Team Empowerment Mortgage Chatter: June 7; News & Headlines; Why It’s Time To Buy; Are Home Prices Headed Up or Down?

“No matter how much pressure you feel at work, if you could find ways to relax for at least five minutes every hour, you’d be more productive” – Dr. Joyce Brothers: Psychologist and advice columnist



Over in the agency side of the world, Fannie and Freddie have both been busy in recent weeks. Fannie Mae announced it has approved Genworth Residential Mortgage Assurance Corporation (GRMAC) as an insurer of conventional mortgage loans in a limited number of states. The insurer is responsible for compliance with its state limitations and which entity is used: Genworth. Fannie has spread the word regarding policy changes regarding deferred student loans, documentation requirements for retirement accounts, prohibition of certain mortgage insurance agreements, DU resubmission policies, MERS updates, and two other miscellaneous items. Fannie Mae is “requiring servicers, in determining whether a borrower faces imminent default, to apply the evaluation methods now used only for HAMP modifications to non-HAMP modifications secured by owner-occupied properties. In addition, Fannie Mae is requiring servicers to use Fannie Mae Network Providers to obtain broker price opinions or appraisals to complete the evaluation of preforeclosure sales and deeds-in-lieu of foreclosure.” In addition, Fannie will be conducting a reapplication process for the Retained Attorney Network in 16 states, is updating the maximum number of allowable days in which routine foreclosure proceedings are to be completed in each jurisdiction, announcing new servicer requirements to streamline and simplify servicing processes related to delinquency management, updating the Servicing Guide to simplify the existing servicing fee structure for mortgage loan modifications while making the servicing fee comparable to that of other secondary market investors, and reminded clients that if a mortgage loan is registered with the MERS and “is originated naming MERS as the original mortgagee of record, MERS must not be named as the loss payee on property insurance policies.” All of these can be viewed at Fannie.

Across the agency aisle and down the road a ways, Freddie Mac has made changes to its selling requirements to improve the quality of appraisal data and introduce additional borrower qualification sources. FreddieQualification. Freddie has also revised its credit requirements to “Provide an avenue for borrowers with unrestricted access to eligible assets to utilize those assets to qualify for a mortgage” for manually underwritten loans as long as the borrower “must not currently be using the eligible assets as a source of income.” Freddie also announced that an increase in the limit for “credit card charges, or the use of a cash advance or an unsecured line of credit to pay mortgage application fees. We are increasing the maximum amount a borrower may charge to a credit card, or receive from a cash advance or unsecured line of credit to pay fees associated with the mortgage application process from 1 percent of the mortgage amount to the greater of 2 percent of the mortgage amount or $1,500. Additionally, we are removing the provision regarding the maximum allowable amount of $500 for appraisals and credit reports.”

In September Freddie is amending property eligibility and appraisal requirements related to property underwriting and review of appraisals and taking another step in the implementation of UAD (Uniform Appraisal Dataset). Freddie also announced revised eligibility requirements for manufactured homes, incomplete improvements including energy conservation improvements (effective September 1), appraisal photographs (effective March 19, 2012), transmitting appraisal reports (effective March 19, 2012), and seller warranties for Established Condominium Projects and New Condominium Projects. As always, for these and everything Freddie, go to the source at FreddieBulletins.

On the FHA/VA side, GNMA speeds will likely remain depressed as originators brace for increased put-back risks by the FHA. Late last year, HUD proposed new rules to streamline the process of indemnifications related to underwriting defects and more recently “the proposed Biggert FHA bill seeks to expand HUD’s authority to pursue indemnification to more lenders (currently, HUD’s right is limited to 29% of all FHA lenders, or 70% of total FHA origination).”

Yesterday was pretty quiet, market-wise, and don’t look for much more today. Tradeweb’s MBS volume registered at 52% of the 30-day average with all sectors below normal. On no news the 10-year Treasury note closed at a yield of 3.00%, nearly unchanged, and MBS prices were also flat to Friday’s close. Today we do, however, have yet another auction starting up – this time $66 billion for the week with $32 billion in 3-yr notes. And we have a speech by Chairman Bernanke on “The U.S. Economic Outlook” at the International Monetary Conference in Atlanta, GA at 3:45 EST.


Back in June 2006, when the housing market peaked, the prospect of a five-year national housing bust seemed unimaginable to most people. And yet here we are, with the latest Standard & Poor’s Case-Shiller index showing that prices hit new bear-market lows, falling back to 2002levels nationally and to 1990s levels in some battered regions.

Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody’s Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer’s market: There were about 15 million vacant homes in the U.S. last year, according to John Burns Real Estate ConsultingInc.-some 3.1 million more than normal.

Such conditions might not last long. Moody’s Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply overhang isn’t likely to get much worse. Meanwhile, demographic indicators such as “household formation”-the number of new households each year-are on the rise, and promise to take a bite out of the glut in coming years.

The upshot: “While we might not see rapid growth in the next couple of years, there are a tremendous number of positive signs that could lead to a rebound,” says Anthony Sanders, a real-estate finance professor at George Mason University.

The short-term outlook isn’t encouraging. Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months.

But the long-term benefits of homeownership remain very much intact. For now, at least, you can deduct the mortgage interest on your taxes-a big perk for people in higher tax brackets. You get to paint your walls any color you wish, without having to clear it with a landlord. And assuming you can buy a home for about the same price as you can rent one, buying will give you the ability one day to live rent-free. Come retirement time, a paid-off mortgage means your monthly expenses are significantly reduced, and you have a chunk of equity to play with.

So what might the next five years look like? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market-demographics, affordability, loan availability, employment and psychology-should take over.

Here is a glimmer of what the future may hold: While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn’t battered by foreclosures, you may be close to a bottom already.


Here are two headlines that appeared in print last week:

LA Times: Case-Shiller Home Price Index Hits New Low

Forex: CoreLogic: Home Price Index Increased 0.7%

In the Los Angeles Times story, David Blitzer, chairman of the S&P index committee, was quoted as saying:

“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation. Home prices continue on their downward spiral with no relief in sight.”

In the second article, Forex quotes Mark Fleming, chief economist for CoreLogic:

“While the economic recovery is still fragile and one data point is not a trend, the month-over-month increase based on April sales activity is a positive sign.”

The Case Shiller and the CoreLogic price indices are both very well respected. How can they come to seemingly opposite conclusions? There are two reasons for this.

1. Each Index Has a Different Lag Time

Each report is actually looking at data from different periods of time. Therefore, they are not technically comparing apples to apples.

The Case Shiller Index Methodology:

The CSI is reported with a two-month lag and is based on three months of data. For example, data released in January 2011 was for the three months ended November 2010 (November, October, September 2010).

The CoreLogic Index Methodology:

The CoreLogic HPI is published on approximately a 5 week lag from the end of the data collection period. For example, the CoreLogic January HPI will be published in mid-March.

2. The REO Saturation Level Has Changed

The Case Shiller report covered data several months old. This data would contain transactions where prices were negatively impacted by the large number of distressed properties on the market

However, inventories of distressed properties have decreased recently because the process of foreclosure has slowed. The CoreLogic data, being more current, would have fewer homes impacted by distressed properties. Therefore, prices would be higher.

The difference in time table helps explain some of the conflict in the conclusions of the reports. Once the banks again start to introduce more distressed properties to the market, prices will again be negatively impacted.

Bottom Line

Prices of properties in your region will not be determined by the different price indices. Prices will be determined by the supply of homes available in ratio to the demand for those homes in your area. Whether you are buying or selling, check with a local real estate professional to help you analyze these numbers.


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