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Monday Morning Mortgages>
Monday Morning Mortgages
October 12, 2009
FHA
In 2008 when mortgage lending came to a screeching halt, FHA was the only insurer on the market who kept taking applications and did not reel in guidelines excessively. While Fannie Mae and Freddie Mac did abrupt about faces on their lending, FHA kept originating loans, having already made its lending procedure less onerous years before. FHA did raise its minimum down payment to 3.5% from 3% and it’s up front mortgage insurance premium to bolster the insurance funds in this time of great risk, but overall, it remained a sensible place to get a loan.
Because of the tightening of credit, FHA gained market share, increasing the amount of all new mortgages it insures from 6% in 2007 to 21.5% in 2009 so far. Many are asking if FHA is the next shoe to drop; requiring rescue and bail out. Recent delinquencies and foreclosures are up to nearly 8% at the end of June 2009 from 5.5% in 2006. And in the near future, its reserves for loan losses are expected to slip below federally mandated limits.
FHA’s Commissioner, David Stevens, says that FHA will not need government funds to be sustained. The insurance fund is created by collecting a 1.75% up front fee for mortgage insurance in addition to a monthly MI fee. All FHA loans require payment of this fee whether 3.5% or 20% down payment was made.
Some are comparing the possible FHA falter to Fannie Mae/Freddie Mac demise that required the government to step in and take over. But FHA is different than the big mortgage giants in that it engaged in much less risky lending than the privately owned lending giants. FHA did always require solid proof of income in order to get a mortgage. Also, FHA always required a down payment while Fannie/Freddie insured 100% + loans. FHA offers 30 year fixed mortgages only, whereas Fannie/Freddie had many adjustable rate mortgages that created problems for many borrowers.
In my observation, the defaults FHA is experiencing now are not do to loans given to those who shouldn’t have them, but due to the loss of jobs in our struggling economy.
As these issues come before a congressional committee, FHA and our government hope to ward off any further weakness in FHA that could threaten a lending outlet that has been a bright spot in this credit constrictive market. One proposal on the table is to increase minimum down payments to 5%.
Rates
Why did rates turnaround and begin to rise on Friday? Though rates are still historically very low, here is a theory from R. Chrisman’s commentary on rates this am.
Friday’s price action was a sign that markets can move quickly, and not always in expected ways. Why did rates shoot up Friday? I don't buy off on the reason many suggest: "...Federal Reserve Chairman Ben S. Bernanke said the central bank will be ready to raise interest rates when the economic outlook ‘has improved sufficiently’." He is stating the obvious. Is there some kind of surprise there? The fact of the matter is that rates have come down, and stayed down, in spite of the supply last week and in spite of signs that the economy is not as bad as it was 6 months ago. Many mortgage lenders are/were back offering 30-yr rates in the high 4's. And when markets move one way or the other to a large degree, or for an extended period of time, they are likely to rebound the other way – just like a rubber band. Plain and simple.
Today's Rates (see current days throughout the day with APR calculations at
www.sonomacountyhomeloans.com
WITH ONE LOAN POINT
Conforming (<= $417,000)
30 Year 4.625%
5/1 ARM 3.875%
5/1 ARM IO 3.875%
Jumbo Agency ($417,001 - $662,500 in Sonoma County)
30 Year 4.875 %
FHA Conforming (<= $417,000)
4.875%
FHA Jumbo (to $520,950)
5. 125%
Super Jumbo (<= $3 million)
30 year fixed 7.0%
3/1 ARM 4.625%
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