PIH Notices

2012-04 Effective
Use of the Enterprise Income Verification (EIV) System’s Deceased Tenants
Report to Reduce Subsidy Payment & Administrative Errors
2012-02 Guidance
on Public Housing Operating Funds
(Repost)

Mortgage Rates Return To Historic Lows Following FOMC Announcement

Mortgages Rates spent 2 days at 4.0% in terms of rounded average “Best-Execution” rates (for detail on what that means, READ THIS POST from a few days ago).  Today, that rounded average has returned to 3.875%.  Although the underlying average isn’t as low as it’s ever been (3.88 vs 3.82), lenders tend to price loans in 1/8th (.125%) increments, meaning that 3.875% has been the lowest sustainable best-execution rate.  In short, we’re back to the promised land. 

The improvements came on the heels of today’s FOMC Announcement (Federal Open Market Committee or simply “The Fed”) which surprised some market participants with it’s inclusion of new verbiage describing how long the Fed anticipated that it would keep its “Fed Funds Rate” at so-called “exceptionally low levels.”  Until today, this verbiage read “through mid-2013,” but is now changed to “through late-2014.”  Markets weren’t necessarily expecting the inclusion of the word “late,” and although mortgage rates would have likely improved with a simple mention of 2014, the “late” part added fuel to that fire.  

While this indeed breaks the sideways trend at higher rates over the past 2 days, it’s up to the rest of the week to solidify the rebound.  In essence, markets will have an opportunity to respond to the eternal question: “is that your final answer.”  While the data through the end of the week doesn’t possess the gravity of today’s FOMC announcement, it could be enough to nudge the Best-Execution rate back to 4.0% depending on how it’s received.  In that sense, the risk posed by one singular event today is replaced by the risk posed by a group of events tomorrow and Friday.  3.875% is just barely back in the picture today, but it’s too soon to say whether or not the past two days at 4.0% were the exception to a long-term trend, or the beginning of a new one. 

Today’s BEST-EXECUTION Rates

  • 30YR FIXED –  3.875% mostly, with a few lenders at 4.0% still
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.375% and more 3.25’s
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • There are technical reasons for that as well as fundamental reasons
  • Lenders tend to get busier when rates are in this “high 3’s” level
    and can throttle their inbound volume by raising rates or costs.
  • While we don’t necessarily think rates are destined to go higher,
    given the above facts, there seems to be more risk than reward regarding
    floating
  • But that will always be the case when rates
    operating near historic lows

…(read more)

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Think Tank Measures FHA Progress

The American Enterprise Institute’s
(AEI) FHA Watch, a monthly on-line
publication tracking operations of the housing agency, just released its sixth
edition which makes clear the agenda of the conservative think tank.

Watch starts out by
quoting a Federal Reserve estimate that about one-third of the 11.1 million
underwater mortgages in the U.S. are FHA insured, a number which would account
for nearly half of FHA’s 7.4 million outstanding loans.  The Institute concludes that, since about 72
percent of outstanding FHA loans are of post 2009 vintage, about 1.5 million
recent loans must be underwater. 

“This comes as no surprise,” Watch
says, “since the FHA continues to combine minimal down payments (average of 4
percent) with slowly amortizing thirty-year loan terms. As a result, earned
homeowner equity (the combination of down payment and scheduled loan amortization)
amounts to less than 10 percent after four years, or about enough to sell a
home at the break-even point if home prices stay steady. However, prices have
declined nationally about 7 percent since mid-2009, with lower-priced homes
declining even more. When combined with borrowers’ low FICO scores and high
debt-to-income (DTI) ratios, the result is a continuation of the FHA’s
destructive lending-lending that has resulted in 20-25 percent of recent
borrowers facing a 10 percent or greater likelihood of foreclosure.”

