FHFA revises HARP to help more borrowers

The Federal Housing Finance Agency, along with Fannie Mae and Freddie Mac, on Monday announced changes to the Home Affordable Refinance Program (HARP) to help more borrowers.

The program will continue to be available to borrowers with loans sold to Fannie Mae and Freddie Mac on or before May 31, 2009, with current loan-to-value (LTV) ratios above 80 percent.

The new program enhancements address several other key aspects of HARP including:

• Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
• Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
• Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;
• Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises; and
• Extending the end date for HARP until Dec. 31, 2013, for loans originally sold to the Enterprises on or before May 31, 2009.

Fannie and Freddie plan to issue guidance with operational details about the HARP changes to mortgage lenders and servicers by Nov. 15. Since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers and other market participants modify their processes.

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After a rejection

Some borrowers think that because their mortgage application is turned down the first time, they won’t ever be approved. In reality, some borrowers succeed on the second or third attempt, usually with a different mortgage professional, and often several months later, after they have saved more money for a larger down payment or improved their credit score.

Making sense of the story

• Before reapplying for a mortgage, borrowers are advised to look at the reasons they were initially rejected.
  
• The Equal Credit Opportunities Act requires lenders to give loan applicants specific reasons in writing within 30 days of their decision. If it’s based on a problem in the borrower’s credit report, the lender must tell the borrower the name and address of the credit agency that provided the information.
  
• Talking to the loan officer who denied the application to see how close the borrower was to being approved also can be helpful. Sometimes the gap is small and could be bridged with a larger down payment or another home appraisal, for example.
  
• It also may be worthwhile to shop around for other lenders. Borrowers can work with a mortgage broker or an online network like LendingTree or Zillow’s Mortgage Marketplace.
  
• A credit union also might be a better bet for some applicants. Credit union loan committees may permit better deals for longtime members; they might also modify loan terms for borrowers they already know.
  
• However, first-time buyers may need to scale back their aspirations. One reason people get turned down for a mortgage is because they try to buy more property than they can afford based on current incomes.
  
• Applicants also should look at ways to strengthen their financial picture. If a borrower’s credit is poor, paying down credit-card balances can help to increase a FICO score.

Existing Home Sales Climb, Inventories Fall:

Sales of previously occupied homes (the largest segment of all home sales) increased by 11.3% on a year-over-year basis according to the National Association of Realtors. Sales did decrease 3% from the previous month which was close to market expectations.

Inventories declined 2% to 3.48 million units, representing 8.5 months of supply at current sales rates.

"It’s in a holding pattern. When it does break out, it will break out upward, but it hasn‘t broken out yet,“ said Lawrence Yun, chief economist of the NAR. A separate report from the Labor Department showed that rent of primary residences is up 2.1% on a year-on-year basis. In time, rising rents should help boost sales of homes, Yun said.

Distressed home sales fell from 31% to 30%. All Cash Sales held steady at 30% suggesting continued interest by investors, and first-time home buyers accounted for 32% of the sales.

This report certainly didn't show the housing market taking off, but it did have some bright spots which is welcome news as we continue our slow climb out of the bottom.

Economic growth expected to be no greater than 2 percent through 2012

Economic growth is expected to be no greater than 2 percent through the end of 2012 – a growth rate that makes the economy very vulnerable to any external shock that could trigger a downturn, according to Fannie Mae’s Economics & Mortgage Market Analysis Group. External factors, coupled with uncertainty surrounding the degree of domestic fiscal austerity, including the scheduled expiration of various tax cuts and unemployment benefits, and the impact of forthcoming regulations, will determine how fast the economy will grow.

“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,” said Fannie Mae Chief Economist Doug Duncan.

“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,” Duncan stated.

Foreclosure starts decline in September

Following a steep spike in August, foreclosure starts returned to levels more in line with prior months in September, and were below the numbers reached at the peak. California has seen a drop in activity of 56 percent since its peak, from 58,623 Notice of Default filings in March of 2009 to 25,778 today.
Foreclosure sales were mixed in September, with declines in Arizona, California and Nevada, while Oregon and Washington both showed increases. Despite the declines, the percentage purchased by third parties, typically investors, was at or near peak levels. In California, third parties made up a record 27.4 percent of all sales last month.

California statistics:
• Foreclosure starts declined 20.9 percent
• Foreclosure sales declined 23.3 percent
• Foreclosure timeframes declined 3.9 percent

Retail Sales Strongest Rate Since February:

Headline Retail Sales for September increased at a rate of 1.1% which more than doubled market forecasts of 0.5%. The Core Retail Sales (this excludes autos) also increased more than expected. It came in at 0.6% which was three times better than the market forecasts of 0.2%.

