For more information, contact:
Sara Wiskerchen 202/383-1013 swiskerchen@realtors.org
America Needs an Affordable and Adequately Regulated Secondary Market, Says NAR
Washington, DC, February 11, 2011
The National Association of REALTORS® welcomes the Obama Administration’s call for an orderly transition from the current form of the secondary mortgage market to a new structure that would enable Americans to achieve affordable, sustainable mortgages.
“NAR believes that we cannot have a restoration of the former secondary mortgage market with entities that took private profits while pushing losses onto the taxpayer. The new system must involve some government presence, outside of FHA, USDA, and the Department of Veterans Affairs, to ensure a continued flow of capital to housing markets during economic downturns when large lenders flee the housing market,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., in response to the plan released today by the Obama Administration for reforming the housing finance market.
“As the leading advocate for home ownership, NAR recognizes that the existing system failed and that changes are needed to protect taxpayers from an open-ended bailout. We believe there must be a certain level of government participation to provide middle-class families access to affordable mortgages at all times and in all markets,” Phipps said.
A system that is dominated by a few large banks that are “too-big-to-fail” would inevitably involve huge taxpayer risk of another bailout. “An efficient and adequately regulated secondary mortgage market must make available to consumers simple yet safe, reliable mortgage products like the 15- and 30-year fixed-rate mortgages,” said Phipps.
NAR believes that the size of the government’s participation in housing finance should decrease if the market is to function properly, but notes that when private capital fled the marketplace during the recent financial crisis, government backing of residential mortgages was critical in sustaining the housing market. “Without government support, the financial crisis could have been far worse,” Phipps said. NAR’s economists estimate that a retreat of capital from the housing market will negatively impact the economy; because for every 1,000 home sales, 500 jobs are created for the country.
NAR encourages private sector participation in less traditional mortgages in innovative ways, such as through covered bonds. NAR, however, opposes raising fees for current well-qualified consumers to cover losses stemming from mistakes made in the private business decisions of the former Fannie Mae and Freddie Mac.
“Reducing the government’s involvement in the mortgage finance market is necessary for a healthy market, but should not be done at the expense of the economy or home buyers,” said Phipps. “Any proposal for increasing fees and borrowing costs beyond actuarially sound levels will only make it harder for working, middle-class individuals to achieve home ownership, and only the wealthy will be able to achieve the American dream.
“We welcome the Administration’s desire to engage stakeholders in the final plan and we want to serve on any advisory panel that will study the consolidation of federal incentives for housing. We also look forward to working closely with Congress. NAR has been representing the interests of homeowners for more than 100 years and our goal is to bring their interests into this debate as well. We want to help design a secondary mortgage model that will serve homeowners today, and in the future, and ensure a strong housing market and full economic recovery,” Phipps said.
The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
From: http://ping.fm/wQLCX
Tuesday, February 22, 2011
S&P Case-Shiller Index Posts Another Drop as Home Prices Near Trough
S&P Case-Shiller Index Posts Another Drop as Home Prices Near Trough
02/22/2011 By: Carrie Bay
Data through December 2010, released this morning by Standard & Poor’s show that the S&P/Case-Shiller national home price index declined by 3.9 percent quarter-over-quarter during the last three months of 2010.
The closely watched gauge is down 4.1 percent versus the fourth quarter of 2009, which is the lowest annual growth rate since prices plummeted at an annual rate of 8.6 percent in the third quarter of 2009.
“We ended 2010 with a weak report,” said David M. Blitzer, chairman of the index committee at Standard & Poor’s. “Despite improvements in the overall economy, housing continues to drift lower and weaker.”
S&P warns in its report that both its 10-city and 20-city home price composites and the national index are moving closer to their 2009 troughs and a full-fledged double dip. The national reading is within a percentage point of the low it set in the first quarter of 2009, Blitzer said.
(developing story)
From: http://ping.fm/pNsIX
02/22/2011 By: Carrie Bay
Data through December 2010, released this morning by Standard & Poor’s show that the S&P/Case-Shiller national home price index declined by 3.9 percent quarter-over-quarter during the last three months of 2010.
The closely watched gauge is down 4.1 percent versus the fourth quarter of 2009, which is the lowest annual growth rate since prices plummeted at an annual rate of 8.6 percent in the third quarter of 2009.
“We ended 2010 with a weak report,” said David M. Blitzer, chairman of the index committee at Standard & Poor’s. “Despite improvements in the overall economy, housing continues to drift lower and weaker.”
S&P warns in its report that both its 10-city and 20-city home price composites and the national index are moving closer to their 2009 troughs and a full-fledged double dip. The national reading is within a percentage point of the low it set in the first quarter of 2009, Blitzer said.
(developing story)
From: http://ping.fm/pNsIX
Friday, February 18, 2011
Wednesday, February 16, 2011
FHA Raises Annual Mortgage Insurance Premiums
OK, buyers are getting squeezed again. Time to make a move!
FHA Raises Annual Mortgage Insurance Premiums
02/15/2011 By: Carrie Bay
The Federal Housing Administration (FHA) is wasting no time putting at least one of the Obama administration’s housing finance reforms into place. The agency announced this week that it is implementing a new premium structure for FHA-insured mortgage loans.
FHA is increasing its annual mortgage insurance premium (MIP) by a quarter of a percentage point on all 30- and 15-year loans. The upfront MIP will remain unchanged at 1.0 percent.
The new structure applies to all new loans insured by FHA on or after April 18, 2011. Existing and reverse mortgage (HECM) loans insured by FHA are not impacted by the pricing change.
FHA Commissioner David Stevens says the annual payment adjustment will increase borrowers’ costs about $30 per month and will help to strengthen the agency’s depleted coffers.
“After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market,” Stevens said in a statement.
He continued, “This quarter point increase in the annual MIP is a responsible step towards meeting the congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.”
