Real Estate News

House Passes FHA Reform Act to ‘Rebuild the American Dream of Homeownership’

Published on: Monday, June 14, 2010

Written by: Diana Golobay

The House of Representatives today passed House Resolution (HR) 5074, the FHA Reform Act, which establishes a handful of new Federal Housing Administration (FHA) regulations and authorities.

The FHA insures approved lenders against default-related losses on qualifying mortgages.

In addition to strengthening the FHA’s capital base by raising mortgage insurance premiums, the bill aims to crack down on FHA-approved lenders. For example, the bill grants FHA the authority to terminate a lender’s approval on a national basis due to the performance of regional branches.

Representatives passed the bill in a 406-to-4 vote with only one Democrat and three Republicans voting against the bill.

The final version of the bill includes “reforms that will rebuild the American dream of homeownership and reduce federal spending by $2.5bn,” House Democrats said in a statement, adding that the bill “protects Americans from mortgage fraud and holds the FHA accountable by improving its internal reporting systems and providing greater transparency to the public and Congress.”

Industry groups are already embracing the bill’s aims to maintain the availability of financing in the mortgage market.

“The reforms contained in this bill will help stabilize FHA’s finances by allowing the agency to raise its annual premiums and better take corrective action against lenders who are putting the program at risk,” said Mortgage Bankers Association (MBA) chairman Robert Story Jr, in an e-mail.

“Importantly, the bill also contains provisions to increase FHA’s multifamily loan limits for elevator buildings and in extremely high cost areas,” Story added. “One of MBA’s top legislative priorities, increasing the multifamily limits in this way will help lenders finance the construction and refurbishment of much-needed affordable rental housing in many urban areas of this country.”

This article has been republished from HousingWire. You can also view this article at HousingWire, a mortgage and real estate news site.

Credit Scores Not Always On The Number

By Eileen Ambrose, Tribune Newspapers

Everyone’s got your number — a credit score, that is — and as a savvy consumer, you might want to find out exactly what they’ve got.

This three-digit number tries to predict whether you are a credit risk and can dictate the terms you get on credit cards, mortgage loans and insurance premiums. Once secret, scores are now widely pitched by companies, often for a price.

But the score you buy might not be anywhere close to the one your lender or creditor uses. Even a small difference could keep you from getting the terms you expected.

“They show you a score but don’t tell you it’s not the one that’s used by the lender, or not even used by a majority of lenders,” said Evan Hendricks, author of “Credit Scores & Credit Reports.” “That ain’t right.”

Scores and credit reports wield increasing influence on our financial lives. That’s why Congress has been looking into how they are created and used.

There’s also been a push on Capitol Hill to make credit scores more accessible. A provision in the House financial reform bill would allow consumers to buy the scores used by creditors. And next year, federal regulations take effect that could make free scores available to consumers applying for credit.

Credit scores remained a mystery until about a decade ago, when legislative pressure forced mortgage companies and credit bureaus to share scores with consumers.

Now they flood the marketplace. Fees run about $15 for a score and credit report, or $15 to $40 a month for a service that provides scores, reports and other features.

FICO is the oldest and most widely used score by creditors and lenders.

The three major credit bureaus, Experian, Equifax and TransUnion, created the VantageScore four years ago. Consumer advocates say it’s not broadly used by creditors, though TransUnion spokesman Steven Katz said many of the top financial institutions and credit card issuers use it.

There also are knockoffs, or so-called FAKO scores, that are purely educational and sold only to consumers.

Creditors select the score they want to use. It could be one that’s tailored for a specific product, such as autos or credit cards and not sold to the public. Or they can supplement a score with their own model.

Mortgage brokers find the scores a consumer buys can be 30 to 100 points higher than the FICO they use, said Liz Pulliam Weston, author of “Your Credit Score.” That can mean “not only don’t you have a good score, but you’re subprime,” she said.

Some creditors adjust every 20 points, Hendricks said. If you buy a score that says you’re a 740, but the lender is looking at one that pegs you at 720, the interest rate could be a quarter-point higher than you expected, Hendricks said.