This is very important for the housing market because housing demand is very closely tied to consumer confidence. This brings up a very interesting point. Various consumer sentiment and consumer confidence reports have shown a recent dip in their readings. So, consumers are telling the survey takers that they feel less positive about the economy and that they are less willing to spend money. But those reports are based upon surveys.

Retail Sales are based upon real and actual sales. And clearly, consumers are spending more which means their economic outlook is positive and that is always a positive for the housing market.

Triggers for rejection

Last year, more than two million people were turned down for homes, according to federal data, often because the applicants didn’t meet certain lender requirements or because their applications were incomplete or otherwise problematic. With lenders’ underwriting criteria becoming more rigorous in recent years, it’s important buyers know the most common triggers for mortgage-loan rejection.

Making sense of the story

• Insufficient income: Lenders want to be sure borrowers can afford to make the mortgage payments. Lenders typically look for at least a two-year track record of income, which could hurt those who have changed jobs recently.
  
• Cloudy financial picture: Generally, total debt payments, including the mortgage, cannot exceed 45 to 50 percent of a borrower’s adjusted gross monthly income. Overtime and bonuses are included only if the borrower has worked for the same employer at least two years, and has a history of receiving them.
  
• Poor credit: Lenders typically reject applicants with FICO scores below 620.
  
• Low appraisal: One of the predominant reasons buyers are turned down for home loans is because the appraisal on the property is too low. A buyer may think he or she is purchasing a house worth $800,000, but if the appraisal comes in less than that, the lender will not loan the borrower the money.
  
• Property problems: Sometimes issues turn up within a house, like a major repair or safety issue that needs to be addressed, before an application can be approved.
  
• Information mix-ups: Approximately 12 percent of new mortgage applications were denied because of unverifiable information or incomplete credit applications, according to the Federal Financial Institutions Examination Council.

Americans pessimistic about economy, home prices, household finances

Fannie Mae’s September National Housing Survey found that Americans are still very pessimistic about the economy, home prices, and household finances.  Findings also demonstrate that consumers are paying close attention to economic news and what policymakers are saying, and continue to link their personal financial situations with the current macro-economic environment.

“The lack of a sense of urgency to buy homes, given expectations for further declines in home prices and continued low mortgage rates, coupled with general pessimism regarding their own personal finances and the economy, bodes poorly for the recovery of the housing market,” said Doug Duncan, vice president and chief economist of Fannie Mae.

Highlights of survey include:

Americans noted a very large decline in their expectation for mortgage rates in September, with only 33 percent saying that mortgage rates will go up in the next 12 months (down 12 percentage points since August – the lowest number on record).
For the fourth consecutive month, Americans expect home prices to decline over the next year. On average, Americans expect home prices to go down by 1.1 percent, the highest expected decline to date. 
Only 18 percent of respondents expect home prices to increase over the next 12 months (the lowest reported number to date in the National Housing Survey), while 25 percent say they expect home prices to decline (down by 2 percentage points since August).
While 68 percent of Americans say it is a good time to buy a home (down 1 percentage point since last month), only 10 percent of those polled say it is a good time to sell one’s home (up by 1 percentage point since August).
Despite continued consumer caution about taking on a large financial obligation to buy a home, 63 percent say they would buy their next home if they were going to move (up by 1 percentage point since August), while 32 percent of Americans say they would rent their next home (down 2 percentage points since last month).
The number of Americans who expect their personal financial situation to worsen over the next year has decreased for the first time in four months (down from 22 percent in August to 19 percent in September).

Employment Picture Brightens:

While unemployment levels will continue to be a major concern and a drag on our economy, several reports showed some improvement last week.  This is the single biggest factor in housing.  Regardless of interest rates - people simply don't purchase homes when they are unemployed or are concerned about their employment picture.  This is why the following data is welcome news for the housing industry.

The headline unemployment rate remained unchanged at 9.1%, however economists are focusing on the improvement in the non-farm payroll data.

Non-farm Payrolls jumped up to 103K in September, from the revised previous month's result of 57K, the U.S. Department of Labor reported. The results considerably exceeded forecasts of 73K growth. The change in total non-farm Payroll employment for July was also revised upward from 85K to 127K.