In addition to the opening statement, Watch spotlights the following topics:

  • Insolvency: FHA’s Position Worsened in May, with an
    Estimated Current Net Worth of $22.11 Billion and a Capital Shortfall of $41-61
    Billion.
  • Delinquency: Total Delinquency Rate Increased in May to
    16.23 Percent Because of Increase in Both Thirty- and Sixty-Day Delinquencies;
    Serious Delinquency Rate Ticked Up to 9.43 Percent.
  • Underwater
    Loans: FHA Is Responsible for 1.5
    Million New Underwater Loans.
  • Best Price Execution:
    The Government Mortgage Complex’s Ginnie Brands Demonstrate Continued
    Pricing Dominance over Fannie Mae.
  • The Road Map to FHA Reform: Specific Steps to Reform and the Status
    of Each

The last category sets forth AEI’s goals
for program reform and fiscal reform, steps for accomplishing each, and a
report card on the progress made by FHA and Congress toward the goals.  AEI’s goals for Program Reform are:

  1. Stepping back from markets that the private
    sector can serve to gradually return to a “traditional”10 percent home purchase
    market share.
  2. Stop
    knowingly lending to people who cannot repay their loans.
  3. Help
    homeowners establish meaningful equity.
  4. Concentrate
    on homebuyers who truly need help purchasing their first home.

The only recent improvement acknowledged
by AEI in this area occurred in February with a proposed rule that limits
seller concessions to the greater of 3 percent of the loan or $6,000.  More than a dozen other steps have not been
acted on by the agency.

The Institute has set the following
goals for FHA to achieve in the area of fiscal reform:

  1. Utilize generally accepted accounting
    principles and set rigorous disclosure standards;
  2. Establish and maintain loan loss and unearned
    premium reserves;
  3. Establish and maintain a minimum capital
    requirement of 4 percent of amortized risk in force;
  4. Fund a countercyclical premium reserve.

AEI found that FHA had made a small
amount of progress in this area by requiring application of SEC disclosure
standards to the FHA’s insurance programs and funds and by taking steps toward
retaining an independent third party to conduct a safety and soundness review
under generally accepted accounting standards. 
There was no acceptable progress on the six remaining steps.

…(read more)

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Regulators Tell GSEs to Assist Military with Short Sales

Both Freddie Mac and Fannie Mae will be offering additional
consideration to military personnel who may be facing problems with their
mortgage
due to service related orders. 
The two GSEs were directed to address
mortgage servicer practices that pose risks to home owning service members and
to ensure compliance with applicable consumer laws and regulations. The “guidance” came from regulators the
Federal Reserve, Consumer Financial Protection Bureau, Federal Deposit
Insurance Corporation and other regulators.

The guidance pertains to risks faced by homeowners
who have received Permanent Change of Station (PCS) orders, that is have been
ordered by the military to relocate to a new duty station or base.  Such orders are received by about one-third
of active-duty service members each year.

PCS orders are non-negotiable and carry short, strict
timelines.  Homeowners with such orders,
however, are still obligated to honor their financial obligations including
their mortgages.  In the current
environment, with so many homes underwater, these service members may be unable
to sell their homes and obtain sufficient funds to pay off the mortgage debt
and may have to continue mortgage payments while making rent or other housing
payments in their new location.

Under the new guidelines, receipt of a PCS will be
treated as a hardship
for the purpose of qualifying for a short-sale even if the
homeowner is current on the existing mortgage. 
Military with PCS who complete a short sale will be exempt from
deficiency judgments from Fannie Mae and Freddie Mac and relieved of any
request or requirement to contribute cash to the sales proceeds or to sign a
promissory note for any outstanding balance as long as the property was
purchased on or before June 30, 2012.

In addition to holding PCS order, the homeowner must
have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac to be eligible
for the program.  The status of the
mortgage can be current or delinquent.  Freddie
Mac and Fannie Mae were instructed by regulators last year to treat PCS orders
as a hardship for purposes of modifications and forbearance.

Paul
Mullings, Freddie Mac’s Interim Head of Single Family Business and
Information Technology said, “Freddie
Mac is proud to support this important new effort to help servicemen and women
when national duty requires them to sell their homes in an uncertain
market.  We look forward to working with our servicers on this new short
sale policy.  Together we can help ease the challenge of relocation for
military families when Permanent Change of Station orders are
received.” 

The Federal Housing Finance Agency
said it would provide final guidance by September 30 and the short-sale reforms
would be effective 60 days later.

…(read more)

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