The 25 basis point rise was proposed last week as part of the Obama administration’s report to Congress on reforming the nation’s housing finance system, and was detailed in President Obama’s fiscal year 2012 budget released Monday.
According to FHA, this premium change enables the agency to increase revenues at a time when it is critical to safeguard the stability of its Mutual Mortgage Insurance fund, which had capital reserves of approximately $3.6 billion at the end of FY 2010. The new pay structure is estimated to contribute nearly $3 billion annually to the fund.
The administration’s housing finance plan also recommended that Congress allow the present increase in FHA conforming loan limits to expire as scheduled on October 1, 2011. President Obama’s budget proposal projects FHA will insure $218 billion in mortgage borrowing in 2012.
From: http://ping.fm/PTtPj
FHA Raises Annual Mortgage Insurance Premiums
02/15/2011 By: Carrie Bay
The Federal Housing Administration (FHA) is wasting no time putting at least one of the Obama administration’s housing finance reforms into place. The agency announced this week that it is implementing a new premium structure for FHA-insured mortgage loans.
FHA is increasing its annual mortgage insurance premium (MIP) by a quarter of a percentage point on all 30- and 15-year loans. The upfront MIP will remain unchanged at 1.0 percent.
The new structure applies to all new loans insured by FHA on or after April 18, 2011. Existing and reverse mortgage (HECM) loans insured by FHA are not impacted by the pricing change.
FHA Commissioner David Stevens says the annual payment adjustment will increase borrowers’ costs about $30 per month and will help to strengthen the agency’s depleted coffers.
“After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market,” Stevens said in a statement.
He continued, “This quarter point increase in the annual MIP is a responsible step towards meeting the congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.”
The 25 basis point rise was proposed last week as part of the Obama administration’s report to Congress on reforming the nation’s housing finance system, and was detailed in President Obama’s fiscal year 2012 budget released Monday.
According to FHA, this premium change enables the agency to increase revenues at a time when it is critical to safeguard the stability of its Mutual Mortgage Insurance fund, which had capital reserves of approximately $3.6 billion at the end of FY 2010. The new pay structure is estimated to contribute nearly $3 billion annually to the fund.
The administration’s housing finance plan also recommended that Congress allow the present increase in FHA conforming loan limits to expire as scheduled on October 1, 2011. President Obama’s budget proposal projects FHA will insure $218 billion in mortgage borrowing in 2012.
From: http://ping.fm/PTtPj
The Obama plan: Goldilocks, Fannie, Freddie and FHA
The Obama plan: Goldilocks, Fannie, Freddie and FHA
Finding a 'just right' mortgage market fix
By Ken Harney
Inman News™
February 15, 2011
Are we heading toward a Goldilocks solution for Fannie Mae and Freddie Mac? And if so, what does that really mean for consumers and real estate professionals?
The Obama administration's much-delayed "white paper" on housing finance reform -- nearly two years in the making -- turned out to be just 31 pages that essentially said: Total privatization of the home mortgage market won't suit us. (Too hot.) Total nationalization of the market won't, either. (Too cold.) But something in between -- well, you know the story -- should be just right.
Because of its diminutive size and lack of specificities, it's easy to dismiss Obama's report to Congress last week. But the administration's emphasis throughout on the need to reduce the federal government's footprint in the mortgage market was an important message to Republicans in the House and Senate: We can work with you.
We're prepared to resist consumer groups and others who want us to simply "fix" Fannie and Freddie rather than to kill them. We can wind down both companies within as little as five years, and do a lot more between now and then to slash the size of federal programs along the way.
For real estate professionals, a transition from 90 percent federal control of the market -- Fannie, Freddie, the Federal Housing Administration, Veterans Affairs, U.S. Department of Agriculture and the Federal Home Loan Banks add up to about that percentage today -- down to something under a 20 percent share will be where you really want to stay focused.
Some of the interim steps could be jolting and troublesome for your immediate business, and tough on consumers who don't have large down payments and assets who want to buy houses this year and next.
The administration's interim strategy, in a nutshell: Make Fannie, Freddie, FHA and the others progressively less attractive to homebuyers by raising their prices, making underwriting requirements stricter, and lowering their overall availability.
Equally important: Much of what the White House has in mind for the short term can be accomplished administratively -- there'll be no need to ask Congress for permission.
What are some of the baby steps along the way that could affect home sales and financing in the months immediately ahead? Start with FHA, which has approximately a 30 percent share of the home purchase market nationally, and easily double that for first-time homebuyers who are African-American or Hispanic.
The administration wants to slash that by as much as two-thirds during the next several years, allowing the agency to revert to its "historic" average market share of 10 to 15 percent.
To get that ball rolling, FHA intends to raise its annual mortgage insurance premium by a quarter of 1 percent (25 basis points) this year. That's on top of premium increases last year, plus an expected decrease in maximum seller contributions to 3 percent of the loan amount, down from the traditional 6 percent.
(FHA proposed that decrease last year, triggering criticism from the National Association of REALTORS® and other housing groups, but has not yet finalized the rule. With the White House's new emphasis on reducing FHA's attractiveness to consumers, don't expect to see much compromise on the 3 percent cap, as critics have demanded.)
Next on the list: Cut FHA's maximum loan size, starting Oct. 1, when the current statutory limit of $729,750 for high-cost areas drops back to $625,500. But the paper suggests that FHA will then explore further reductions nationwide in order to retarget the agency on lower- and moderate-income families.
Significantly lower limits -- say down to or below a $417,000 ceiling -- could be a deal-breaker for some homebuyers in high-cost areas of California, along the East Coast, and elsewhere if borrowers have marginal credit and small down payments.
A final step toward shrinking FHA's market share would be to increase the current low 3.5 percent minimum down payment. "FHA will consider other options, such as lowering the maximum loan-to-value ratio for qualifying mortgages more broadly," said the report.
How high is higher for the minimum down payment? Five percent down is the most likely -- another deal-killer for many buyers -- but again, the white paper offered no specifics.
