"JUST WHEN I THOUGHT I WAS OUT...THEY PULL ME BACK IN." Al Pacino in the 1990 film, The Godfather III
And if Bonds and home loan rates thought they were out of the days of volatility...they got pulled right back in, as last week brought daily price swings of almost historic proportions. For the week overall, fixed home loan rates improved by about .25%.
What led to the dramatic action this week? The bipolar emotional state of the markets began deeply depressed on Monday, but then were filled with joy Tuesday, when the Fed made an interesting move by announcing the creation of the new Term Securities Lending Facility (TSLF). The TSLF will provide borrowing banks with $200 Billion to draw on to help inject liquidity into the credit markets, and further, will accept some mortgage-backed securities as collateral, which effectively may help to "upgrade" the value and perception of battered Mortgage Bonds.
But in the meantime...struggles are still being played out related to the downgrade and losses experienced by companies holding massive amounts of mortgage-backed securities. Headlines hit on Thursday about The Carlyle Group, which manages a portfolio of mortgage-backed securities, not being able to meet a margin call and being forced to sell off large amounts of mortgage paper into the markets at great financial losses. Then on Friday, the news broke that financial brokerage and investment banking giant, Bear Stearns had suffered enormous losses, and their lack of liquidity endangered them from going out of business...or "sleeping with the fishes". The new aforementioned TSLF is designed to help this type of liquidity problem, but it will not go into effect for a few weeks, and Bear Stearns would not last that long. Coming to the rescue with loans were both the NY Fed and JP Morgan Chase. These sure are exciting times.
One bright spot for the financial markets was a low consumer inflation reading. The Overall and Core Consumer Price Index (CPI) figures were reported unchanged, far cooler than the expected increases of 0.3% and 0.2% respectively. These tame inflation numbers give the Fed a green light to cut the Fed Funds Rate by another .75% at Tuesday's meeting...but read on to understand exactly how this cut may impact YOU.
Go to www.MontereyPeninsulaHomeTeam.com and click Interest Rate News on the left hand side ro get the rest of the story!
IF THE IDEA OF KEEPING BUSINESS IN THE "FAMILY" CONJURES UP IMAGES OF MICHAEL CORLEONE AND OFFERS THAT CAN'T BE REFUSED - YOU'LL WANT TO READ THIS WEEK'S MORTGAGE MARKET VIEW TO LEARN SOME TIPS ON RUNNING A SUCCESSFUL FAMILY BUSINESS, WHERE YOU LIKELY WON'T HAVE TO WORRY ABOUT EITHER GUNS OR CANNOLI'S.
Tuesday, March 18, 2008
Thursday, March 6, 2008
FHA, Relic of Past, Is Rebounding
FHA, Relic of Past, Is Rebounding
Agency Is Becoming Centerpiece of Bid To Prop Up Housing
By JAMES R. HAGERTYMarch 6, 2008; Page A4
The Federal Housing Administration, a relic of the Great Depression that dwindled to near irrelevance in recent years, is suddenly emerging as the centerpiece of government efforts to prop up the housing market.
Home loans insured by the FHA have become the cheapest and, in many cases, the only alternative for borrowers who can make only a small down payment. The agency is rapidly gaining market share as government-sponsored mortgage investors Fannie Mae and Freddie Mac, stung by combined losses of about $9 billion in last year's second half, back away from credit risks by adding fees and demanding higher down payments.
The FHA doesn't make loans but provides insurance, which covers the risks of default for lenders or investors who own loans. That insurance is akin to the guarantees provided by Fannie Mae and Freddie Mac.
Policy makers see the FHA as one of the handiest tools available to keep money flowing into mortgages at a time of growing anxiety about the effects of soaring defaults and falling home prices.
Federal Reserve Chairman Ben Bernanke this week suggested giving "greater latitude" to the FHA on terms for insuring refinanced loans so the agency could "help more troubled borrowers." Rep. Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, has called for a greater federal role in refinancing or buying distressed loans that are written down by lenders and said the FHA is likely to play a big role in that process.
