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Mortgage Market
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Mortgage Market Weekly:
(Edition March 12, 2009) Vol. 90 In This Week's "Good News":
New Czar for Regulation of Financial Products? The czar-like commission would approve new mortgage products and oversee the safety and soundness of consumers, according to press statements. "This new safety commission would hold those who offer consumers financial credit accountable and ensure that they act responsibly," read a statement from Durbin's office. The bill has rallied support from House Financial Services Committee chairman Barney Frank , who has previously stressed that the formation of such a commission is of the utmost importance to the business committee. Harvard Law School Professor Elizabeth Warren, and chairman of the TARP oversight committee, has been pushing the theory for years, arguing that consumers have become exposed to increasingly complex mortgage products. The idea is that the Financial Product Safety Commission would be able regulate those products in addition to providing independent advice to consumers. "As Congress embarks on fundamental financial regulatory reform, it is imperative that the improved regulatory system focus not just on the safety and soundness of the providers of financial products, but also on the safety of the consumers of financial products," Durbin's office said in a press statement.
In This Week's "Take It How You Will" News:
Q4 Numbers Show 11% of U.S. Mortgages Currently Delinquent or in
Foreclosure This number is up from 5.82 percent during the same period a year earlier. Another 3.3 percent were in the foreclosure process, up from 2.04 percent a year ago. Not surprisingly, both figures set historic records, since the association began keeping records in 1972. Taken together, they mean that more than 11 percent of home mortgages are now in some form of distress. The hardest-hit states continue to be California, Florida and Nevada, but Louisiana, New York and Georgia have also seen sharp increases in delinquencies, indicating that the recession is spreading. Appraisal Rules Changing May 1st, 2009 On May 1, a new code of conduct, the HVCC (Home Valuation Code of Conduct) is scheduled to be implemented with the intent that it will isolate the appraisal process of loans purchased by Fannie Mae and Freddie Mac from bias. Loan production personnel, including mortgage brokers, will no longer be able to order the appraisal. As of May 1, appraisal management companies (AMCs) will take many of the orders from lenders and find appraisers. An AMC will use its own selection process that might be based on specific metrics or more random, no one is certain at this point. I will note here that, technically, loans not being sold to Fannie Mae or Freddie Mac are not subject to HVCC. But it is likely that a lender will send all loan types through the same process to protect perception of fairness. Many mortgage brokers (including myself) worry that an AMC will not have knowledge of an appraisers credentials outside of basic "resume bullet points," and the accuracy of the value might be skewed. As stated by Bill Larson a Mortgage broker in Walnut Creek, CA -- "If I was going to get an appraisal, I'd like someone that is well seasoned, has been through a couple of cycles, and knows what the area is like." He went on to state that "Someone who has knowledge of a city and has done appraisals before has an advantage of someone being selected randomly to walk into it for the first time." Not surprisingly, the National Association of Mortgage Brokers filed a lawsuit against the HVCC, but most experts expect in unlikely it will be successful. So, what do appraisers think of the upcoming changes: Currently, many of the appraisers are scrambling to get on "the lists" of AMCs and lenders. There should still be jobs to go around, but appraisers are fretting that the amount they make on each assignment might be greatly reduced forcing them out of business. According to Steve Lederer, an appraiser for 32 years -- "Right now if the average fee is $400, I get the whole $400, but now the AMC is going to keep some of that money so I might end up with just $150 or $250," ... "That's where the appraisers are screaming bloody murder. "In the past I might drive 45 minutes to Brentwood and do a job, but now that I have to give up some of the money it's not even worth it because of the cost of gas," he added. If you have any thoughts on this I would appreciate your input, please drop me an e-mail. In This Week's "Wait and See" News: This Wednesday boded well for U.S. markets, with the DOW, NASDAQ and S&P all hanging on to Tuesday's market gains - DOW ending @ 6930.40 (+3.91), NASDAQ ending @ 1371.64 (+13.36) and the S&P ending @ 721.36 (+1.76). Of significance for the rest of the week, look for Initial Jobless Claims, U.S. Retail Sales (both to be release today), and Trade Deficit Numbers (Mar. 13) to put a damper on any significant ‘across-the-board' gains that may have been made so far (which will likely be beneficial for mortgage rates). Of significance next week, look for Initial Jobless Claims and the Leading Economic Indicator numbers (both Mar. 19) to cause significant market instability. Next week's Economic Calendar: Week of March 16 - March 20
* Remember, typically, weaker than expected news is beneficial to a mortgage rate decrease and an increase in bond yields, and more positive than expected news will cause mortgage rates to increase and stocks to increase in value.