The administration has a list of short-term changes for Fannie and Freddie as well, including lowering conforming loan limits as of Oct. 1 (to $625,500 and below), higher down-payment minimums (heading toward 10 percent), and higher guarantee fees for lenders.
All of these will increase costs for homebuyers and make Fannie and Freddie less significant sources of mortgage money.
Where will consumers go for financing as these changes kick in? The administration's theory is that the private sector -- primarily the big four banks -- will step in and fill the void.
Really? Will they do so in the absence of a robust securitization market? Will their offerings and pricing to people who can't make 5 or 10 percent down payments be anywhere in the ballpark compared with what homebuyers can obtain today through Fannie, Freddie or FHA?
Excuse my skepticism, but I really doubt they will.
In the meantime, Congress is starting its work on its own plans for Fannie-Freddie reform. The Obama white paper suggested three broad frameworks for Congress to consider:
1. Retention of FHA, VA and USDA as the federal government's players in the market, but with no federal financial backups or guarantees available for lenders in the event of losses.
2. Retention of FHA, VA and USDA but creation of some unspecified federal guarantee or insurance mechanism that would "scale up" during times of economic crisis but otherwise not be a factor in a private lender-dominated marketplace.
3. Retention of FHA, VA and USDA but creation of a reinsurance entity that would cover "catastrophic" losses. This reinsurance would be the final fail-safe to prevent a total blowout. It would back up "significant private capital" and federal insurance at the mortgage securities level that would be available to regulated lenders.
That's the shape of the future, long term and short term, at least according to the Obama administration. The long-term resolution is almost certainly years away from taking final shape. But key changes could hit much sooner, and sooner is where we all live.
Fannie and Freddie are toast for the long term. But some homebuyers probably are going to get burned in the short term.
Ken Harney writes an award-winning, nationally syndicated column, "The Nation's Housing," and is the author of two books on real estate and mortgage finance.
From: http://ping.fm/tcXqP
Finding a 'just right' mortgage market fix
By Ken Harney
Inman News™
February 15, 2011
Are we heading toward a Goldilocks solution for Fannie Mae and Freddie Mac? And if so, what does that really mean for consumers and real estate professionals?
The Obama administration's much-delayed "white paper" on housing finance reform -- nearly two years in the making -- turned out to be just 31 pages that essentially said: Total privatization of the home mortgage market won't suit us. (Too hot.) Total nationalization of the market won't, either. (Too cold.) But something in between -- well, you know the story -- should be just right.
Because of its diminutive size and lack of specificities, it's easy to dismiss Obama's report to Congress last week. But the administration's emphasis throughout on the need to reduce the federal government's footprint in the mortgage market was an important message to Republicans in the House and Senate: We can work with you.
We're prepared to resist consumer groups and others who want us to simply "fix" Fannie and Freddie rather than to kill them. We can wind down both companies within as little as five years, and do a lot more between now and then to slash the size of federal programs along the way.
For real estate professionals, a transition from 90 percent federal control of the market -- Fannie, Freddie, the Federal Housing Administration, Veterans Affairs, U.S. Department of Agriculture and the Federal Home Loan Banks add up to about that percentage today -- down to something under a 20 percent share will be where you really want to stay focused.
Some of the interim steps could be jolting and troublesome for your immediate business, and tough on consumers who don't have large down payments and assets who want to buy houses this year and next.
The administration's interim strategy, in a nutshell: Make Fannie, Freddie, FHA and the others progressively less attractive to homebuyers by raising their prices, making underwriting requirements stricter, and lowering their overall availability.
Equally important: Much of what the White House has in mind for the short term can be accomplished administratively -- there'll be no need to ask Congress for permission.
What are some of the baby steps along the way that could affect home sales and financing in the months immediately ahead? Start with FHA, which has approximately a 30 percent share of the home purchase market nationally, and easily double that for first-time homebuyers who are African-American or Hispanic.
The administration wants to slash that by as much as two-thirds during the next several years, allowing the agency to revert to its "historic" average market share of 10 to 15 percent.
To get that ball rolling, FHA intends to raise its annual mortgage insurance premium by a quarter of 1 percent (25 basis points) this year. That's on top of premium increases last year, plus an expected decrease in maximum seller contributions to 3 percent of the loan amount, down from the traditional 6 percent.
(FHA proposed that decrease last year, triggering criticism from the National Association of REALTORS® and other housing groups, but has not yet finalized the rule. With the White House's new emphasis on reducing FHA's attractiveness to consumers, don't expect to see much compromise on the 3 percent cap, as critics have demanded.)
Next on the list: Cut FHA's maximum loan size, starting Oct. 1, when the current statutory limit of $729,750 for high-cost areas drops back to $625,500. But the paper suggests that FHA will then explore further reductions nationwide in order to retarget the agency on lower- and moderate-income families.
Significantly lower limits -- say down to or below a $417,000 ceiling -- could be a deal-breaker for some homebuyers in high-cost areas of California, along the East Coast, and elsewhere if borrowers have marginal credit and small down payments.
A final step toward shrinking FHA's market share would be to increase the current low 3.5 percent minimum down payment. "FHA will consider other options, such as lowering the maximum loan-to-value ratio for qualifying mortgages more broadly," said the report.
How high is higher for the minimum down payment? Five percent down is the most likely -- another deal-killer for many buyers -- but again, the white paper offered no specifics.
The administration has a list of short-term changes for Fannie and Freddie as well, including lowering conforming loan limits as of Oct. 1 (to $625,500 and below), higher down-payment minimums (heading toward 10 percent), and higher guarantee fees for lenders.
All of these will increase costs for homebuyers and make Fannie and Freddie less significant sources of mortgage money.
Where will consumers go for financing as these changes kick in? The administration's theory is that the private sector -- primarily the big four banks -- will step in and fill the void.
