Christina Dunham's Random Real Estate Musings

U.S. Treasury Secretary Henry Paulson announced over the weekend that the government would aid in stabilizing Government Sponsored Entities (GSE) Fannie Mae and Freddie Mac. This includes increasing the line of credit available for these GSEs, having the temporary ability to gain an equity stake in these organizations, and providing emergency loans if necessary.

Paulson says, “GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore, we must take steps to address the current situation as we move to a stronger regulatory structure.”

Last week, stock price for both GSEs plummeted over 45% as speculation of a government bailout circulated. At present, the two companies own or guarantee $5 Trillion (with a T) of mortgage debt, encompassing nearly half of all U.S. residential home loans.

After months of negotiations and revisions, H.R. 3221 was signed by the President into law on July 30, 2008, creating sweeping changes to conforming loan limits, FHA guidelines, down payment assistance, and first time homebuyer programs.

Also known as the “Foreclosure Prevention Act of 2008” and the “Housing and Economic Recovery Act of 2008,” the bill passed the House on July 23, 2008, by a vote of 272-152. On Saturday, July 26, 2008, the Senate passed the bill by a vote of 72-13. The bill, which will cost the American public about $4 over the 2008-2012 period, includes the following provisions:

• FHA Modernization – increases the down payment requirement on FHA loans from 3% to 3.5% of the appraised value of the property. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008). Permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program.
  
  
• Seller-funded down payment assistance – effective October 1, 2008, down payment contributions from (1) the seller or any other entity with a financial interest in the transaction and (2) any third party reimbursed by any of such parties are prohibited. Other assistance programs provided by nonprofits or funded by other sources such as churches, employers, or family members will still be permitted.
  
  
• Higher Conforming Loan Limits – permanently increases conforming loan limits up to $625,500 for one-unit properties in high-cost areas, commencing upon the expiration of the temporary Economic Stimulus limits on December 31, 2008.
  
  
• First-Time Homebuyer Tax Credit – first-time homebuyers will receive a $7500 tax credit for any qualified purchase of a principal residence between April 8, 2008 and June 30, 2009. A first-time homebuyer is defined as an individual who has not had ownership interest in a principal residence in the last three years. The credit is repayable over 15 years (making it, in effect, an interest free loan). Income restrictions apply.
  
  
• Emergency Assistance for Redevelopment of Abandoned and Foreclosed Homes – allocates $30 million for the Neighborhood Reinvestment Corporation (NRC) to (1) make grants to HUD-approved counseling intermediaries; or (2) hire attorneys to assist homeowners who have legal issues directly related to foreclosure, delinquency or short sale.
  
  
• Tax-Related Provisions – allows the use of qualified mortgage bond proceeds to refinance subprime residential mortgages. Allows a one-time credit of up to $7,000 of the purchase price of a single-family residence in foreclosure.
  
• Clean Energy Incentives – extends through 2009 the tax credit for residential energy efficiency improvements and the production of electricity from renewable resources such as biomass, geothermal, landfill gas, marine, hydrokinetic and trash combustion. Tax credits for solar energy are extended through 2016.
  
  
• Mortgage Foreclosure Protection for VA loans – temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.
  
  
• Hope for Homeowners Program – provides relief for homeowners who are experiencing difficulty paying their mortgage. Borrowers must certify that they have not intentionally defaulted on their mortgage or any other debt. Effective on October 1, 2008, qualified borrowers may be able to refinance into a new FHA 30-year fixed mortgage at 90% of the property’s appraised value, with all existing subordinate liens extinguished. Borrowers are prohibited from taking out new second mortgages for the first five years on the program and are expected to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide.

• Risk-based pricing – puts a moratorium on FHA implementing risk-based pricing through October, 2009.
  
  
• GSE Stabilization – includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

• Loan Originator Requirements – establishes minimum standards for loan originator licensing and institutes a nationwide mortgage registration system, thereby improving the oversight of all originators, strengthening fraud prevention, and increasing the educational requirement. The bill exempts those who work for Federally-chartered institutions.