"The FHA's role is going to be huge," says Brian Chappelle, a mortgage consultant who was a senior FHA official in the early 1980s. Some lenders expect the FHA to account for as much as a third of new mortgages by the end of this year, Mr. Chappelle says. That would be up from a low of 1.8% of single-family mortgage originations in 2005 and 2006, according to trade publication Inside Mortgage Finance.
The agency has long been seen as a means to help lower-income borrowers but now attracts some well-heeled people, too. At Toll Brothers Inc., a builder of homes with an average price of around $650,000, executives say more of their buyers may soon be using FHA-insured loans.
The FHA is in some ways returning to its roots as a broad-based tonic for the housing market. When Congress created the FHA in 1934, many banks were failing and housing production had collapsed. Initially, the FHA could insure loans of as much as $16,000, or about triple the median home price at that time, allowing it to serve most of the market. Congress in later decades directed the FHA to concentrate more on the entry-level housing market.
Over the past four months, Fannie and Freddie have imposed fees that lenders have to pay upfront so that loans can be guaranteed by the two companies. Those fees are passed on to borrowers and typically result in slightly higher interest rates. Fannie and Freddie also have increased down-payment requirements in areas where house prices are falling. The FHA hasn't changed its terms and allows down payments as small as about 3% nationwide.
FHA loans now are slightly cheaper than conventional loans backed by Fannie and Freddie, a reverse of the normal situation. Last week, the average rate on FHA loans was 6.29%, while conventional loans were at 6.36%, according to HSH Associates, a publisher of financial data.
The FHA's broader role exposes it to more risks, stirring fears that taxpayers ultimately may have to bail out the agency. The FHA is "underpricing for the risk that they are taking on," says Thomas Lawler, a housing economist in Leesburg, Va., who formerly worked for Fannie Mae.
FHA officials counter that the FHA requires borrowers to document their ability to repay loans and has never needed a bailout for its single-family mortgage program. "The FHA is playing exactly the role it's supposed to play," maintaining the flow of mortgage credit, says Meg Burns, a senior official at the agency. "We need to be there as a backstop."
Ashley Jones, a 23-year-old who works for an urban-redevelopment organization in Kansas City, Mo., was delighted with that backstop. On Monday, she locked in a fixed interest rate of 5.5% on a 30-year mortgage to be insured by the FHA. "It's just a fantastic deal," says Kerry Thomas of mortgage bank James B. Nutter & Co., who is arranging the loan. Ms. Jones would have paid about 5.75% for a conventional loan and would have needed to put down 5% of the home value, instead of the 3% she will need for the FHA loan, says Ms. Thomas.
The economic-stimulus bill passed by Congress and signed by President Bush last month raises the ceiling on the size of loans the FHA can insure to $729,750 in the highest-cost areas from a previous cap of $362,790. The new limits are due to expire at the end of this year. By then, however, Congress is likely to have enacted legislation that would permanently raise the loan limits, though perhaps by a lesser amount.
Yesterday, the Department of Housing and Urban Development, which runs the FHA, announced the new temporary loan ceilings in California. Details for the rest of the country are due to be announced this week, perhaps today. The California loan caps range from $271,050 in lower-cost areas such as Lassen and Trinity counties to $729,750 in high-cost counties in the Los Angeles and San Francisco areas.
Those upper limits also will apply to loans purchased or guaranteed by Fannie and Freddie, HUD officials said. Even in low-cost areas, Fannie and Freddie can handle loans of as much as $417,000.
Sarah Bulla, who lives in Cincinnati, has a strong credit record and earns more than $100,000 a year as a sales manager for suppliers of intravenous fluids. Matthew Buss, her loan officer at 1st Metropolitan Mortgage, a broker in Charlotte, N.C., says he wouldn't have considered an FHA loan for such a borrower a year ago. But he says it's now easily the best option for Ms. Bulla, who wants to refinance her home with a loan covering 95% of the estimated value, allowing her to take out some cash for home improvements.