Really? Will they do so in the absence of a robust securitization market? Will their offerings and pricing to people who can't make 5 or 10 percent down payments be anywhere in the ballpark compared with what homebuyers can obtain today through Fannie, Freddie or FHA?
Excuse my skepticism, but I really doubt they will.
In the meantime, Congress is starting its work on its own plans for Fannie-Freddie reform. The Obama white paper suggested three broad frameworks for Congress to consider:
1. Retention of FHA, VA and USDA as the federal government's players in the market, but with no federal financial backups or guarantees available for lenders in the event of losses.
2. Retention of FHA, VA and USDA but creation of some unspecified federal guarantee or insurance mechanism that would "scale up" during times of economic crisis but otherwise not be a factor in a private lender-dominated marketplace.
3. Retention of FHA, VA and USDA but creation of a reinsurance entity that would cover "catastrophic" losses. This reinsurance would be the final fail-safe to prevent a total blowout. It would back up "significant private capital" and federal insurance at the mortgage securities level that would be available to regulated lenders.
That's the shape of the future, long term and short term, at least according to the Obama administration. The long-term resolution is almost certainly years away from taking final shape. But key changes could hit much sooner, and sooner is where we all live.
Fannie and Freddie are toast for the long term. But some homebuyers probably are going to get burned in the short term.
Ken Harney writes an award-winning, nationally syndicated column, "The Nation's Housing," and is the author of two books on real estate and mortgage finance.
From: http://ping.fm/tcXqP
MBSQuoteline - News & Analysis : Today's Market - Mortgage Backed Securities - www.mbsquoteline.com
HEY, WAKE UP!!!!! INFLATION IS HERE AND RATES GOING UP!!!!!
Today's Market
Tuesday 02-15-11 Wednesday February 16, 2011
Morning Analysis: 02-16-11 09:45am
MBS prices are down -7/32 (FNMA 30-yr 4.5 at 100.26), which is about 2/32 higher than yesterday at this time. Favorable repricing took place yesterday. The 30-yr fixed FNMA required net yield (60 day) is now at 4.75%, from 4.80% yesterday. Early investors may have priced at higher levels.
Today's economic data caused a significant reaction in MBS markets, and it has been a volatile morning. January PPI rose 0.8% from November, above the consensus forecast of 0.7%, and was 3.6% higher than one year ago. Core PPI, which excludes food and energy, rose 0.5% from last month, the largest increase since October 2008, and was 1.6% higher than one year ago. January Housing Starts jumped 15% to an annual rate of 596K units, above the consensus forecast of 540K. The strength was found in multi-family units and was partly due to a change in building requirements at the end of last year. Building Permits, a leading indicator, declined 10%. MBS prices moved lower after the PPI data was released. A little later, January Industrial Production showed a decline of -0.1%, below the consensus for an increase of 0.5%. MBS markets briefly rallied after the news, but then fell back to the levels seen before the data. The Dow is up 50 points. The FOMC Minutes will be released at 2:00 et.
The Mortgage Bankers Association weekly purchase activity index fell 6%, while the refinancing activity index decreased by 11%. Average reported rates for the prior week fell to 5.12%, from 5.13% for 30-yr fixed mortgages.
02-16-11 09:45am 30yr 4.5 15yr 4.0
FNMA 100.260 -0.070
100.230 -0.070
102.000 -0.070
101.310 -0.020
101.280 -0.020
103.160 -0.020
FHLMC
GNMA
Update: 02-16-11 09:02am
MBS prices have moved lower after the stronger than expected PPI inflation data, and are now down -5/32, from unchanged levels earlier.
Update: 02-16-11 08:41am
MBS prices are unchanged. PPI was higher than expected, while Housing Starts were mixed, but there was little immediate reaction.
From: http://www.mbsquoteline.com/members_news_today.php?start=1297871100&sess_id=b1a876c7cae1ab965f397d6a97af68f4
Today's Market
Tuesday 02-15-11 Wednesday February 16, 2011
Morning Analysis: 02-16-11 09:45am
MBS prices are down -7/32 (FNMA 30-yr 4.5 at 100.26), which is about 2/32 higher than yesterday at this time. Favorable repricing took place yesterday. The 30-yr fixed FNMA required net yield (60 day) is now at 4.75%, from 4.80% yesterday. Early investors may have priced at higher levels.
Today's economic data caused a significant reaction in MBS markets, and it has been a volatile morning. January PPI rose 0.8% from November, above the consensus forecast of 0.7%, and was 3.6% higher than one year ago. Core PPI, which excludes food and energy, rose 0.5% from last month, the largest increase since October 2008, and was 1.6% higher than one year ago. January Housing Starts jumped 15% to an annual rate of 596K units, above the consensus forecast of 540K. The strength was found in multi-family units and was partly due to a change in building requirements at the end of last year. Building Permits, a leading indicator, declined 10%. MBS prices moved lower after the PPI data was released. A little later, January Industrial Production showed a decline of -0.1%, below the consensus for an increase of 0.5%. MBS markets briefly rallied after the news, but then fell back to the levels seen before the data. The Dow is up 50 points. The FOMC Minutes will be released at 2:00 et.
The Mortgage Bankers Association weekly purchase activity index fell 6%, while the refinancing activity index decreased by 11%. Average reported rates for the prior week fell to 5.12%, from 5.13% for 30-yr fixed mortgages.
02-16-11 09:45am 30yr 4.5 15yr 4.0
FNMA 100.260 -0.070
100.230 -0.070
102.000 -0.070
101.310 -0.020
101.280 -0.020
103.160 -0.020
FHLMC
GNMA
Update: 02-16-11 09:02am
MBS prices have moved lower after the stronger than expected PPI inflation data, and are now down -5/32, from unchanged levels earlier.
Update: 02-16-11 08:41am
MBS prices are unchanged. PPI was higher than expected, while Housing Starts were mixed, but there was little immediate reaction.
From: http://www.mbsquoteline.com/members_news_today.php?start=1297871100&sess_id=b1a876c7cae1ab965f397d6a97af68f4
Where Are Mortgage Costs Headed?
