Tuesday, May 27, 2008

Today in a Snapshot

Rates Increase Last Week: Mortgage investors focused on the Fed, inflation, and oil prices. The week started off on a positive note, and mortgage rates fell on Monday and Tuesday. Even higher than expected levels of core inflation in Tuesday's Producer Price Index had little impact. The atmosphere changed quickly on Wednesday, though, after the release of the FOMC minutes from the April 30 Fed meeting. In the minutes, the Fed lowered its forecast for economic growth in 2008, while raising the expected level of inflation. Also notable, Fed officials ruled out further rate cuts unless the outlook for the economy turns significantly worse. The Fed's heightened inflation projections were bad news for mortgage markets, and rates ended the week a little higher.
This Week: After yesterday's Memorial Day holiday, it will be a busy week. New Home Sales and Consumer Confidence will come out on Tuesday. Durable Orders, an important indicator of economic activity, will be released on Wednesday. Thursday will see the first revisions to first quarter Gross Domestic Product (GDP), the broadest measure of economic activity. A 5-year Treasury auction will also take place that day. The week will end with a big day on Friday. Core PCE, the Fed's preferred inflation indicator, will be released, along with Personal Income, Chicago PMI, and Consumer Sentiment.
Analysis: This week could result in market swings that are favorable or negative in nature. Considering the heightened possibility for mortgage interest rate volatility, a cautious approach to interest rate exposure is prudent.
-Provided by James A Williamson and Robbie Croier of Fairfield Mortgage

Sunday, May 18, 2008

Yahoo Finance Article

APFannie Mae scraps higher down-payment requirementsFriday May 16, 6:03 pm ET By Alan Zibel, AP Business Writer
Fannie Mae scraps increased minimum down-payment requirement for homes in flagging markets
WASHINGTON (AP) -- By relaxing down-payment requirements for borrowers in markets where home prices are falling, Fannie Mae aims to both resuscitate the flagging housing market and respond to pressure from industry groups, consumer advocates and lawmakers.

It's a balancing act that critics and investors worry exposes the company to more risk, as foreclosure rates spike and home prices keep falling.
Washington-based Fannie Mae said Friday it will require minimum down payments of 3 percent for loans made through its computerized underwriting system.
The new policy, effective June 1, replaces a December one that required a 5 percent down payment for home loans in areas with declining real estate prices. Fannie Mae predicts U.S. home prices will drop 7 percent to 9 percent on average this year.
A Freddie Mac spokesman said the McLean, Va.-based company earlier this month adjusted its policies to make 5 percent down payments available in declining markets.
The reversal on down payments come as fears heighten, especially among Republicans on Capitol Hill, that the government will end up bailing out Fannie and its government-sponsored sibling, Freddie Mac, whose share prices have been cut in half over the past year.
While the government is relying on the two mortgage finance titans to stabilize the battered mortgage market, the companies "need to be very careful to manage their risk...that's a a tight rope for them to walk," said mortgage industry consultant Howard Glaser.
Bert Ely, a banking industry consultant in Alexandria, Va. and a longtime critic of Fannie and Freddie, said they were likely under pressure from lawmakers to change their policy in areas with falling home prices. "They caught a lot of flack on this," he said.
Fannie's announcement that it was easing financial requirements for some homebuyers comes just as lawmakers are considering tougher ones for both it and Freddie. The Bush administration has long pushed for stricter regulation.
As senators try to put together a bipartisan housing package, they've proposed tapping a fund drawn from Fannie and Freddie's profits to pay for a new foreclosure-prevention program. Community groups want that money directed to a low-income housing fund.
Congress created Fannie and Freddie to pump money into the home-mortgage market by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street. Together they hold or guarantee about $5.3 trillion in home-mortgage debt.
Their formidable size helps them support the mortgage market in times of trouble. But critics fear that these troubled times are too much for the companies to handle the losses, making a federal bailout inevitable.
"These guys are real close to being part of the problem, rather than part of the solution," said Thomas Stanton, a fellow at Johns Hopkins University's Center for the Study of American Government.
While the Treasury Department isn't obligated to assist Fannie or Freddie in a financial emergency, there is a perception notion on Wall Street that the government would bail them out if there is a collapse. Critics say the government's implicit backing allows the companies to take on far more debt than a bank.
James Lockhart, director of the federal Office of Housing Enterprise Oversight, said in a speech Friday the companies' high level of debt relative to assets "could pose significant risk to taxpayers ... financial institutions and other investors."
More evidence of their increased vulnerability, Lockhart said, are three straight quarters of losses for both, totaling nearly $11 billion.
Fannie had been under intense pressure from real estate agents, homebuilders and consumer advocates to relax what they saw as rigid policies that shut out borrowers with good credit.
"From the time it was announced, we've been asking them to reconsider," said Jerry Howard, president of the National Association of Home Builders, said in an interview.
Mortgage brokers welcomed the news. Alan Rosenbaum, chief executive of mortgage banker and broker GuardHill Financial Corp. in New York, said the change "is probably the first step in turning things around" as the mortgage industry has tightened its lending practices too much, leaving many borrowers out in the cold.
While the change is positive, Karen Cooper, a mortgage broker and owner of Quality Home Loans in Ashland, Ore., said borrowers face numerous other obstacles,
For example, mortgage insurers, whose backing is required for borrowers who can't afford the traditional 20 percent down payment on a home, have already flagged ZIP codes around the country where they refuse to insure some home loans.
In working with first-time homebuyers, she said, "we just keep sorting through guidelines until we find what works,"
Fannie Mae shares fell 34 cents to close at $28.89, while shares of Freddie Mac fell 30 cents to close at $26.97.

