Mortgage Market News and Commentary Blog

I started my day Friday with a heavy heart. A reminder not to take things too seriously was sent to me by one of my closest friends via tweet that hit spot:

    “Do I always get to pick the movie we watch? No. I compromise and let her pick a chick flick sometimes. US Congress: Grow up.”

The population that would have been affected the most would have been our armed forces. The very same people that are abroad taking bullets for our country. How selfish can one be to not care about the on-time payment for our men and women that serve our country? Putting them in a position of financial strain?  So now spouses at home not only have to sit helpless worrying about the dangers of combat, but also when the next paycheck will arrive?

Additionally, most consumers did not realize until now the darkness of the inane disagreements of the people we have voted into high offices. Self-consumed with who gets what, a truly childish obsession that we now know boils down to a mere $2 billion and a lame-duck attempt to blame the entire stop gap on-wait for it- abortion, we are hostages in the very week we are desperately rushing to get our taxes in on time.

As relates to the already black and blue residential lending industry, a  government lock-down would have essentially halted every major transaction in its tracks, especially those requiring ANY kind of financing. These days, most underwriting guidelines call for a disclosure request for IRS transcripts of the borrowers’ tax returns. Without this form, the lenders have no way of ensuring accuracy of the tax returns submitted with each loan application. With the IRS shutting down, no loan would have funded. Yet another blow to the consumer.

To make matters worse, we all know by now that FHA represents a very large source of the purchase funds for owner occupied homes by first-time home buyers. With a government lock down, HUD would have shut down its offices making it impossible for these transactions to be completed. To add another layer of frustration, the lenders involved in short sales and foreclosed property sales have the least patience when it comes to extensions. Should you not be able to close a transaction by the date that the lien holder sets for you, they will not hesitate to move on to the next buyer. At this point consumers would have lost millions in appraisal fees and, in some cases, application fees demanded by the big lenders like Bank of America and the like.

On the lowest, but still personal level, I was unreasonably punished. Before the 11th hour agreement was reached, the travel.gov declared the cancellation of passport day on April, 9th. The one day of the year when you do not have to wait 4 weeks for an appointment to get your passport renewed in person. The wrath of my wife that I fielded after the announcement that although the lock-down was avoided but passport day was still cancelled,was worse than any fit I’ve seen her in in these many years (we have not been on vacation since our honeymoon, and God help the soul that halts her progress.)  Not to mention missionaries on their way to infinite humanitarian causes, and the micro-effect on that portion of the economy.  In fact, this highlights the reality that every misstep our government takes continues to arrest economic recovery and growth.

When I think about what is going on globally in Libya, Egypt, Tunisia etc., and the power of social media, did the Obama administration dodge a nationwide revolt? Thankfully, for the time being we will not know the answer to that one. At least not in the immediate future.

With just minor exceptions, all of the economic data released this week beat the consensus forecast, indicating that the economy is improving more quickly than expected. While current inflation levels remain low, faster economic growth generally leads to higher future inflation, which is negative for mortgage rates. As a result, mortgage rates ended the week higher.

Early in the week, stronger than expected manufacturing and housing data convinced economists to revise higher their forecasts for economic growth, and Friday's Employment data supported the improved economic outlook. Against a consensus forecast for a loss of -300K jobs, the economy lost -247K jobs in July, and the May and June data was revised to show fewer job losses as well. This was the 19th straight month of job declines, but it was the smallest level of losses since August 2008. The July Unemployment Rate fell to 9.4% from 9.5% in June, its first decline in 15 months. In addition, wages and the length of the average workweek increased. Overall, this report revealed unexpected improvement in nearly every area.

From the Associated Press

New US home sales soar 11 percent in June in largest monthly increase in more than 8 years.

WASHINGTON (AP) -- New U.S. home sales jumped in June by the largest amount in more than eight years as buyers took advantage of bargain prices, low interest rates and a federal tax credit for first-time homeowners.

While home prices are still falling, the figures released Monday were another sign the housing market is finally bouncing back. Data out last week showed home resales rose 3.6 percent in June, the third straight monthly increase.