The FHA could raise its insurance prices. For now, all borrowers with FHA-insured loans must pay an up-front fee for that insurance equaling 1.5% of the loan amount. Then they need to pay additional fees of 0.5% per year based on the outstanding loan balance. (If borrowers make payments for five years and the loan balance falls to 78% of the original value of the property, the annual fee is no longer due.)
The FHA also allows sellers to provide more sweeteners to buyers, such as by paying loan-closing costs, which can be crucial in a weak market. Such concessions on FHA-backed loans can be as much as 6% of the home's sale price; for low-down-payment loans backed by Fannie or Freddie, the maximum allowed for seller concessions is 3%.
FHA Mortgage Limits in
Agency Is Becoming Centerpiece of Bid To Prop Up Housing
By JAMES R. HAGERTYMarch 6, 2008; Page A4
The Federal Housing Administration, a relic of the Great Depression that dwindled to near irrelevance in recent years, is suddenly emerging as the centerpiece of government efforts to prop up the housing market.
Home loans insured by the FHA have become the cheapest and, in many cases, the only alternative for borrowers who can make only a small down payment. The agency is rapidly gaining market share as government-sponsored mortgage investors Fannie Mae and Freddie Mac, stung by combined losses of about $9 billion in last year's second half, back away from credit risks by adding fees and demanding higher down payments.
The FHA doesn't make loans but provides insurance, which covers the risks of default for lenders or investors who own loans. That insurance is akin to the guarantees provided by Fannie Mae and Freddie Mac.
Policy makers see the FHA as one of the handiest tools available to keep money flowing into mortgages at a time of growing anxiety about the effects of soaring defaults and falling home prices.
Federal Reserve Chairman Ben Bernanke this week suggested giving "greater latitude" to the FHA on terms for insuring refinanced loans so the agency could "help more troubled borrowers." Rep. Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, has called for a greater federal role in refinancing or buying distressed loans that are written down by lenders and said the FHA is likely to play a big role in that process.
"The FHA's role is going to be huge," says Brian Chappelle, a mortgage consultant who was a senior FHA official in the early 1980s. Some lenders expect the FHA to account for as much as a third of new mortgages by the end of this year, Mr. Chappelle says. That would be up from a low of 1.8% of single-family mortgage originations in 2005 and 2006, according to trade publication Inside Mortgage Finance.
The agency has long been seen as a means to help lower-income borrowers but now attracts some well-heeled people, too. At Toll Brothers Inc., a builder of homes with an average price of around $650,000, executives say more of their buyers may soon be using FHA-insured loans.
The FHA is in some ways returning to its roots as a broad-based tonic for the housing market. When Congress created the FHA in 1934, many banks were failing and housing production had collapsed. Initially, the FHA could insure loans of as much as $16,000, or about triple the median home price at that time, allowing it to serve most of the market. Congress in later decades directed the FHA to concentrate more on the entry-level housing market.
Over the past four months, Fannie and Freddie have imposed fees that lenders have to pay upfront so that loans can be guaranteed by the two companies. Those fees are passed on to borrowers and typically result in slightly higher interest rates. Fannie and Freddie also have increased down-payment requirements in areas where house prices are falling. The FHA hasn't changed its terms and allows down payments as small as about 3% nationwide.
FHA loans now are slightly cheaper than conventional loans backed by Fannie and Freddie, a reverse of the normal situation. Last week, the average rate on FHA loans was 6.29%, while conventional loans were at 6.36%, according to HSH Associates, a publisher of financial data.
The FHA's broader role exposes it to more risks, stirring fears that taxpayers ultimately may have to bail out the agency. The FHA is "underpricing for the risk that they are taking on," says Thomas Lawler, a housing economist in Leesburg, Va., who formerly worked for Fannie Mae.
