Analyst Says Nation’s 5.6 Percent Unemployment Rate is Misleading, Holding Back Housing Market Recovery

While the Obama Administration is touting monthly job gains consistently averaging more than 200,000 and a labor market that they say is at its healthiest level since the turn of the century, at least one analyst says that the recently reported national unemployment rate of 5.6 percent may not be telling the complete story.

Jim Clifton, chairman and CEO of polling firmGallup, claims in a story on the Gallup website blog entitled "The Big Lie: 5.6 Percent Unemployment" that this figure is misleading, and he spells out why he believes that way.

The nation's unemployment rate has particular meaning for the housing industry because economists and analysts have repeatedly stated that housing recovery depends on economic recovery, and vice versa – and that housing recovery depends in particular on a healthy combination of consistent job gains and wage growth. In fact, many analysts have predicted that millennials (age 25 to 34) will drive housing recovery in the next year, thus making employment among that demographic imperative.

"Right now, we're hearing much celebrating from the media, the White House and Wall Street about how unemployment is 'down' to 5.6 percent," Clifton wrote, referring to the rate the Bureau of Labor Statistics reported for December that actually ticked up to 5.7 percent in January. "The cheerleading for this number is deafening. The media loves a comeback story, the White House wants to score political points and Wall Street would like you to stay in the market."

Clifton asserts that the 5.6 percent unemployment rate is not a true representation of the percentage of unemployed workers nationwide because it doesn't include people who have given up looking for a job – or in his words, "While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news – currently 5.6 percent."

About 30 million Americans are either out of work or severely underemployed, according to Clifton. When the number of Americans in "good jobs" is calculated – or in other words, the number of Americans who have a job with an organization that puts them to work for 30 or more hours a week and provides them with a regular paycheck – that number is a staggeringly low 44 percent, Clifton said.

Another reason why the 5.6 percent unemployment figure is misleading, according to Clifton, is that it does not include those who work part-time and want to work full-time.

"There's no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie," Clifton wrote. "And it's a lie that has consequences, because the great American dream is to have a good job, and in recent years, America has failed to deliver that dream more than it has at any time in recent memory. A good job is an individual's primary identity, their very self-worth, their dignity – it establishes the relationship they have with their friends, community and country. When we fail to deliver a good job that fits a citizen's talents, training and experience, we are failing the great American dream."

In January, when the BLS announced the 5.6 percent unemployment rate for December, Fannie Mae chief economist Doug Duncan noted that the labor force participation was at 62.7 percent – its lowest level since 1977.

"So far, the diminishing slack in the labor market has not yet translated into stronger wage gains, which sends a disappointing signal to the housing market," Duncan said. "We fear that housing may, again, lag the progress of the overall economy this year. . . While we expect economic growth to strengthen to an above-par pace this year, our view for the housing market remains cautious, as we believe that meaningful income growth needs to occur to spur household formation, which has been frustratingly anemic in the current economic expansion."

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Jerry Gusman, The Gusman Group

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Can HAMP Borrowers Absorb Higher Payments When Loan Mods Reset?

Approximately half a million homeowners who received a mortgage loan modification in 2010 through the government's Home Affordable Modification Program, commonly known as HAMP, are due to reset in 2015 – and those homeowners will be facing slowly increasing monthly mortgage payments.

Will these homeowners be able to handle the payment increases, or will there be a massive wave of re-defaults?

The U.S Department of Treasury and Department of Housing and Urban Development (HUD) launched HAMP in 2009 as part of its Making Home Affordable initiative to provide relief for homeowners facing financial hardship by reducing monthly payments to affordable levels through lowered interest rates and modified loan terms. The goal of the modifications was to reduce monthly payments to about 31 percent of the homeowner's income. According to Mark McArdle, Chief Homeownership Preservation Officer at Treasury, HAMP has saved distressed homeowners an average of about $547 per month (about 39 percent) on mortgage payments by lowering their interest rate in many cases to 2 percent.

