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Mortgage rates fall to record lows | Waccabuc NY Real Estate
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Daily Archives: November 23, 2012
Deutsche Bank analysts expect pressure to extend HARP | South Salem Real Estate
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Republicans put fiscal cliff back in Obama’s court | Katonah NY Real Estate
President Barack Obama and Vice President Joe Biden just before the president’s Nov. 9 address on the state of the economy. White House photo by Pete Souza.
In a nation still blinking to post-election wakefulness, stick with domestic economics. Europe, the Middle East, China and Japan all have their stuff simmering near boil. But here matters most here. Fiscal cliff, then housing credit.
The strange presidential election was a double rope-a-dope. Mitt Romney assumed that no president would be re-elected in an economy as poor as this. President Obama assumed that a Wall Street fat cat deaf to the people would be unelectable in the Bubble aftermath. Roger that. Ten four.
Thus neither ran on anything new or noteworthy, but the Republicans absolutely got the message. They were lucky to hold the House, and must reformulate their whole painted-in-corner concept. Romney is deaf, but not the Republican leadership in Congress. These are tough, smart hombres; not attractive to mainstream civilians, but above all else they are survivors.
A new rope-a-dope began instantly after the election. House Speaker John Boehner and Senate Minority Leader Mitch McConnell without a peep of objection from the Tea Pots: “More tax revenue? Of course. We’re all-aboard.”
After several years of Republican tax intransigence, I doubt that the full impact of their dope-reversal has landed in the White House. Now avoiding the fiscal cliff depends entirely on the White House delivering Democrats on spending and entitlement cuts. A turn away from the cliff will require a majority of votes from both parties, as the hard left and hard right will not join any available compromise.
I am less optimistic than last week, if everything depends on Obama’s politicking with Congress. Good defense in the bunker won’t bring this one home.
This Thanksgiving, one person soars above all others deserving our gratitude: Ben Bernanke. He has delivered two speeches in the last week, separated by — and relevant to — a new panic at the FHA.
Last week Bernanke spoke at Operation Hope, next door to Martin King’s home church in Atlanta, and his remarks were devoted entirely to housing and mortgages. He opened by noting that lower-income and minority communities have suffered the greatest losses in the housing bust. Then to say the rate of homeownership has fallen to a 15-year low, and the extension of new mortgages the lowest since 1995. In post-Bubble credit tightening, “The pendulum has swung too far the other way.”
He then recited the remedies the Fed has described all year in a white paper and speeches. Plus one idea lost in all the oppressive and pointless rule-making, and new and incomprehensible “disclosures” — an opportunity for independent housing counselors to help borrowers who have skills less-developed than those of an MBA holder.
The day after he spoke, word leaked that to plug its losses the FHA will again jack its fees, probably to an annual 1.35 percent surcharge on new loans (near triple the rate in its first 75 years), and without waiver upon sufficient owner equity, a life-of-loan fee.
The damage will fall on the least of our brethren, the ones whom the FHA was designed to help. The FHA was the only lending entity not to loosen standards in the Bubble, caught by the misbehavior of others. As it prices itself from the field, it will have more trouble self-financing the sale of its foreclosures, and will weaken the overall market, I believe causing more net loss to itself than if it had left fees as-were.
Despite precision hits to core Obama constituencies, silence from White House and Treasury. Bernanke can see, but Obama and Geithner … Romneyesque.
Bernanke’s second speech repeated the housing credit-pendulum lines, and then addressed the cliff. The whole Western world (including Japan) is caught in the growth-austerity balance, fiscal sustainability versus budget-cut headwinds. Bernanke: “Fortunately, the two objectives are fully compatible, and mutually reinforcing.”
The nation needs cheerleading from somebody. In Europe and Japan the balance is mutually destructive, but here, with an active and brilliant central bank, we have a shot. We can still choose between overcooked breast and done dark, or moist white and icky thighs. Give thanks. Turkeys elsewhere are toast.
The Economic Cycle Research Institute’s weekly leading index is the longest-running, never-missed recession-caller. It is sticking to a recession call now 1 year old. Although confounded by the spring-summer rise in its index, it is rolling over again now. I think its forecast is overdone, but there is no mistaking its weakness as we approach the fiscal cliff, and the good news would be agreeing to the most profound budget and spending cuts ever in our history.
via inman.com
The Long View On Government Bonds | Bedford Hills NY Real Estate
When Loan Limits Fell, Jumbos Started Jumping | Bedford NY Real Estate
October 1, 2011 was a dark day for the nation’s most expensive housing markets. That’s the day higher loan limits expired and the sky was expected to fall.
