Mortgage news

News, trends and analysis of the mortgage and credit market

Saturday, April 28, 2007

Home Prices Trend This Year

What Home Can You buy for $400,000 This Year

A Survey In 5 Major Cities

If you're shopping for a home this year, you couldn't have timed it better. The country is in a buyer's market with a 7.2-month supply of homes for sale. Anything more than a six-month supply means an advantage for buyers. But just how strong that "buyer's market" phenomenon is -- and how it might help you -- can vary from one side of town to the other, or even from one neighborhood or school district to next.

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And even though it's described as a buyer's market, it's certainly no fire sale. In the spring of 2006 Bankrate surveyed the country to see how much home $400,000 could buy in 24 cities small, medium and large.

This year Bankrate went back to five of those same cities -- in the East, South, Midwest, West and Northwest -- to see what, if anything, has changed.

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Mid East-Fort Wayne, Indiana:
Price comparison 2006-2007: Unchanged with better deals for new homes.
In the past year, the median price of a home fell $2,500 to $101,600. Buyers looking for a new home can get some good deals.

South- Miami, Florida:
Price comparison 2006-2007: Overvalued despite 6 percent price drop.
Miami buyers will have more choices and may get a slight break on price. The median home price at the end of 2005 was $391,200. At the close of 2006, it was $366,800. Sellers are not budging in their prices and buyers are not making offers. However, if you need a single-family home with $400,000, you are not going to find anything very nice or very big. Either you buy a condo, or you go away from the metropolis.

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West- Las Vegas, Nevada:
Price comparison 2006-2007: Still overpriced but prices falling.
Buyers who waited until this year will be able to get more for the money. Last year, the median home price in the Las Vegas area was $315,900. This year it slid to $313,500. As far as single-family homes, there is an enormous amount of properties on the market at the moment.

East-Philadelphia, Pennsylvania:
Price comparison 2006-2007: Unchanged due to stagnant economy.
In the $400,000 price range, you'll probably get the same for your dollar. Median home prices have increased $7,200 to $222,300 in the last year -- about 3 percent -- but the numbers of actual sales are down. Homes are staying on the market slightly longer than last year.

North West-Seattle, Washington:
Price comparison 2006-2007: Prices soaring -- the bubble's still inflating.
In Seattle this year, $400,000 will buy much less house -- and it will likely be a town house rather than a single-family home. The median home price at the end of 2005 was $335,000 versus $372,900 at the end of 2006 -- an 11 percent jump. What you could get last year for $400,000 would have been around 2,200 square feet and still within the city limits. To get that same thing now would take up to $500,000 or more. While there are plenty of townhomes, Seattle has few houses available for $399,000 in the city limits.

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Sunday, April 22, 2007

Homeownership for minorities

Fannie Mae's American Dream Commitment.

The fastest growing groups of buyers are minorities

Over the last decade, Fannie Mae has made available, through its lender and community partners, funding for minority and underserved Americans to own or rent a home as part of the company's American Dream Commitment.

Through Fannie Mae's continuing dedication to increasing homeownership opportunities for minority home buyers, minorities can live the American Dream.

The American Home Buyer
The fastest growing groups of home buyers are minorities, families of modest means, new Americans, and other underserved individuals and families -- many with very little wealth and complicated job and financial histories. According to Fannie Mae's 2003 National Homeownership Survey, these groups face challenges when it comes to having access to accurate information about the home-buying process.

Everyday Fannie Mae and its housing partners strive to expand homeownership opportunities for millions of Americans. Helping minorities turn their hopes and dreams into the reality of owning a home is at the heart of Fannie Mae's mission.

Fannie Mae's American Dream Commitment
Fannie Mae has a long and proud history of taking on big housing challenges. The American Dream Commitment follows on a Fannie Mae tradition of establishing big public goals consistent with the company's mission to "tear down barriers, lower costs, and increase the opportunities for homeownership and affordable rental housing for all Americans."

Fannie Mae pledged to help 6 million families -- including 1.8 million minority families -- become first-time homeowners over the next decade. Fannie Mae's commitment to first-time home buyers is part of the next stage of the company's American Dream Commitment, a plan announced in 2000 to provide $2 trillion in private capital for 18 million minority and underserved Americans to have access to mortgage loans and own or rent a home by the end of the decade.

