Economic Week In Review

January 31, 2012 by · Leave a Comment 

In last Wednesday’s Federal Reserve meeting, Fed officials stated that they now expect economic conditions will allow the fed funds rate to remain at exceptionally low levels until at least “late 2014″.  Wow!  The Fed has never been quite this clear for so long into the future.  Prior statements extended the expected time frame only to mid-2013.  In addition, comments from Fed Chief Bernanke suggested that Fed officials would like to see stronger economic growth, and they are open to the possibility of additional Fed easing.  Many investors think it is likely that the Fed will also announce the additional purchase of Mortgage-Backed Securities (MBS) at a later meeting as well.  The expectation for a low fed funds rate and the possibility of additional Fed purchases of MBS increased the demand for MBS last week, which resulted in higher MBS prices and lower mortgage rates.

Although this is great news for anyone with a Home Equity Line of Credit because the Prime Rate will stay so low for years to come, it is not good news for those with short-term savings accounts nor does it insure that long-term mortgage rates will stay low.  Other factors such as inflation, unemployment, and consumer confidence will dictate what happens with mortgage rates.  Nevertheless, the stage seems to have been set for mortgage rates to stay low for the foreseeable future, and that’s good news for the real estate community!

Also worth noting, Friday’s Gross Domestic Product (GDP) report showed an increase at a 2.8% annual rate during the fourth quarter of 2011, which was a little below the consensus forecast, but up from 1.8% during the third quarter.  Early estimates for the first quarter of this year are for a slower growth rate.  The long-run average growth rate for the economy is generally considered to be around 3.0%, and the economy usually grows at a faster than average rate following a recession.  Given that the economy is growing below its potential and that inflation remains tame, the Fed’s expectation that monetary policy will remain very stimulative for a long time is understandable.

There was some good economic news to report from last week as December Durable Goods Orders rose a strong 3% from November and Consumer Sentiment rose to the highest level in a year.  Significant progress also seems to have been made in reaching a new debt deal inGreece.  Unfortunately, though, the housing news wasn’t great as December Pending Home Sales declined 4% from November’s 19-month high and December New Home Sales declined 2.2% (as shown in the graph below).  2011 ended up being the worst year on record for New Home Sales. 

Looking forward, the biggest economic report this week will be the ever-so-important Employment data on Friday.  As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month.  Chicago PMI Manufacturing and Consumer Confidence are also fairly big reports that will be released today as well as ISM Manufacturing, Construction Spending, and ADP Employment on Wednesday.  Productivity, Factory Orders, and ISM Services round out a busy week.


Economic Update: Improving Economy Bad for Mortgage Rates

January 24, 2012 by · Leave a Comment 

An improving US economic outlook was negative for mortgage rates over the last week.  Reduced concerns about Europealso caused a partial reversal in the “flight to safety” trade.  As a result, mortgage rates ended the week higher.

 Early in the month, the December Employment report showed a larger than expected increase of 200K jobs, and the Unemployment Rate continued to move lower.  Last week, Weekly Jobless Claims fell to the lowest level since April 2008.  The labor market is one of the most important factors in the health of the economy, and many investors now view the outlook as brighter than it has been since the financial crisis began.  If this is the case, it will be great news for the economy, and job gains will increase the willingness and the ability of people to purchase homes.

 The Housing sector data released last week was encouraging as well.  January Existing Home Sales increased 5%, while the inventory of unsold homes declined 9%, to the lowest level since March 2005.  December Housing Starts for single-family units increased 4%, and Building Permits for single-family units rose 2%.  Finally, the January NAHB Home Builder confidence index rose for a fourth consecutive month to the highest level since 2007.  Improving economic conditions, high affordability levels, and low mortgage rates are three solid reasons to be optimistic about the housing market.