Market Update

The Following Mortgage Update is Courtesy of James A. Williamson of Fairfield Mortgage
Sent 2/11/2008

More Good News / Bad News This Week For The Mortgage IndustryAs expected, Congress passed the economic stimulus bill, H.R. 5140 last week. Part of the bill allows for taxpayers to receive a "tax rebate" from the U.S. Treasury. Another part of the bill calls for an increase in the maximum loan amounts that Fannie Mae and Freddie Mac can purchase from the current maximum level of $417,000. The good news is that this bill may help to jump-start the economy. The bad news is that Georgia is not one of the markets that will benefit from the higher loan limits. So far, it looks like most of the areas affected by the change are in the Northeast or on the West coast. I have cut and pasted an article at very bottom of this e-mail entitled "Raising conforming loan limit not a simple task" which is the best overview I have read yet of this subject. Check it out if you have a few extra minutes. Last week was a weird week for mortgage rates. Only two major reports came out and both showed the economy as weaker. This would normally lead to an improvement in rates, however, comments by several members of the Federal Reserve worked against mortgage rates. Philadelphia Fed President Plosser stated that "core inflation would remain elevated despite slower economic growth." And Dallas Fed President Richard Fisher, who was the only Fed member to vote against decreasing rates at the last Fed meeting, said in a speech in Mexico City that he thought that what the Fed had done so far in lowering rates should be given some time to work before lowering rates anymore, especially before inflation doesn't give more signs of letting up. So, the markets took this to mean that the Fed might be done lowering rates. These comments and market concerns about inflation offset the weak economic data, and the result was rates overall staying about the same with fixed-rates flat and the ARM's slightly lower. Despite the comments of Plosser and Fisher, the consensus estimate is that the Fed will lower rates again when they meet in March. This coming week, Ben Bernanke, the Chairman of the Fed, will be speaking before Congress. The markets will be listening closely for any signs from him that the Fed is or isn't done lowering rates. Expect market volatility. In addition, the mortgage rate market may take it's cue from the stock market - a huge jump in stock prices usually means an increase in mortgage rates as investors pull their money out of mortgage back bonds and go into the stock market. On the other hand, a large dip in the stock market usually signals lower mortgage rates, as investors pull their money out of stocks and put it into the safe haven of U.S. Treasury and mortgage backed bonds. It is unusual for the stock market to move more than 2% in any direction on any given day. In the previous three years, it has happened only once. So far this year, it has happened six times! When this does happen, it sometimes signals a "bottoming" out of stock prices. That could bode well for stock investments and 401(k)'s, but maybe not so much for mortgage rates. Finally, I have attached a great short article that I recently read that is worth the read. What is your "little red dot" in 2008? Below are rates as of this morning and when you think of financing, please think of Fairfield!
