The past year has been a wonder of low mortgages rates. The weekly reports from Freddie Mac have generally shown that rates for 30-year fixed-rate loans have hovered at or below 5 percent. In fact, in December mortgage rates actually reached 4.71 percent with .7 points — an interest level that ought to make a lot of people very happy.

The catch is that we don’t know if similar rates will be available in 2010. The view here — for what it’s worth — is that not only will rates be higher, they must increase. Here’s why:
read more

During the past few days there have been interesting — if somewhat conflicting reports — which suggest that home prices in some areas have begun to stabilize and perhaps even rise.

First up, we have the National Association of Realtors which reports that “the national median existing-home price4 for all housing types was $172,600 in November, which is 4.3 percent below November 2008. Distressed properties, which accounted for 33 percent of sales in November, continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes in the same area.”

Next, the Federal Housing Finance Agency tells us that “U.S. house prices rose 0.6 percent on a seasonally adjusted basis from September to October.” As well, says the agency, “the previously reported 0.0 (zero) percent change in September was revised to a 0.4 percent decline. For the 12 months ending in October, U.S. prices fell 1.9 percent. The U.S. index is 10.8 percent below its April 2007 peak.”

Lastly, we have an NAR report which says that “during the third quarter, 123 out of 153 metropolitan statistical areas2 reported lower median existing single-family home prices in comparison with the third quarter of 2008, while 30 areas had price gains.”
read more

Among the many bills passed recently has been the Secure and Fair Enforcement Mortgage Licensing Act of 2008, also known as the SAFE Act. This dandy little piece of legislation is the starting point of something new, an effort to raise the quality of loan officers nationwide.

The SAFE Act, says HUD, “is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators. SAFE also mandates the creation of a Nationwide Mortgage Licensing System and Registry (NMLSR), and encourages all states to provide for a licensing and regulatory regime for all residential mortgage loan originators.”
read more

The US Department of Housing and Urban Development (HUD), under pressure from Congress and taxpayer watchdogs to shore up dwindling FHA cash reserves, is attempting to further minimize risk associated with defaulted FHA mortgage loans. In its Mortgagee Letter 09-52 dated December 16, HUD clarified FHA policy for insuring FHA loans for borrowers who have sold a home through a short sale. A short sale, sometimes called a pre-foreclosure sale, involves selling a home for its current market value when that value is less than the mortgage amount.

FHA Loan Guidelines on Short Sales

Here are some FHA loan guidelines concerning potential borrowers undertaking short sales:

• * Taking advantage of market conditions. Borrowers who use a short sale to take advantage of declining market conditions, for buying a similar or larger home within a reasonable commuting distance, are ineligible for FHA loans. In general, these are borrowers who could afford to make mortgage payments but who pursued a short sale for moving to a more desirable home.
• * Delinquency on mortgage payments. Borrowers who are delinquent on mortgage payments when their short sale is completed must wait three years after completion of the short sale to be eligible for FHA loans. This is consistent with FHA guidelines which delay eligibility for three years after a mortgage foreclosure. Exceptions can be made by FHA lenders on a case-by-case basis for borrowers whose mortgage defaults were due to circumstances beyond their control. Examples of this include the death of the primary borrower or inability to work. FHA will also insure new mortgages for homeowners whose lenders write off a portion of the existing mortgage they cannot refinance to loss of property value or borrower income.

Does New FHA Policy Help Struggling Homeowners?

The answer is yes and no. Although I agree with FHA policy not to accommodate “flippers” and those playing the distressed market solely for their own gain, I question whether it’s necessary to delay FHA financing for delinquent borrowers with documented hardship–for example, someone who’s had to sell a home with a short sale after long-term unemployment, illness, or loss of income due to death or divorce. Allowing a caveat for lenders to review such circumstances and approve FHA loans individually can help borrowers and the housing market recover.

With the new year approaching, FHA’s primary challenge remains balancing its own financial well being with its commitment to assist low- and moderate-income borrowers with buying and refinancing homes.

In a move to limit down-side profit-taking, new FHA guidelines have been announced to prevent short-seller sellers from buying replacement properties with an FHA mortgage.

In basic terms, what the new FHA guidelines are getting at is this: Smith buys a home and finances with a $300,000 loan. The value of the property falls to $200,000. Smith sells the property with a short sale, meaning that the property sells for less than the $300,000 loan balance. The lender takes a loss while Smith buys a $200,000 home across the street and cuts his monthly costs by a third.

read more

An outside auditor has now has a chance to look at the FHA’s books for fiscal 2008 and fiscal 2009 and the verdict looks like this: The FHA needs to re-think how it figures loan losses.

The report from the independent certified CPA firm of Urbach Kahn & Werlin LLP may sound like the dullest nonsense in the world, but it actually gets to a very important issue: Is the FHA charging enough for the loan insurance it provides? Should FHA premiums be higher? Or maybe even lower?
read more

The rumor mill in Washington is rife with claims that the HUD will soon allow lenders to charge as much of an origination fee as the marketplace will allow instead of the 1 percent fee to which lenders are now limited.

The argument here is the old, discredited junk we’ve heard before: Smart consumers will gravitate to the lenders who charge the least and competition will force lenders to keep origination costs low.
read more

With all the mooing and carping about FHA reserves, most of it wrong, there still remains the issue that the FHA mortgage program, like all loan insurance efforts, needs to be reinforced.

HUD Secretary Shaun Donovan offered an interesting insight in how the FHA mortgage program can be made more secure and less risky in testimony last week before Congress.

To start, Donovan noted that HUD has dumped 270 FHA lenders. This is a little-discussed matter, but you have to wonder what losses have been sustained as a result of lenders who did not meet program standards for one reason or another. You can bet with absolute certainty that HUD is going to make lenders get loan applications right — and pay the price when they don’t.
read more

Back in June the Mortgage Bankers Association came out in favor of tougher standards for FHA mortgage lenders. The MBA said:

“Currently, FHA requires mortgagees to have a minimum net worth of $250,000 in order to be qualified to underwrite FHA loans. Brokers must have a net worth of $63,000. MBA believes that both standards should be increased to make these industries more accountable.

“Specifically, we recommend that mortgage bankers should have a minimum corporate net worth of the greater of $500,000 or 1 percent of FHA loan volume up to a maximum of $1.5 million. Mortgage brokers should have a minimum corporate net worth of the greater of $150,000 or half of one percent of FHA loan volume up to the minimum for mortgage bankers. MBA supports mortgage bankers and brokers maintaining a bond sufficient to provide reasonable protection to consumers and taxpayers.”

HUD has now responded with proposals read more

Cleveland has been hit hard by the economic downturn, as has the state of Ohio. Curiously, the FHA is now being blamed in part for the continuing woes which impact the Cleveland area.

“Right now,” says the Cleveland Plain Dealer in an editorial, “HUD’s left hand — its mandate to maximize a return on assets — appears to have the upper hand over its right, the stabilization of communities hard-hit by foreclosures.”
read more