Dec. 15, 2008: FHA clarification, Fannie’s mod program, rates steady to begin the last full week of 2008

Dec. 15, 2008: FHA clarification, Fannie’s mod program, rates steady to begin the last full week of 2008 Rob Chrisman

Every morning, when I put on my socks and shoes, my dog is driven into a frenzy since it means a walk in the neighborhood. She leaps around, yips, begins to pant, her eyes open wide, and she races around the house. A similar thing happens to loan agents when you mention the words “refinance boom”. But will that really happen (the refi boom, not the behavior)? It seems that every agent out there has a stack of loans on their desk with “just one thing wrong with them”, and the one thing wrong is usually not the rate. But mortgage companies across the nation are reporting great lock days, and there’s a new bounce in the step of mortgage company owners. After all, headlines are telling everyone that mortgage rates are almost at a 5-year low!

Here is some clarification of FHA information. “Effective with case numbers assigned on or after January 1, 2009, borrowers for FHA purchase transactions are required to make a 3.5% down payment.  As a result, the maximum LTV without the upfront mortgage insurance premium will be 96.5%.  The LTV, including upfront mortgage insurance, may not exceed 100%.  The base loan amount before upfront mortgage insurance may never exceed FHA’s maximum mortgage limit for the county in which the property is located. Closing costs may not be used to help meet the 3.5% down payment requirement. The 96.5% LTV is calculated using the lesser of the appraised value or purchase price. FHA will continue to permit premium pricing to pay the closing costs and prepaid expenses. When combined with the FHA first mortgage, government subordinate liens are not limited to 100%.  When a unit of government or an instrumentality of one is offering down payment and/or closing costs assistance in the form of secondary financing, the CLTV can exceed 100% of the appraised value.”

Fannie introduced their Streamlined Modification Program, which begins today. Servicers (which are usually not the same as originators) will use a streamlined loan modification process to help eligible borrowers. The SMP applies to borrowers who have missed at least three monthly payments on their existing mortgages. To be eligible, criteria include conforming conventional or jumbo conforming mortgage loans originated on or before January 1, 2008; at least three payments past due; limited to one-unit properties that are the borrower’s primary residence; current mark-to-market LTV of 90 percent or more; and the property cannot be abandoned, vacant, condemned or in a serious state of disrepair. Servicers may modify eligible borrowers’ mortgage loans in order to reduce their monthly mortgage payments to an amount equal to 38% of their monthly gross income with actions in the following order: capitalize accrued interest, escrow advances and costs, if allowed by state law;  extend the term of the mortgage loan by up to 480 months; reduce the mortgage loan interest rate in increments of .125% to a fixed rate that is not less than 3% (if this exercise results in a below market rate, it will, after 5 years, step up in annual increments to a market rate); and, as a last resort, provide for principal forbearance, which will result in a balloon payment fully due and payable upon borrower’s sale of the property or payoff or maturity of the loan.  

Getting back to interest rates for a moment, late in the morning on Friday we had the University of Michigan Consumer Sentiment Index, which improved from its 28-year low to a level of 59.1. We also had Business Inventories decline .6% in October. But mostly we were watching the stock market, and the continuing drama with the auto industry bailout. Yields continued to fall on two- through 30-year U.S. securities as investors got out of equities. Today we’ve already had the NY Empire State Index. Stay tuned later for Capacity Utilization and Industrial Production for November. Tomorrow we will see Housing Starts and Building Permits, along with the Consumer Price Index. Later tomorrow we’ll have the Fed meeting wrapping up (expect a .5% cut in overnight rates down to .5%), along with their announcement on overnight rates. Thursday we have the usual Jobless Claims, along with Leading Economic Indicators and the Philly Fed Survey. Currently mortgage prices are unchanged from Friday afternoon’s levels, and the 10-yr seems content in the mid-2.50% area.

The Bush administration dropped its opposition to using the $700 billion bank bailout to provide financing for U.S. automakers after the Senate last week failed to approve emergency loans. “Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry.” There is nothing definitive yet this morning. The administration said that under normal economic conditions they would prefer that markets determine the ultimate fate of private firms, which makes sense, but in this case, given the current weakened state of the U.S. economy, they will consider other options if necessary.

Speaking of unusual measures, the Treasury is considering using Fannie Mae and Freddie Mac, to somehow reduce 30-year fixed home-loan rates to around 4.5 percent, from an average of about 5.54 percent currently. People in the industry don’t quite see how Fannie and Freddie would buy mortgages at the lower rate from lenders, but you never know. The government would then purchase securities issued by Fannie and Freddie that were backed by the loans.

As a way to conserve fresh drinking water, a number of conservation groups are now calling for an end to toilets that flush. To which gas station owners say, "We are way ahead of you. We’ve been doing that for years."