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Bernanke: Lower Mortgage Limits Are a 'Trade Off'
Federal Reserve Chairman Ben Bernake discusses the phase out of higher conventional loan limits.

For those of you worried that the scheduled expiration of higher loan limits at Fannie Mae, Freddie Mac and the FHA will have a negative effect on the housing market by raising the cost of home ownership, you can be rest assured the chairman of the Federal Reserve is fine with it.

"As far as Fannie Mae and Freddie Mac are concerned, there is a tradeoff there between supporting the higher priced homes and weaning the housing finance system off of unusual limits it was put under during the crisis," Ben Bernanke told a Congressional Committee on Wednesday.

There have been numerous and varied contentions about the future state of the mortgage market once loan limits drop from the maximum $729,750 to $625,500. The home builders think it will be catastrophic while some economists and academics say it will have little effect, especially at the FHA.

Pending Home Sales Surge Ahead:
Rebound in May, Up 8.2%

The National Association of Realtors' Pending Home Sales Index increased 8.2 percent to 88.8, bouncing back from April's seven-month low. Pending homes sales lead existing homes sales by a month or two.

Economists had expected home resale contracts to rise only 3.8 percent after a previously reported 11.6 percent drop. Pending home sales increased in all four regions, with the Midwest and West notching double-digit gains.

In the 12 months to May, pending home sales rose 13.4 percent.

New Construction On The Move:
Housing Starts increase in May and Building Permits hit a five month high.

U.S. housing starts rose more than expected and permits for future construction touched a five month high in May, a government report showed on Thursday.

The Commerce Department said housing starts rose 3.5 percent to a seasonally adjusted annual rate of 560,000 units, retracing almost half of April's steep decline. April's starts were revised up to a 541,000 unit pace, which was previously reported as a 523,000 unit rate.

Single-family home construction, which accounts for a large portion of the market, rose 3.7 percent.

New building permits unexpectedly rebounded 8.7 percent to a 612,000-unit pace last month, the highest level since December. Economists had expected overall building permits in May to fall to a 558,000-unit pace.

Permits were boosted by a 23.2 percent surge in the multi-family segment. Permits to build single-family homes rose 2.5 percent. New home completions climbed 0.4 percent to 544,000 units in May.

Will Mortgage Rates Rise in August?
Every week it seems mortgage rates inch down - but is the ride nearing the end?

One of the main reasons why mortgage rates have been so low is due to the Quantitative Easing II program. This is where the Federal Reserve Bank of New York purchases U.S. Treasury debt each business day. This massive program will end at the end of June and has kept the demand for U.S. treasuries higher than it would normally be and as a result has kept all interest rates lower than normal. So what will happen to demand for treasuries once the largest single buyer of our debt leaves the market?

U.S. banks have also been a very large purchaser of treasuries but some of Wall Street’s biggest banks are preparing to cut their use of U.S. treasuries in August as a precaution against any turbulence that could follow if warring Republicans and Democrats fail to increase the U.S. debt ceiling, a senior bank chief said.

One strategy, which bank executives only agreed to discuss without attribution due to the political sensitivities related to discussing Treasury debt, is to have more cash on hand to put up as collateral against derivatives and other transactions, decreasing the financial system’s reliance on treasuries.

“We’re planning to lower our reliance on the use of treasuries in early August and have more cash on hand as a contingency measure,” said a U.S. bank chief.

Investors worldwide own large amounts of the $9.7 trillion of debt that has been sold by the US government as part of their portfolios. But nearly 40 per cent of the existing U.S. Treasury debt – about $4 trillion – is used to back deals in the repurchase, futures and swaps markets, say JPMorgan Chase estimates.

It is this key role that treasuries play as collateral for the wider financial system where turmoil could follow any missed payment resulting from the debt ceiling fight. The top quality and liquidity of Treasury debt means it can be used to back transactions relatively cheaply, with banks or clearing houses only requiring a small “haircut” or discount on the value of the debt to reflect credit risks.

Without the Federal Reserve buying treasuries and with banks curbing their purchases as well - it could lead to higher rates.

Foreclosures Filings Hit 3-Year Low:

U.S. foreclosure filings fell in the first quarter to the lowest level since early 2008 amid an ongoing backlog following last year's halt in activity, according to a RealtyTrac report on Thursday.

Default notices, scheduled auctions and bank repossessions were reported on 681,153 properties, down 14.8 percent from the previous quarter and a drop of 26.9 percent from the first quarter of 2010.

It was the lowest level of foreclosures since the first quarter of 2008.

Nevada maintained the highest U.S. state foreclosure rate as one in every 35 homes had a foreclosure filing. California alone accounted for nearly a quarter of overall foreclosure activity.

Tuesday, April 12, 2011

New Loan Originator Compensation Rules add .125% or more to Interest Rates!!!

Now Loan Originators need to be paid the same on every transaction. On the surface that seems like a laudable goal.

However, this stifles competition as Loan Originators will no longer be able to offer a better price to the consumer by sharing their commission to obtain better rates/fees.

If there are any errors in a transaction that create additional costs, say for instance a lock extension fee or a loan being re-priced because the credit score decreased at closing, the loan originator cannot take that out of the Loan Officer’s commission.

That cost must be borne by the lender. So across the board, lenders, knowing that they have this new potential liability on every single transaction, must price that into their rate/fee structure.

“That plus the increase in administrative costs will mean an average estimated increase of more that .125% to interest rates for every loan going forward.”

Today the housing market faces strong enough headwinds, without new bureaucratic rules that artificially increase interest rates and make it more expensive for new homeowners and thus making it harder to buy and sell homes. As bad as the new rules are, the timing for their implementation is even worse.

Employment and Housing

The Unemployment Rate in February dropped to 8.9% and continued its downward trend from our peak levels which occurred just after our last recession.  Of particular note is the Non-Farm Private Payroll data which showed an increase of 192,000.  Thi is very important for housing.