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!