Terrible things were supposed to happen with loan limits raises on a temporary basis three years earlier expired thirteen months ago. “Housing markets remain fragile and cannot handle a mortgage disruption like lower loan limits. With tight underwriting already constraining mortgage availability, lowering the loan limits will only further restrict liquidity,” warned a coalition of the nation’s most powerful housing lobby groups in a desperate but unsuccessful eleventh hour effort to keep the higher limits in place.
Limits on the size of mortgages that conform to the mortgage underwriting guidelines of Fannie Mae or Freddie Mac are set by law. Mortgages meeting these criteria are securitized on Wall Street as mortgage-backed bonds, making them slightly less expensive to borrowers. Loan limits had been temporarily increased in 2008 in direct response to the collapse of the housing market and the credit crisis. After the increase expired on October 1, the maximum loan that Fannie Mae and Freddie Mac could back fell from $625,500 to $417,000.
In the intervening months, financing for larger loans has been readily available. In fact, there has been a resurgence of loans greater than the loan limits, or “jumbo” loans. Some typically go up to $2 million and even more – far beyond what Fannie Mae and Freddie Mac will buy.
Few are securitized; private market securitization has yet to return to health. From 2008 to 2010 there were no securitizations on newly issued mortgages without government backing. Since 2010 there have only been eight securitizations of newly issued mortgages, jumbo or non-agency loans, without government backing for a total of $3.7 billion. Five of these eight non-agency securitizations have been in 2012. By comparison, non-agency securitizations peaked at $1.2 trillion in each of 2005 and 2006. Lenders doing jumbo loans have mostly been retaining them on their balance sheets because there has been no place to sell them.
In part because they are not securitized by Fannie or Freddie, jumbo mortgages carry higher interest rates, so they’re more profitable for lenders. Yet the difference in rates is not overwhelming. Current average rates (November 20) for a conforming thirty-year fixed mortgages are 3.373 percent. Average rates for a 30-year fixed jumbo are 3.938 percent.
However, the higher rates make all the difference to lenders. With a lot fewer product offerings today then during the boom, lenders are finding jumbos to be a great source of profits. Moreover, the upper end of the housing market is healing like the rest of real estate, though perhaps not as quickly. The recovery has been led by lower priced homes, where inventories are tightest. However, luxury home prices across the country are stable, according to the Institute for Luxury Home Market, and many market report increased activity.
Lenders financed $38 billion in private jumbo mortgages during the second quarter of 2012, up 65 percent from a year earlier, according to new data compiled by Inside Mortgage Finance. That is the highest quarterly dollar amount since the first quarter of 2008. Jumbo loans accounted for about 15 percent of the total dollar amount of mortgages distributed by Bank of America Corp, during the second quarter of 2012, up from 4 percent a year earlier. At Wells Fargo & Co., private jumbo volume more than doubled in the first half of the year from the same period last year. Citigroup Inc. also says it has increased jumbo lending.
In a Southern California region that includes Orange County; jumbo loans were 20.4 percent of all purchase loans in August. That’s the highest percentage since December 2007, when they were at 21.7 percent, said Andrew LePage, an analyst at DataQuick. The number of jumbo mortgages approved in Massachusetts by lenders nearly doubled last year from 2010 and is on pace this year to exceed 2011’s total of almost 14,000 loans, worth a total of nearly $10 billion, according to Warren Group, a Boston firm that tracks real estate.
But the downside can be steep. As recently as a year ago, Moody’s called jumbo loan holders facing persistent negative equity a “greater strategic default risk” than other homeowners – meaning they were more likely to bail on their mortgages than even subprime borrowers.
The sea changes in lending standards required of new borrowers that were imposed between 2008 and 2010 have a created more safer lending conditions for lenders Mortgage brokers say lenders are more willing to take risks now, but they still put borrowers under a microscope. If a loan goes south, there obviously are fewer people on the market for a multimillion-dollar property than a two-bedroom condo purchased with a conforming loan. So the reserves required to get a jumbo can run six months to a year or more, compared with just a couple of months on a conforming loan. Jumbo down payments of 20 percent to 40 percent are common, though some loans can be had with a 10 percent down payment and hefty mortgage insurance.