FHA officials counter that the FHA requires borrowers to document their ability to repay loans and has never needed a bailout for its single-family mortgage program. "The FHA is playing exactly the role it's supposed to play," maintaining the flow of mortgage credit, says Meg Burns, a senior official at the agency. "We need to be there as a backstop."
Ashley Jones, a 23-year-old who works for an urban-redevelopment organization in Kansas City, Mo., was delighted with that backstop. On Monday, she locked in a fixed interest rate of 5.5% on a 30-year mortgage to be insured by the FHA. "It's just a fantastic deal," says Kerry Thomas of mortgage bank James B. Nutter & Co., who is arranging the loan. Ms. Jones would have paid about 5.75% for a conventional loan and would have needed to put down 5% of the home value, instead of the 3% she will need for the FHA loan, says Ms. Thomas.
The economic-stimulus bill passed by Congress and signed by President Bush last month raises the ceiling on the size of loans the FHA can insure to $729,750 in the highest-cost areas from a previous cap of $362,790. The new limits are due to expire at the end of this year. By then, however, Congress is likely to have enacted legislation that would permanently raise the loan limits, though perhaps by a lesser amount.
Yesterday, the Department of Housing and Urban Development, which runs the FHA, announced the new temporary loan ceilings in California. Details for the rest of the country are due to be announced this week, perhaps today. The California loan caps range from $271,050 in lower-cost areas such as Lassen and Trinity counties to $729,750 in high-cost counties in the Los Angeles and San Francisco areas.
Those upper limits also will apply to loans purchased or guaranteed by Fannie and Freddie, HUD officials said. Even in low-cost areas, Fannie and Freddie can handle loans of as much as $417,000.
Sarah Bulla, who lives in Cincinnati, has a strong credit record and earns more than $100,000 a year as a sales manager for suppliers of intravenous fluids. Matthew Buss, her loan officer at 1st Metropolitan Mortgage, a broker in Charlotte, N.C., says he wouldn't have considered an FHA loan for such a borrower a year ago. But he says it's now easily the best option for Ms. Bulla, who wants to refinance her home with a loan covering 95% of the estimated value, allowing her to take out some cash for home improvements.
The FHA could raise its insurance prices. For now, all borrowers with FHA-insured loans must pay an up-front fee for that insurance equaling 1.5% of the loan amount. Then they need to pay additional fees of 0.5% per year based on the outstanding loan balance. (If borrowers make payments for five years and the loan balance falls to 78% of the original value of the property, the annual fee is no longer due.)
The FHA also allows sellers to provide more sweeteners to buyers, such as by paying loan-closing costs, which can be crucial in a weak market. Such concessions on FHA-backed loans can be as much as 6% of the home's sale price; for low-down-payment loans backed by Fannie or Freddie, the maximum allowed for seller concessions is 3%.
FHA Mortgage Limits in California
Median Home Price | FHA Limit | |
$995,000 | $729,750 | |
Alpine County | 438,000 | 547,500 |
355,000 | 443,750 | |
320,000 | 400,000 | |
370,000 | 462,500 | |
318,000 | 397,500 | |
995,000 | 729,750 | |
Del Norte County | 249,000 | 311,250 |
464,000 | 580,000 | |
305,000 | 381,250 | |
230,000 | 287,500 | |
315,000 | 393,750 | |
260,000 | 325,000 | |
350,000 | 437,500 | |
295,000 | 368,750 | |
260,000 | 325,000 | |
321,000 | 401,250 | |
200,000 | 271,050 | |
710,000 | 729,750 | |
340,000 | 425,000 | |
995,000 | 729,750 | |
330,000 | 412,500 | |
410,000 | 512,500 | |
378,000 | 472,500 | |
125,000 | 271,050 | |
370,000 | 462,500 | |
599,000 | 729,750 | |
615,000 | 729,750 | |
450,000 | 562,500 | |
710,000 | 729,750 | |
464,000 | 580,000 | |
328,000 | 410,000 | |
400,000 | 500,000 | |
464,000 | 580,000 | |
790,000 | 729,750 | |
400,000 | 500,000 | |
558,000 | 697,500 | |
995,000 | 729,750 | |
391,000 | 488,750 | |
550,000 | 687,500 | |
995,000 | 729,750 | |
615,000 | 729,750 | |
790,000 | 72,9750 | |
719,000 | 729,750 | |
339,000 | 423,750 | |
228,000 | 285,000 | |
235,000 | 293,750 | |
446,000 | 557,500 | |
530,000 | 662,500 | |
339,000 | 423,750 | |
340,000 | 425,000 | |
250,000 | 312,500 | |
200,000 | 271,050 | |
260,000 | 325,000 | |
350,000 | 437,500 | |
599,000 | 729,750 | |
464,000 | 580,000 | |
340,000 | 425,000 |
FHA loan limits raised in Monterey County!