If you’re just curious, try one of the free credit scores through Quizzle.com, CreditKarma.com and Credit.com.

But if you plan to refinance or make a big purchase using credit, buy your score at least three months in advance so you have time to improve it. (To boost a score, pay bills on time, avoid new lines of credit and reduce credit card balances.)

Buy the FICO score because it’s likely closest to the one your lender will use, credit experts say. Go to myFICO.com to get scores based on a TransUnion or Equifax report for $15.95 each. (Consumers no longer can buy a FICO score based on an Experian report, though lenders can get this.)

Get both FICOs in case the results vary significantly, a sign that one report holds more negative information than the other, Hendricks said.

“We focus so much on the credit score, we forget the score is driven by the report,” said John Ulzheimer, president of consumer education for Credit.com.

Foreclosures hit record highs

Real Estate News & Commentary by Chris McLaughlin

According to the Mortgage Bankers Association’s (MBA) National Delinquency Survey, the delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64% of all loans outstanding as of the end of the third quarter of 2009, up 40 basis points from the second quarter of 2009, and up 265 basis points from one year ago.  The non-seasonally adjusted delinquency rate increased 108 basis points from 8.86% in the second quarter of 2009 to 9.94% this quarter.   The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure.  The percentage of loans in the foreclosure process at the end of the third quarter was 4.47%, an increase of 17 basis points from the second quarter of 2009 and 150 basis points from one year ago. The combined percentage of loans in foreclosure or at least one payment past due was 14.41% on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.  The percentage of loans on which foreclosure actions were started during the third quarter was 1.42%, up six basis points from last quarter and up 35 basis points from one year ago.  The percentages of loans 90 days or more past due, loans in foreclosure, and foreclosures started all set new record highs.  The percentage of loans 30 days past due is still below the record set in the second quarter of 1985. 

Why are foreclosures up?

Jay Brinkmann, MBA’s Chief Economist, says it’s jobs.  “Despite the recession ending in mid-summer, the decline in mortgage performance continues.  Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP.  Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07% to 1.42%.”  Brinkmann says it’s prime and FHA mortgages that are taking the worst beating.  “Prime fixed-rate loans continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures.  33% of foreclosures started in the third quarter were on prime fixed-rate and loans and those loans were 44% of the quarterly increase in foreclosures.  The foreclosure numbers for prime fixed-rate loans will get worse because those loans represented 54% of the quarterly increase in loans 90 days or more past due but not yet in foreclosure.  The performance of prime adjustable rate loans, which include pay-option ARMs in the MBA survey, continue to deteriorate with the foreclosure rate on those loans for the first time exceeding the rate for subprime fixed-rate loans.  In contrast, both subprime fixed-rate and subprime adjustable rate loans saw decreases in foreclosures.”

Taxes anyone?

More than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest. Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group, puts it another way:  in 2015 alone, the estimated interest due – $533 billion – is equal to a third of the federal income taxes expected to be paid that year.  The money was borrowed at very low rates, but interest rates will rise when the economy improves, and at that point the country’s interest payments could jack up very fast.  “When interest rates rise even a small amount, the interest payments go up a lot because of the size of the debt,” Konigsberg said.  To help mitigate the potential risk of rising rates, the Treasury has said it would start increasing the average maturity of the new debt it issues so the debt it refinances in the next couple of years will be locked in at lower rates for longer periods of time.  And the Obama administration has promised to produce a deficit-reduction plan that would aim to bring down annual deficits to roughly 3% of GDP over the next several years, below the 4% to 5% currently projected.  If that happens, the $4.8 trillion in interest payments that CBO estimates for the next decade could go down if interest rates don’t increase as much as CBO expects.  The trouble is that this administration and Congress are showing no signs of slowing down the spending…shoveling billions into the maw of increasingly unpopular healthcare “reform.”  That could mean the president’s 2011 budget proposals would have to make a lot of unpopular changes like tax hikes to get closer to the 3% goal.