“What’s encouraging is the lenders are getting brave again,” Jeff Lazerson, president of Mortgage Grader in Laguna Niguel told the Orange County Register. “But they’re getting brave because the market is healing and there’s a lot less risk than there was.”
Where Did the First-time Buyers Go? | Pound Ridge NY Real Estate
With record low interest rates and affordable prices, this was to be the year of the first-time home buyer. Instead, first-timers’ market share has fallen from 39 percent of existing home sales last year to 31 percent in October. What happened?
Asked the Wall Street Journal last May: “It’s been a scary few years for the housing market. But at some point, the nightmare has to end (please?). Is now the time? Should first-time home buyers consider jumping into the market?”
As the year winds down, the answer to those questions, unfortunately, is a resounding no. First-time buyers, who accounted for as much as half of all existing homes purchased at the height of the federal tax credit in 2009 and norm ally account for 40 percent of all sales now have nearly reached the record low of 28 percent recorded in January 2011 when sales plummeted following the expiration of the credit.
Yet these days sales are up while first-timer market share is down. The National Association of Realtors reported September sales rose 2.1 percent to a seasonally adjusted annual rate of 4.79 million in October from 4.69 million in September, and are 10.9 percent above the 4.32 million-unit level in October 2011.
Investors with deep pockets of cash received a lot of the blame for the tough times many first-timers faced this year, by out-competing them for declining numbers of foreclosures and short sales. Yet NAR’s numbers don’t indicate that investors have not gained at the expense of first time buyers. In October, investors purchased 20 percent of existing homes, up from 18 percent in September; they were 18 percent in October 2011. In fact, investor market share is also at low ebb; last year NAR credited investors with 29 percent of all home purchases.
The vast majority of first-time buyers se financing and fingers have pointed at lenders for the problems that buyers have been having getting financing, but conditions may be improving for borrowers with good credit. Lending standards were tightened dramatically in the years following the housing boom, but very few banks have raised standards since 2010, according to the Federal Reserve’s quarterly Senior Loan Officer Survey. Yesterday Ellie Mae reported that 61.2 percent of purchase loan applications closed in October, the sixth straight month that the closing rate has improved, up from 55.2 percent in April. Moreover, Ellie Mae, which processes 20 percent of all originations, reported that October FHA purchase loans, which are popular with first-time buyers, have a lower average FICO score (700) than all purchase loans (750) and conventional purchase loans (762).
However, FHA’s financial problems have made them more expensive for borrowers and unavailable to hose with marginal credit. Mortgage insurance premiums rose this year and will rise again in January (See FHA Audit Leads to Higher Fees).
Down payments, which rose significantly following the housing crash, are also a barrier to first-time buyers. The days of “no down” loans are over but after rising in 2007 through 2010, down payments actually have declined. The median downpayment made by all homebuyers in 2012 was 9 percent, ranging from 4 percent for first-time buyers to 13 percent for repeat buyers. The median down payment was the lowest since 2009 but still far above the levels during the housing boom, when nearly half of first-time buyers made no downpayment at all. Moreover, dozens of downpayment assistance programs sponsored by state and local housing authorities that provide grants and low interest loans for down payments to qualified applicants have plenty of funding available. Down Payment Resource lists local programs for easy access by borrowers.
There is no doubt the younger workers have suffered more than other age groups in the economic down turn. One result has been a lower rate of household formation, a critical predictor of first-time buyer activity. But according to Catherine Rampell at the New York Times household formation has been picking up. Over the last year, though, household formation has been picking up.
She quotes Mark Zandi of Moody’s Analytics: “Years’ worth of households that have been pent up will be unleashed in the next few years,” he predicted. “That’s one reason why I’m more optimistic than some other people about G.D.P. growth in the next few years. As we move to the mid-part of the decade, I think those households will get formed and that will power a lot of housing construction and consumption.”
To sum up, 2012 didn’t bring the year of the first-time buyer but it did see competition of with investors in decreasing, financing available with good credit, interest rates still at record lows, easing of down payments, heightened household formation. Perhaps 2013 will bring increased inventories of entry-level homes, higher employment and more new households.
Is the Year of the First-time Buyer yet to come?