There are some who are not sold on the effectiveness of HAMP. One of those is Bankrate.com Chief Financial Analyst Greg McBride, who said in 2009 that homeowners receiving a modification through HAMP were simply "kicking the can down the road" and now that we are in 2015, "we're at the end of the road" because of all the HAMP mods due to reset this year. Furthermore, he said he thinks many homeowners will be "shocked" to find out that "permanent didn't really mean permanent" and instead meant five years.

"What happens is that payment starts to normalize – that 2 percent increases by 1 percentage point per year," McBride said. "So what's going to happen is these homeowners are going to see their mortgage payments go up this year, next year, and in many cases, the year after that. That's where the potential problem is. Household incomes have been stagnant and many homeowners don't have the additional room in their budget to absorb higher payments. Even if they can absorb the first payment increase, the cumulative increase of payments in subsequent years could prove problematic."

Just how problematic will the interest payment increases be? That remains to be seen, but even without the interest increases, re-default rates on HAMP mods have hovered around 40 percent for mods with a 2010 vintage.

As of the end of Q3 2014, the latest data available, HAMP has helped about 1.4 million distressed homeowners receive permanent loan modifications.  Of the approximately 60,000 permanent modifications completed in 2009, the first year of HAMP, about 42 percent of those modifications were 90 or more days delinquent 42 months after the modification became permanent. Of the nearly 511,000 HAMP modifications with a vintage of 2010, that percentage was about the same for those with a 2009 vintage – about 41 percent. That is double the percentage of overall 90-day delinquency rate of all HAMP mods completed through the second quarter of 2013, which is 20 percent.

Treasury has been considering the possibility of re-defaults on HAMP mods and has ways of helping those borrowers for years.

"In addition, we are looking at whether financial counseling for borrowers at the beginning of a modification can be effective in reducing re-default risk," McArdle wrote in 2013. "While re-default remains an unfortunate outcome for some borrowers, clearly without HAMP, national foreclosures rates would have been much higher and many borrowers would not have received the assistance they needed. HAMP continues to be the strongest available program for mortgage modifications. Receiving assistance through HAMP gives homeowners a valuable opportunity to strengthen their financial footing and stay in their homes."

McArdle said that only a small percentage of borrowers who re-default on HAMP mods actually go into foreclosure. Many who re-default are later able to find solutions to avoid foreclosure.

"Of those homeowners who have not been able to keep up with their modified payments under HAMP, the majority have received other forms of assistance or reinstated or paid off their mortgage loans," McArdle wrote. "HAMP requires servicers to reach out to any homeowner who falls behind on a modification to review all other assistance options, before the servicer starts foreclosure proceedings."

McArdle is scheduled to be a panelist on the "Modifying Modifcation" panel at the upcoming Five Star Government Forum in Washington, D.C. on March 18. This panel will assess HAMP and its effect on stabilizing the housing market and assisting distressed homeowners.

With regard to the possibility of re-default, McArdle said Treasury is ready.

"Treasury will maintain its oversight of participating servicers," McArdle said in a note to servicers last March. "We will monitor the interest rate resets to ensure that if signs of homeowner distress arise, servicers are ready and able to help by providing loss mitigation options and alternatives to foreclosures."

McBride said although there will be HAMP re-defaults, it will likely not trigger a housing bust similar to the one the country experienced seven years ago.

"The numbers aren't that big relative to what we saw during the housing bust and it's spread out over a period of several years, so it's not coming all at once," McBride said.

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Jerry Gusman, The Gusman Group

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Freddie Mac: Households, Businesses Should Take Advantage of Positive Housing Opportunities While They Last

Freddie Mac cited a number of positive opportunities for housing to start 2015, but households and businesses should take advantage of them because those opportunities may be limited, according to the GSE's January 2015 U.S. Economic and Housing Market Outlook released on Tuesday.

Among the positive tailwinds for housing to start the year are the refinancing opportunities available. Among conventional 30-year fixed mortgage agency mortgage-backed securities (MBS), $361 billion had a 4.5 percent coupon and another $479 billion had a coupon higher than 4.5 percent. Many of those MBS had a rate higher than 5 percent, giving borrowers a strong incentive to refinance at the current 30-year fixed annual rates, which averaged a below-expected 4.17 percent in Freddie Mac's latest Primary Mortgage Market Survey.