I received an email from Elizabeth Smith with Princeton Capital that contained the following very exciting news about FHA loan limits.
Mark
Offering a ray of hope for a struggling California housing market, the government Wednesday doubled the limit for loans guaranteed by the Federal Housing Administration in 14 high-cost California counties, including Santa Clara County.
New, temporary limits announced by the U.S. Department of Housing and Urban Development were derived from median home prices in each county, and top out at $729,750. Previously, the maximum was $362,790.
The state was the epitome of runaway price appreciation during the housing boom, but is now experiencing one of the most severe corrections in the country.
Before the subprime lending spree of the past several years, loans backed by the FHA were traditionally a top choice for first-time home buyers who wanted to buy with low down payments. But because the maximum allowable loan amounts were fairly low, FHA-backed loans have been used infrequently in the Bay Area in recent years.
HUD Secretary Alphonso Jackson said Wednesday that the new limits will make FHA-backed loans available to as many as 30,000 Californians.
The new maximum applied to Santa Clara County, and to much of the Bay Area and the Central Coast, including San Benito, San Mateo, San Francisco, Alameda, Contra Costa, Marin, Napa, Santa Cruz and Monterey counties. The limit rose to $662,500 in Sonoma County and to $557,500 in Solano County.
Elsewhere in the state, Santa Barbara, Los Angeles, Orange and Ventura counties also received the maximum amount. Lassen, Modoc and Trinity counties are subject to a loan cap of $271,050 - a standard amount in an area with normal home prices.
HUD is expected to raise the limits in other counties nationwide in the coming days.
The U.S. economic stimulus package includes a temporary increase in the limit on FHA-backed loans, from $362,790 to $729,750 in expensive areas, to let more homeowners with high-rate subprime mortgages refinance into federally insured loans.
The package also includes a temporary increase in the cap on mortgages that the government-sponsored mortgage companies Fannie Mae and Freddie Mac can buy or guarantee, from $417,000 to $729,750. Fannie Mae and Freddie Mac are the two biggest mortgage holders in the country.
Lawmakers hope that government guarantees will help drive down interest rates on these larger loans.
But details about the securitization of the new larger loans are still being worked out, and rates for loans of more than $417,000 remain at least one percentage point higher than for the so-called "conforming" loans that Fannie Mae and Freddie Mac have historically backed. Investors are still wary that even with government backing, the loans will still be risky.
Because of that, local mortgage brokers welcomed the temporary increase in FHA loan limits.
Mike Gallagher, president of Avantis Capital in Morgan Hill, said that along with imminent temporary increases in the size of loans that Fannie Mae and Freddie Mac can guarantee, the new FHA limit locally "is going to open some doors for people who are well qualified but lacking on the down payment."
Because the previous cap on FHA-guaranteed loans in Santa Clara County was $362,790, some loan brokers in high-price Silicon Valley say they have not worked on an FHA loan for a client in years.
In addition, because of the stringent requirements to become a HUD-approved broker of FHA loans - including a financial audit that can cost more than $5,000 - many smaller California mortgage brokers have not sought HUD approval, and therefore can't broker FHA loans, said Stanley Tseng. Tseng is president of the Silicon Valley chapter of the California Association of Mortgage Brokers.
