Month: November 2011

Higher loan limits transform FHA into key source of financing

Congress has raised the maximum mortgage limits for the FHA while leaving loan ceilings untouched for Fannie Mae and Freddie Mac. This may make the FHA the go-to financing option for borrowers in high-cost areas

By Kenneth R. Harney November 27, 2011
Reporting from Washington—

After a year characterized by grumpy partisan gridlock, Congress came up with a Thanksgiving compromise that could change the mortgage choices of buyers and refinancers in more than 660 markets across the country: It raised maximum loan limits for the Federal Housing Administrationwhile leaving loan ceilings untouched for Fannie Mae and Freddie Mac.

In effect, this may make FHA the go-to financing option for borrowers needing loans up to $729,750 with down payments as low as 3.5% in high-cost areas of California, the District of Columbia, New York, New Jersey and scattered counties in other states including Massachusetts, Florida and North Carolina. Fannie Mae- and Freddie Mac-eligible loans in those areas, meanwhile, stay capped at $625,500.Equally important, the new plan raises the FHA ceilings for purchasers in hundreds of more moderate-priced markets. Seattle-area buyers’ maximum FHA loan amount jumped to $567,500, while the Fannie Mae-Freddie Mac ceiling remains at $506,000. In Hartford, Conn., the limit for FHA is now $440,000, up from $320,850; Fannie and Freddie remain capped at $417,000.

Buyers with low down payments in Portland, Ore., who previously had been limited to FHA mortgages of $362,250, can borrow up to $418,750 under the new plan, $1,500 more than they can get from Fannie and Freddie, which generally require steeper down payments and higher credit scores.

The new loan ceilings in hundreds of markets are at the core of the compromise: They raise the maximum FHA loan amount in all areas of the country to 125% of the local median home-sale price, while leaving Fannie Mae’s and Freddie Mac’s limit at 115% of the median.

What motivated Congress to create separate-and-unequal rules that transform the FHA — traditionally a haven for moderate-income, first-time buyers with minimal cash — into a key source of financing for buyers in upper- as well as mid-bracket markets?

Nobody in Congress proposed this idea at the start. By a 60-38 vote in October, the Senate passed an amendment raising all three agencies’ limits to $729,750 in high-cost areas and 125% of the median sale price elsewhere. The goal — lobbied aggressively by realty and home-building groups — was to inject needed oomph into home sales. But Republicans in the House balked at doing anything that might prolong the existence of Fannie Mae and Freddie Mac, both the targets of scathing criticism for their multibillion-dollar costs to taxpayers and big bonuses for top executives.

What ultimately emerged from the legislative scrum was the compromise penalizing Fannie Mae and Freddie Mac, while boosting FHA. House Republicans weren’t enthusiastic about helping the FHA either — the agency faces its own financial challenges — but unlike Fannie and Freddie, the FHA is subject to congressional appropriations and closer oversight. Republican critics held their noses and voted for the plan.

What will this mean for buyers from now through the end of 2013, when the compromise expires?

“There’s no doubt this will drive more business to FHA,” said David H. Stevens, former FHA commissioner and current president and chief executive of the Mortgage Bankers Assn.

“FHA is going to become the darling of the industry again,” said Annie Austin, a loan officer with Cobalt Mortgage in Bellevue, Wash.

Bob Walters, chief economist of national lender Quicken Loans, said he thinks the increased loan limits will benefit many consumers, “especially those looking to borrow larger amounts,” he said, but who “are in a credit situation where Fannie Mae and Freddie Mac loans are not available or optimal.”

The switch to the FHA could entail some pain, however. Tim Kepler, a loan officer with Land Home Financial in Danville, Calif., noted that the agency raised its upfront mortgage insurance premiums from 0.5% of the loan amount to 1.15% earlier this year. This will increase applicants’ closing costs over a Fannie or Freddie loan, he said.