The most important positive tailwind for housing, however, is job growth. Payrolls increased by an average of 246,000 per month in 2014 compared to just 194,000 per month in 2013, according to the Bureau of Labor Statistics. The unemployment rate fell by the course of 1.1 percentage points during the course of 2014 down to its latest reported rate of 5.6 percent for December, the lowest level it has been in six and a half years. The drop in unemployment rate over 2014 reduced the amount of unemployed persons in the United States by 1.7 million, according to BLS.

It was not such a positive year for wage growth, however, as wages increased by only 1.7 percent, barely keeping up with inflation, according to BLS. However, the latest Conference Board Consumer Confidence Index in December reported the highest level of consumer confidence since February 2008. Lower gas prices have also given American consumers anywhere from a $125 to $200 billion stimulus, according to economists' estimates.

"On balance there are a lot of positive opportunities in the U.S. economy at the start of the year, and the real question is whether or not households and businesses will be able to seize these opportunities and make the most of them," said Frank Nothaft, Freddie Mac VP and chief economist. "The reprieve in interest rates and drop in gas prices should help to spur economic growth. Until rates start to rise later in the year, housing markets should respond positively and we anticipate increases in home sales and continued improvement in construction activity. With rates lower at the beginning of the year, we'll see higher than expected refinance volumes as well."

The report stated that households and businesses should take advantage of these positive opportunities now, because they may not last. Unexpected weakness in the global economy and uncertainty in foreign markets has resulted in a flight to the relative safety of the U.S. Treasury, which in turn has resulted in lower mortgage interest rates and gas prices as well as a drop in inflation domestically.

"Over time the global economy should stabilize and many of these trends may reverse themselves," Nothaft wrote in the report. "In addition, domestic economic policy, particularly by the Federal Reserve, has the potential to affect interest rates. We expect to see the relatively low interest rates of the past few weeks persist for the first two quarters of the year, but then start to move higher in the second half."

The refinance share has been adjusted higher by 9 percent due to lower-than-expected mortgage rates, according to Freddie Mac. Much of the increase in refinance share can be attributed to the spike in refi activity.

"The economy has a great opportunity to expand in 2015," Nothaft wrote. "The reprieve in interest rates and drop in gas prices should help to spur economic growth. Until rates start to rise later in the year, housing markets should respond positively and we anticipate increases in home sales and continued improvement in construction activity. With rates lower at the beginning of the year, we’ll see higher than expected refinance volume, but expect refinance volume to drop quickly as rates rise."

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Jerry Gusman, The Gusman Group

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Big Year for Housing in 2015 Based on Recent Government Actions?

With 2015 less than two weeks underway, Fitch Ratings is the latest forecaster predicting great things for housing in the coming year. However, unlike other commentators, whose projections were based on encouraging market trends, the ratings agency says it's a combination of recent government actions that reinforces its view.

In a report released Monday morning, Fitch outlined five big events—all of which have taken place in the past few months—that, taken together, "could have a relatively meaningful impact on home buyer psychology, pent-up demand and housing trends in 2015 and beyond," the company says.