Let’s hope that these changes provide a much needed boost to the continually sagging real estate and mortgage market. For more information about any of provisions above, drop me an email at contact@christinadunham.com.

Until next week, happy home loan shopping!

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide mortgage banker funding over $8 billion in loans annually since 1986. She may be reached at contact@christinadunham.com. For a complimentary credit or mortgage loan consultation, contact Christina Dunham at 866.7.DUNHAM.

U.S. Treasury Secretary Henry Paulson continues to campaign for government support in stabilizing Government Sponsored Entities (GSE) Fannie Mae and Freddie Mac, including providing an unlimited line of credit available for these GSEs, having the temporary ability to gain an equity stake in these organizations, and providing billions of federal dollars in emergency loans if necessary. The proposal aims to increase confidence in the GSEs and address short-term issues in the real estate and mortgage markets.

This is the second time in four months that the housing crisis has prompted the U.S. government to step in, with the Treasury Department engineering the sale of Bear Sterns last March to prevent it from going bankrupt. Paulson noted that in this rescue package, the Fed should have a regulatory role, while the treasury will maintain a consultative role in the process.

In a Q&A session last week, Paulson said that the unlimited credit line would provide flexibility to the GSEs, and that he hopes the authority would not have to be used. And while he proposed that the treasury have the ability to buy into the GSEs, he said that “The treasury has no plans to currently invest in Fannie Mae and Freddie Mac.”

The Federal Home Loan Mortgage Corporation (aka Freddie Mac) and the Federal National Mortgage Association (aka Fannie Mae) buy mortgages from banks (thus providing banks with new money to loan) and oftentimes resell the purchased loans to investors, providing a guarantee of repayment to the new owners of the mortgages. Freddie Mac and Fannie Mae own or back $5.2 trillion of mortgages, equal to 49% of the nation’s $10.6 trillion mortgage market. They could potentially face huge losses this year as foreclosures continue to scourge the market.

"Market stability and support for housing finance are among my highest priorities during this time of stress in our markets. Therefore, after consultations with the Federal Reserve, the Office of Federal Housing Enterprise Oversight (OFHEO), the Securities and Exchange Commission (SEC) and Congressional leaders, we are asking Congress, as it completes its work on a stronger GSE regulatory structure, to also enact a three-part plan to address the current situation," Paulson said.

“GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore, we must take steps to address the current situation as we move to a stronger regulatory structure. We’re going through a challenging time with our economy. This is a tough time. The three big issues we’re facing right now are, first; the housing correction which is at the heart of the slowdown; secondly, turmoil of the capital markets; and thirdly, the high oil prices, which are going to prolong the slowdown,” he added.

Last week, stock price for both GSEs plummeted over 45% as speculation of a government bailout circulated.

Until next week, happy home loan shopping!

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide mortgage banker funding over $8 billion in loans annually since 1986. She may be reached at contact@christinadunham.com. For a complimentary credit or mortgage loan consultation, contact Christina Dunham at 866.7.DUNHAM.

For the first time in history, FICO scores will now be utilized in FHA lending effective July 14, 2008. Risk-based premiums will be added-on to the base mortgage insurance charges for FHA’s single family programs (see Table A).

Let's take a closer look at the ten primary changes to the FHA guidelines:

1. Upfront Mortgage Insurance Premiums (UFMIP) will range from 1.25% to 2.25% of the loan amount, depending on score and risk factor.
2. The Monthly Mortgage Insurance Premium will range from 0.50% to 0.55% depending on score.
3. Borrowers with either no score or at least 500 may get an LTV (loan-to-value) >90%.
4. Borrowers with a credit score less than 500 get a maximum LTV of 90%.
5. Borrowers without credit scores will require manual underwriting.
6. The premium is based on the borrower with the lowest score.
7. If one of the borrowers has no score, then the Non-Traditional credit grade is used.
8. Credit rescoring is allowed to improve a borrower's credit grade.
9. All FHA Secure refinances >95% LTV with delinquencies have a 2.25% UFMIP and 0.55% MMI.
10. These changes apply to cash-out, rate & term, and non-delinquent FHA Secure refinances.