"The FHA loan is indeed a lifesaver for those who have limited down payment or less than perfect credit," Tseng said. But, "the majority of brokers in California did not get approved in the past. The loan limit was so low it did not apply to this high-cost area."
Details were few about exactly when the FHA will begin purchasing loans from lenders at the new, higher limits. One San Jose broker said he'd been told by a lender that the change would be in effect in about two weeks.
Mark
Offering a ray of hope for a struggling California housing market, the government Wednesday doubled the limit for loans guaranteed by the Federal Housing Administration in 14 high-cost California counties, including Santa Clara County.
New, temporary limits announced by the U.S. Department of Housing and Urban Development were derived from median home prices in each county, and top out at $729,750. Previously, the maximum was $362,790.
The state was the epitome of runaway price appreciation during the housing boom, but is now experiencing one of the most severe corrections in the country.
Before the subprime lending spree of the past several years, loans backed by the FHA were traditionally a top choice for first-time home buyers who wanted to buy with low down payments. But because the maximum allowable loan amounts were fairly low, FHA-backed loans have been used infrequently in the Bay Area in recent years.
HUD Secretary Alphonso Jackson said Wednesday that the new limits will make FHA-backed loans available to as many as 30,000 Californians.
The new maximum applied to Santa Clara County, and to much of the Bay Area and the Central Coast, including San Benito, San Mateo, San Francisco, Alameda, Contra Costa, Marin, Napa, Santa Cruz and Monterey counties. The limit rose to $662,500 in Sonoma County and to $557,500 in Solano County.
Elsewhere in the state, Santa Barbara, Los Angeles, Orange and Ventura counties also received the maximum amount. Lassen, Modoc and Trinity counties are subject to a loan cap of $271,050 - a standard amount in an area with normal home prices.
HUD is expected to raise the limits in other counties nationwide in the coming days.
The U.S. economic stimulus package includes a temporary increase in the limit on FHA-backed loans, from $362,790 to $729,750 in expensive areas, to let more homeowners with high-rate subprime mortgages refinance into federally insured loans.
The package also includes a temporary increase in the cap on mortgages that the government-sponsored mortgage companies Fannie Mae and Freddie Mac can buy or guarantee, from $417,000 to $729,750. Fannie Mae and Freddie Mac are the two biggest mortgage holders in the country.
Lawmakers hope that government guarantees will help drive down interest rates on these larger loans.
But details about the securitization of the new larger loans are still being worked out, and rates for loans of more than $417,000 remain at least one percentage point higher than for the so-called "conforming" loans that Fannie Mae and Freddie Mac have historically backed. Investors are still wary that even with government backing, the loans will still be risky.
Because of that, local mortgage brokers welcomed the temporary increase in FHA loan limits.
Mike Gallagher, president of Avantis Capital in Morgan Hill, said that along with imminent temporary increases in the size of loans that Fannie Mae and Freddie Mac can guarantee, the new FHA limit locally "is going to open some doors for people who are well qualified but lacking on the down payment."
Because the previous cap on FHA-guaranteed loans in Santa Clara County was $362,790, some loan brokers in high-price Silicon Valley say they have not worked on an FHA loan for a client in years.
In addition, because of the stringent requirements to become a HUD-approved broker of FHA loans - including a financial audit that can cost more than $5,000 - many smaller California mortgage brokers have not sought HUD approval, and therefore can't broker FHA loans, said Stanley Tseng. Tseng is president of the Silicon Valley chapter of the California Association of Mortgage Brokers.
"The FHA loan is indeed a lifesaver for those who have limited down payment or less than perfect credit," Tseng said. But, "the majority of brokers in California did not get approved in the past. The loan limit was so low it did not apply to this high-cost area."
Details were few about exactly when the FHA will begin purchasing loans from lenders at the new, higher limits. One San Jose broker said he'd been told by a lender that the change would be in effect in about two weeks.
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