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Obama Likely to Sign off on Increased FHA Loan Limits Today
By Michael Kraus on November 18, 2011

Update 12:30 pm:

The president made the increase in conforming limits official at midday today.

Yesterday, the House of Representatives approved a measure to restore FHA loan limits in high cost areas to $729,750. Initially rejected by many House Republicans, the measure passed when the Senate tied the measure to an increase in spending bills. The new limits (along with the spending bills) are expected to be signed by the President later today.

The FHA, Fannie Mae, and Freddie Mac are statutorily limited as to the maximum size loan that they can purchase, back, or insure. This cap is known as the conforming loan limit. In 2008, conforming loan limits for the GSEs and the FHA were increased to $729,750 in certain high cost areas (such as Boston, New York City, Miami, Aspen, etc.). This increase was supposed to be a temporary measure to spur growth in the housing market. The temporary limits were extended twice, but were allowed to expire on October 1. Since that time, the maximum conforming loan limit has been $625,500.

This increase in the FHA conforming limit comes at an odd time, right on the heels of reports that the FHA may be dangerously under-capitalized. Attempts to increase the conforming limit for Fannie and Freddie were rejected but Republican lawmakers, most likely due to a desire to reduce government involvement in housing finance. It is ponderous (and logically inconsistent) that FHA limits were increased while Fannie and Freddie limits were kept at lower levels, but I guess that is what we should come to expect from government.

Nevertheless, we should have FHA high balance limits of $729,750 starting later today, and lasting through 2013.

Category: Mortgage Rates
Fannie, Freddie Subpoenaed by California AG for Investigation into Mortgage Abuses
By Michael Kraus on November 17, 2011

Yesterday Alejandro Lazo and Jim Puzzanghera of the Los Angeles Times reported that California Attorney General Kamala Harris has subpoenaed government sponsored entities (GSEs) Fannie Mae and Freddie Mac as part of an investigation in mortgage origination, securitization, and foreclosure practices.

Harris announced that she was withdrawing from the proposed 50-state Attorney General mortgage settlement back in October, saying that the settlement was “inadequate for California homeowners”, and that the settlement would “excuse conduct that has not been properly investigated”. Attorneys General from Nevada, Arizona, Massachusetts, Illinois, Delaware, and New York have all indicated that they will conduct independent investigations into mortgage abuses, effectively dooming the broader settlement.

The subpoenas will look into details on the GSEs’ roles in the housing bubble, mortgage originations during the bubble years, mortgage securitizations, as well as their foreclosure practices in subsequent years.

It is believed that these subpoenas could be an effort to create leverage over the GSEs and force them into adopting policies including principal write-downs, which are opposed by Ed DeMarco, the head of the Federal Housing Finance Agency, which has overseen the housing giants since they were seized by the federal government in 2008 in order to prevent them from collapsing.

While the California investigation is only in its infancy, I will be interested to see what details emerge. More as this situation develops.

Category: Mortgage Rates
Ho-Hum: Freddie Mac Loses $6B in Q3
By Michael Kraus on November 4, 2011
Government sponsored entity Freddie Mac lost $6 billion in the third quarter of 2011, and has requested $6 billion from the U.S. Treasury to backstop its losses.

Fannie Mae and Freddie Mac were seized and put into government conservatorship in 2008 in order to prevent their insolvency. Since that time the Obama Administration has pledged unlimited support for the GSEs.

Fannie and Freddie purchased mortgages from loan originators, package and securitize them, and sell the securities to investors. The resulting securities are guaranteed by Fannie and Freddie (and thus the taxpayers), and when mortgages default Fannie and Freddie are on the hook. The GSEs own/guarantee about half of all U.S. mortgages, worth about $5 trillion. Since 2008 the GSEs have drawn nearly $170 billion from the Treasury.

Freddie Mac CEO Charles Haldeman, Jr. commented:

“The weak labor market and fragile economy continue to weigh heavily on the single-family market, causing many potential buyers to sit on the sidelines or opt to rent despite high affordability and record low mortgage rates. While this put a damper on home buying, hundreds of thousands of borrowers were able to refinance into lower mortgage rates or shorter mortgage terms in the third quarter. In fact, the borrowers we helped to refinance will save an average of $2,500 in interest payments during the next year. Looking ahead, we expect the tepid recovery to continue to put downward pressure on house prices into early next year.

“Our financial performance in the third quarter was impacted by the weak housing market, as well as challenging financial market conditions. Freddie Mac was a stabilizing force in the mortgage market, ensuring the continuous flow of funds to lenders and borrowers and helping families avoid foreclosure. We also made further progress this year on becoming a stronger and more efficient company – adding high quality loans to our book and streamlining operations. Taken together, these efforts are maximizing the value of our assets for America’s taxpayers, and reinforcing the housing finance system.”

