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| July 9, 2013 ⇒ Higher Home Prices Linked To Higher Rates
⇒ Paying Off a Collection: Lower Score?
⇒ FHA Revises Program
⇒ Buybacks and QM Rule
⇒ FHA Bailout Cost Estimated
The Link Between Higher Home Prices and Rates
For the past two weeks we have assessed the reasons that home prices are rising. Without rehashing this data, suffice it to say that home prices are rising because the real estate market is finally recovering from a horrible slump. Many analysts are now debating whether recently rising interest rates may put a halt to the real estate recovery and the stock market rally as well. In our mind there is a direct relationship between rising home prices and higher rates. Why? For the past three plus years, we have seen a tepid economic recovery from a very deep recession. If one looks at the numbers today, the recovery still does not look strong. The economy has grown at an average of just over 1.0% for the past two quarters. That is not exactly robust numbers. The difference is that today the economy is being supported by positive growth from the real estate markets.
Real estate is a big part of the economy that fuels important behaviors such as consumer spending. When someone buys a house, they also tend to purchase furniture and undertake home improvements. We believe the markets are thinking about the future, not the past two quarters. Two years ago when economic growth slowed down, there was significant talk of another recession. Today, you don't see the same level of fear. Home prices are up because the real estate markets are recovering. Rates are up because the economic recovery is on more sound footing with a real estate recovery supporting the upturn. The jobs report released on Friday was definitely indicative of this better news. Not only was the 195,000 jobs added more than forecast, the previous two months were revised higher by 70,000 jobs and hourly earnings had a solid advance as well.
 Freddie Mac announced that rates pulled back in the past week, however this data was released before a jump in rates occurred with the release of the employment report on Friday. Freddie Mac announced that for the week ending July 3, 30-year fixed rates fell from 4.46% to 4.29%. The average for 15-year loans decreased to 3.39%. Adjustable rates were mixed, with the average for one-year adjustables unchanged at 2.66% and five-year adjustables rising to 3.10%. A year ago 30-year fixed rates were at 3.62%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac -- "Rates on fixed loans fell over the holiday week as market concerns over the timing of the Federal Reserve's pullback in bond purchases eased somewhat. Rates are still low by historical standards and should continue to aid in housing affordability and the ongoing recovery of the housing market. For instance, pending home sales rose 6.7% in May to the strongest pace in over six years. In addition, residential construction spending increased in four of the first five months this year." Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated July 5, 2013
Index
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July 3
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June
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6-month Treasury Security
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0.08%
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0.09%
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1-year Treasury Security
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0.14%
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0.14%
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3-year Treasury Security
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0.67%
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0.58%
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5-year Treasury Security
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1.42%
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1.20%
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10-year Treasury Security
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2.52%
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2.30%
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12-month LIBOR
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0.684% (June)
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12-month MTA
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0.159% (June)
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11th District Cost of Funds
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0.951% (May)
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Prime Rate
| |
3.250%
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  The Ask The Expert Column is sponsored by NACSO. NACSO –- National Association of Credit Services Organizations -- advocates for strong industry standards, consumer protection, and ethical business practices for the credit repair industry. For more information of NACSO's Standards of Excellence and NACSO membership, Click Here. To read the latest blog article on NACSO's site, Why Disputing Credit Report Errors The Way The Experts Recommend Could Hurt, Not Help, Click Here
My client recently paid off a collection because I thought it would help them get approved. However, paying off the collection actually decreased his credit score by almost 50 points. How can that be? Justin from Texas
Without knowing all the details of the situation, we will address a hypothetical situation. Basically, it may be because it was an older collection. An older collection does not affect the score as much as a recent collection. Our speaker two weeks ago from Credit Plus, Dave Wheeler, gave an important analogy--The further you walk away from an open fire, the less heat you will feel. By paying off the collection, the latest activity date became more recent. And that could have caused the score to fall. Mind you--this is speculation. What I will say is -- it is important you don't direct your clients to take any action without a "credit simulator" which will predict changes in scores based upon actions taken. You can download the recording of this webinar in which Dave appeared with Chad Kusner of Credit Repair Resources. These credit experts delivered a wealth of beneficial information. Just sign up for our free trial. Click Here. Source: Dave
Do you have a reaction to this commentary or another question you would like answered? Email us at success@hershmangroup.com.