The pledge boosts the company's commitment to President George W. Bush's Minority Homeownership plan and will help raise the minority homeownership rate from 51 percent currently to 55 percent, with the ultimate goal of closing the gaps between minority homeownership rates and non-minority homeownership rates entirely.

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Thursday, April 19, 2007

Advantages and risks of homeownership

Is homeownership right for you?

Advantages and risks

Buying a home is the largest purchase most people will ever make. Homeownership has great benefits. It also comes with certain responsibilities.

Before purchasing a mortgage, look at your current situation and determine if:
-You have a continuing and reliable source of income prior to applying for the loan.
-You have a credit history that shows you're ready for homeownership.
-Your total debt is manageable and you can afford to take on the costs associated with homeownership.
-You have money saved for a down payment and closing costs.

Advantages of homeownership
-You will have your own place
You will own it, have a place to raise your children and become a part of your community. You can pass your home down to your children, and their children, creating security for generations to come.
-You may pay less to own a home than you would to rent and it is yours at the end! Homeownership can reduce the federal income taxes you pay. You can deduct the interest on your mortgage and property taxes you pay on your home on the tax returns you file each year. These tax savings partially reduce, or offset somewhat, the actual cost of owning your home.
-Your monthly payments will not ever go up if you choose a fixed-rate mortgage!
If you choose a mortgage with a fixed-interest rate -one that stays the same for the life of the loan, say 30 years- you'll pay the same mortgage payment each month for the entire 30 years of the loan.
-Owning a home is the single greatest source of financial security and independence for the majority of people who have taken this step. You can have it, too!

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-Monthly housing expenses can increase.
-Your monthly mortgage payment may be larger than your rent. These higher monthly payments may be offset by a tax benefit at the end of the year. Talk to a tax professional to understand your particular situation.
-You become your own landlord.
If an appliance breaks, you will have to pay for its repair or replacement. You are also responsible for the maintenance and upkeep of your home and your property.
-You must sell your house to move.
Depending on the local real estate market, you might not be able to sell your home quickly. You should also factor in the likely expense of hiring a real estate professional. Fees can be negotiated and vary across regions. They also vary from professional to professional.
-Property values can depreciate.
You can lose value in your home for a number of reasons, such as a recession, the condition of your home not being kept up, or a drop in a neighborhood's home values. If your home loses value and you have to sell it for less than you owe, you will be required to repay the full mortgage.

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Saturday, April 14, 2007

Strong employment pushes mortgage rates upwards

McLean, VA Freddie Mac today released the results of its Primary Mortgage Market Survey in which the 30-year mortgage (FRM) averaged 6.22 percent with an average 0.4 point for the week ending April 12, 2007, up from last week when it averaged 6.17 percent. Last year at this time, the 30-year FRM averaged 6.49 percent.

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The 15-year FRM this week averaged 5.90 percent with an average 0.4 point, up from last week when it averaged 5.87 percent. A year ago, the 15-year FRM averaged 6.14 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages ( ARMs ) averaged 5.93 percent this week, with an average 0.5 point, up slightly from last week when it averaged 5.92 percent. A year ago, the 5-year ARM averaged 6.13 percent.

One-year Treasury-indexed Five-year Treasury-indexed hybrid ARMs averaged 5.47 percent this week with an average 0.5 point, up from last week when it averaged 5.44 percent. At this time last year, the 1-year ARM averaged 5.61 percent.

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"Interest rates in general ticked up following the release of the March employment data, which showed stronger job growth than what the market expected" said Frank Nothaft, Freddie Mac vice president and chief economist. "This brought interest rates on 30-year fixed-rate mortgages (FRMs) back up this week to match the first quarter average.

"Mortgage refinancing still remains strong. The FRM rate has remained below 6-1/2 percent since mid August 2006, which helps explain why the share of total mortgage applications for refinance has remained above 40 percent since last August.

Among those borrowers who are choosing to refinance now, a large share are doing so to avoid an adjustment to their monthly payment as the initial period on their adjustable-rate loan expires or to extract equity through a cash-out refinance.