For better or worse, Fannie and Freddie are keeping the U.S. housing market afloat at this stage. What’s a few billion between friends?
Category: Mortgage Rates
Senate Votes To Restore Higher FHA, Fannie, Freddie Jumbo Loan Limits
2 By Michael Kraus on October 21, 2011

Yesterday the Senate voted to approve a measure that would restore the high-balance conforming loan limit to $729,750 in high cost areas. The limit was temporarily increased in 2008 in response to the housing crisis. After being extended several times, the temporary limits expired on October 1, 2011. For now, the largest loan that can be purchased or guaranteed by Fannie Mae, Freddie Mac, or the FHA is $625,500.

The measure was added to a spending bill by Senator Robert Menendez, a democrat from New Jersey. The measure approved 60-31. If the larger spending bill is approved, the bill would move to the House of Representatives. If enacted, it would then need to be approved by the president. The extension would last through 2013. The risk of funding these larger loans would be hedged by charging a 15 basis point fee on the principal balance of the mortgage.

I see this as a common sense measure to help around the margins of the housing market. This is by no means a panacea for what ails the housing market, but would provide a marginal boost to the housing market in certain areas.

That said, I bet this is unlikely to pass. It flies in the face of the sentiment among many republican lawmakers that the government should be curtailing, rather than expanding its role in the housing market. It seems that our elected officials would have difficulty coming to a consensus on what to order for lunch, let alone issues of spending and housing policy. I’m not holding my breath on this one.

Category: Mortgage Rates
Fannie Mae Sees Continued Weakness in Economy, Housing Market Through 2012
By Michael Kraus on October 17, 2011

Today Fannie Mae released its Economic and Housing Forecasts for October 2011. Fannie’s economists set the odds of a renewed recession by the end of 2012 at 50-50.

Fannie is forecasting “sluggish growth” through next year, withe the inflation-adjusted GDP rising just 1 percent in 2012. Fannie economists cite fiscal austerity in the United States and uncertainty around new regulations as constraining factors, and warn that the economy is susceptible to a shock that could cause renewed recession. The most likely shock would be a worsening of the debt situation in Europe (and Greece specifically).

As for the housing market specifically, the report says that while there were gains in home sales over the summer, the trend is unlikely to continue and “home sales are poised to weaken, heading into upcoming seasonally slow months”. The number of purchase mortgage applications showed almost no improvement despite the Fed’s announcement of “Operation Twist”, which helped mortgage rates to set new record lows for five consecutive weeks in August and September. Fannie’s analysts believe that the average rate on 30-year fixed-rate mortgages will rise to “slightly above 4 percent by the end of 2012″.

Doug Duncan, Fannie Mae Chief Economist commented:

“In this type of environment, the housing market remains very sluggish and consumers’ willingness to dig into their savings to purchase big ticket items is very low. There’s been a little seasonal cyclical pickup in housing activity recently as spring and summer sales are generally stronger than fall and winter, but leading indicators point to housing sales bouncing near the bottom at least through the end of 2012.”

“Home prices are a key factor for any positive movement in the housing market, and the large inventory of distressed homes working their way through the market is putting downward pressure on prices. Now that we are entering a traditionally weak seasonal sales period, we expect home prices to show renewed declines after firming for several months.”

All in all, this forecast seems to fall in line with most other recent forecasts that I have seen. Continued volatility, continued weakness, and continued uncertainty.

Category: Mortgage Rates
Fannie Mae: Americans Remain Pessimistic About the Housing Market
By Michael Kraus on October 10, 2011

Fannie Mae released its Monthly National Housing Survey for September this morning. The results of the survey showed that Americans are still extremely pessimistic about the future of the housing market. If the economy is founded on confidence more than anything else, we should be worried about the near future regardless of what the economic indicators tell us.

A full 77% of the people interviewed for the survey said that they believed that the economy was on the wrong track, about the same as the month before. 26% of respondents say that home prices will decline in the next year, with 18 percent saying they will increase, and 55 percent saying they will remain the same. The average expectation is that home prices will decline by about 1.1%. Doug Duncan, chief economist for Fannie Mae commented:

“The September survey showed a marked deterioration in consumer expectations of home prices over the next year—their weakest outlook since monthly tracking began in June 2010. Despite a decline in negative economic headlines during September – in contrast to their ubiquity during the debt ceiling debate in August – consumers continue to demonstrate very negative attitudes. At the same time, the share of consumers expecting mortgage rates to go up dropped sharply to the lowest level we have recorded, likely influenced by the news that the Federal Reserve will attempt to keep interest rates low for years to come.”

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Category: Mortgage Rates
CBO: Large Scale Refinancing Program Would Not Address Many Problems Facing Housing Market
By Michael Kraus on September 8, 2011

You might’ve heard rumors a couple weeks ago that the Obama Adminstration was considering proposing some sort of broad refinancing program. Although the rumors contained no specifics as to what the plan might actually be, it would most likely allow those with government backed loans to refinance at today’s record low mortgage rates, possibly even if they were far underwater and wouldn’t meet traditional refinancing underwriting standards.