• The Federal Housing Administration's (FHA) announcement that it will lower insurance premiums to 0.85 percent annually: Historically considered one of the top resources for low-income and first-time homebuyers, FHA has fallen off in the past few years as it's been forced to raise premiums and require life-of-loan payments to help shore up its capital reserves. As a result of the changes, Fitch estimates that FHA's share of the new housing finance market through Q3 2014 was down to 11.9 percent from 15.6 percent in all of 2013 and 20.4 percent in 2012. With premiums set to come down by the end of January—a move the White House estimates will save the average FHA borrower $900 annually—the agency expects FHA-insured loans may become a more attractive option again.
• Fannie and Freddie's move to lower down payment requirements: In another action to open up mortgage lending, the Federal Housing Finance Agency (FHFA) announced in December that it has directed Fannie Mae and Freddie Mac to introduce programs offering down payments as low as 3 percent to qualified homebuyers. To minimize risk, FHFA said the programs will take into account compensating factors to prove creditworthiness and will feature homeownership counseling.
• FHFA's clarified rep and warrant framework designed to reduce lender confusion: Taking notice of FHFA's pursuit of certain originators over loans they sold to the GSEs, many lenders have set up stricter credit overlays (often worse than the GSEs' minimum requirements) in order to mitigate putback risk. To reassure lenders, both Fannie and Freddie updated their frameworks in November to better define what they consider to be a misrepresentation, a step that will hopefully spur originators to expand their lending criteria.
• Regulators' finalizing of the qualified residential mortgage (QRM) rule: FHFA, the Fed, the Comptroller of the Currency, and other financial regulators finalized in October a rule requiring banks to hold on to a portion of loans they sell, cutting out an exemption for low-risk mortgages. The final rule did away with an earlier provision requiring a 20 percent down payment for low-risk loans after mortgage bankers and trade groups voiced concerns about how such a requirement would restrict credit.
• A welcome decline in oil (and fuel) prices: An oversupply of oil has brought costs down by more than half, slashing costs at the pump considerably (in an interview with USA Today, Saudi businessman Prince Alwaleed bin Talal said he doesn't expect to see oil prices climb to $100 per barrel again.) The decline has left American drivers with more disposable income, opening up affordable housing options for those who were worried about their commute.

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Jerry Gusman

The Gusman Group

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Did Obama Overestimate Progress of Housing Market Recovery?

 

One of the main points in President Barack Obama's speech about housing in Phoenix on Thursday was how far the housing industry has come since the bust of 2008 and particularly since he took office in January 2009.

The president reported in his speech that the housing market has not come all the way back yet and there is still work to be done. But according to one analyst, the president may have overestimated how far the housing market has come back and the administration's role in the recovery.

"We have come back off the bottom of one of the worst housing busts in the country’s history," said Rick Sharga, EVP at Auction.com, the largest online real estate market in the U.S. "But we’re still closer to the bottom than we are to the peak of the market during the housing boom. Prices have recovered, but are back to 2004 levels, meaning that we’ve still essentially lost a decade of equity. So there’s still quite a bit of room for expansion, and most people (myself included) are predicting that 2015 will be flat compared to 2014, and that 2016 may not be much better. So the market has gotten better, but it’s hardly robust."

Sharga said that the progress the housing market has made so far was mainly brought about by several factors.

"And it’s important to note that this 'recovery' was facilitated by unprecedented action by the Federal Reserve; several years of historically low interest rates; and government-backed lending that accounts for about 96 percent of all loans being issued," he said. "In a lot of ways, housing is still on life support; in stable, rather than critical condition, but hardly ready to fend for itself."

The president was in Phoenix to officially announce the lowering of Federal Housing Administration (FHA) mortgage insurance premium rates by 50 basis points down to 0.85 percent in order to allow more first-time homebuyers to enter the market. The lowering of MIPs by the FHA has been widely praised by government officials and housing executives alike. While Sharga said he believes that lowering the insurance premiums will result in only a "miniscule" risk to taxpayers due to the profitability of FHA, he said the impact that the recent lowering of the premiums will have on home sales will be minimal if the administration's estimates come to pass.

"The administration estimates that 250,000 people may be able to buy a home due to the reduction over the next three years," he said. "If they’re correct – and frankly, this administration has always overestimated the impact of its mortgage and housing-related policies – those extra homebuyers will add approximately 1.6 percent more home sales than what’s already being projected. More likely, we’ll see the FHA’s share of loan volume go up a little bit, as their offerings will now be competitive versus conventional loans, especially for sub-729 FICO score borrowers."

During his speech on Thursday, the president encouraged the audience not to buy things they could not afford, saying the new lower FHA insurance premium rates are for "responsible borrowers."

"Overall, I thought the President made some good points (Thursday). I was pleasantly surprised to hear him urge people to not buy a home that they couldn’t afford," Sharga said. "Most of the rhetoric coming out of Washington over the past few years – and from this administration in particular – have painted borrowers as helpless victims and lenders as evil predators. It was refreshing to hear a clear message encouraging people to take personal responsibility for their personal finances."