In the fourth quarter of 2006, 84 percent of borrowers who refinanced their prime conventional loans increased their loan balance by more than 5 percent, totaling more than $70 billion in equity extracted. We expect a similar numbers for the first quarter of this year."

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Tuesday, April 10, 2007

A look at last month

Last month's data calendar contained a mixed bag of news on the housing market and the economy overall. There were signs of a recovery in housing demand, as sales of existing single-family homes rose 4 percent in February and sales of existing condos and co-ops increased 5 percent. Offsetting this, though, new home sales dropped 4 percent.

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Consumer confidence took a hit as well, falling half of a percentage point from the 5-year high posted in March, as higher gasoline prices and subprime-driven volatility in the financial markets fanned fears about the economic outlook. More recently, the robust 180,000 rise in nonfarm payrolls in March, on the heels of a solid gain in personal income and consumer spending in February, bolstered the view that the overall economy is stabilizing and poised to return to near-trend growth later this year.

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The housing market was largely responsible for pulling the economy through the recession in 2001 and back to a vigorous pace of growth. It remains to be seen whether the macro economy will return the favor, with overall GDP growth helping housing out of its downturn. The next month or so will be a critical period, as spring home sales provide a key test of housing demand.

Spring is a popular time to shop for homes. Better weather makes house hunting more pleasant, and a purchase in April or May allows families to settle in before school starts in the fall. With rates on 30-year fixed-rate mortgages steady at just above 6 percent and job growth more solidly on track, conditions are ripe for a firming in housing demand. Of course, this is only half of the equation, and housing supply presents several challenges to the recovery.

The burgeoning inventories of new homes cloud the supply picture. Inventories as reported in the Census Department statistics remain high relative to the sales pace, with months' supply in February jumping to a 16-year high of 8.1 months. The official statistics, though, do not reflect the impact of the cancellation of new home contracts, which last year rose as high as 30 percent at several major builders. These cancellations imply that actual new home sales last fall were far lower than reported, while inventories were higher. This distortion has likely begun to reverse in recent months, however, as cancellations have slowed and builders are selling homes whose contracts had been cancelled previously.

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With these sales neither added to reported new home sales nor deducted from inventories, the official statistics may understate any recent improvements in new home sales and months' supply. In fact, a simple exercise to calibrate the impact of the re-sale of homes with previously cancelled contracts suggests such sales may account for most of the recent reported downturn in sales, which bodes well for a gradual recovery in coming months.

It is far too early, though, to declare that housing is out of the woods. The turmoil in the subprime mortgage market may curtail housing demand, as some potential buyers find they no longer qualify for financing. With subprime loans providing a significant share of home purchase money last year, this effect could be significant, though its impact is likely to be strongest in those neighborhoods with high concentrations of subprime borrowers; the potential effects on demand more generally remain to be seen. Rising foreclosures may also dump new supply onto already-depressed local markets, intensifying the downward price pressures in these areas.

Furthermore, the jump in homeowner vacancies last year suggests a “hidden supply” that may come on the market during the spring sales season. Indeed, ZipRealty Inc. reported a 6.5 percent rise in homes listed for sale in 18 major metropolitan areas in March, well above the normal seasonal increase. Even if the expected upturn in housing demand does materialize, these sources of excess supply will continue to weigh on price appreciation nationally and may lead to continued price declines in the hardest-hit local markets.

Real GDP growth.
GDP growth in the fourth quarter of 2006 was revised upward to a 2.5% annual rate, bolstering our view that economic growth is firming. Our forecast calls for growth to average 3.0% this year, and for trend-like growth of 3.5% in 2008 and beyond. With interest rates low and consistent job growth, consumer spending will likely continue to be solid.

Consumer price inflation.
Headline CPI inflation has picked up due to higher gasoline prices, as several major refineries were closed for maintenance; the impact of energy prices should unwind in coming months. Core inflation is expected to edge down due to below-trend economic growth. We see headline inflation, as measured by the consumer price index, averaging out to 2.5% through 2007 and onwards.

Unemployment rate.
March's strong 180,000 increase in nonfarm payrolls reflected a rebound from the weather-induced decline in construction employment in February, as well as solid job gains in most areas outside of manufacturing. With the economy growing below its potential, we expect the unemployment rate will creep up to 4.7% by the end of 2007.