Where Are Mortgage Costs Headed?
by The KCM Crew on February 16, 2011
We have received many questions regarding the government’s plans for limiting federal support of the mortgage process. We realize that there is much confusion and concern surrounding this issue. However, the KCM Crew does not get involved in discussing the possibilities of future legislation nor are we in the business of lobbying for certain outcomes. This will be a long, drawn-out process. However, since many have asked, here are the thoughts of others on the issue.
The Business Community
AnnaMaria Andriotis, writer for Market Watch:
“In the proposals were changes that will mean more expensive mortgages, with higher fees and, probably, higher interest rates, larger down payments and, in the near term, fewer lenders to choose from.”
Mark Zandi, Chief Economist of Moody’s Economics.com
“A private system would also likely mean the end of the 30-year fixed-rate mortgage as a mainstay of U.S. housing finance. A privatized U.S. market would come to resemble overseas markets, primarily offering adjustable-rate mortgages. Based on the experience overseas, the fixed-rate share in the U.S. would decline to an average of between 10% and 20% of the mortgage market compared with a historical average of closer to 75%. Reinforcing this likelihood are the limits placed on the use of prepayment penalties in the recently passed Dodd-Frank financial regulatory reform legislation. Adjustable-rate mortgages are not inherently bad loan products, but they do shift the risk of fluctuating interest rates onto homeowners. This would be a very significant adjustment for many U.S. homeowners who are not well equipped to handle such risk.”
The Royal Bank of Scotland:
“The GSEs currently provide 95% of housing finance in the U.S.; any reductions of their involvement in supporting mortgages mean interest rates will have to go up to induce private lending.”
Consumer Advocates
John Taylor, President and CEO of the National Community Reinvestment Coalition:
“Historically, working class people have had access to private sector capital in order to purchase a home, with guarantees by the government to ensure affordability. The administration’s plan, by emphasis and omission, suggests that this country’s commitment to ensuring homeownership for working families will be lessened.”
Barry Zigas, Director of Housing Policy for Consumer Federation of America:
“These options would turn the mortgage system largely over to the Wall Street banks and investors whose irresponsible, unsafe and expensive mortgage products produced the financial crisis in the first place. It would be a classic case of putting the fox in charge of the hen house, but this time after the fox had already feasted on the flock once before.”
Bottom Line
This will be a long, drawn-out process. Where it will wind-up is anyone’s guess. We’ll try our best to keep you informed.
From: http://kcmblog.com/2011/02/16/where-are-mortgage-costs-headed/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+KeepingCurrentMatters+%28KCM+Blog%29
by The KCM Crew on February 16, 2011
We have received many questions regarding the government’s plans for limiting federal support of the mortgage process. We realize that there is much confusion and concern surrounding this issue. However, the KCM Crew does not get involved in discussing the possibilities of future legislation nor are we in the business of lobbying for certain outcomes. This will be a long, drawn-out process. However, since many have asked, here are the thoughts of others on the issue.
The Business Community
AnnaMaria Andriotis, writer for Market Watch:
“In the proposals were changes that will mean more expensive mortgages, with higher fees and, probably, higher interest rates, larger down payments and, in the near term, fewer lenders to choose from.”
Mark Zandi, Chief Economist of Moody’s Economics.com
“A private system would also likely mean the end of the 30-year fixed-rate mortgage as a mainstay of U.S. housing finance. A privatized U.S. market would come to resemble overseas markets, primarily offering adjustable-rate mortgages. Based on the experience overseas, the fixed-rate share in the U.S. would decline to an average of between 10% and 20% of the mortgage market compared with a historical average of closer to 75%. Reinforcing this likelihood are the limits placed on the use of prepayment penalties in the recently passed Dodd-Frank financial regulatory reform legislation. Adjustable-rate mortgages are not inherently bad loan products, but they do shift the risk of fluctuating interest rates onto homeowners. This would be a very significant adjustment for many U.S. homeowners who are not well equipped to handle such risk.”
The Royal Bank of Scotland:
“The GSEs currently provide 95% of housing finance in the U.S.; any reductions of their involvement in supporting mortgages mean interest rates will have to go up to induce private lending.”
Consumer Advocates
John Taylor, President and CEO of the National Community Reinvestment Coalition:
“Historically, working class people have had access to private sector capital in order to purchase a home, with guarantees by the government to ensure affordability. The administration’s plan, by emphasis and omission, suggests that this country’s commitment to ensuring homeownership for working families will be lessened.”
Barry Zigas, Director of Housing Policy for Consumer Federation of America:
“These options would turn the mortgage system largely over to the Wall Street banks and investors whose irresponsible, unsafe and expensive mortgage products produced the financial crisis in the first place. It would be a classic case of putting the fox in charge of the hen house, but this time after the fox had already feasted on the flock once before.”
Bottom Line
This will be a long, drawn-out process. Where it will wind-up is anyone’s guess. We’ll try our best to keep you informed.
From: http://kcmblog.com/2011/02/16/where-are-mortgage-costs-headed/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+KeepingCurrentMatters+%28KCM+Blog%29
Tuesday, February 15, 2011
Housing Finance ... Seven Years Down the Road
Housing Finance ... Seven Years Down the Road
02/11/2011 By: Carrie Bay
On top of the more imminent reform measures laid out Friday to shore up the nation’s housing finance system and begin the process of winding down Fannie Mae and Freddie Mac, the Obama administration’s proposal outlines three options for long-term reform and structuring the government’s future role in the housing market.
Treasury stressed in a statement that “[e]ach of these options would produce a market where the private sector plays the dominant role in providing mortgage credit and bears the burden for losses, but each also has unique advantages and disadvantages” that will require “an honest discussion with Congress and other stakeholders.”
Treasury Secretary Timothy Geithner says a realistic timeframe for full reform to be put into action is five to seven years. So what will the landscape of U.S. housing finance look like in seven years. The administration paints three distinct pictures.
