Oct. 3, 2007: FHA down payment assistance elimination, and more industry-news (some good!)

Oct. 3, 2007: FHA down payment assistance elimination, and more industry-news (some good!) Rob Chrisman

Two brooms were hanging in the closet and after a while they got to know each other so well, they decided to get married. One broom was, of course, the bride broom, the other the groom broom. The bride broom looked very beautiful in her white dress. The groom broom was handsome and suave in his tuxedo. The wedding was lovely. After the wedding, at the wedding dinner, the bride-broom leaned over and said to the groom-broom, “I think I am going to have a little whisk broom!!!”   “IMPOSSIBLE!!” said the groom broom.   (Are you ready for this? Brace yourself; this is going to hurt.) “WE HAVEN’T EVEN SWEPT TOGETHER!”  

According to the Washington Post, the FHA will prohibit borrowers from using seller-financed down payment assistance programs. Such programs allow home sellers to give money to charities, which in turn assist buyers with their down payments. The sellers pay the charities a service fee, but often recoup the money by charging a higher price for the homes, usually 2 or 3 percent more, or an amount equal to the down payment, according to the Government Accountability Office. The rule, which is little changed from a preliminary version put out for comment in May, will go into effect 30 days after publication. The GAO study found that borrowers receiving assistance from the charities were more than twice as likely to default or become delinquent than other FHA borrowers were. In a ruling last year, the IRS went so far as to call the seller-financed programs “scams,” accusing the charities of inflating home prices. “Down payment assistance programs administered by charities have unfortunately been an area where my investigations and the IRS have found a great deal of abuse,” said one senator who has pushed for changes.

It appears that some liquidity is coming back into the MBS market. Yesterday Citi announced improvements to their nonconforming fixed pricing, effective today: 15-yr 25 bps price improvement, 30-yr 75 bps price improvement.

Net branch operator Aapex Mortgage of Florida (who had 4,000 locations at their peak) shut its doors over the weekend after allegations began to mount that it had not paid some of its managers for 30 days, industry officials have confirmed to MortgageWire.

Morgan Stanley is cutting 600 jobs to offset a decline in mortgage-related revenue: 500 in the U.S. and about 100 in Europe. Morgan Stanley took a bigger role in mortgages in December, just as the subprime crisis was unfolding, when it bought Saxon Capital Inc. for $705 million.

Yesterday the only piece of economic news, and even that is a stretch, was August’s “pending home sales”, which fell a sharp 6.5%. This followed July’s 10.7% decline. Pending home sales have collapsed over the past few months, according to the National Association of Realtors (who began tracking this in 2001) and are now down a cumulative 25% from the end of last year, attributed to tighter lending standards, higher borrowing costs, and depressed buyer sentiment. But it was enough to cause a nice improvement in yields, and this morning the 10-yr is back down to 4.52%

In the press there is increasing notice of “predatory borrowers”: individuals who have treated their homes like bottomless ATM machines and have played the housing game like “Wheel of Fortune.” These borrowers purchased homes with little money down, with perhaps no income verification, and at debt levels they knew they could not sustain if their homes did not continue to appreciate. Compared to inebriated bar patrons who blame the bartender for serving them too much, a segment of today’s borrowers willfully chose to borrow beyond their means and are now blaming the lender. Predatory lenders who duped unsophisticated borrowers are being punished, but most feel that the system should not come to the rescue of “predatory borrowers”. One editorial suggested, “It is time to separate the true victims of the housing meltdown from those who created their own house of cards. If homeowners own multiple properties, they should be excluded from government help, and the same should apply to those who have refinanced their mortgages to pull the maximum dollars out of their homes.”

There was a rumor that “Chelsea Clinton was asked who she feared more, Osama, Obama, or ‘yo-mama’”. I don’t think that the rumor is true.