Credit availability the big question in commercial real estate

According to the National Association of Realtors (NAR), credit availability is the big unknown that will determine how soon commercial markets recover.  The Commercial Leading Indicator for Brokerage Activity rose 0.9% to an index of 102.4 in the third quarter from 101.5 in the second quarter, but is 11.1% below a reading of 115.3 in the third quarter of 2008. The index in the second quarter was at the lowest level since the first quarter of 1994; NAR’s track of the commercial leading indicator dates back to 1990.  Lawrence Yun, NAR chief economist, said some initial movements earlier this week in commercial mortgage-backed securities are encouraging. “The first commercial mortgage bond deal in over a year shows the Federal Reserve’s efforts to sell securities through the TALF program can be fruitful, but the level of activity is well below what is required to resuscitate the commercial market. Credit availability needs to significantly rebound for any hope of a meaningful commercial recovery in 2010.”  Yun said the modest index recovery follows steep declines in the past several quarters. “Gains in industrial production, durable goods shipments and retail sales; a rebound in the NAREIT price index; and improving figures on first-time unemployment claims were stabilizing factors,” he said. “Negative impacts include falling private sector income and fewer jobs involving commercial real estate. The office and industrial markets are the sectors most negatively impacted by the economic downturn.”

The real jobless rate

The real number dwarfs the statistic most people pay attention to—the U-3 rate—which most recently showed unemployment at 10.2% for October.  According to the government’s broadest measure of unemployment, some 17.5% are either without a job entirely or underemployed. The so-called U-6 number is at the highest rate since becoming an official labor statistic in 1994, and means that 1 in 5 Americans is either out of work or under-employed.  With such a large portion of Americans experiencing employment struggles, economists worry that an extended period of slow or flat growth lies ahead.  “To me there’s no easy solution here,” says Michael Pento, chief economist at Delta Global Advisors. “Unless you create another bubble in which the economy can create jobs, then you’re not going to have growth. That’s the sad truth.”  Pento warns that forecasts of a double-dip (“W”) or a straight up (“V”) recovery both could be too optimistic given the jobs situation.  Instead, he believes the economy could flatline (or “L”) for an extended period as small businesses struggle to grow and consequently rehire the workers that have been furloughed as the U-3 unemployment rate has doubled since March 2008.  As that trend has happened, the U-6 rate has expanded at an even more dramatic pace. Economists cite several reasons for the phenomenon, including  the collapse of real estate and associated jobs, and expanded unemployment benefits (which make it easier to be unemployed).   ”If full employment is 4 percent, people are wondering how we’re going to get from 10 (percent) to 4. Well, try getting from 17 to 4. We may not get back to full employment for a decade,” Mahn says. “As an investor, that causes me to look for different places now. Maybe you can’t just put money in US large caps and ride out this recovery.”

Mortgage rates at record lows

Freddie Mac’s weekly survey of average interest rates put the 30-year fixed-rate mortgage (FRM) at 4.83% with an average 0.7 points for the week ending Nov. 12, down from the average rate of 4.91% the previous week. That’s a mere 5 basis points shy of Freddie Mac’s record low of 30-year FRM rates, reached twice in April this year. Last year, the rate was 6.04%.  Freddie Mac put the 15-year FRM at 4.32% with an average 0.6 points, down from last week’s 4.4% and the lowest rate for the product since Freddie Mac began its 15-year FRM survey in 1991. A year ago, the average rate for the loan was 5.73%.  Bankrate.com’s survey of large US banks and thrifts put the 30-year FRM at 5.06%, the lowest in the survey’s 24-year history and down 13 basis points from the previous week. The previous low on the Bankrate survey was 5.13% in April. Bankrate.com put the average rate for a 15-year FRM at 4.48%, down 13 basis points from the previous week.  “Low fixed rates throughout the third quarter prompted an estimated $1.1 trillion in refinancing activity, saving homeowners about $10 billion in aggregate monthly payments over the first 12 months of their new loan,” said Freddie Mac vice president and chief economist Frank Nothaft. “Moreover, for the fourth consecutive quarter, more than 95% of prime borrowers who originally had an ARM selected a conventional fixed-rate mortgage in the third quarter of this year.”