Option one would limit the government’s role in insuring or guaranteeing mortgages to the Federal Housing Administration (FHA) and other programs targeted to lower- and moderate-income borrowers. While the government would continue to provide access for this targeted segment, it would leave the vast majority of the mortgage market to the private sector.
The report notes that this option would drastically reduce taxpayer exposure to private lenders’ losses; it would deter banks from taking on excessive risks since they’d have no assurance of a government guarantee behind them; and without government backing, investors would be more inclined to put their money into other areas of the economy, potentially leading to more long-run economic growth and reducing the inflationary pressure on housing assets.
On the other hand, Geithner says if there is no guarantee beyond FHA, there is a risk that consolidation in the market would increase and access to credit for many Americans would be greatly impacted. The cost of mortgage credit for those who do not qualify for an FHA-insured loan – the majority of borrowers – would likely rise and mortgage rates would probably soar.
In addition, without broader government support in the market, the report points out that Congress, FHA, the Federal Reserve, and other regulators would not be able to play the countercyclical role that they have played throughout the recent crisis, increasing the risk of a more severe downturn.
A second approach entails essentially the same limited government involvement as option one, except it would also allow the government to develop a backstop mechanism to ensure access to credit during a housing crisis. According to the report, this backstop would main-
tain a minimal presence in the market during normal times, but would be ready to scale up to a larger share of the market as private capital withdraws in times of financial stress.
The administration provides two subset options for this backstop mechanism within the second approach. One would be to price the guarantee fee at a high enough level that it would only be competitive in the absence of private capital and would only expand when dictated by the market. An alternative would restrict the amount of public insurance sold to the private market in normal times, but allow the amount of insurance offered to ramp up to stabilize the market in times of stress.
Option two would give the government the ability to soften a contraction of credit during a crisis, without necessarily taking on all the costs associated with a broad government guarantee during normal times. However, some uncertainty would come with easily the backstop could be scaled in times of crisis. All the benefits of the previous approach would remain, as would the downside of limited access to credit and higher borrowing costs.
Under option three, as in the previous two models, the mortgage market outside of FHA would be placed in the hands of the private sector. However, to increase liquidity and access to mortgages for creditworthy Americans – as well as to ensure the government’s ability to respond to future crises – the government would offer reinsurance for the securities of a targeted range of mortgages.
A group of private mortgage guarantor companies that meet certain capital and oversight requirements would provide guarantees for securities backed by mortgages that meet specific underwriting standards. A government entity would then provide reinsurance to the holders of these securities, which would be paid out only if shareholders of the private mortgage guarantors have been entirely wiped out. The government reinsurer would charge a premium for this reinsurance, which would be used to cover future claims and recoup losses.
This approach would be similar to the FDIC’s insurance fund to protect consumers’ deposits. The government would be guaranteeing the investment in the securities offered in the event the original guarantor goes under. The guarantor company itself does not benefit from any type of explicit backing except for the fact that investors would feel safer placing their money with them because of the insurance protection offered.
The report says the strength of this approach is that it likely provides the lowest-cost access to mortgage credit of the three options. While mortgage rates would increase due to the cost of the premium and the first-loss position of private capital, the reinsurance will likely attract a larger pool of investors to the mortgage market, increasing liquidity. The administration says it would also provide a more competitive playing field for smaller lenders and community banks, and it would put the government in a position to scale up support in times of distress.
However, this option, too, comes with costs. It increases the risk of artificially inflating the value of housing assets, according to the administration’s report. In addition, the reinsurance of private-lending activity, by its nature, exposes the government and taxpayers to risk and moral hazard.
From: http://ping.fm/tZHXB
02/11/2011 By: Carrie Bay
On top of the more imminent reform measures laid out Friday to shore up the nation’s housing finance system and begin the process of winding down Fannie Mae and Freddie Mac, the Obama administration’s proposal outlines three options for long-term reform and structuring the government’s future role in the housing market.
Treasury stressed in a statement that “[e]ach of these options would produce a market where the private sector plays the dominant role in providing mortgage credit and bears the burden for losses, but each also has unique advantages and disadvantages” that will require “an honest discussion with Congress and other stakeholders.”
Treasury Secretary Timothy Geithner says a realistic timeframe for full reform to be put into action is five to seven years. So what will the landscape of U.S. housing finance look like in seven years. The administration paints three distinct pictures.
Option one would limit the government’s role in insuring or guaranteeing mortgages to the Federal Housing Administration (FHA) and other programs targeted to lower- and moderate-income borrowers. While the government would continue to provide access for this targeted segment, it would leave the vast majority of the mortgage market to the private sector.
The report notes that this option would drastically reduce taxpayer exposure to private lenders’ losses; it would deter banks from taking on excessive risks since they’d have no assurance of a government guarantee behind them; and without government backing, investors would be more inclined to put their money into other areas of the economy, potentially leading to more long-run economic growth and reducing the inflationary pressure on housing assets.
On the other hand, Geithner says if there is no guarantee beyond FHA, there is a risk that consolidation in the market would increase and access to credit for many Americans would be greatly impacted. The cost of mortgage credit for those who do not qualify for an FHA-insured loan – the majority of borrowers – would likely rise and mortgage rates would probably soar.
In addition, without broader government support in the market, the report points out that Congress, FHA, the Federal Reserve, and other regulators would not be able to play the countercyclical role that they have played throughout the recent crisis, increasing the risk of a more severe downturn.
A second approach entails essentially the same limited government involvement as option one, except it would also allow the government to develop a backstop mechanism to ensure access to credit during a housing crisis. According to the report, this backstop would main-
tain a minimal presence in the market during normal times, but would be ready to scale up to a larger share of the market as private capital withdraws in times of financial stress.