The premium can be financed, but can add substantially to the costs of high-balance mortgages. Bruce Calabrese, president of Equitable Mortgage in Columbus, Ohio, said the hefty new premiums make “FHA too restrictive and unattractive” for most refinancers in his area, even with slightly higher loan ceilings.

Bottom line for house shoppers: Take a hard, close look at FHA with a local loan officer, in light of the rule changes. Pencil out the costs, down-payment requirements and more generous standards on credit. FHA may be your best option. But then again, the higher fees just might change your mind.

Existing home sales edge higher in October

By Blake Ellis @CNNMoney November 21, 2011

NEW YORK (CNNMoney) — Homebuyers scooped up more previously owned homes in October, slowly putting a dent in the huge inventory on the market, an industry report showed Monday.

Sales of existing homes rose 1.4% last month to an annual rate of 4.97 million homes, up from a downwardly revised 4.90 million homes in September, the National Association of Realtors reported Monday.

That was higher than expected. Economists polled by had expected an annual rate of 4.85 million homes in October.

Compared to a year ago, the rate of existing home sales has jumped 13.5%, from 4.38 million units.

Continued gains in home sales have lightened up the inventory of homes on the market, the report showed. Total housing inventory at the end of October slipped 2.2% to 3.33 million existing homes for sale, representing an 8-month supply at the current sales pace. That’s down from an 8.3-month supply in September, and continues an ongoing downward trend since hitting a record high of 4.58 million in July 2008.

Foreclosures and short sales dropped to 28% of sales in October, down from 30% in September.

Even as the stockpile of homes on the market eases, housing prices are continuing to dip. The median price for an existing home was $162,500 in October, 4.7% lower than a year ago.

That means it’s still a great buying opportunity for house hunters. But one of the problems preventing the housing market from making a full recovery is that many of the homebuyers attempting to buy houses are seeing their mortgage applications rejected, said NAR chief economist Lawrence Yun.

Contract failures, which include declined mortgage applications or failures in loan underwriting because of problems including appraised values coming in below the negotiated price, jumped to 33% in October, up from 18% in September.

“Home sales have been stuck in a narrow range despite several improving factors that generally lead to higher home sales, such as job creation, rising rents and high affordability conditions,” said Yun.  To top of page

Congress Restores FHA Loan Limits to NAR-Backed Levels


The U.S. House and Senate yesterday restored FHA loan limits to the level they were at before they were allowed to expire at the end of September. As a result, the limits will rise to 125 percent of the area median home price from 115 percent, up to a  maximum $729,750 from $625,500. NAR estimates that several hundred counties where FHA loan limits fell at the end of September will now rise back up to the previous level.

“The reinstated loan limits will help provide much needed liquidity and stability to communities nationwide as tight credit restrictions continue to prevent some qualified buyers from becoming home owners and the housing market recovery remains fragile,” said NAR President Moe Veissi in a statement released last night.

President Obama is expected to sign the legislation shortly. The restored loan limits are in a broad-based bill that includes funding for a wide variety of federal operations and programs.

The maximum conforming loan limits for secondary mortgage market companies Fannie Mae and Freddie Mac also expired at the end of September, but lawmakers did not include a restoration of those limits in the bill. As a result, conforming loan limits will remain at 115 percent of the area median home price, up to $625,500.

Once President Obama signs the bill, the limits will go into effect.  FHA will release a mortgagee letter to its approved lenders thereafter, containing a list that’s been updated to reflect the new limits. NAR analysts say it will take the agency a short period to update its database and release the mortgagee letter, maybe a couple of weeks.

The funding bill also extends the National Flood Insurance Program (NFIP) until Dec. 16 to allow lawmakers time to consider long-term authorization of that program, which is an NAR priority.

Survey Reveals Why Buyers Are Waiting on Sidelines


Twenty-seven percent of Americans say they plan to buy a home in the future (with most saying in two or more years), and only two percent say they plan to purchase a home in the next 12 months, according to a new Move Inc. survey of 1,000 American adults. So why are so many buyers continuing to wait on the sidelines when home affordability is high and interest rates are at or hovering near record lows?