In This Week's "Not So Good Right Now" News: Many borrowers fail to make more than one payment on New FHA Mortgages The last time the housing market was this bad, Congress had to set up the Federal Housing Administration (FHA) to insure Depression-era mortgages that lenders wouldn't otherwise make - nowadays called ‘subprime'. The recent decade's housing boom rendered the agency irrelevant. Americans raced to aggressive lenders, lured by easy credit and loans with no upfront costs and/or no income documentation. But since the subprime mortgage market has crashed, borrowers are flocking back to the FHA, which has become the only option for those who lack hefty down payments or excellent credit. The agency's historic role in backing mortgages is more crucial now than at any time since its founding. With the surge in new loans (since it is one of the only loan program allowing high Loan-To-Values, LTV's above 95%), comes an inherent new threat. Many borrowers are defaulting as quickly as they take out the loans. In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency's overall growth in new loans, according to a Washington Post analysis of federal data. Many industry analysts attribute the jump in these instant defaults to factors including the weak economy, lax scrutiny of prospective borrowers, and most notably, foul play among unscrupulous lenders looking to make a quick buck. Kenneth Donohue, the inspector general of the Department of Housing and Urban Development, stated that if a loan "is going into default immediately, it clearly suggests impropriety and fraudulent activity". The spike in quick defaults follows the pattern that preceded the collapse of the subprime market, as some of the same flawed lending practices that contributed to the mortgage crisis are now eroding one of the main federal agencies charged with addressing it. Once again, thousands of borrowers are getting loans they do not stand a chance of repaying. Only now, unlike in the subprime meltdown, Congress would have to bail out the lenders if FHA cannot make good on guarantees from its existing reserves -- those once-robust reserves are showing signs of stress, raising the possibility that taxpayers might have to pick up the tab for the first time since the agency was established in 1934. More than 9,200 of the loans insured by the FHA in the past two years have gone into default after no or only one payment, according to a Post analysis. The pace of these instant defaults has tripled in one year. By last fall, more than two dozen FHA home loans on average were defaulting this way every day, seven days a week. The overall default rate on FHA loans is accelerating rapidly as well but not as dramatically as that of instant defaults. Currently, the agency's share of the mortgage market is up from 2 percent three years ago, which presently accounts for nearly a third of the mortgages now made, its highest level in at least two decades. I will note here: The FHA does not lend money directly. It provides mortgage insurance for borrowers working with FHA-approved lenders and uses the premiums to cover its losses. If the premiums are not enough, taxpayers may be on the hook. At the same time, Congress has substantially increased the amount a homeowner can borrow on an FHA loan in pricey areas, thrusting the agency into markets it was previously shut out of, such as California, where plunging home prices have made people more vulnerable to foreclosure. Moreover, lawmakers last year put the FHA in charge of a program created to address the roots of the financial crisis by helping delinquent borrowers refinance into new mortgages (FHASecure). The agency now faces this swell of loans that default almost immediately. Under FHA rules, there's a presumption of fraud or material misrepresentation if loans default after borrowers make no more than one payment. Mortgage Rate Trends: The Week's Conforming Loan NationalAverages (BankRate avg.): 30 year fixed: 5.17%Down 15 year fixed: 4.76% Down 5/1 ARM: 4.80% Down 30 year Jumbo: 6.95%Up 5/1 Jumbo ARM: 5.41%Down * Keep in mind that these rates are national averages', rates may be lower in your region of the country. If you would like a ‘real time' quote, give me a call, or drop me an e-mail.
Good news for FHA and VA 30 year fixed rate loans - they are remaining steady this week. Expect note rates to be in the range of 4.875 to 5.375 percent throughout the rest of the week. I will remind you: If you have any friends or clients looking for a government loan for purchase, or perhaps a Streamline Refinance - Now is the time. Look for Rural housing rates remain in the range of 5.25 to 5.50 percent for a 30 year fixed rate mortgage. If you have a client that you are having trouble getting qualified through your normal channels, or questions/comments regarding any information contained in this newsletter, please feel free to contact me. Sincerely, Richard Shreeve, Editor Toll Free Direct: 1-800-466-1809 (Your Lender of Choice) The purpose of this newsletter is to help all real estate professionals, their potential clients and current mortgage borrowers stay up-to-date with current market news. So, feel free to post this newsletter to your website (all I would ask is that you post it in its entirety). The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors. * If you have received this e-mail by error, and would like to be removed from receiving further correspondences, please respond to this e-mail with "please remove" in the subject line. |
