October 23, 2014

The Essence Of The Housing Industrial Complex

Some housing bubble news from Wall Street and Washington. The Washington Post. “The agency that oversees Fannie Mae and Freddie Mac said this week that it might soon lower the downpayment requirements from five percent to three percent for loans backed by the two firms. The Federal Housing Administration, a popular source of low downpayment loans, may soon consider lowering the fees it charges borrowers on the loans it insures. The nation’s top housing official, Housing and Urban Development Secretary Julian Castro, recently said it’s time to ‘remove the stigma’ tied to promoting homeownership. Castro said boosting the homeownership rate is at the top of his agenda.”

“The nation’s home ownership rate jumped, from 43.6 percent in 1940 to 64 percent in 1980, where it stayed for many years. The norm for downpayments settled at about 20 percent around that time, but the low-downpayment loans continued to be available for borrowers who met relatively strict criteria. That went by the wayside as home prices soared at the start of the past decade.”

The Associated Press. “Experts say it’s hard to predict whether the regulators’ move will actually boost mortgage lending and the housing market. Anthony Sanders, a real estate finance professor at George Mason University, also suggested that it could re-open the door to risky lending. ‘The problem facing the housing and mortgage markets is too few borrowers with sufficient income to pass debt-to-income rules,’ Sanders said. ‘Lowering the down payment requirement misses the point. So now we are putting poorer households in low-down payment loans - again?’”

“The decision of the regulators to drop the 20 percent down payment requirement for banks to escape ’skin in the game’ for mortgage securities was a big win for finance industry lobbyists and advocates for affordable housing, noted Cornelius Hurley, a former counsel to the Federal Reserve who heads Boston University’s Center for Finance, Law and Policy. The regulators’ work on the rules ‘attracted the essence of the housing industrial complex,’ Hurley said. ‘They all came out of the woodwork.’”

The Atlantic. “‘What I’m paying for my mortgage is less than what I was paying in rent,’ says Yasmine Parrish, a 28-year-old marketing professional who recently purchased a home in Los Angeles. Parrish’s mortgage broker helped her find a program for first-time buyers that allowed her to put down 5 percent instead of the standard 20 percent.”

“Why aren’t all young would-be homebuyers just taking advantage of the low down-payment options offered by these plans to get into the market before prices rise further? Not everyone has access to the programs that can shrink a down payment, and even for those who do, such help may not be enough. ‘Typically the down payment is the biggest hurdle for a homebuyer’ says Ken Fears, director of regional economics and housing finance at the National Association of Realtors. Some programs, like Fannie Mae’s Community Home Buyer’s, require a 5 percent down payment, a sum that still makes saving a difficult proposition for many young people, particularly those in areas with quickly climbing home prices, such as San Francisco and San Diego. States like North Carolina and New Hampshire, have particularly well-regarded programs that allow for down payments of about 3 percent.”

“In competitive areas, where homes are scarce and multiple bids are common, an affordably low down payment can be limiting. ‘You’re not very competitive. If you’re going into a house with multiple offers and they see 3 percent down versus 10 or 20 percent down, they’re not going to go with your offer,’ says Anne Simpson, a 27-year-old teacher and prospective homebuyer in Washington D.C.”

Mortgage News Daily. “The latest Fannie Mae Lender Sentiment Survey discusses compliance costs and how much it costs. Most lenders (72%) reported that recent regulations have had a ’significant’ effect on their business. Critics ask what the Agencies are doing about that. Mid-sized lenders reported a 50% increase in compliance spending. Note that most lenders are worried more about compliance risk than volume decrease risk.”

“Let me know when all of this starts reminding folks of 2004, or even 2001 when Cuomo encouraged increasing home ownership. Of course it will take a while for aggregators to go along for the ride, although many depository banks have been at 97% for portfolio products for quite some time. And the big guys have already removed dozens of credit overlays. And why not - Fannie and Freddie have gained immense market share with small and mid-size lenders already, and the Wells and Chases of the world have to compete. LOs, when thinking about making a move, will tend toward the companies that will close these loans. So good mortgage companies lose originators - a wonderful spiral. On the other side of the fence are lenders grappling with buybacks from the Agencies - they will be much less inclined to increase LTVs or accept lower credit scores based on a ‘flawed GSE academic theory of increasing home ownership rates’ (as one CEO who wrote to me observed). And lenders just want buyback criteria better spelled out!”

“Congress, of course, has been unable to do anything by itself in terms of GSE reform. So the MBA, FHFA, and others are taking matters into their own hands. Eliminating F&F without an effective replacement would devastate the market, so let’s change them to suit the marketplace.”

“Turning to lenders…On Q Financial, Inc., is introducing non-QM loan programs. ‘On Q’s new non-QM loan products include solutions for self-employed or recently retired borrowers, individuals with a short credit history or flawed credit from a past short sale or foreclosure. On Q will also be offering debt-to-income ratios up to 50% on certain products and introducing a 40 year amortization Jumbo loan with an interest-only option in the weeks to come. In addition, On Q, a FNMA, FHMC and GNMA approved seller/servicer is also relaxing its underwriting credit overlays.’”

“Impac Mortgage Corp. Correspondent has an innovative bank statement program product which serves the self-employed. Unique features for borrowers include: Up to 50% DTI, down to 680 FICO, 5/1, 7/1, 10/1 ARMs, LTVs up to 80%, Cash out up to $350,000 on primary home, Loan amounts up to $2M. LDWholesale announced a New Jumbo Product. Loan amounts up to $3,000,000, 2-4 unit loans available, cash out refi’s on second homes and investment property permitted to $1,000,000 for purchase and rate term refi’s.”

From Highlands Today. “More than 60 percent of the 5,403 homes in the past three years have sold for cash, said Steve Fruit, a broker associate with RE/MAX Realty Plus II in Lake Placid. A good deal of the cash comes from Northern retirees, and Highlands County prices are more affordable than the homes they buyers sold in coastal Florida cities or large metro areas, Fruit said.”

“‘I think what we’re seeing is a return to a healthy market,’ said Chip Boring, RE/MAX broker in Sebring. However, he’s seeing a few unhealthy signs. ‘And it’s scaring the hell out of me. Online, they’re starting to offer no-verification loans,’ Boring said. Not requiring borrowers to prove their income was one of the causes of the real estate bust.”

Bits Bucket for October 23, 2014

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