The administration provides two subset options for this backstop mechanism within the second approach. One would be to price the guarantee fee at a high enough level that it would only be competitive in the absence of private capital and would only expand when dictated by the market. An alternative would restrict the amount of public insurance sold to the private market in normal times, but allow the amount of insurance offered to ramp up to stabilize the market in times of stress.
Option two would give the government the ability to soften a contraction of credit during a crisis, without necessarily taking on all the costs associated with a broad government guarantee during normal times. However, some uncertainty would come with easily the backstop could be scaled in times of crisis. All the benefits of the previous approach would remain, as would the downside of limited access to credit and higher borrowing costs.
Under option three, as in the previous two models, the mortgage market outside of FHA would be placed in the hands of the private sector. However, to increase liquidity and access to mortgages for creditworthy Americans – as well as to ensure the government’s ability to respond to future crises – the government would offer reinsurance for the securities of a targeted range of mortgages.
A group of private mortgage guarantor companies that meet certain capital and oversight requirements would provide guarantees for securities backed by mortgages that meet specific underwriting standards. A government entity would then provide reinsurance to the holders of these securities, which would be paid out only if shareholders of the private mortgage guarantors have been entirely wiped out. The government reinsurer would charge a premium for this reinsurance, which would be used to cover future claims and recoup losses.
This approach would be similar to the FDIC’s insurance fund to protect consumers’ deposits. The government would be guaranteeing the investment in the securities offered in the event the original guarantor goes under. The guarantor company itself does not benefit from any type of explicit backing except for the fact that investors would feel safer placing their money with them because of the insurance protection offered.
The report says the strength of this approach is that it likely provides the lowest-cost access to mortgage credit of the three options. While mortgage rates would increase due to the cost of the premium and the first-loss position of private capital, the reinsurance will likely attract a larger pool of investors to the mortgage market, increasing liquidity. The administration says it would also provide a more competitive playing field for smaller lenders and community banks, and it would put the government in a position to scale up support in times of distress.
However, this option, too, comes with costs. It increases the risk of artificially inflating the value of housing assets, according to the administration’s report. In addition, the reinsurance of private-lending activity, by its nature, exposes the government and taxpayers to risk and moral hazard.
From: http://ping.fm/tZHXB
Thursday, February 10, 2011
Uncertainty in Economy vs. Opportunity in Real Estate
Uncertainty in Economy vs. Opportunity in Real Estate
by The KCM Crew on February 9, 2011
There are many people sitting on the sidelines right now afraid to pull the trigger on a real estate purchase. Some are first time buyers; some are thinking of moving up to the home of their dreams; others are looking to purchase a vacation home or perhaps a future retirement home. Fear has prevented them from moving forward. Though their concern is understandable, we must never allow fear to ultimately determine who we are nor what we do. We must live our lifes.
The fear causing so many to hesitate comes from three areas:
The lackluster economy
The unemployment numbers
Real estate’s performance in the recent past
Should they stop us from moving forward with our dreams and aspirations.
The Economy
Actually, the economy is doing much better. The news is more positive every day. Consumer Affairs said this:
The U.S. Federal Reserve, which has administered life support to the economy over the last two years, says it’s seeing some promising signs of life.
In its “Beige Book,” containing reports from the twelve Federal Reserve Districts, the central bank finds “moderate expansion” of economic activity at the end of the year.
It said conditions were improving in the Boston, New York, Philadelphia, and Richmond Districts. Activity increased modestly to moderately in the Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and Dallas Districts.
The economy of the Minneapolis District “continued its moderate recovery,” while that of the San Francisco District “firmed further”.
This is most easily seen in the increase in the Dow which has shown a 20.9% in increase in the last twelve months.
Unemployment
Though still too high, the unemployment numbers are getting better. The recent drop from 9.8% to 9% is proof that things are, if nothing else, at least stabilizing. Though the job losses have been deep, they have leveled off. We can see this in the graph below from Calculated Risk:
The greatest fear was created by the uncertainty by many that their job could be in jeopardy; that they could be next to join the ranks of the unemployed. As the economy grows, any increase in unemployment seems unlikely. That should remove most of this fear.
Real Estate’s Performance
There is no question that real estate has had a difficult last five years. However, real estate was never meant to be a great ‘short term’ investment. It has, on the other hand, always been a good ‘long term’ investment. Let’s compare real estate to the returns in the stock market since January 1, 2000.
In the long term, real estate has always been a safe investment.
Bottom Line
We should make sure that the financial uncertainty of the present does not prevent us from taking advantage of the opportunities available in the real estate market currently.
Donald Trump probably put it best last week when he said:
“I’m pretty sure this is a great time to go out and buy a house. And if you do, in 10 years you’re going to look back and say, ‘You know, I‘m glad I listened to Donald Trump’.”
From: http://kcmblog.com/2011/02/09/uncertainty-in-economy-vs-opportunity-in-real-estate/
by The KCM Crew on February 9, 2011
There are many people sitting on the sidelines right now afraid to pull the trigger on a real estate purchase. Some are first time buyers; some are thinking of moving up to the home of their dreams; others are looking to purchase a vacation home or perhaps a future retirement home. Fear has prevented them from moving forward. Though their concern is understandable, we must never allow fear to ultimately determine who we are nor what we do. We must live our lifes.
The fear causing so many to hesitate comes from three areas:
The lackluster economy
The unemployment numbers
Real estate’s performance in the recent past
Should they stop us from moving forward with our dreams and aspirations.
The Economy
Actually, the economy is doing much better. The news is more positive every day. Consumer Affairs said this:
The U.S. Federal Reserve, which has administered life support to the economy over the last two years, says it’s seeing some promising signs of life.
In its “Beige Book,” containing reports from the twelve Federal Reserve Districts, the central bank finds “moderate expansion” of economic activity at the end of the year.
It said conditions were improving in the Boston, New York, Philadelphia, and Richmond Districts. Activity increased modestly to moderately in the Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and Dallas Districts.
The economy of the Minneapolis District “continued its moderate recovery,” while that of the San Francisco District “firmed further”.
