SAFE Act Update; Down Payment Assistance; Fannie & Freddie in the Future; Yield Curve Chatter
Friday I made the mistake to saying that I thought down payment assistance programs had vanished, going the way of the Ivory Billed Wood Pecker or the lavish mortgage banker Christmas party. It turns out that seller-funded DPA's are a thing of the past (i.e. Nehemiah, Ameridream, etc.) but some programs are very alive and well.
One originator wrote and said, "In my opinion, those DPA's were deceitful and enabled a seller to give money to a 3rd party to give to an unqualified borrower to get the problem off the hands of the seller. In essence, they were creating smoke and mirrors for the seller to give the down payment to a buyer for 100% financing."
Another wrote, "As far as I know, the only acceptable DPA's allowed today are government (local, state) or charitable organizations (i.e., Chase sponsored redevelopment projects) that do not allow for seller funded deposits." And "DPA's have not disappeared. They are on our rate sheet but these programs are not the ones of yesteryear. Many programs are allowed - they are NOT the Nehemiah types with seller contributions, but rather government charity types."
Lastly, "Housing assistance programs are being used widely and are not seller funded, but money available to FTHB thru the national stabilization program. They are used with FHA loans and are purchased by Chase, BofA, and GMAC's correspondent lending channel. $15k - 20k of free money in the form of a silent second at zero interest rate, and a maximum DTI of 41% makes the risk attractive to loan servicers. Homebuyers go through an education process required by the program, and the money must be paid back if the house is sold or converted to a rental property."
The SAFE Act - some folks wish that it would just go away. But it won't. A check of HUD's website (and remember that HUD is responsible for enacting licensing standards) shows a proposed rule that sets minimum standards for state licensing of loan officers and mortgage brokers. "To comply with the Act, states must put in place a Loan Originator Licensing program that requires originators to take an education course, pass a test, and undergo civil, criminal and financial background checks. States have until July 31, 2010, to have their loan originators licensed under the SAFE Act criteria, unless they already have them licensed under a different system. If already using a different licensing system, they have until December 31, 2010, to bring them in line with the Act's requirements." Anyone interested should visit HUD's SITE
Who says that no one is doing the 125% program? Not me! Well, maybe I did. Anyway, Kinecta Federal Credit Union (Southern California) offers them to their brokers, as does Fifth Third Bank, and Just Mortgage.
What is the latest on how Freddie and Fannie will look going forward? Talk of blending the two has been out of the press recently, although that may be changing. According to a story in the Wall Street Journal, "a consensus appears to be growing that the U.S. should retain a role in the mortgage market and that the public-private partnership that has defined Fannie Mae and Freddie Mac should continue in some form." Unfortunately this means the new structure would keep some of the public-private conflicts that upset critics in the past, conflicts like the tension between shareholders' desire for dividends and political pressure on the companies to support the housing market.
Is anyone out there predicting lower rates? Probably, but most seem to believe that rates are heading higher in 2010. Recently the yield curve (a graph of the yields of Treasury securities measuring the difference between short term and long term rates, quoted as the difference between 2-yr and 30-yr yields, hit 373 basis points, the most in at least 29 years. Short term rates are pretty flat, but bonds went above a yield of 4.50%. At the end of 2008 it was only 191 basis points, and the spread between 2-yr and 30-yr rates has averaged 132 basis points over the last five years. About a month ago Treasury officials announced a long-term target of six to seven years for the average maturity of Treasury debt, and a cut back of issuance of bills and two- and three-year notes. Given what we know about supply and demand, the shift to longer- maturity debt has raised concern that investors will demand higher yields to offset the risk of inflation.
Lock volumes didn't change much last week. Applications were up .3% last week with refi's +.9% and purchases -.1%. Refinance mortgages made up a 75.2% share of all mortgage activity last week, the highest it has been since late April. And in spite of the steep yield curve, ARM's are only about 4% of applications - maybe because 1-yr ARM rates are averaging about 6.5% versus less than 5% for a 30-yr fixed rate mortgage.
With rates moving higher yesterday, and prices lower (stocks were also lower), Wall Street traders saw a decent amount of selling. 30-yr Treasury rates hit their highest levels since August. Obviously volatility picked up, which tends to make mortgage prices a little worse. The news that inflation at the producer level was worse than expected did not help. After that we saw Industrial Production rise .8% in November (the fourth gain in five months) and Capacity Utilization rise also. (CU has average 80% in the last 20 years, and some economists feel that if we are below that, excess capacity is one reason inflation will remain low.)
This morning we're off to the races with Housing Starts. Starts were up 8.9% but were still lower than expected. This is the largest percentage increase since May, which is nice to see, and although housing starts are still down over 12% versus a year they are much better than the 54.9% drop seen in January. Single family numbers were up about 2%, but the volatile multifamily segment was up over 67%. New building permits, which give a sense of future home construction, rose 6% to 584,000 units, the highest since November 2008.
We also had the Consumer Price Index, which rose in line with expectations in November. The CPI was +0.4%, but the core rate (ex-food & energy for those of us who don't eat or drive) was flat. Prices rose 1.8% over the last 12 months, as expected, the first year-over-year gain since February, and core prices rose 1.7%. At 11:15AM PST, 2:15PM EST, we have the Fed announcement, so look for some potential volatility around then. But for now, fixed income prices (including mortgages) are about unchanged from Tuesday afternoon, with the yield on the 10-yr at 3.59%.
Blonde Diary & Cookbook:
It's fun to cook for Tom. Today I made angel food cake. The recipe said beat 12 eggs separately. The neighbors were nice enough to loan me some extra bowls.
Tom wanted fruit salad for supper. The recipe said serve without dressing. So I didn't dress. What a surprise when Tom brought a friend home for supper.
A good day for rice. The recipe said wash thoroughly before steaming the rice. It seemed kind of silly but I took a bath anyway. I can't say it improved the rice any.
Today Tom asked for salad again, I tried a new recipe. It said prepare ingredients; lay on a bed of lettuce one hour before serving. Tom asked me why I was rolling around in the garden.
I found an easy recipe for cookies. It said put the ingredients in a bowl and beat it. There must have been something wrong with this recipe. When I got back, everything was the same as when I left.
Tom did the shopping today and brought home a chicken. He asked me to dress it for Sunday. I don't have any clothes that fit it, and for some reason Tom keeps counting to ten.
Tom's folks came to dinner. I wanted to serve roast but all I had was hamburger. Suddenly I had a flash of genius. I put the hamburger in the oven and set the controls for roast. It still came out hamburger, much to my disappointment.
GOOD NIGHT DEAR DIARY. This has been a very exciting week! I am eager for tomorrow to come so I can try out a new recipe on Tom. If I can talk Tom into buying a bigger oven, I would like to surprise him with a chocolate mousse.