that our unemployment rate is dropping. And the housing industry is looking for employment to improve in order to push the housing market. We know that claims shot up above 500,000 several weeks ago on a host on special factors, which are now dissipating. Stepping back, the four week moving average, which smoothes out the seasonal volatilities, is running at 465,000 - not enough to push next month's Non-farm Payroll number much above an increase of 100k.
We also had the Philadelphia Fed's General Business Conditions Index rise slightly but remaining below its neutral threshold of zero for the second consecutive month. Regardless, Treasury 10-Year yields went up on the number (and jobless claims), and $2.5 million, uh, billion, of MBS's was sold. This increase of supply has not helped mortgage rates - overall for the week, daily supply on average has been $2.6bln - not unmanageable; however, when it approaches $3 billion it tends to edge above the amount of demand/buyer interest.
This morning's Consumer Price Index number was +.3%, and ex-food & energy it was unchanged. Year-over-year the number was up about 1%, close to what was expected. The inflation data have been of diminished significance recently - inflation is not viewed as a problem when talk of further recession is much more relevant. READ MORE
Sunday is "Talk Like a Pirate Day", celebrated world-wide. I will miss the corny jokes. One more....
What's a pirate's favorite letter..."Rrrrr". What's his 2nd favorite letter? It is a "P" because it's an "Rrrr" with no leg.
A pirate walks into a bar with a steering wheel sticking out of the zipper of his pants.
The bartender asks "what that steering wheel doing in your pants?"
The pirate answers, "Aaaarg, it's driving me nuts".