This is most easily seen in the increase in the Dow which has shown a 20.9% in increase in the last twelve months.
Unemployment
Though still too high, the unemployment numbers are getting better. The recent drop from 9.8% to 9% is proof that things are, if nothing else, at least stabilizing. Though the job losses have been deep, they have leveled off. We can see this in the graph below from Calculated Risk:
The greatest fear was created by the uncertainty by many that their job could be in jeopardy; that they could be next to join the ranks of the unemployed. As the economy grows, any increase in unemployment seems unlikely. That should remove most of this fear.
Real Estate’s Performance
There is no question that real estate has had a difficult last five years. However, real estate was never meant to be a great ‘short term’ investment. It has, on the other hand, always been a good ‘long term’ investment. Let’s compare real estate to the returns in the stock market since January 1, 2000.
In the long term, real estate has always been a safe investment.
Bottom Line
We should make sure that the financial uncertainty of the present does not prevent us from taking advantage of the opportunities available in the real estate market currently.
Donald Trump probably put it best last week when he said:
“I’m pretty sure this is a great time to go out and buy a house. And if you do, in 10 years you’re going to look back and say, ‘You know, I‘m glad I listened to Donald Trump’.”
From: http://kcmblog.com/2011/02/09/uncertainty-in-economy-vs-opportunity-in-real-estate/
Spike in Mortgage Rates Dampens Consumer Demand
Spike in Mortgage Rates Dampens Consumer Demand
02/09/2011 By: Carrie Bay
Fewer consumers filed applications for a new mortgage last week as interest rates on home loans jumped to a 10-month high. Based on data from the Mortgage Bankers Association (MBA), the average rate on a 30-year fixed mortgage spiked more than 30 basis points in one week’s time.
MBA said Wednesday that its measurement of total mortgage loan application volume fell 5.5 percent for the week ending February 4, 2010, when compared to one week earlier.
The trade group’s refinance index declined 7.7 percent from the previous week. The refinance share of mortgage activity decreased to 66.6 percent of total applications, compared to 69.3 percent the one week earlier. MBA says this is the lowest refinance share observed in its survey since the beginning of May 2010.
Applications for home purchases also declined last week, but the drop was less pronounced than it was among homeowners refinancing. MBA’s purchase index decreased 1.4 percent from a week earlier.
“Refinance volume continues to be low, as fewer homeowners with equity have any incentive to refinance,” said Michael Fratantoni, MBA’s VP of research and economics. “We are at the beginning of the spring buying season, but purchase volume remains weak on a seasonally adjusted basis.”
Fratantoni also noted that mortgage rates increased last week as many incoming economic indicators continue to show stronger growth than had been anticipated.
According to MBA’s analysis, the average contract interest rate for 30-year fixed-rate mortgages increased to 5.13 percent last week, up from 4.81 percent the week before. This is the highest contract 30-year rate recorded in MBA’s survey since the week ending April 9, 2010. The 32 basis point jump is the largest rate increase since June 2009.
The average contract interest rate for 15-year fixed-rate mortgages also increased, from 4.13 percent the week prior to 4.29 percent last week. This is the highest contract 15-year rate recorded by MBA since the week ending May 7, 2010.
Paul Dales, senior U.S. economist for Capital Economics, says his firm is forecasting economic growth and inflation to slow again later this year, which will result in both Treasury yields and mortgage rates falling back.
“But this is unlikely to bring the housing market back to life either, as poor economic conditions and previous asset price falls are preventing households from taking on more debt,” Dales explained. “With demand for mortgage borrowing still so weak, it is hard to see housing activity strengthening much this year.”
From: http://ping.fm/3mzXW
02/09/2011 By: Carrie Bay
Fewer consumers filed applications for a new mortgage last week as interest rates on home loans jumped to a 10-month high. Based on data from the Mortgage Bankers Association (MBA), the average rate on a 30-year fixed mortgage spiked more than 30 basis points in one week’s time.
MBA said Wednesday that its measurement of total mortgage loan application volume fell 5.5 percent for the week ending February 4, 2010, when compared to one week earlier.
The trade group’s refinance index declined 7.7 percent from the previous week. The refinance share of mortgage activity decreased to 66.6 percent of total applications, compared to 69.3 percent the one week earlier. MBA says this is the lowest refinance share observed in its survey since the beginning of May 2010.
Applications for home purchases also declined last week, but the drop was less pronounced than it was among homeowners refinancing. MBA’s purchase index decreased 1.4 percent from a week earlier.
“Refinance volume continues to be low, as fewer homeowners with equity have any incentive to refinance,” said Michael Fratantoni, MBA’s VP of research and economics. “We are at the beginning of the spring buying season, but purchase volume remains weak on a seasonally adjusted basis.”
Fratantoni also noted that mortgage rates increased last week as many incoming economic indicators continue to show stronger growth than had been anticipated.
According to MBA’s analysis, the average contract interest rate for 30-year fixed-rate mortgages increased to 5.13 percent last week, up from 4.81 percent the week before. This is the highest contract 30-year rate recorded in MBA’s survey since the week ending April 9, 2010. The 32 basis point jump is the largest rate increase since June 2009.
The average contract interest rate for 15-year fixed-rate mortgages also increased, from 4.13 percent the week prior to 4.29 percent last week. This is the highest contract 15-year rate recorded by MBA since the week ending May 7, 2010.
Paul Dales, senior U.S. economist for Capital Economics, says his firm is forecasting economic growth and inflation to slow again later this year, which will result in both Treasury yields and mortgage rates falling back.
“But this is unlikely to bring the housing market back to life either, as poor economic conditions and previous asset price falls are preventing households from taking on more debt,” Dales explained. “With demand for mortgage borrowing still so weak, it is hard to see housing activity strengthening much this year.”
From: http://ping.fm/3mzXW
Subscribe to:
Posts (Atom)
.JPG)