By Tami Luhby, senior writerJanuary 19, 2010: 11:47 PM ET
NEW YORK (CNNMoney.com) -- It's going to be harder to get a government-backed mortgage from now on.
Looking to shore up its weakening finances, the Federal Housing Administration is set to announce stricter standards on Wednesday.
The agency, which insured nearly a third of new mortgages in 2009, will increase the premium it charges for its mortgage insurance and require those with weaker credit scores to come up with larger downpayments.
The FHA will also reduce the amount of money a seller can provide a homebuyer for closing costs, as well as tighten its enforcement of lenders.
"Striking the right balance between managing the FHA's risk, continuing to provide access to underserved communities, and supporting the nation's economic recovery is critically important," FHA Commissioner David Stevens said in a statement. "Importantly, FHA will remain the largest source of home purchase financing for underserved communities."
FHA loans have skyrocketed in popularity during the mortgage crisis since the agency backstops banks if borrowers stop paying. But housing experts are growing increasingly concerned about the agency's ability to handle rising numbers of defaults. (Cash cushion shrivels for FHA.)
In November, the agency reported that its reserve fund has dropped to .53% of its insurance guarantees, well below the 2% ratio mandated by Congress and the 3% ratio it had last fall. The fund covers losses on the mortgages the agency insures.
Federal housing officials, who took several steps to shore up the agency's finances last year, promised to do more. The new announcement is the latest set of changes to FHA policies.
What the new rules mean
The agency will increase its up-front mortgage insurance premium to 2.25%, from 1.75%. It will also ask Congress for the right to hike its ongoing premium, currently between .5% and .55% monthly.
The FHA will also require borrowers to have at least a credit score of 580 to qualify for the agency's 3.5% downpayment program. Those with lower scores will have to pay at least 10%. However, this rule may have little practical effect since Stevens recently said the average borrower score is 693.
The new policy also will reduce the amount of money sellers can provide to homebuyers at closing to 3%, down from 6%, of the home's price. That change will bring the agency in line with industry standards and remove the incentive to inflate appraisals.
Finally, officials plan to clamp down on lenders offering FHA mortgages. It will more closely monitor their performance and compliance with agency rules, as well as seek legislative authority to require mortgage firms to assume liability for all loans they originate and underwrite.
One thing the agency did not do is to broadly increase the downpayment requirement. Many industry observers said such a step is necessary to reduce the risk the FHA faces.
Agency plays crucial role
As banks have clamped down on mortgage lending, the FHA program has emerged as one of the few ways people can buy a home.
Banks are more willing to make FHA loans because they come with a federal guarantee to cover losses if the borrower defaults. And borrowers can more easily qualify for FHA loans because they only need 3.5% down and can have lower credit scores.
As a result, demand for FHA loans has exploded. The agency guaranteed more than $360 billion in single-family mortgages in fiscal 2009, which ended Sept. 30, more than four times the volume in 2007.
The agency insured about 30% of home purchases and 20% of refinanced mortgages in 2009. Nearly 50% of first-time homebuyers go through the agency.
The agency, however, has also seen a spike in delinquencies amid the mortgage meltdown. Some 14.36% of FHA loans were past due in the third quarter, according to the Mortgage Bankers Association. This compares to 9.64% of all loans.
Wednesday, January 20, 2010
Thursday, December 31, 2009
Jobless claims fall
By Hibah Yousuf, staff reporter
December 31, 2009: 9:28 AM ET
NEW YORK (CNNMoney.com) -- The number
of Americans filing first-time claims for
unemployment insurance fell sharply last
week to the lowest level in 17 months, the
government said Thursday. Analysts had
expected an increase.
There were 432,000 initial jobless claims
filed in the week ended Dec. 26, down 22,000
from the previous week's revised 454,000,
the Labor Department said. The figure is the
lowest since July 19, 2008, when there were
413,000 claims filed.
A consensus estimate of economists
surveyed by Briefing.com expected claims to
jump to 460,000.
The 4-week moving average of initial claims
totaled 460,250, down 5,500 from the
previous week's revised average of 465,750.
"It's encouraging to see that we're
continuing to move in the right direction
toward 400,000 claims," said Tim Quinlan,
economic analyst at Wells Fargo. "We're
certainly off the highs we saw earlier this
year.
Jobless claims have been trending downward
since the end of March, when they peaked at
674,000, the highest figure since 1982.
December 31, 2009: 9:28 AM ET
NEW YORK (CNNMoney.com) -- The number
of Americans filing first-time claims for
unemployment insurance fell sharply last
week to the lowest level in 17 months, the
government said Thursday. Analysts had
expected an increase.
There were 432,000 initial jobless claims
filed in the week ended Dec. 26, down 22,000
from the previous week's revised 454,000,
the Labor Department said. The figure is the
lowest since July 19, 2008, when there were
413,000 claims filed.
A consensus estimate of economists
surveyed by Briefing.com expected claims to
jump to 460,000.
The 4-week moving average of initial claims
totaled 460,250, down 5,500 from the
previous week's revised average of 465,750.
"It's encouraging to see that we're
continuing to move in the right direction
toward 400,000 claims," said Tim Quinlan,
economic analyst at Wells Fargo. "We're
certainly off the highs we saw earlier this
year.
Jobless claims have been trending downward
since the end of March, when they peaked at
674,000, the highest figure since 1982.
Wednesday, December 30, 2009
Latest Case-Shiller Housing Report and Its Ramifications: Seeds of a 2010 Crisis?
