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Mortgage Industry Update: Rates, News & More

***Smart Financial Weekly Mortgage & Business Update January 22, 2010***

FHA Update Number 1: Changes: This week FHA announced the much anticipated changes to its lending policies. The changes include an increase in up front mortgage insurance from 1.75% to 2.25% of the loan amount, establishment of a minimum credit score of 580 for 3.5% down payment and requiring a 10% down for scores less than 580 and reducing the Seller Contributions from 6% to 3%. See Mortgage Update section below for more details.

                                                                                       

FHA Update Number 2: Anti flipping rule waived: FHA has announced a new policy effective February 1, 2010 that temporarily waives its previous 90 day anti flipping rule. The new policy applies to HUD owned, bank owned and privately owned properties and will no longer require a 90 day waiting period from change of ownership before a buyer can use FHA financing. There are certain conditions that apply for the property to be eligible for the waiver. The new transaction must be an arm’s length one and there cannot be any identity of interest between the buyer, seller or any other parties to the transaction. In addition, if the new sales price exceeds the sellers acquisition cost by more than 20% the increase in value must be documented by the lender. Further, a property inspection may be required by the lender to strengthen the case for the excessive value. Finally, no pattern of previous flipping such as multiple sales in the past twelve months can exist.

 

Interest Rates

The PMI Group Housing & Mortgage Market Review has forecast that rates will gradually rise and average 6% by the end of 2010. Tuesday both India and the UK said they expect higher inflation in their countries and for the world economy as a whole. Typically as inflation heats up rates increase as well. Besides inflation rates usually increase as the economy grows and there is a more positive outlook for the economy. Offsetting the inflation news was the sharp decline in stocks this week which helped keep rates low. Retail rates for the week remained in the low 5% range and within a narrow range.

 

When	Rate
This week	5.15
1 Month Ago	5.05
1 Year Ago	5.12
2 Years Ago	5.48

Note that actual market rates vary geographically and by lender, credit score and Loan to Value.

Source: Federal Reserve Statistical H.15.

 

Mortgage Industry Update

·         As mentioned above FHA has introduced some changes to its lending policies. Note that the increase in up front mortgage insurance will be effective April 5, 2010 and the credit score/down payment and Seller Contribution changes will be effective this summer. FHA took these steps because its share of the market has grown from 3% to over 35% with the resulting adverse impact on its reserves which have fallen to .53% well below the minimum of 2.00% required by Congress. Thru third quarter 2009 FHA delinquency was at 14.36% compared to 9.64% for all loans. Note that FHA is expected to ask Congress for authority to increase the annual mortgage insurance premium which if granted will result in the lowering of the up-front mortgage insurance payment. Typically a borrower pays a one-time up-front fee for mortgage insurance plus an annual insurance premium that is paid with the monthly payment.

·         Loan modification update: The Treasury says that thru December 2009 there had been 66,465 permanent modifications up from 31,382 in November. There are another 46,056 homeowners whose permanent modifications are pending. In the same report Treasury noted that the best performing lenders were Citi, GMAC, Saxon and Chase while the worst performing were Bank of America, Litton, American home Mortgage Servicing and Wachovia.

 

Good News

·         The Producer Price Index (PPI) rose for the third straight month in December by .2%. the annual rate in 2009 was an increase of 4.4% in line with forecasts.

·         New housing permits increased by 10.9% in December to 653,000 the highest number since October 2008 yet for all of 2009 permits were down 36.9%.

·         The Philly Fed report of manufacturing expanded in January for the fifth consecutive month although declining slightly from December.

·         The Conference Board’s Index of Leading Economic Indicators rose for the ninth straight months suggesting a strong first half of 2010.

 

Statistics of Interest/Concern

·         The Financial Times reports that 260 publically traded companies defaulted on their corporate bonds in 2009 the most ever recorded.

·         The U.S. government collected $219 billion in revenue in December 2009 but had to pay out $311 billion. December was the 15^th consecutive month in which a deficit was record a national record.

·         New housing starts fell 4% in December to an annual rate of 557,000 the forecast was for 580,000.

·         U.S. home builder sentiment fell to 15 in January down from 16 the previous month and the lowest level since June 2009.

 

Foreclosure Headlines

·         First American Core Logic LLP says that about 12% of loans over $1,000,000 are late which is three times what it was a year ago.

·         According to an ASU report lenders foreclosed on 41,000 single family detached homes in Arizona in 2009 the most in any year on record.

·         Moody’s has revised its loss projections for jumbo loans originated between 2005 and 2008 saying it now expects higher delinquencies which will increase through 2010.

 

Job Market Headlines

·         Initial weekly jobless claims increased to 482,000 from 446,000 the previous week.

·         Four week moving average for initial jobless claims was 448,250 up 7500 from previous week.

·         Continuing claims came in at 4.599 million down 18,000 from previous week.

·         43 states had an increase in the jobless rate in December according to the Labor Department. This was an increase over 36 states in November.

 

Commentary/Observations

The Treasury Department has been unable to get any lenders holding home equity debt (second mortgages) to participate in a program announced eight months ago. The lenders hold just over one TRILLION dollars in debt which may be nearly worthless. These second lien holders are not working toward solving the housing crisis according to the government. Frequently they delay or effectively cancel short sales and can be an additional hurdle in loan modification. It has been estimated that some of the big banks carry their second liens at more than $150 billion above the real value.

If you have any mortgage or related questions I can be reached at (602) 803-9660 or by e-mail at burt@gosfm.com.