FHA Single Family Mortgage Insurance Upfront and Annual Mortgage Insurance Premiums (Loan Terms > 15 years) Effective as of July 14, 2008
All premiums are specified in percentages (1.00%)
Decision Credit Score (FICO)
LTV	850-680	679-640	639-600	599-560	559-500	499-300	NON-TRADITIONAL
≤ 90.00	1.25/0.5	1.25/0.5	1.25/0.5	1.50/0.5	1.75/0.5	1.75/0.5	1.50/0.50
90.01-95.00	1.25/0.5	1.25/0.50	1.50/0.50	1.75/0.50	2.00/0.50	n/a	1.75/0.50
> 95	1.25/0.55	1.50/0.55	1.75/0.55	2.00/0.55	2.25a/0.55	n/a	2.00/0.55
A first-time homebuyer, with HUD-approved counseling, will pay only 2.0% for the upfront mortgage insurance premiums.

No doubt about it, the mortgage and real estate market is in a real rut. According to the Mortgage Lender “Implode-O-Meter” website, the number of lenders that have imploded – shut down completely, filed for bankruptcy, or ceased major operations “temporarily” – almost doubled from this time last year, up from 136 to 266 (as of 7/8/08).

The latest casualty is giant IndyMac Bank, who ceased accepting new loan submissions or rate lock requests as of Monday, July 7^th. They are shutting down operations of both wholesale and retail mortgage banking divisions, but will continue to operate the retail consumer banking divisions as well as a limited number of servicing retention operations. In addition, they are laying off more than half its workforce, reducing total manpower from 7,400 to around 3,200. IndyMac Bankcorp, Inc is the holding company for IndyMac Bank, the 7th largest savings and loan and the 2nd largest independent mortgage lender in the nation.

In a Stakeholder Letter published on IndyMac’s website, they state:

Given the continued downward trend in home prices and a resulting increase in our forecasted credit losses and the related downward trend in the pricing of all mortgage related assets in the capital markets, especially mortgage-backed securities where we have experienced significant rating agency downgrades this quarter, we expect our loss for the second quarter to be larger than Q108, but it is difficult at this time to be more precise given the significant uncertainty surrounding accounting estimates, fair value accounting and other accounting matters.

In light of the current environment and related deterioration of our financial position since last quarter, we have been working closely with our federal banking regulators with respect to the actions that they and we must take to meet our mutual goal of keeping Indymac safe and sound through this crisis period. In that respect, based on information we have provided to our regulators, they have advised us that we are no longer “well capitalized”, which we stated on May 12 was a possible scenario.… As a result, the most realistic and cost-effective way to shrink both our balance sheet and our servicing rights asset (which, as discussed in previous communications, is up against the regulatory cap limit), is to curtail most new loan production.

… As a result of the above, we have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel. We plan to honor all of our existing rate-locked loans and will continue to fund these loans in the coming weeks. While the managers and employees in these units have worked incredibly hard, these units are not currently profitable due to the continuing erosion of the housing and mortgage markets. At the same time, these operations take up significant balance sheet capacity and “feed” growth in the servicing asset, an asset we need to shrink given its size relative to our existing capital.

There is still some good news amidst all this. As fears of a weakening economy outweighed fears of inflation, mortgage rates moved downwards last week, with the nationwide average rate for the Conforming 30-year Fixed dipping 10 basis points from 6.45% to 6.35%. Rates are expected to hold steady this week, providing a breather for those with a transaction currently in progress.

With the mortgage industry in a state of continuous flux, now is best time to have a professional Mortgage Advisor or Financial Strategist on your side to guide you through all the confusion.

Until next week, happy home loan shopping!

Christina Dunham is a Mortgage Advisor with the Dunham Group at Sierra Pacific Mortgage, a nationwide mortgage banker funding over $8 billion in loans annually since 1986. She may be reached at contact@christinadunham.com. For a complimentary credit or mortgage loan consultation, contact Christina Dunham at 866.7.DUNHAM.