Average Hourly Earnings increased to 0.2% in September, following a 0.2% drop in August. On an annual basis Average Hourly Earnings remained flat at 1.9% for the second consecutive month in September.

Average Weekly Hours increased to 34.3 in September from 34.2 in August, despite forecasts of remaining at the same level.

In a separate report, the ADP Private Payroll data which measures U.S. non-farm private business sector hirings increased by 91K in September, after rising 89K in August. This was higher than market forecasts of only a 75K increase.

Construction spending rises in August

Construction spending rose 1.4 percent in August to a seasonally adjusted annual rate of $799.1 billion compared with July’s estimate of $788.3 billion, according to the U.S. Census Bureau of the Dept. of Commerce. The August figure also is 0.9 percent above the August 2010 estimate of $791.7 billion.

Residential construction was at a seasonally adjusted annual rate of $237.8 billion in August, 0.7 percent above the revised July estimate of $236.2 billion.

Pending home sales decline nationwide in August

NAR’s Pending Home Sales Index (PHSI) declined 1.2 percent to 88.6 in August from 89.7 in July, but is 7.7 percent above August 2010. The Index is a forward-looking indicator based on contract signings. The data reflects contracts, but not closings.

The PHSI in the Northeast fell 5.8 percent to 63.6 in August, but is 1.3 percent higher than August 2010. In the Midwest, the index declined 3.7 percent to 76.2 in August, but is 8.2 percent above a year ago. Pending home sales in the South rose 2.6 percent to an index of 96.9 and are 7.6 percent higher than August 2010. In the West, which includes California, the index declined 2.4 percent to 108.1 in August but is 10.5 percent above a year ago.

“We continue to experience a pattern in which financially qualified home buyers, willing to stay well within their means, are being denied credit – a factor in elevated levels of contract failures,” said Lawrence Yun, chief economist for NAR. “Based on the improving fundamentals of population growth, some job additions, rent increases and higher stock market wealth, we should be seeing existing-home sales closer to 5.5 million, but are expecting just over 4.9 million this year. The unnecessarily restrictive mortgage underwriting standards are attenuating the housing recovery and are a risk factor for the overall economy.”

U.S. to lower the size of mortgage it will guarantee

The current conforming loan limit, which determines the maximum size of a mortgage that the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac can buy or guarantee – is set to expire Friday, Sept. 30.

Making sense of the story

• Beginning Oct. 1, the conforming loan limit will decline to $625,500, from the current $729,750 limit, though the majority of counties will fall far below the $625,500 maximum.
  
• Non-conforming or jumbo loans typically carry a higher mortgage interest rate than a conforming loan and require a higher down payment, increasing the monthly payment and negatively impacting housing affordability for California home buyers.
  
• Under the new GSE loan limits, Monterey County would see the greatest drop in the loan limit at $246,750, followed by San Diego ($151,250), Sonoma ($141,550), Solano ($140,500), and Napa ($137,500) counties.
  
  
• Under the new FHA loan limits, Monterey County would see the greatest drop in the loan limit at $246,750, followed by Merced ($201,450), Riverside ($164,650), San Bernardino ($164,650), Solano ($157,300), and San Diego ($151,250) counties.
  
• The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) estimates that more than 30,000 California home buyers statewide will be impacted by the change to the conforming loan limits.
  
• In anticipation of the conforming loan limit decline, some banks already have stopped accepting conventional and government applications for loan amounts that exceed the new permanent loan amounts.

California pending home sales increase in August

California pending home sales climbed in August from both the previous month and year, the C.A.R. reported this week. The year-to-year increase was the highest level since July 2009.
Pending home sales in California rose 7 percent from July, according to C.A.R.’s Pending Home Sales Index (PHSI). The index was 125.3 in August, up from July’s index of 117.1, based on contracts signed in August. The index was up 12.6 percent from August 2010. Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market.

The report also includes information on distressed properties. In August, the total share of all distressed property types sold statewide inched up to 43.7 percent from July’s 42.9 percent. The share of distressed sales was lower from a year prior, when distressed sales totaled 44.5 percent of all home sales. Of the distressed properties sold statewide, 18.9 percent were short sales compared with July’s 17.5 percent share and last August’s share of 19.3 percent.

The share of REO sales was down from both July and a year ago. REOs made up 24.4 percent of sales in August, down from 25.2 percent in July and 24.7 percent in August 2010. Non-distressed sales made up the remaining share of home sales in August at 56.3 percent, down from 57.1 percent in July and 55.5 percent in August 2010.