Sharga was skeptical that the Obama Administration's Home Affordable Modification Program has had the effect on housing recovery that the administration is touting, however.

"HAMP was intended to save 4 to 5 million borrowers from foreclosure," Sharga said. "The last time I checked, there were about 750,000 modified loans in the HAMP program, and there are lingering concerns that many of them may re-default when their rates begin to reset this year. I believe that the HAMP program did have a role in pushing servicers toward better-designed loan modification programs, but to give HAMP credit for all the proprietary loan modifications made by servicers and lenders seems somewhat disingenuous, or at least too optimistic."

While the Obama Administration created the Consumer Financial Protection Bureau (CFPB) as part of the Dodd-Frank Wall Street Reform Act, the impact of the Bureau on lenders and housing as a whole may not be all positive, Sharga said.

"And the CFPB, with its QM and ATR rules, along with some of the regulatory uncertainty the administration has fostered with its record financial penalties to lenders, has essentially caused lending to all but the most qualified borrowers to seize up," he said. "This might be one way to define 'stability,' but it’s not doing much for the housing market, or for the broader economy."

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Jerry Gusman, The Gusman Group

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Obama offers help for younger, first-time homebuyers

WASHINGTON 

President Barack Obama moved Wednesday to make it cheaper for first-time and younger buyers to take out a mortgage.

Obama lowered the mortgage-insurance premium for borrowers who have a down payment of just 3.5 percent of the home’s purchase price and finance the rest of the purchase with a loan backed by the Federal Housing Administration.

The reduction is expected to save the typical first-time homebuyer an average of $900 a year on the insurance, the White House said. The insurance is required because they’re financing so much of the purchase and the loans are riskier.

Existing homeowners who refinance into an FHA mortgage will see similar reductions, the White House said.

The White House estimated that the change will help 800,000 homeowners save on their mortgages and 250,000 new buyers save on mortgage payments over the next three years.

Obama, expected to highlight the lower-cost mortgages Thursday during a visit to Arizona, has been under pressure from the housing sector to help lower costs for borrowers seeking to buy with a low down payment – often younger buyers and first-time homebuyers, both a crucial link in home sales.

“We do not see first-time buyers getting into the marketplace. They don’t have a chance to get onto that first rung of housing,” said Chris Kutzkey, president of the California Association of Realtors.

While mortgage lending rates have been near record lows for several years, that has benefited the most creditworthy borrowers, who are often the wealthiest of homebuyers. The middle-income segment of the market, with higher debt loads, has faced tougher lending standards. Stagnant income has crimped its ability to put more down toward a home purchase.

“Mortgage underwriting standards have been overly stringent,” said Lawrence Yun, chief economist for the National Association of Realtors.

The premiums rose sharply after the financial collapse and have not come down even as the economy and the housing market have improved.

“It’s almost as if government is ripping off the consumers,” complained Yun, noting that premiums were raised to minimize risks to taxpayers of borrowers defaulting on government-backed loans. “But what has happened is they were punishing current borrowers for the sins of past mistakes. Current borrowers did not harm the market, but they are paying the excessively high premiums.”

One consequence is the shrinking number of new homeowners. Over the past four years, first-time homebuyers shrank as a percentage of all FHA loans – from 56 percent down to 39 percent, he said.

First-time buyers are a key part of the real estate chain, needed so existing homeowners can sell and purchase nicer, perhaps newly built homes.

“Future homebuyers are paying a higher expense than is necessary and that is having an effect on housing,” said David Stevens, president of the Mortgage Bankers Association.

Ironically, the premiums went up from 2009 to 2011, a period when Stevens was the No. 2 man at the Federal Housing Finance Agency, the regulator of mortgage giants Fannie Mae and Freddie Mac.

In a related move, the new head of the Federal Housing Finance Agency, former North Carolina Democratic Rep. Mel Watt, took steps in late December to make it possible for Fannie and Freddie to purchase loans that had down payments as low as 3 percent instead of the prior limit of 5 percent.

The move, similar to lowering FHA premiums, was designed to spur more first-time homebuying, boost the economy and compete with FHA loans.