Mortgage rates.
We've shaved 10 basis points of our forecast for interest rates on 30-year fixed rate mortgages, averaging 6.2% in 2007 and 6.4% in 2008. Rates have been stable as inflation remains contained and there is ample liquidity at the long end of the yield curve. Interest rates on 1-year adjustable-rate mortgages (ARMs) will likely stay where they are currently.

ARM Share.
With interest rates on fixed-rate mortgages still low and house prices still at high levels, we decreased our forecast for the ARM share of mortgage applications. The ARM share is projected at 11% in 2007 and 13% in 2008, below its historical average since 1985 of 29%.

Housing starts.
Builders reacted quickly to the weakening in housing demand, and single-family housing starts have fallen more than 30% from a year earlier. As the reduction in new supply helps work off excess inventories of unsold homes, we anticipate housing starts to show gradual improvement, averaging 1.56 million units in 2007 and 1.70 million in 2008.

Home sales.
Homes sales appear to have stemmed their decline and are expected to turn up later this year, as continuing growth of jobs and incomes and low interest rates support demand. Total home sales are projected to average 6.44 million units in 2007 and rise to 6.49 million in 2008.

Home value appreciation.
With softer demand and excess inventories of unsold homes weighing on the housing market, prices are expected to post their smallest gain in several years. We see home prices, as measured by the conventional mortgage house price index, increasing in line with general consumer prices, averaging 2.5% in 2007 and then picking up to 3.2% in 2008.

Mortgage activity.
Refinancing activity will likely remain strong this year and next, as many mortgages enter their initial rate-adjustments. However, with families locking into low fixed-rate mortgages, refinancing is expected to slow in future years. We expect $2.8 trillion in mortgage originations for 2007 and $2.7 trillion in 2008 (as house price appreciation slows). This will boost the amount of residential mortgage debt outstanding by about $1.5 trillion come the end of 2008.

Many careful readers noted last month's revision to mortgage originations in 2006. These changes resulted from benchmarking based on year-end totals as reported by lenders.

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Sunday, April 8, 2007

Mortgage rates were up this week

The benchmark 30-year fixed-rate mortgage rose 3 basis points to 6.25 percent this week, according to the national survey of large lenders. The mortgages in this week's survey had an average total of 0.27 discount and origination points. One year ago, the mortgage index was 6.51 percent; four weeks ago, it was 6.19 percent.

The 15-year fixed-rate mortgage crept up 5 basis points, to 5.97 percent. The 5/1 adjustable-rate mortgage saw the biggest gain with a jump of 7 basis points to 6.12 percent.

This is the third week in a row that the 30-year fixed has risen. It'll take a while to know whether it's the start of a trend or just more minor jostling within this somewhat range-bound scenario my colleague Holden Lewis has mentioned previously in this space.

One thing is for certain, there's little chance of not mentioning this week the subprime debacle. While politicians in state legislatures and in Washington, D.C., point fingers and try to figure a way to fix it, others are hoping any bailout schemes don't soak taxpayers.

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Results of's April 4, 2007, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan for a 30-yr fixed, 15-yr fixed and 5-year ARM :

This week's rate: 6.25% 5.97% 6.12%
Change from last week: +0.03 +0.05 +0.07
Monthly payment: $1,015.93 $1,389.69 $1,002.02
Change from last week: +$3.21 +$4.45 +$7.45

Help for distressed homeowners:
Ohio has been hit hard by foreclosures in the housing meltdown. The state's foreclosure rate led the nation last year with 3.38 percent of all loans and more than 11 percent of subprime loans going under. It's a problem that's been haunting Ohio for a number of years, and officials have decided it's time to intervene and help some people hold onto their homes.

This week Ohio began its "Opportunity Loan Refinance Program". Homeowners at risk of not being able to manage high monthly mortgage payments due to an adjustable-rate mortgage resetting, or hardship such as divorce or unemployment, can apply for a 30-year, 6.75 percent fixed-rate loan. A 20-year, fixed-rate second mortgage is also available to help pay closing costs, fees and the like.

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The program is geared toward moderate- and low-income residents. There are income limits that vary by county but generally don't exceed an annual income of $80,000, and applicants must live in the home. At least four hours of one-on-one HUD-approved counseling is required.