 Breaking News: A bipartisan group of senators issued a bill to extinguish the existing government-sponsored enterprises Fannie Mae and Freddie Mac. The legislation calls for a new government issuer, known as the Federal Mortgage Insurance Corp., which would replace the GSEs. Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., are leading a group of eight senators who want to wind down the government-sponsored enterprises within a period of five years. The draft bill is known as the Housing Finance Reform and Taxpayer Protection Act of 2013. Industry professionals took to their soapboxes to discuss the bill's introduction — surprisingly, cheers were heard all around for the senators’ efforts. Bipartisan Policy Center Housing Commission co-chairs commended the senators for proposing new housing finance legislation, saying they hope such legislation will signal a renewed focus in Congress to repair the mortgage finance system. "As we approach the fifth anniversary of the government’s takeover of Fannie Mae and Freddie Mac, the government dominates the housing market in a way never seen before in our nation’s history," the co-chairs expressed. They added, "Today, the government touches more than 90% of home loans. This government-dominated status quo is undesirable and unsustainable and exposes taxpayers to unnecessary risk. Recent developments such as rising home prices and the return to profitability by Fannie Mae and Freddie Mac should not lull us into a false sense of complacency." The proposed bill incorporates many of the elements of the housing finance reform plan proposed earlier this year by the Bipartisan Policy Center’s Housing Commission. Both plans include a new system in which private entities are responsible for the majority of the system’s functions — not only as originators, but also as issuers of mortgage-backed securities. "The introduction of this legislation is proof that bipartisan cooperation is possible, even on an issue as complex as housing finance reform," the co-chairs explained. "The last piece of rebuilding the economy is housing," said Jon Tester, D-MT. "This bill will provide certainty to the housing market." The American Bankers Association commended the bipartisan group on the introduction of the Housing Finance Reform and Taxpayer Protection Act of 2013 to address the government’s dominant role in the housing finance market. "This bi-partisan legislation is a positive first step in what is certain to be a long process toward creating a sustainable, rational and limited role for the federal government in supporting and regulating a residential finance market that is appropriately and predominately filled by the private sector," said Frank Keating, president and CEO of ABA. Source: HousingWire
FHA Mortgagee Letter 13-20 clarifies certain provisions of the Good Neighbor Next Door program which is designed to provide a discount for REOs purchased by policemen, firemen and teachers in certain designated areas. The letter clarify that the mortgage insurance premium shall be based on the first lien only and clarifies the process for submitting requests for an interruption in the owner-occupancy term. Source: FHA
A rebound in homebuilding after a six-year slump should generate as many as 500,000 jobs in 2013 and 700,000 in 2014 including related services, estimates Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit and the top forecaster of employment for the past two years, according to data compiled by Bloomberg. "Housing is like a coiled spring" driven by "a lot of pent-up demand," said Glenn Hubbard, dean of Columbia University's business school in New York, who was chairman of the White House Council of Economic Advisers under President George W. Bush. "It is a real source of strength in the economy — from construction jobs and all the vendors who play into it." About half the jobs created by homebuilding are outside of construction, estimates the National Association of Home Builders, a Washington-based trade group. More than three jobs are created for each single-family home built, including related work, a 2008 study by the group estimates. "A revival in new home construction will have a huge stimulative effect on the larger economy," said Brad Hunter, Palm Beach Gardens, Fla.-based chief economist for housing research firm Metrostudy. "When home construction goes up, so does demand for furniture, tile, lumber, concrete, draperies, paint, and appliances of all sorts." The increase in construction jobs so far has lagged new activity because workers have had their hours increased, said David Crowe, NAHB chief economist in Washington. Weekly hours have risen to an average of 36.8 the past year, the highest since December 2006. "We have seen increasing hours, but there is a limit to that," he said. "I'm expecting to see a more direct correlation between increases in housing starts and increases in construction employment." Source: Bloomberg
The U.S. delinquency rate on home loans continues to fall, marking a positive sign for the housing recovery. The delinquency rate fell 2.11 percent in May and is 12.01 percent below year-ago levels, according to “first look” performance data from Lender Processing Services. LPS will issue its detailed report shortly. The delinquency rate is 6.08 percent, with about 3 million properties that are 30 or more days past due on their housing payments but not yet in foreclosure. Meanwhile, there are about 1.5 million homes in some stage of foreclosure, according to LPS. Source: Mortgage News Daily
The Federal Housing Administration may need as much as a $1 billion rescue package before the end of the year to bolster its reserves despite efforts to shore up its finances with higher mortgage insurance premiums, a Senate subcommittee was told. FHA Commissioner Carol Galante said her agency, which insures some 40 million home loans, is struggling with more than $5 billion in losses on reverse mortgages that allow people over 62 to borrow against their home equity and use the money for living expenses. Galante said the FHA played a crucial role in bringing the housing market back from the brink of collapse, but at a heavy financial price to itself. The FHA is required by law to maintain reserves equal to 2 percent of the total amount of home loans it insures. It currently has about $32 billion in reserves. The agency, created during the Great Depression to create more affordable home ownership opportunities, insures more than $1 trillion in loans to primarily low-to-moderate-income families and first-time homebuyers. The Obama administration said in its fiscal 2014 budget request six weeks ago that FHA would probably need $943 million in taxpayer assistance to bolster its reserves to cover losses from loans it insures. The government's mortgage insurer has until Sept. 30 to decide whether or not it will need the cash infusion from the Treasury, which does not require congressional approval and would be the first in the agency's 79-year history. Source: The Associated Press
In issuing the qualified mortgage rule, the Consumer Financial Protection Bureau wanted to insure the new regulations would not disrupt the home finance market. So the bureau gave Fannie Mae, Freddie Mac and Federal Housing Administration loans special status as QM loans, provided the loans meet the agencies’ underwriting requirements. But what happens if Fannie wants the lender to repurchase a loan? In a proposed rule to clarify and amend various bureau rules, the CFPB says a repurchase or indemnification demand “does not necessarily mean the loan is not a qualified mortgage.” A repurchase demand is “not dispositive” with regard to QM status, the proposal says. It depends on the reason for the repurchase demand. If the demand is related to delivery and pooling requirements, it does not affect the loan’s QM status. However, underwriting errors with regard to a borrower’s income or debt ratio could be fatal if discovered in a quality control review. In an example spelled out in the CFPB proposal, a review discovers the borrower does not have annual income of $50,000 as documented by the lender. “The bureau believes that, given the facts and circumstances of this example (automated underwriting system), approval at the time of consummation was invalid because it was based on inaccurate information provided by the creditor. Therefore, the loan was never a qualified mortgage.” The CFPB issued the proposed rule April 19. The comment period ends June 3. Source: National Mortgage News |
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