Week of March 5th – Economic Roundup

March 6, 2012 by · Leave a Comment 

Testifying before Congress on Wednesday, Federal Reserve Chief Ben Bernanke made several comments that caused mortgage rates to swiftly push higher.  The main effect of his comments was to lower investor expectations that a third round of Treasury bond and MBS purchases by the Fed is unlikely.  Investors recently have been increasingly optimistic that the Fed would purchase additional MBS and this had helped push mortgage rates to all-time lows.  As the economic data has improved in recent months, however, the need for additional Fed easing has seemed to decrease.  Last week’s Fed testimony was seen by many investors as one of the first signs that Fed officials share this view.

Recently released housing data continues to be encouraging.  January Existing Home Sales rose 4% from December and are now at the highest level since May 2010.  January Pending Home Sales rose 2% from December and are now at the highest level since April 2010.  Recall, that the home buyer tax credits expired in the Spring of 2010, so recent volume figures are the best since this time.  Also, since Pending Home Sales are a forward-looking measure, this data suggests that home sales should improve in coming months.

One other item worth mentioning is the price of oil.  Concerns about Iran have pushed oil prices up to the highest level in nine months.  Higher energy prices are bad for consumers and the economy.  Since higher oil prices have two opposite effects on inflation though, the impact on mortgage rates is uncertain.  Rising energy costs add to inflation (bad), but they also slow economic growth, which reduces inflationary pressures (good).  It’s not clear which influence will be larger over time.

 The biggest economic report this week will be the ever important Employment data to be released 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.  ISM Services & Factory Orders are also being released today, as well as Productivity on Wednesday, and Trade Balance on Friday.

HARP 2.0 Rolling Out on March 19th

March 6, 2012 by · 2 Comments 

For those upside down on their mortgage, good news may be on the way.  The government-sponsored HARP program has been around for years but with limited success.  Several key changes have been made to the program and a new improved HARP 2.0 is being unveiled on March 19th.

The biggest change is that moving forward a home owner will be able to refinance despite the value of the owner’s home.  Thus, unlimited loan-to-values will be allowed, meaning someone could owe twice as much as the value of their home and still be able to refinance it.  The other big change is that if someone has private mortgage insurance (PMI) now, they will be able to refinance maintaining the same level of PMI.  It took years of work to get PMI companies on board with this plan but systems are now in place which will enable this to happen.  Although current levels of PMI can now be maintained, please be aware that 2nd mortgage balances cannot be rolled into the new loan.

These are two fabulous upgrades to the HARP program and make it a much more viable option for many.  To be eligible for HARP 2.0, the current loan must be owned by Fannie Mae or Freddie Mac and originated prior to May 31, 2009.  If you pass both of these tests, we would love to hear from you to give you more details about HARP 2.0!

FHA Proposes Lower Allowable Seller Paid Concessions

March 6, 2012 by · Leave a Comment 

On February 23rd, FHA proposed that the maximum amount that a seller or other interested third party can pay toward a buyer’s costs at closing (to include closing costs, prepaid items, discount points, up-front MIP, and any interest rate buydown) be reduced from 6% to 3% or $6000, whichever is greater.  At first glance, this appears to be bad news because of how important it is to minimize an FHA buyer’s cash out of pocket.  On lower-priced homes, a buyer’s costs will always exceed 3%, thus, lowering the limit will only have the net effect of reducing the number of eligible FHA buyers that are out there.  Although this is true, once you take a closer look at the proposal, there is actually some very good news that should be celebrated, and here’s why.

FHA first submitted a proposal on this topic on July 15, 2010 which called for a reduction of the maximum seller paid concession from 6% to 3%.  The good news is that the new proposal allows for an overriding $6000 cap on top of the 3%.  The $6000 limit equals a 3% cap on a $200,000 home, but increases to a 4% cap on a $150,000 home, a 6% cap on a $100,000 home, and an 8% on a $75,000 home!  Thus, FHA has actually increased the cap for prices under $100,000!   

Kudos to FHA for adequately addressing the major concern of its initial proposal and landing on a compromise which will enable a seller to still contribute the majority, if not all, of a buyer’s costs on lower-priced FHA loans.  It is worth noting that the seller can only contribute toward actual costs and not over and above.

FHA is currently taking comments on this proposal through Mar 26th.  Click here to submit your comments on the reduction of seller concessions

FHA MIP Going Up Again

March 6, 2012 by · 1 Comment 

FHA mortgage insurance is called MIP (Mortgage Insurance Premium) and is collected two ways, up-front and per month.  Over the last few years, FHA has already increased the MIP several times.  Unfortunately, they are back at it again.  Effective with all case numbers assigned on or after April 1st, the up-front MIP is increasing from 1% to 1.75% and the monthly MIP is increasing from 1.15% to 1.25% (this is an annual % which you multiply times the loan amount and divide by 12 to get the monthly MIP amount).

FHA has given two main reasons for these increases.  The first is to reubuild the agency’s capital reserves, and the forecast is that these increases will add another $1.25B. in revenue per year.  The second is to encourage the return of private capital back into the residential mortgage market.  Put another way, FHA is trying to discourage the use of the FHA program and hoping more sources of alternative financing will arise.

To put these increases in perspective, on a $150,000 purchase, the .75% up-front increase will add about $1000 to borrower’s loan amount and increase the payment about $5 a month.  The .1% monthly increase will also add another $12 a month to the payment.  Thus, the combined effect of these changes is a $17 per month increase to the payment.  This equates to an increase of $11 per month on a $100,000 purchase and $23 per month on a $200,000 purchase.

These MIP increases are not wonderful news for FHA buyers but they have created an incentive for these buyers to get a house under contract and make sure their lender gets the FHA case # ordered by Mar 30th.

Read the entire FHA press release at: http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2012/HUDNo.12-037