Daily Archives: October 22, 2014

Slump in mortgage rates fails to rally home buyers | North Salem Real Estate

More proof that low mortgage rates are not the key to home ownership: Rates dropped to their lowest level in nearly 18 months last week, causing an 11.6 percent rise in applications, the Mortgage Bankers Association reported Wednesday. The gains, however, were driven entirely by refinances, just as they have been for several weeks.

Refinance applications jumped a whopping 23 percent week-to-week on a seasonally adjusted basis; volume was at the highest level since November. Mortgage applications to purchase a home saw no boost at all from lower rates, falling 5 percent from the previous week and 9 percent from a year ago.

“Continuing concerns about weak economic growth in Europe and a few U.S. economic indicators that came in below expectations caused a flight to quality into U.S. Treasurys last week, leading to sharp drops in interest rates,” said Mike Fratantoni, the MBA’s chief economist. “Mortgage rates have fallen close to 30 basis points over the last four weeks.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.1 percent, the lowest level since May 2013, from 4.2 percent, according to the MBA. Some lenders are now offering rates below the psychologically significant 4 percent line, but only to their highest credit-worthy customers. The average loan balance for refinance applications increased to $306,400, the highest level in the MBA survey’s history, suggesting that wealthier homeowners are benefiting most from the drop in rates.

Sales of existing homes did increase in September by just over 2 percent from August, according to the National Association of Realtors; however, they are weaker than a year ago, when investors were competing for distressed homes and pushing prices ever higher. The NAR’s chief economist, Lawrence Yun, said sentiment among real estate agents was at its lowest level of the year, suggesting that sales may be weaker going forward.

“It’s turned into what I think is really a classic buyers’ market,” said Sherry Spinelli, a real estate agent with Long and Foster in Northern Virginia. “More days on market, prices are coming down, the offers are even lower and there are just a lot of houses out there, so it’s a challenge for sellers. I think you have to lower the price in order to sell it.”

Mortgage rates, while lower now than they were a year ago, have not been the biggest barrier to entry for home buyers in this recovery. Even the high 4 percent range on the 30-year fixed is historically low. The trouble is not the rate, but credit availability. Banks have required higher credit scores, full documentation and strict debt limits because they do not want to be forced to buy back any loans that might go into default. They have already paid billions to the government on bad loans left over from the housing crash.

This week, Mel Watt, director of the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, said in a speech that there would soon be better clarification for banks, “rules of the road,” on how to safeguard against these so-called ‘buybacks,’ but the details were general.

“We have started to move mortgage finance back to a responsible state of normalcy—one that encourages responsible lending to creditworthy borrowers while maintaining safety and soundness of the enterprises,” Watt said in prepared remarks Monday

 

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https://homes.yahoo.com/news/slump-mortgage-rates-fails-rally-110000745.html

America’s housing policy: The definition of insanity | South Salem Real Estate

If the definition of insanity is “doing the same thing over and over again and expecting a different result,” then clearly Albert Einstein is not responsible for America’s housing policies.

Federal Housing Finance Agency director Mel Watt on Tuesday unveiled new regulations that would make it easier for Americans to buy a house with little or no money down. The rules are aimed at private lenders who opposed a proposal that borrowers make a 20% down payment.

“Finalizing this rule represents a major step forward to providing greater certainty to the housing finance market and paves the way for increased participation by the private sector,” Watt said Tuesday at the Mortgage Bankers Association’s annual conference held at the Mandalay Bay in Las Vegas (A casino? Really? The optics couldn’t be worse.)

In 2013, less than 2% of the $1.6 trillion of MBS issued were so-called private-label securities, meaning they did not have government backing.

In separate but related news, Watt earlier this week announced that Fannie and Freddie are planning to guarantee loans with down payments as little as 3%, down from 5% previously and back to pre-crisis levels.

Insanity number one is the government bending to industry lobbying against proposed rules designed to tighten lending standards and force borrowers to have more “skin in the game” vs. less. The FHFA also loosened proposals to ensure banks have some “skin in the game” by forcing them to hold a small portion of the loans rather than bundling them together and selling them as mortgage-backed securities (MBS). The 5% “risk-retention rule” requires banks to hold onto 5% of loans they sell but exemptions “may enable the banks to hold less or nothing,” The NYT reports.

Insanity number two is the federal government saying they want to encourage private lending but at the same time “shifting course on Fannie Mae and Freddie Mac, announcing plans to use the mortgage giants to expand credit rather than reducing their outsize role in the housing market,” as The WSJ put it.

Fannie and Freddie already back 60% of all mortgages originated in the private market and guarantee 90% of all new mortgages underwritten, according to Investors Business Daily.

The root of all this insanity is a housing market that not only needs the Fed to keep rates at zero “for a considerable time” but also massive government-sponsored subsidies to maintain altitude. After two years of strength, the housing market has clearly cooled in recent months. From August 2013 to February 2014, the year-over-year increase in the Case Shiller national home price index exceeded 10%. The pace of increase has declined every month so far in 2014 and was at 5.6% in July, the most recent available, the slowest pace since November 2012.

The Obama administration, the Fed and the private lenders all share the same concern: That the housing market rebound is running out of steam and will start to rollover without additional incentives for banks to lend — and Americans to borrow. The MBA expects total lending for home purchases to fall 13.5% in 2014, The WSJ reports.

 

 

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http://finance.yahoo.com/news/america-s-housing-policy–the-definition-of-insanity-145304611.html