The main constraints on refinancing right now are that many who can refinance already did so and have low enough rates that refinancing doesn’t make financial sense and that many homeowners who have rates high enough to justify refinancing are unable to do so because the value of their homes has declined and they no longer meet underwriting guidelines.

Along these lines the Congressional Budget Office released an analysis of a theoretical large-scale mortgage refinancing program earlier this week. The proposed program would “relax current income and loan-to-value restrictions for borrowers who wish to refinance and whose mortgages are currently insured by Fannie Mae, Freddie Mac, or the Federal Housing Administration”. From the report:

“Relative to the status quo, the specific program analyzed here is estimated to cause an additional 2.9 million mortgages to be refinanced, resulting in 111,000 fewer defaults on those loans and estimated savings for the GSEs and FHA of $3.9 billion on their credit guarantee exposure, measured on a fair-value basis. Offsetting those savings, federal investors in MBSs, including the Federal Reserve, the GSEs, and the Treasury, would experience an estimated fair-value loss of $4.5 billion. Therefore, on a fair-value basis, the specific program analyzed here would have an estimated cost to the federal government of $0.6 billion”.

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Category: Mortgage Rates
Obama Administration Favors Keeping Government Involved in Mortgages
By Michael Kraus on August 16, 2011

According to an article by Zachary Goldfarb in yesterday’s Washington Post, the Obama Administration is soliciting proposals that would keep the government involved in mortgage finance:

“President Obama has directed a small team of advisers to develop a proposal that would keep the government playing a major role in the nation’s mortgage market, extending a federal loan subsidy for most home buyers, according to people familiar with the matter.

The decision follows the advice of his senior economic and housing advisers, who favor maintaining the government’s role as an insurer of mortgages for most borrowers. The approach could even preserve Fannie Mae and Freddie Mac, the mortgage finance giants owned by the government, although under different names and with significant new constraints, said people knowledgeable about the discussions.”

The White House and the article makes it clear that no specific plan has been chosen, and that many options are being considered. Last year several options were floated for changing the structure of housing finance. These range from totally winding down Fannie and Freddie to replacing them with explicitly government-backed housing finance agencies.

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Category: Mortgage Rates
Fannie Mae Survey Shows Increasing Pessimism On Economy, Housing
By Michael Kraus on August 9, 2011
Yesterday Fannie Mae released its Monthly National Housing Survey for the month of July. The results showed that Americans are growing increasingly dour about their own financial prospects as well as that of the housing market. Fewer people believe that it is a good time to buy a home, and fewer people believe that it is a good time to sell one.

Doug Duncan, the vice president and chief economist for Fannie Mae commented:

“The impact of recent financial market volatility on household wealth has been a setback to consumer confidence, which we’re seeing in our survey results and in Americans’ continued restraint in their willingness to take on additional financial commitments. Our overall July survey data, beyond the eleven indicators we present this month, show that most Americans think the economy is on the wrong track – the highest level of pessimism to date for this topic. The sluggish pace of job growth, coupled with this economic uncertainty, is clearly having an impact on consumers’ attitudes toward the housing market and their own personal financial situations.”

Some other points of interest from the report:
- Only 11% of those surveyed believe it is a good time to sell one’s home. This number has been consistent for a few months now.
- 45% of Americans now expect mortgage rates to increase, up from 38% percent in June.
- The consensus on home prices among those surveyed is that they will decline by 0.3 percent in the next year.
- The number of people who say they would purchase a home if they had to move declined from 66 to 61 percent, while the number that would rent their next home increased from 31 to 34 percent.
- Only 35% of those polled believe their personal financial situation will improve over the next year, down from 40% in April. Meanwhile 20% of people think their situation will become worse, up from 16% in April.
Category: Mortgage Rates
Fannie Mae Anticipates Unemployment, Tight Credit Will Continue to Restrain Housing Market
By Michael Kraus on July 25, 2011

Last Friday Fannie Mae published their monthly Economics and Mortgage Market Analysis for July. Fannie’s economists noted that there are several factors that have the economy “struggling to regain momentum”, including continued high unemployment, the continuing European debt crisis, and the potential that no budget deal is met before the U.S. debt ceiling deadline on August 2nd.

On housing specifically, the report said that “some positive signs are emerging” but that “the current state of housing remains downbeat”:

“Sales of existing homes in May fell to their lowest level since last November, while new home sales dropped during the month after two consecutive monthly gains. Total housing starts rebounded modestly in May, only partially offsetting the large drop in the prior month, and builders’ confidence eroded further in June.

There are some positives for the near-term outlook of the housing market. One positive for the existing home market is that pending home sales (contract signings) rose 8.2 percent in May, suggesting that sales of existing homes, which are recorded at closing, should rebound in coming months.”

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Category: Mortgage Rates