 The most highly anticipated economic news this week will be Wednesday’s Fed announcement.  Investors will be looking for hints about whether the Fed will provide additional monetary stimulus.  The most significant economic report will be Friday’s GDP data for the fourth quarter.  GDP is the broadest measure of economic activity.  Before that, Pending Home Sales will be released on Wednesday and Durable Orders and New Home Sales on Thursday.  Leading Indicators and Consumer Sentiment round out the schedule.  In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

FHA Contemplating Reduced Seller Paid Concessions

January 24, 2012 by · Leave a Comment 

On Friday, FHA released a letter proposing that the maximum allowable seller concessions be reduced from the current 6% limit to something less.  FHA is contemplating this change to “better manage risk” as they feel the current level exposes the FHA and borrowers to excess risk by creating an incentive that inflates the appraised value.  FHA first mentioned this as a possibility all the way back on July 15, 2010.  After bringing up the possibility of such a reduction a full year and a half ago, nothing has been heard from FHA again on the subject, until now.  Reducing how much of the buyer’s costs that the seller can pay at closing would be a major blow to the real estate industry.  Reducing this limit from 6% to say 3% would require most FHA buyers to bring more money to the table, to the tune of several thousand more $’s.  This is money they simply don’t have in many cases.  The official proposal will be finalized soon and then there will be a 30 day comment period in which we’ll be able to make lots of noise.  Hopefully, our industry lobbyists will show up in a big way and keep this limit from decreasing!  I will send you more info on how you can make your feelings known about this once the proposal is officially issued. 

In the same announcement, FHA also mentioned they may soon require indemnification for “serious and material” violations of FHA originated loans.  This means that any inaccuracy in a loan file could be interpretted as fraud or misrepresentation and cause the lender to have to repurchase the loan.  A few of these repurchases could put a small lender out of business.  Stated another way, FHA is proposing to make it harder for lenders to make FHA loans.  Just what we don’t need right now!

Economic Update

January 17, 2012 by · Leave a Comment 

The news from Europe has been mostly negative over the last week.  Economic growth in Germany has been slower than expected.  Negotiations on restructuring Greek debt also have not progressed as planned.  S&P is downgrading the debt of several European countries, including France.  Lastly, the European Central Bank (ECB) has given no indication that it will provide relief to the troubled countries.  As a result of all of this turmoil, investors shifted funds to relatively safer investments, including US mortgage-backed securities (MBS), which has helped mortgage rates move lower.  However, we already know that Congress is imposing new fees on Fannie Mae and Freddie Mac later this spring that are going to cause mortgage rates to bump up as much as .25% over the weeks ahead.  Anyone in the market to lock a mortgage rate should do it as soon as possible.

The most significant economic data due out this week are the monthly inflation reports.  The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Wednesday.  The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday.  CPI looks at the price change for those finished goods which are sold to consumers.  In addition, Industrial Production, an important indicator of economic growth, will come out on Wednesday.  Housing Starts will be released on Thursday, and Existing Home Sales will come out on Friday.  Philly Fed and Empire State round out a very busy week.

FHA Extends Anti-Flipping Waiver Through End of 2012

January 17, 2012 by · Leave a Comment 

To cut down on fraud, FHA has had an anti-flipping regulation in place for years preventing a seller from selling a home owned less than 90 days.  In an effort to accelerate the resale of foreclosed properties, FHA waived this rule in Feb of 2010 and then extended the waiver through the end of 2011.  FHA recently announced that they are extending the waiver through the end of 2012.  This announcement has been well publicized but its important to understand that this is simply an extension of FHA’s policy for most of the last two years.  So, although this is good news, it is not necessarily new news.  It is also important to understand that most every FHA investor has “overlays” on top of the stated FHA guidelines that make the FHA guidelines more restrictive.  The most liberal overlays allow for the anti-flipping waiver BUT with the strict limitation that the resale price not be more than 20% greater than the acquisition price, even if there were renovations.  An exception would need to be granted for a resale value of more than 20%.  The bottom line is always be careful when your FHA buyers are buying homes that the seller has recently acquired.  Check to see when the seller acquired the property and make the Loan Officer aware of the acquisition date if it was within the last six months.

Mortgage Insurance Tax Break Gone

January 17, 2012 by · Leave a Comment 



On Dec 31st, Congress let 58 tax code benefits expire, including credits for home energy improvements, credits for builders of energy-efficient new houses, and home buyer tax deductions for mortgage insurance.  The mortgage insurance deduction has been a key mortgage financing benefit in place since 2007 which benefitted home buyers with income of $110k per year or less.  Combined with the new fees they are imposing on Conventional loans this Spring, Congress continues to increase the costs of homeownership rather than reduce them!  It should be noted that Congress still has the power to reauthorize all or some of the write-offs retroactively this year, but the current political atmosphere raises doubts about that happening.  Its time to let our elected representatives know how we feel!