“This sluggish recovery in housing has to change course for the economy to continue its growth trajectory,” Stevens said. “So in the short run, we would view premium reduction as a positive for the economy.”

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, and Senate Banking Committee Chairman Richard Shelby, R-Ala., have in the past opposed lowering the premiums. They want to see less government involvement in housing finance and fear lower premiums mean taxpayers are still on the hook if a large number of loans go sour, as they did from 2007 to 2009.

The Obama administration has the power to lower premiums on its own and wouldn’t need legislation or congressional approval to act alone.

Another concern for would-be buyers and sellers is whether the longstanding mortgage-interest tax deduction might be removed or scaled back for the wealthy. Both of these ideas have been floated in discussions about how to fix the nation’s long-term fiscal imbalances.

“We really want to see no change to the tax incentives,” said Kutzkey of the California real estate group. “A lot of people are sitting on the fence. . . . They don’t know if they can move up.”

Economic conditions are increasingly favorable for a return to normalcy in housing. The economy is growing at a brisk pace, falling gasoline prices leave people with more spending power and hiring picked up sharply in 2014. A tight rental market also may soon push more people into considering home ownership.

“Apartment rents are rising at the highest pace in seven years, which means some of the renters . . . will seriously consider buying,” said Yun of the national real estate group.

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Jerry Gusman, The Gusman Group

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Read more here: http://www.miamiherald.com/news/business/article5564631.html#storylink=cpy

Mortgage Forgiveness Debt Relief Act Extended Into 2015

Just before Christmas, President Barack Obama signed into law H.B. 5771, known as the Tax Increase Prevention Act of 2014, which retroactively extended 55 tax provisions – including one that provides distressed homeowners relief on forgiven mortgage debt.

The bill was introduced by U.S. Representative Dave Camp (R-Michigan), Chairman of the House Committee on Ways and Means, on December 1, 2014. Two days later, on December 3, the bill passed in the House by a vote of 378 to 46. On December 16, the Senate passed the bill by a 76 to 16 vote. The president signed the bill into law on December 19.

The tax provisions covered by the bill, which expired on December 31, 2013, are retroactively extended for one year until December 30, 2014, and will be effective on income tax returns filed for the year 2014. One of those provisions, covered under Section 102 of the bill, allows homeowners to exclude forgiven mortgage debt (the remaining mortgage loan balance when a home is sold in a "short sale" to avoid foreclosure) from their gross income when filing tax returns.

This provision is an extension of the Mortgage Forgiveness Debt Relief Act of 2007, originally signed into law by President George W. Bush, which originally relieved distressed homeowners from having to pay taxes on forgiven mortgage debt for the three calendar years of 2007 through 2009. That tax exemption was extended three more years until the end of 2012 with the Emergency Economic Stabilization Act of 2008, and it was extended until the end of 2013 with the American Taxpayer Relief Act of 2012.

Section 104 of the new bill allows taxpayers who own homes to count qualified mortgage insurance premiums as interest for the purpose of mortgage interest deduction on their tax returns.

"USMI commends passage by Congress last night of a one year extension of vital homeowner tax relief,"U.S. Mortgage Insurers said in a prepared statement. "We are especially pleased that the legislation includes the tax-deductible treatment of mortgage insurance premiums for low and moderate income borrowers.  We look forward to working with Congress towards permanent enactment of this important tax relief for homeowners."

Many of the lawmakers who voted to pass the bill agreed that while extending the tax breaks another year is a step in the right direction, a more permanent solution is needed.

"I will support this bipartisan compromise but I would have preferred a two year tax extenders agreement that gave working families and Wisconsin businesses more long-term certainty," said Senator Tammy Baldwin (D-Wisconsin), one of the 76 senators who voted in favor of the bill. "Wisconsin families and businesses don’t plan on one year increments and we need long-term solutions, not short-term Band-Aids."

Senator John Boozman (R-Arkansas), who voted in favor of the bill, said he believes the nation's tax code needs reform in order to make things fairer and simpler for every American.