About 23 percent of those surveyed say they are delaying buying a home because they are concerned about the real estate market in their local area, particularly with concerns over the future of home values, the economy and jobs, as well as difficulty in saving for a down payment.

“Perceptions as much as the realities of home ownership are standing in the way of boosting demand for housing,” Errol Samuelson, chief revenue officer of Move Inc., said in a statement. “Concerns that the economy will continue to put jobs at risk and that prices won’t rise near term are keeping buyers on the sidelines as much as the difficulty they’re having in getting credit or saving for down payments. Until these concerns are resolved, we expect both buyers and sellers to remain on the sidelines.”

Nearly 35 percent of those surveyed say their inability to get credit or find affordable credit are the main reasons why they’re putting off purchasing a home.

The Move survey also found that younger adults—the millennial generation—tends to look at home ownership as a place to be happy, not an investment. But this large segment of first-time home buyers admit they are picky when it comes to finding a home—80 percent say they are picky, in fact. A lot of that pickiness comes from the fact that 75 percent say that their home defines them and is a part of who they are.

The survey also found that younger adults tend to spend more on housing than older adults. For example, the survey revealed that two out of five–or about 40 percent–of millennials say they should spend 30 to 60 percent of their gross monthly income on housing. More than half of older Americans, on the other hand, say they plan to spend less than 30 percent of their gross monthly on housing.

Lenders often recommend spending 28 percent of annual gross wages on housing, when taking into account principal, interest, and taxes.

Mortgage refinancing to get easier under revised U.S. program

The plan could help 1 million to 2 million people get significantly lower monthly payments in hopes of stabilizing the real estate market.

By Jim Puzzanghera, Don Lee and Alejandro LazoLos Angeles Times Staff Writers
The Obama administration is launching yet another high-profile campaign to shore up the housing market — and with it, the economy — by making it easier for some struggling homeowners to refinance underwater mortgage loans at today’s ultra-low interest rates.

The federal government’s new rules will encourage borrowers to secure new loans no matter how much value their homes have lost during the nation’s housing crisis, with the hitch that they can’t have missed any mortgage payments for the last six months.

The plan could help 1 million to 2 million people get significantly lower monthly payments in hopes of stabilizing the real estate market. On top of that, it would boost the economy by putting about $2,500 more in a typical homeowner’s pocket each year, administration officials said.

But given the huge problems that continue to plague the real estate market, the plan is less a solution to the foreclosure crisis than a firebreak to try to prevent things from getting worse, analysts said. In particular, the program won’t help the 3.5 million borrowers who are seriously delinquent on their loans or are already in default.

“It’s a step forward, but what we need is a leap forward,” saidJohn Taylor, president of the National Community Reinvestment Coalition, an association of organizations that promote access to affordable housing.

The Obama administration has struggled to find a fix for the housing crisis. A program to lure banks to permanently modify mortgages has fallen so far short of its goals thatRepublicans have pushed to kill it. And the refinancing program, designed to help millions of homeowners, has been revised several times in hopes of making it more effective.

Separately, Federal Reserve officials have hinted in recent days that they could launch another program to buy up mortgage-backed bonds in an effort to pull home loan rates lower.

“They keep trying to find something that’s going to work and so far they haven’t found the silver bullet. Arguably there’s no silver bullet,” Bert Ely, an independent banking analyst, said of the Obama administration’s attempts to help the housing market.

“More moderate approaches haven’t worked, so now they’re trying something that frankly is more radical,” he said.

The plan could help borrowers such as James Perry, 36, an editor for a television show who owns two properties that are underwater, meaning he owes more on the mortgages than the homes are worth.

Perry bought a condominium in Santa Monica in 2005, near the height of the market, and rented it out after he couldn’t sell it. Its value has dropped about 6%, he said. He owns a larger home in Tarzana for his growing family, and its value has plunged nearly 20%.