Shares of big homebuilders soared on the news, with Beazer Homes USA up by more than 13 percent and Hovnanian Enterprises rising 8 percent. But with home prices still falling, these companies won't be making much money anytime soon.

The Commerce Department said new home sales rose 11 percent in June to a seasonally adjusted annual rate of 384,000, from an upwardly revised May rate of 346,000.

Buyers are rushing to tax advantage of a federal tax credit that covers 10 percent of the home price or up to $8,000 for first-time buyers. Home sales need to be completed by the end of November for buyers to take advantage.

"The window of opportunity is closing," said Bernard Markstein, senior economist for the National Association of Home Builders.

June's results were the strongest sales pace since November 2008 and exceeded the forecasts of economists surveyed by Thomson Reuters, who expected a pace of 360,000 units. The last time sales rose so dramatically was in December 2000.

Sales have risen for three straight months. The median sales price of $206,200, however, was down 12 percent from $234,300 a year earlier and down nearly 6 percent from $219,000 in May.

There were 281,000 new homes for sale at the end of June, down more than 4 percent from May. At the current sales pace, that represents 8.8 months of supply -- the lowest level since October 2007. If that number falls to just over 6 months, analysts say, builders will feel more comfortable ramping up construction.

Fallout from the housing crisis has played a central role in the U.S. recession, now the longest since World War II. Foreclosures have spiked, homebuilders have slashed construction, and financial companies have lost billions.

But it will still be a while before homebuilders turn into an engine for the economic recovery. Construction levels are still weak because builders still have too many unsold homes sitting vacant.

From MortgageNewsDaily.com

HUD Secretary Shaun Donovan today announced that the Federal Housing Finance Agency has authorized Fannie Mae and Freddie Mac to raise the Home Affordable Refinance Program's (HARP) loan to value (LTV) ceiling from 105% to 125%.

The Home Affordable Refinance Program was designed to assist borrowers who have demonstrated an acceptable payment history on their existing Fannie Mae or Freddie Mac owned mortgage loan. Unfortunately due to rising unemployment levels and increasing foreclosure rates, demand for housing has weakened and property values have continued to decline, which has blocked many borrowers from utilizing HARP.

The expansion of Fannie Mae's and Freddie Mac's LTV guideline aims to expand qualified homeowner's refinance opportunities. The underlying initiative is that lower monthly mortgage payments will raise real household incomes and therefore afford more spending power upon consumers. In a government press releases, Treasury Secretary Tim Geithner stated...

"By expanding refinance eligibility, we can bring relief to more struggling homeowners more quickly. It's a crucial step in our broader efforts to get America's housing market and economy on the path to recovery."

Thus far the effectiveness of the HARP program has faced many barriers. Among these roadblocks: lenders adding underwriting overlays and guideline restrictions, lenders all together not participating in the program, difficulty determining if Fannie Mae/Freddie Mac own your mortgage because of addresses not exactly matching the original note, additional costs because of lender imposed risk based loan level price adjustments (on top of GSE LLPAs), the unwillingness of banks to subordinate second mortgages, reluctant mortgage insurers, and the Home Valuation Code of Conduct.

Kent Mikkola, a mortgage consultant from Roseville, Minnesota says "Overall, it is difficult to obtain a HARP approval. Furthermore,  it is even more difficult to find out why a seemingly eligible borrower has been denied"

Since the program was launched on April 1,2009 several updates have been made to counteract these roadblocks, however HARP remains unable to live up to the hype surrounding it. That said, today's announcement, although appreciated, was broadly overlooked by skeptical mortgage professionals. John Rodgers, president of Prime Mortgage Lending in Apex, North Carolina, had this to say:

"It appears that the Obama Administration is aware of the constraints blocking borrowers from lower mortgage payments. Unfortunately, today's update will likely prove ineffective in lowering those barriers. At this point granting appraisal waivers, allowing reduced documentation, and cutting loan level price adjusters appear to be the only way HARP will ever be effective. Otherwise HARP will turn out to be yet another loan program nobody can use, much like like FHA Secure and the Hope for Homeowners program."