Conforming Non-Conforming FHA VA Loan Amount < $417,000 > $417,000 < $252,980 < $417,000 30 Year Fixed 5.625% 6.750% 6.000% 6.000% 15 Year Fixed 4.999% 5.875% 5.500% 5.500% 7 Year ARM 5.125% 6.000%5 Year ARM 5.000% 5.875% 3 Year ARM 4.750% 4.875% 4.875% The above rates are intended to give you an overall idea of how rates are changing from week to week. Other factors such as credit score, down payment, and number of days of rate lock all contribute to the exact rate which is subject to change at any time. The Conforming rates above apply to loan sizes $200,000 - $417,000 and carry zero discount points. Rates for lower loan amounts are slightly higher. Lower rates are also available for all programs with discount points. The interest-only feature is available on most of the Conforming and Non-Conforming programs as well but with a premium.
Market CommentThe retail sales data Wednesday will be the most important event this week. Trade data, industrial production, capacity use, and consumer sentiment data also have the real potential to cause mortgage interest rate volatility.
ReleaseDate & Time
Retail Sales
Wednesday, Feb. 13,8:30 am, et
Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
Business Inventories
Wednesday, Feb. 13,10:00 am, et
Up 0.4%
Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.
Trade Data
Thursday, Feb. 14,8:30 am, et
$61 billion deficit
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
Industrial Production
Friday, Feb. 15,9:15 am, et
Up 0.1%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Capacity Utilization
Friday, Feb. 15,9:15 am, et
Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
U of Michigan Consumer Sentiment
Friday, Feb. 15,10:00 am, et
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
Retail Sales
Retail sales data is the first indication of weakness or strength in consumer spending released each month. The Bureau of the Census of the US Department of Commerce provides information on how much the consumer spends on the purchase of goods. This data provides the consumption part of the gross domestic product. Retail sales data represents merchandise sold for cash or credit by retailers. Durable goods, such as autos, make up 35% of the figure. The balance consists of non-durables such as gasoline, restaurants, and general merchandise.
There are several drawbacks to the report. The data covers purchases of goods only, not services. It is also not adjusted for inflation and is extremely volatile.
Economists are concerned that the current economic uncertainty will continue to curtail consumer spending habits. Consumers have generally been given credit for sustaining the economy despite rising energy prices and home price declines.
While Philadelphia Fed President Plosser cautioned last week about predicting the future of the economy based on one piece of data, the retail sales report is still likely to cause mortgage interest rate volatility. The data will be a vital component in determining future Fed actions. Plosser was clear that the Fed remains concerned about inflation despite the recent rate decreases. He warned that the Fed needs to be "particularly alert" about rising inflation expectations. Inflation, real or perceived, is bad for bonds. If the fear of inflation increases, mortgage interest rates could trend higher. Be cautious. Mortgage interest rates remain favorable but lower future rates are not a given.
Raising conforming loan limit not a simple task Fannie, Freddie may have to tiptoe into 'jumbo light' market Monday, February 11, 2008By Matt CarterInman News