On a seemingly quiet news and market day just before the New Year’s Holiday, the key news item of December 29th, the Case-Shiller Home Prices index, drew little attention. However, commentary suggests that the data (for October) implies that demand, though only in line with expectations, was pushed forward by government tax credits and is likely to fade when these expire in mid 2010, unless of course it is extended yet again. The options are not tempting:
If the credit expires, housing demand is likely to drop off, especially because much of the prior purchases were simply pushed forward to exploit the temporary tax credit, robbing the market of future demand. Ramifications for jobs, spending would be negative.
However, if the credit is extended, that would be a form of stimulus spending which would pound the already weak USD, which in turn could start a nasty downward spiral and double-dip/ ‘W” shaped “recovery” as it means:
1. Rising Long Term Treasury Yields: A weakening dollar hurts US Treasury bond demand and thus forces rising long term rates needed to peddle the stuff. We’re already seeing this happen.
2. Rising Mortgage Rates: That, in turn, would drive up new mortgage rates. Worse, it would mean that the waves of Adjustable Rate Mortgages due to reset would only go higher in 2010-2011.
3. Rising Default Rates and Declining Real Estate Prices: Mortgage reset rates, already set to rise, would become that much higher, bringing that many more defaults and troubles for the critical banking and housing, sectors. Note that current studies suggest the vast majority of mortgage holders, particularly those with mortgages under 15 years old, have zero or negative equity in their homes due to declining house prices. Add to this witches brew of continued job losses or even just wage stagnation combined with rising mortgage costs, and we get higher default rates, both residential and commercial, as both forced and “strategic” defaults grow (see Jingle Mail: Strategic Mortgage Defaults Could Increase Dramatically in 2010 for more on this).
4. Renewed Housing and Banking Sector Crisis: Rising default rates, already rising, further weaken the already troubled banking and housing sector with asset write downs and further declines in property values as more inventory hits an oversaturated market. Remember, the housing and banking sectors lead us into the crisis, into the current rally, and are essential for any sustained recovery.
5. The Feared “Double Dip Recession”: Further downturns in these sectors would thus likely send stock and other risk asset markets tumbling. Unless there are more bailouts, which in turn hits the USD again…? (Go to item 1 above and repeat).
The other key upshot was the observation in Parsing the Latest Data from S&P/Case-Shiller that the prior housing decline in the 90s lasted about 8 years, and that was against a better economic background filled with the rise of growth fueling technologies like cell phones and the internet. The current housing mess is only a bit over 2 years old, and is against the backdrop of a weaker, more debt laden government and economy. This suggests the housing market--and thus the banks, and thus the economy--is likely to be struggling for years to come.
Hope I’m wrong on this, and the above is far from certain. If nothing else, deeper troubles in the EU and elsewhere could keep up demand for the USD and thus US debt as the USD wins this contest of the least ugly. In forex, all is relative, and the least ugly currency wins just as well as the prettiest one.
Author's Disclosure: No Positions
If the credit expires, housing demand is likely to drop off, especially because much of the prior purchases were simply pushed forward to exploit the temporary tax credit, robbing the market of future demand. Ramifications for jobs, spending would be negative.
However, if the credit is extended, that would be a form of stimulus spending which would pound the already weak USD, which in turn could start a nasty downward spiral and double-dip/ ‘W” shaped “recovery” as it means:
1. Rising Long Term Treasury Yields: A weakening dollar hurts US Treasury bond demand and thus forces rising long term rates needed to peddle the stuff. We’re already seeing this happen.
2. Rising Mortgage Rates: That, in turn, would drive up new mortgage rates. Worse, it would mean that the waves of Adjustable Rate Mortgages due to reset would only go higher in 2010-2011.
3. Rising Default Rates and Declining Real Estate Prices: Mortgage reset rates, already set to rise, would become that much higher, bringing that many more defaults and troubles for the critical banking and housing, sectors. Note that current studies suggest the vast majority of mortgage holders, particularly those with mortgages under 15 years old, have zero or negative equity in their homes due to declining house prices. Add to this witches brew of continued job losses or even just wage stagnation combined with rising mortgage costs, and we get higher default rates, both residential and commercial, as both forced and “strategic” defaults grow (see Jingle Mail: Strategic Mortgage Defaults Could Increase Dramatically in 2010 for more on this).
4. Renewed Housing and Banking Sector Crisis: Rising default rates, already rising, further weaken the already troubled banking and housing sector with asset write downs and further declines in property values as more inventory hits an oversaturated market. Remember, the housing and banking sectors lead us into the crisis, into the current rally, and are essential for any sustained recovery.
5. The Feared “Double Dip Recession”: Further downturns in these sectors would thus likely send stock and other risk asset markets tumbling. Unless there are more bailouts, which in turn hits the USD again…? (Go to item 1 above and repeat).
The other key upshot was the observation in Parsing the Latest Data from S&P/Case-Shiller that the prior housing decline in the 90s lasted about 8 years, and that was against a better economic background filled with the rise of growth fueling technologies like cell phones and the internet. The current housing mess is only a bit over 2 years old, and is against the backdrop of a weaker, more debt laden government and economy. This suggests the housing market--and thus the banks, and thus the economy--is likely to be struggling for years to come.
Hope I’m wrong on this, and the above is far from certain. If nothing else, deeper troubles in the EU and elsewhere could keep up demand for the USD and thus US debt as the USD wins this contest of the least ugly. In forex, all is relative, and the least ugly currency wins just as well as the prettiest one.
Author's Disclosure: No Positions
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