FHA insurance changes

Mortgage Industry Update: Rates, News & More

***Smart Financial Weekly Mortgage & Business Update March 26, 2010***

HEADLINE: New foreclosure prevention plan announced by the government today details can be found at www.makinghomeaffordable.com or contact me for information.

 

Interest Rates

Retail rates moved up toward the end of the week to just over 5%. Expectations for much better jobs numbers and a weak Treasury auction pushed the stock market and Treasury yields higher at mid week. There is growing sentiment that the Fed will have to sell the Mortgage backed securities (MBS) it owns which will put upward pressure on mortgage rates. Remember the Fed purchased $1.25 Trillion of these MBS and hold them on its balance sheet.

 

When	Rate
This week	4.99
1 Month Ago	5.05
1 Year Ago	5.07
2 Years Ago	6.24

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

·         Effective April 5, 2010 up front mortgage insurance on FHA loans increases from 1.75% to 2.25%.

·         The USDA or Rural loan program is close to running out of funding and only Congress can authorize additional funding.

·         Details are now starting to emerge on the $1.5 Billion program to help underwater homeowners in AZ, CA, NV, MI and FL. It looks like Arizona will get $125 million for the Arizona Housing Department to hand out. According to the Department’s Director he will take the approach known as “earned forgiveness”. This is where the state and banks promise to forgive debt later but only if the homeowner/borrower who stays in their home, makes payments and still has a job. The Director is not inclined to help out those who overspent on their homes or took out equity lines during the boom.

·         Chase Bank has finally agreed to sign up for HAMP2 the government’s second mortgage modification program. Chase joins Wells Fargo and Bank of America as program participants. Citi also announced it would participate in the program. Together the four big banks hold about $442 billion in second mortgages.

·         Fannie Mae revised its first quarter funding estimate downward from plus 2.8% to minus 17.2%. In addition it downgraded its funding estimate for the entire year from $1.97 Trillion to $1.31 Trillion a reduction of over 30%.

 

Good News

·         Commercial real estate prices improved 1% in January according to Moody’s/REAL Commercial Property Price Index. This was the third consecutive monthly increase in prices.

·         The Commerce Department reported that durable goods were up .5% in February the third consecutive monthly increase.

·         Consumer sentiment for March was 73.6 unchanged from February according to the Thomson Reuters/University of Michigan survey.

 

Statistics of Interest/Concern

·         Mortgage delinquency was nearly 14% at the end of 2009 according to the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS). The increase was due mainly to a 21% increase in 90 day plus delinquency.

·         Existing home sales declined .6% in February the third consecutive monthly decline.

·         New home sales declined 2.2% in February for the fourth consecutive monthly decline and yet another low for annualized sales according to the Commerce Department.

·         Chase Bank said Monday that its losses from the Wamu mortgages it acquired could be as much as $40 Billion plus another $3-4 Billion in the quarter from the Wamu credit card portfolio.

·         The New York Federal Reserve says that as much as 40% of FHA mortgages are upside down.

 

Foreclosure Headlines

·         According to Zillow the number of cities experiencing a “double dip” in home prices increased from 5 in December to 12 in January. They also identified 10 other markets that “seemed poised for a double dip”. These cities included Boston and Denver. No Arizona cities were mentioned by Zillow.

·         The Financial Times says the average cost of foreclosure to a lender is about 50% of the outstanding loan balance.

·         Strategic Defaults are on the rise according to Amherst Mortgage Insight. In their report issued this week they show these defaults increasing along all types of loan classes and accelerating as negative equity increases. The report observed that if the various loan modification schemes incent borrowers to default in order to qualify look for a further increase in Strategic Defaults.

 

Job Market Headlines

·         The jobless rates in four states (FLA, NV, GA & NC) hit record levels in February. Also, 27 states saw unemployment rates higher in February than in January according to the Department of Labor.

·         Initial weekly jobless claims were down 14,000 to 442,000.

·         The four week moving average for weekly claims was down 11,000 to 453,750 the lowest since September 2008.

·         Continuing claims fell 54,000 to 4.65 million the lowest since December 2008.

·         Congress went on its two week spring vacation without extending unemployment benefits again. Up to 750,000 could lose their benefits by the end of April if Congress does not act. Republicans argued the $9.2 billion cost should come from the Stimulus funds but Democrats said that would hurt the job creation effort. The Stimulus bill was for $787 billion.

 

Comments/Observations

The government has controlled the housing market for the last 18 months or so thru the GSE’s (Fannie Mae and Freddie Mac) and FHA. Collectively they own or control more than 50% of all mortgages and by some estimates 70% of mortgages done in 2009. There is increasing conversation about doing something for our national housing market the question is what and when. Do we privatize or nationalize? Do we find some sort of middle ground solution? How do we make the transition from what we have today to whatever solution is agreed upon? These are difficult decisions and ones that will impact our lives and our economy for years to come.

 

One of the elements of this housing reform will be the mechanism by which capital is raised. What will that process look like in the future? Clearly some portion of the funding will come from overseas investors. Perhaps the recent statements by David Stevens the FHA Commissioner will shed some light on the challenges associated with relying on foreign bankers and investors. In a recent speech Mr. Stevens said when referring to some conversations he had with international bankers about how these bankers/investors saw triple A rated securities turn to junk “We are at the point right now where no one trusts the American housing finance system”. If what he says is true one can only observe how far we have fallen in such a relatively short amount of time.

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