While Fannie Mae, Freddie Mac and the Federal Housing Administration will soon be allowed to dive into what until now has been the jumbo loan market, it remains to be seen how many borrowers will benefit.
Congress and the Bush administration have agreed to raise the $417,000 conforming loan limit until the end of the year, under a provision of the $150 billion economic stimulus package approved by Congress last week (see Inman News story).
But the devil, as they say, will be in the details. The new formula for determining the conforming loan limit will allow Fannie, Freddie and FHA to guarantee loans of up to 125 percent of the median home price of an area.
While housing markets where the median home price exceeds $216,840 will benefit from higher limits for FHA loan guarantee programs, one analysis suggests Fannie and Freddie will be able to tiptoe into the jumbo loan business in only 19 metropolitan statistical areas (MSAs).
The first step to be taken to implement the changes will be determining median home prices. The Department of Housing and Urban Development has been given 30 days to publish median-home-price data once President Bush signs the stimulus package into law.
But where will HUD get the data? And with prices falling rapidly in many markets, will the data be updated monthly, quarterly or annually?
HUD spokesman Lemar Wooley said FHA will use a combination of existing government data sets and available commercial information to determine the median sales price. He said FHA loan limits are based on the county a property is located in, except when the county is part of a larger MSA, in which case the county with the highest loan limit determines the limit for the entire MSA.
Not only does HUD have to come up with median-home-price numbers for every housing market in America, but Fannie Mae and Freddie Mac will have to come up with credit guidelines for a class of loans that, until now, has mostly been off-limits. The government-chartered mortgage financiers will have to decide what their standards will be for the loans they will purchase, or securitize and guarantee.
As they venture into the jumbo loan market, Fannie and Freddie will have to decide if they need to be more cautious about the minimum down payments they will accept, borrower's credit histories, and the fees they charge for taking on more risk. The task will be complicated by the fact that the maximum loan size will vary from market to market, instead of the uniform $417,000 limit in place today in 48 states other than Alaska and Hawaii.
In high-cost markets, the $417,000 conforming loan limit for loans eligible for purchase or guarantee by Fannie and Freddie will be raised to 125 percent of the median home price, with an upper cap of $729,750. That formula means that the $417,000 conforming loan limit will remain in place in markets where the median home price is $333,600 or less.
While there's no time limit for Fannie and Freddie to publish guidelines for the new class of loans, the companies have promised to work with regulators to expedite the process. James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told members of the Senate Banking Committee Thursday that the process could take months.
The temporary increase in the conforming loan limit is likely to have a bigger impact on FHA loan guarantee programs, because the current limits for FHA are lower. In high-cost markets, the current ceiling for FHA loan programs is $372,790, and $200,160 in other markets.
The new ceiling for FHA loan programs in normal markets will be $271,050 -- meaning that even borrowers in housing markets where the median home price is below $216,840 may be eligible for FHA-backed purchase or refinance loans up to that amount. In areas where the median home price is above $216,840, the limit for FHA loan programs will be 125 percent of the median home price, all the way up to $729,750.
Fannie and Freddie will be allowed to buy and securitize jumbo loans originated any time between July 1, 2007 and Dec. 31, 2008. That means jumbo lenders may be able to sell some of the loans they've made in the last seven months to Fannie and Freddie, freeing them up to make more loans.
One reason Congress and the Bush administration agreed to raise the conforming limit, at least for now, is that Wall Street investors will no longer buy most mortgage-backed securities that don't carry the backing of Fannie, Freddie or FHA. That means borrowers are paying about 1 percent more for jumbo loans that exceed the $417,000 conforming loan limit.
But there's no guarantee investors will accept the jumbo loans backed by Fannie and Freddie -- which are private, publicly traded companies that face potentially billions of losses in the current mortgage morass -- as safe investments. They may also need some time to familiarize themselves with how FHA is handling the larger loans, said Jaret Seiberg, an analyst with Stanford Group Co. who follows the secondary mortgage market.
"Investors understand the risk characteristics of conforming mortgages that are securitized by Fannie and Freddie, and they understand FHA-backed loans securitized through Ginnie Mae," Seiberg said. "But they don't have experience with jumbo loans coming out of those channels. In a market with so much uncertainty, it's a real question whether investors are going to have an appetite for a new product."
If Wall Street investors don't snatch up the larger loans backed by Fannie, Freddie and FHA after they are securitized, that would limit the benefits to the secondary mortgage market and do less to ease the credit crunch than backers of the move have hoped.
As Fannie's and Freddie's losses mount and they bump up against minimum capital requirements, their capacity to purchase and guarantee loans is not unlimited. And as Lockhart noted, it takes three times as much capital to guarantee one $600,000 loan as it does one $200,000 loan.
While Seiberg is confident that HUD can implement higher loan limits for FHA programs, he said Fannie and Freddie have technological and capital issues to overcome before they become "meaningful players" in the "jumbo light" market.
As to which housing markets might benefit from higher conforming loan limits, Seiberg said Stanford Group used median-home-price data from the National Association of Realtors to analyze where Fannie and Freddie might be able to purchase or guarantee loans above the current $417,000 limit.
Stanford Group identified 19 markets -- more than a third of them in California -- where Fannie and Freddie could enter the jumbo light market.