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March 2018
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FHA Loan Outlook for 2011

Few would argue the impact the FHA loan programs have had on the mortgage market in the last four years. With FHA rates at record lows, it’s logical to think that FHA loan originations would increase in 2011. However, a recent report revealed that HUD is forecasting that the Federal Housing Administration will endorse $288.7 billion of single-family FHA loans in fiscal year 2011, a 9.4% decline from FY 2010, which ended September 30. 

Which Way Will Mortgage Rates Go?

Mortgage interest rates continue to hover around the 5% mark. Conforming, FHA and VA mortgage rates all continue to be reported in the low 5 percent range for home loans and mortgage-refinancing. There have been positive signs in the last quarter regarding job losses, the financial markets and even the housing sector, but economic recovery is likely still a few months away, Freddie Mac’s chief economist said today. In an article titled, “Are We There Yet?” the outlook from Freddie Mac’s Frank E. Nothaft for 2010 is mostly positive, although there are cautionary flags ahead – particularly with higher mortgage interest rates and the expiration of home-buyer tax credits.

Most economists will be looking at the aftermath from the government’s winding down of its purchases of mortgage loan backed securities from Freddie Mac and Fannie Mae. By discontinuing its purchase program in April, the central bank is hoping that private buyers of mortgage-backed securities will return, and rates won’t rise much after that. Investors in mortgaged-backed securities have stayed mostly on the sidelines. “U.S. Department of the Treasury MBS purchases were completed by year-end, and Federal Reserve purchases of MBS and Freddie Mac and Fannie Mae debt are scheduled to terminate by the end of the first quarter 2010 – both potentially pose the risk of a rise in mortgage rates relative to benchmark yields,” Nothaft said.

Another potential strain on interest rates is the expiration of tax credits for home buyers. Under the federal program, home purchase contracts must be signed by April 30 to qualify for the tax credits. “The tax credits have likely caused some families to purchase a home earlier than they might have otherwise, thus moving sales forward in time and helping support the housing market. High affordability and improved buyer sentiment further bolster sales,” Nothaft wrote.

So when will we get there? “While there may be some bumps along the way, the transition into economic recovery appears to be underway as we head into 2010: real economic growth in the 3 to 3.5 percent range, a cessation of job losses in the first quarter, rising home sales, and a strengthening of housing starts in some markets,” Nothaft wrote “We should be ‘there’ in the next few months, if not already.” Read the original article online.

Mortgage Rates Rising as US Treasuries Stop Buying Mortgage Securities

A recent article highlighted that the Federal Reserve’s decision to stop buying mortgage loan securities (MBS) should cause an increase in mortgage rates. But that won’t be the only thing driving up long-term interest rates: the Treasury’s trouble going forward in selling debt will also contribute to higher mortgage rates, according to a Morgan Stanley economist. According to Bloomberg, Yields on benchmark 10-year notes will climb about 40% to 5.5%, the biggest annual increase since 1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The surge will push interest rates on 30-year fixed mortgage loans to 7.5% to 8%, almost the highest in a decade, Greenlaw said.

These are very high mortgage rates -and much higher than we’re used to seeing over the past several years. They should cut significantly into the demand for refinancing and even new home purchases. Mortgage rates like that could also worsen the foreclosures crisis, as many adjustable-rate mortgage loans (ARMs) have benefited from historically low interest rates. Once they adjust to near, or over, double-digits, many more homeowners with ARMs will be force to fold. The cause of this increase in home mortgage rates comes from what this economist believes will be a higher yield demanded for government Treasury securities. Those are generally considered risk-free rates, so any mortgage bearing a similar long-term coupon will consist of its default risk premium added to that risk-free rate. FHA guidelines are tightening and most conforming and jumbo loan programs have seen requirements increase for income documentation.

Bloomberg explains that the government debt will become more expensive because of both supply and demand: The U.S. will face increased competition from other debt issuers, spurring investors to demand higher yields as the Federal Reserve ends a $1.6 trillion asset-purchase program, according to James Caron, head of U.S. interest-rate strategy in New York at Morgan Stanley. The central bank was the largest purchaser of Treasuries in 2009 through a $300 billion buyback of the securities completed in October. The Treasury will sell a record $2.55 trillion of notes and bonds in 2010, an increase of about $700 billion, or 38%, from this year, Morgan Stanley estimates. Caron says total dollar-denominated debt issuance will rise by $2.2 trillion in the next year as corporate and municipal debt sales climb. So in addition to the pressure that I mentioned earlier stemming from the Fed’s departure from the MBS market, the broader investment community will likely drive rates higher on long-term debt as well. While bad news for the housing market, this is probably good news for sensible investing.

Mortgage Interest Rates Rise

Mortgage rates on 30-year home loans rose last week and were poised to go higher as investors demanded higher rates for long-term government debt, which is closely tied to FHA mortgage rates.

Freddie Mac said Thursday that average rates on 30-year fixed-rate mortgages rose to 4.91 percent from an average of 4.82 percent the previous week. Rates in Freddie Mac’s survey have been below 5 percent for more than two months. If they rise higher, that will diminish the appeal of refinancing for many borrowers.