Refinancing both properties could save him about $400 a month, Perry said. “I am not a rich guy, so $400 a month will help,” he said. “I have two kids. I would like to put that toward some college savings, and it would just make for a little more breathing room. We are not in any sort of trouble, but an extra $400 a month will obviously make us happier.”

Perry said he tried refinancing the Santa Monica home about a year ago, paying about $500 for the appraisal, but the home’s value didn’t allow him to qualify for a low rate. Given that experience, he didn’t bother trying to refinance the Tarzana home.

The plan announced Monday amounts to a sweeping overhaul of the 2½-year-old Home Affordable Refinance Program, easing rules and reducing fees to allow many more homeowners potentially to take advantage of historically low mortgage rates. Through August, the program had helped 894,000 homeowners refinance.

The revisions include lifting a ceiling that barred participation by borrowers who owed more than 125% of the value of their homes, and using a controversial modeling method to replace costly appraisals that are among the fees that have kept some homeowners from refinancing.

“These are important steps that will help more homeowners refinance at lower rates, save consumers money and help get folks spending again,” President Obama said in touting the changes during an appearance in Las Vegas on Monday.

Nevada, California and Florida are among the states hit hardest by the subprime housing bubble crash.

About 14.6 million mortgages nationwide were underwater at the end of the first quarter, about 29% of the nearly 51 million residential mortgages nationwide, according to Moody’s Analytics andEquifax. The rate was higher in California, where about 2.1 million mortgages are underwater, a third of the state’s 6.3 million mortgages.

Perry’s refinancing problems were typical, mortgage experts said. Even though HARP allows underwater homes to qualify, banks usually won’t refinance a loan in which the borrower owed more than 105% of the value.

The new rules, including waiving some key legal liabilities banks can have if the loans go bad and no longer require a new appraisal, should help considerably, said mortgage broker Jeff Lazerson, head of Mortgage Grader in Laguna Niguel, who is working with Perry.

“It is actually going to work,” Lazerson said.

Obama and administration officials tried not to oversell the effect of the new refinancing program, having been sharply criticized for projecting that another initiative — the Home Affordable Modification Program — would help 3 million to 4 million homeowners. That program has permanently modified the mortgages of about 816,000 homeowners since it started in 2009.

The changes in the refinancing program were announced by the independent Federal Housing Finance Agency, which has been working with the White House to find ways to help more homeowners.

HARP is for homeowners with mortgages owned or backed byFannie Mae or Freddie Mac, the housing finance giants that were seized by the federal government in 2008 as they teetered near bankruptcy. The firms own about half of all U.S. mortgages.

Detailed new rules will be issued Nov. 15 and the Federal Housing Finance Agency estimated that they could result in the number of refinances through the program doubling by the end of 2013.

Rep. Dennis Cardoza (D-Atwater) said that’s not nearly enough help. “I think it’s a step in the right direction, but a baby step,” he said. Cardoza would like to see every homeowner be enabled to refinance.

Housing and Urban Development Secretary Shaun Donovan said the additional money in the hands of consumers would help stimulate the economy, which in turn would help stabilize the housing market. “It’s the equivalent of a substantial tax cut for these families,” he said.

But even by the most optimistic projections, analysts said the program was unlikely to provide much of a stimulus to the overall economy. Based on the White House’s estimate that each refinancing would save a borrower an average of $2,500 a year, the program would add $2.5 billion to $7.5 billion in annual consumer spending — a pittance in an economy exceeding $14 trillion.

“This is not going to turn around the economy, stabilize the housing market or reduce the unemployment problem,” said Phillip Swagel, a University of Maryland professor and former chief economist at the Treasury Department in the last Bush administration.

He and other analysts say federal officials could have gone further and made deeper changes to boost refinancing activity even more. For example, officials could have done away with borrower fees entirely. As it is, Mark Zandi, chief economist at Moody’s Analytics, estimates that closing costs will drop from about $3,500 currently to $2,000 under the new program.

“Another impediment to even more refis is that many of these potential [borrowers] will be very reluctant to participate given their concerns about their incomes and jobs,” Zandi said.