It won't solve the overall problem by a long shot. Initially, the Ohio Housing Finance Agency, or OFHA, will issue $100 million in taxable municipal bonds. The state is assuming some 1,000 families will be helped, since the average loan is expected to be about $100,000. If the program is successful, OFHA officials say they hope up to $500 million could be available each year for similar financing.

"No matter how you want to dice the blame, there are thousands of people who are going to lose their home to this problem, and we can't, as an agency involved in housing policy, ignore that," says Blaine Brockman, assistant executive director of OFHA.

"This isn't taxpayer money. We'll issue the taxable bond and then the mortgage is collateral for the bond. These are collateralized by the mortgages themselves so there's no taxpayer involvement at all."

But not everyone is convinced of that. Economist Ken Mayland, president of ClearView Economics in Pepper Pike, Ohio, is well-versed in the problem facing many homeowners in his state. But he's not giving the state's plan his 100 percent seal of approval.

"If things work out OK then there will be no burden on the taxpayer; but the devil is in the details. What if the market deteriorates? What if the (borrower) doesn't perform and you have to foreclose and home prices decline? Of course, part of this is to circumvent that, but what if it happens anyway? Then there isn't enough collateral to back up the bond. Who's holding the bag then?"

Not all in favor of a bailout
The thought of taxpayers having to bail out homeowners who got in over their heads irritates the heck out of Patrick Killelea, who's been blogging about the housing situation for four years.

"If you're a responsible saver and you want to buy a house, you're bidding against these crazy people who are either gambling or lying (about income on their mortgage application) or just not understanding that they shouldn't be borrowing ten times their income. So, the thing that bothers me is I have to bid against them for a house. And now Congress is saying let's bail out these irresponsible people. No! It's another way of propping up an ultimately unsustainable housing market. Let the market work."

To be sure, Killelea places plenty of blame on mortgage lenders who, he says, loosened lending standards because they could shift the risk to institutions that bought mortgages and sold them to investors as mortgage-backed securities. And additional blame is lobbed at the Federal Reserve, which, Killelea claims, looked the other way in an effort to keep the economy moving.

While some politicians are chatting up plans for tackling the problem on a nationwide scale, none seem geared at this point -- with an election in the distance -- to having taxpayers foot the bill. But as economist Mayland points out, perhaps taxpayers shouldn't feel safely insulated from the problem. The devil could be in the details.

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Sunday, April 1, 2007

Stabilizing the subprime market

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In times of economic transition, there is a critical need of balancing adequate capital with adequate credit flows, says Richard F. Syron Chairman and CEO, Freddie Mac.

"That is where we are today. The recent downturn in the housing market is slowing GDP growth, and mortgage delinquency rates are up, particularly in subprime.

Congress created the GSEs to help cushion U.S. housing markets from economic disturbances like these. When housing activity contracts, Freddie Mac and Fannie Mae increase their relative provision of funds to the mortgage market, and vice versa.

This ability to respond to market changes is what makes the GSEs a Congressional success story.

Freddie Mac supports regulatory reform that ensures both a continued strong franchise and mission achievement. Many proposals are under consideration, and it is my hope that each will be measured against the twin criteria of safety and soundness and mission.

This inevitably entails striking a delicate balance. In a number of instances, we believe the proposed legislation would strengthen GSE regulatory oversight without upsetting that balance. But, certain combinations of provisions, depending on how they are interpreted and implemented, could significantly impair either our ability to remain financially viable – or to serve our mission. Or both.

I am not talking about short-term concerns. GSE legislation has been many years in the making, and it is unlikely to be revisited for years to come. I have every confidence that Congress will strike the right balance.

A few weeks ago, Freddie Mac announced that, beginning in September 2007, we will restrict our subprime purchases to mortgages that have been underwritten to a fully-indexed level, and with tighter underwriting requirements. We also announced efforts to develop model subprime products that will provide safer financing alternatives.

These steps will help stabilize the subprime market while ensuring sustainable homeownership. In my mind, this is what being a GSE is all about. But we can only serve this function if we have the right capital and operational flexibility to respond quickly to market transitions.

Business cycles will come and go. But these economic realities should not keep families from achieving their dreams of homeownership."

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