The yield on the Treasury’s 10-year note - a key benchmark for home mortgages and other kinds of loans - reached its highest level since November earlier this month. The worry is that rising bond yields could drive mortgage rates higher and also increase the cost of borrowing for businesses. That could short-circuit the nation’s efforts to emerge from a deep recession and the worst housing crisis in decades.

The average rate on a 15-year fixed-rate mortgage rose to 4.53 percent last week from 4.5 percent the previous week, according to Freddie Mac.

Interest rates on five-year adjustable-rate mortgages inched up to 4.82 percent from 4.79 percent while rates on one-year adjustable-rate mortgages fell to 4.69 percent from 4.82 percent.

The mortgage rates do not include points. The nationwide fee averaged 0.7 of a point last week for 30-year and 15-year mortgages, and 0.6 of a point for five-year and one-year adjustable rate loans.


Mortgage Rates Decline as Refinance Applications Rise

Low mortgage rates continue to stimulate refinancing activity and the Obama administration hopes to encourage more first time buyers to seek financing to jump-start the struggling housing markets. Mortgage refinance applications jumped last week, as low mortgage interest rates fueled the increased refinance activity. The Mortgage Bankers Association said Wednesday its weekly application index climbed 21.2 % for the week ended March 13.

KMG Publisher, Jason Cardiff told Mortgage Related News that he anticipates that the FHA mortgage rates could decline to 4.5% or even 4.25%. Cardiff said, “Obama is serious about reviving the cash flow for homeowners on Main St. and the Federal Reserve made another move to pump more blood back into the housing sector.”

The index was 876.9, up from 723.4 a week earlier, the trade group said. Almost 73% of mortgage applications came from borrowers seeking to mortgage refinance loans at reduced interest rates, not home buyers. The lending survey provides a snapshot of mortgage lending activity involving mortgage bankers, commercial banks and thrifts. It covers about half of all new residential home loans made each week. An index value of 100 is equal to the application volume on March 16, 1990, the first week the association tracked it.

Mortgage Rates Rise, Home Refinancing Applications Decline

Unfortunately, not that many homeowners qualify for the low conventional mortgage rates that dipped below 5% a few weeks back. Even FHA home loan programs have experienced changes that require higher credit scores and more equity. Many rejected borrowers remain in search for mortgage modification plans with loan modification agreements that enable existing mortgages to be renegotiated without actually refinancing the mortgage.

Refinancing applications hit their highest levels in years after mortgage rates plummeted to record lows several weeks back, according to the Mortgage Bankers Association. But now that thirty-year fixed rate mortgages have pushed back above 5 %–to still attractive levels–interest in mortgage refinancing appears to be declining.

The Mortgage Bankers Association released its Weekly Mortgage Applications Survey for the week ending January 23, 2009. The Market Composite Index, a measure of mortgage loan application volume, was 732.1, a decrease of 38.8% on a seasonally adjusted basis from 1195.3 one week earlier…

Mortgage interest rates remain at the lowest point in decades and Investment Advisor Jill Schlesinger spoke to Harry Smith about the right time for home-buying.

Home Prices Fall Again Even with Low Mortgage Rates

The Home Refinancing Index declined 48% to 3373.9 from 6491.8 the previous week and the seasonally adjusted Purchase Index decreased 2.9 % to 294.3 from 303.1 one week earlier…The refinance share of mortgage activity decreased to 72.8% of total applications from 83.3% the previous week…The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.22% from 5.24%, with points decreasing to 1.05% (including the origination fee) for 80% loan-to-value (LTV) ratio loans.

Reports Suggest that HUD is Reducing FHA Mortgage Loan Limits for 2009

Rumor has it HUD is set to reduce the FHA home loan limit for 2009 at $625,000 for a single-family home in 48 states. (all states except for Alaska and Hawaii) The common obstacle for homeowners will be getting an appraisal with a value that is higher than your mortgage balances. Even if you do, the sad reality is that most FHA lenders will reduce the value that the licensed appraiser comes up with because they will be factoring the anticipated market decline for the neighborhood.  According to former mortgage executive Scott Hess, “This is a big blow for homeowners that were in position to refinance a jumbo mortgage in 2009.”

The FHA mortgage limit was $362,790 in 2007 and the idea of higher loan limits is that more borrowers in expensive areas will want to use the program to finance and refinance homes — thus improving local sales and prices. However, the number of homeowners impacted by the FHA mortgage loan limits will be lower than originally anticipated because of the economic problems plaguing our nation and the poor performing home mortgages fueling the foreclosure crisis.

“For the August-July period only 2 regions, Cleveland and Boston, had positive returns. Cleveland returned +1.1% and Boston returned +0.1%. Boston has had positive monthly returns for each of the past five months. Dallas and Denver’s streaks of 4+ straight positive returning months ended in August. San Francisco was the biggest decliner for the month returning -3.5%. This worsened from its July/June return of -1.8%. From August 2007 to August 2008, Dallas and Charlotte have the best relative performance. Even Dallas has declined 2.7% over the year and Charlotte, North Carolina dropped 2.8%.”