"However, in the interim, extending these tax provisions is just plain commonsense," Boozman said. "By doing so, we prevent tax increases on hardworking Arkansans, as well as small businesses and farmers who are our state’s economic engine."

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Jerry Gusman, The Gusman Group

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Nearly 70 Percent of Industry Professionals See Lower Down Payment As Positive

The majority of mortgage industry professionals said they believed that the lowering of the down payment to 3 percent for first-time homebuyers by Fannie Mae and Freddie Mac was a step in the right direction for the housing market, according to theCollingwood Group's November 2014 Mortgage Industry Outlook Report released earlier this week.

In a survey conducted online distributed to a diverse group of mortgage and housing industry professionals, 69 percent of respondents said that lowering the down payment was a move in the right direction for housing, while 31 percent said it was a move in the wrong direction, according to the Collingwood Group. Though the survey respondents represented professionals who work in all phases of the mortgage process, the largest percentage of respondents (50 percent) were lenders or originators.

According to the Collingwood Group, the survey respondents who believed lowering the down payment was a positive move said it reflected concern of policymakers with current market dynamics, and it indicated a willingness on the part of the Federal Housing Finance Agency (FHFA) to ease lending standards. At the same time, most respondents pointed out the existence of other high loan-to-value (LTV) products and said they believed the Federal Housing Administration (FHA) offered the best option.

"The announcement of a low down payment mortgage option may create more opportunities for buyers to afford housing; however, it falls short of appropriately loosening tightened credit standards for other LTV loans," one anonymous survey respondent said in the report. "The 97 percent allows the GSEs to capture loans that would otherwise go to FHA."

According to the Collingwood Group's report, this point raised the question as to whether FHA would lower its insurance premiums sometime in 2015 in order to compete. A spokesperson said it has not been determined whether the premiums will be lowered.

"FHA has made no decisions regarding the premiums," HUD press secretary Cameron French said. "We are regularly evaluating a number of factors to ensure our premiums are at the right levels. As a result of the most recent annual report, we are looking through new information and will use that to inform any future decisions."

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Jerry Gusman, The Gusman Group

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GSEs Officially Lower Down Payment to 3 Percent for Qualifying First-Time Homebuyers!!

Following months of talk and speculation, bothFannie Mae and Freddie Mac announced on Monday they will begin allowing qualifying first-time borrowers to purchase homes with just a 3 percent down payment.

By lowering the down payment down to 3 percent, leaders from the GSEs and the Federal Housing Finance Administration (FHFA) hope to increase homeownership and particularly household formation by offering loans to those who can afford mortgages but lack resources to make a 20 percent down payment plus closing costs.

Those who have pushed for the lower down payment, such as FHFA Director Mel Watt, have endured criticism from lenders due to the perceived risk involved with making a mortgage loan such a high maximum loan-to-value ratio.

"These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices," Watt said in a prepared statement. "To mitigate risk, Fannie Mae and Freddie Mac will use their automated underwriting systems, which include compensating factors to evaluate a borrower’s creditworthiness.  In addition, the new offerings will also include homeownership counseling, which improves borrower performance. FHFA will monitor the ongoing performance of these loans."

Freddie Mac has announced the launch of Home Possible Advantage, which is an affordable, conventional mortgage with a maximum loan-to-value ratio of 97 percent to qualified low- and moderate-income borrowers. Home Possible Advantage mortgages can be used either to buy a single unit property or for a "no cash out" refinance of an existing mortgage, and they are available as 15-, 20-, and 30-year fixed rate mortgages.

In order to qualify for a Home Possible Advantage mortgage, first-time homebuyers must participate in an approved borrower education program, such as CreditSmart offered by Freddie Mac.

"Home Possible Advantage gives qualified borrowers with limited down payment savings a responsible path to homeownership and lenders a new tool for reaching eligible working families ready to own a home of their own," Dave Lowman, EVP of Single-Family Business at Freddie Mac said. "Home Possible Advantage is Freddie Mac's newest effort to foster a strong and stable mortgage market."

Likewise, Fannie Mae is now offering mortgage loans with a maximum 97 percent LTV ratio to qualifying first-time homebuyers. Such a mortgage can be obtained through Fannie Mae with a 3 percent down payment under Fannie Mae's standard offering or its My Community Mortgage Product if one of the co-borrowers is a first-time homebuyer.

In addition, homeowners with an existing Fannie Mae mortgage who are not eligible for the Home Affordable Refinance Program (HARP) can refinance their loan up to the level of 97 percent LTV if they meet eligibility requirements.

"Our goal is to help additional qualified borrowers gain access to mortgages," said Andrew Bon Salle, Fannie Mae Executive Vice President for Single Family Underwriting, Pricing and Capital Markets. "This option alone will not solve all the challenges around access to credit.  Our new 97 percent LTV offering is simply one way we are working to remove barriers for creditworthy borrowers to get a mortgage. We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae and an affordable, responsible option for qualified borrowers."

In order to mitigate risk and ensure the loans Fannie Mae acquires are properly underwritten, the company has implemented practices that include requiring income documentation and verification and eliminating risk-layering on purchase money loans.

Fannie Mae reported in its announcement regarding the new loan guidelines that private capital will be in the first loss position. Mortgage insurers and other risk sharing partners must conclude that the lower down payment loans are prudent in order for them to be originated and sold in the secondary market to Fannie Mae. Also, whereas some lenders have tightened mortgage availability due to uncertainty around the circumstances that would result in a loan repurchase request, Fannie Mae is working to provide lenders withgreater clarity regarding these requests.

Also, to help better evaluate risk on loans, Fannie Mae is offering new tools to lenders, such as Collateral Underwriter, which will be available early in 2015. It is the same appraisal review tool that Fannie Mae uses and will be available to Fannie Mae's customers at no additional charge.

For more information contact

Jerry Gusman, The Gusman Group

888-213-4208

jerryggroup@aol.com

I Want To Sell My Home? Is The Market Right To Sell?

Have you been thinking about selling your home? Been waiting for the values to rise or your local market to get better so that you can get maximum price?

As we wind down 2014 we experienced a market of many changes. We started off the year in a sellers market. With low inventory and prices at their peak. We quickly however saw a dramatic change after the first quarter of the year to a buyers market, Even though inventory was still low buyers became fewer for many reasons. Lender guidelines becoming more stringent, and loan limits in some areas lowered. For what ever reasons many buyers left the market making seller compete for the smaller pools of buyers. This resulted in properties sitting on the market longer and in mid year price reductions were the norm.

So is now a good time to sell? Will 2015 bring a better market for sellers? Although we don't see a lot that will change in 2015, Maybe the elections being concluded will instill more of a sense of security and ease minds to take on the obligation of a mortgage payment. This for sure will be a welcome change. In my opinion this is one of our biggest hurdles to overcome. 

In parts of Southern California's Inland Empire, areas like Rancho Cucamonga, Upland, North Fontana, FHA will only loan up to 355k. This is the maximum loan amount for these areas where the average price of a home is around 400K. Statistics show that over 50% of home buyers utilized an FHA loan. Does this nmean we have lost over 50% of our potential buyers in these areas? It sure appears so and explains another reason for the slow down in the market.

Should you still sell?  Absolutely! You can never know exactly what the future will bring. But, it's a good bet the new year will bring higher interest rates, making house payments less affordable. As the market slows so will home values. Inthe beginning of 2014 the low inventory spurred buyers over paying for homes just to be able to get a home, bidding wars were common raising the prices. Now properties go for months not days with no interest causing sellers to lower prices and eventually lowering values. Get your home on the market before this happens......it's already happening in some areas.

There are many reasons to sell now besides the few I mentioned. Price your home right and hire a savvy agent that will market your home. The key to getting top dollar for your home is exposure. Exposing your property to as many potential buyers as possible to find the one that is willing to pay your asking price. The beginning of the year also brough many seller to sell on thier own, For Sale By Owner. That works better in a sellers market like we had then, but, not in this market. You need to utilize an agent that specializes in marketing homes not just listing them. Also using an agent has many legal benefits and liability concerns that will side in your favor. In most cases using an agent will raise your selling price at least enough to cover your costs......SO what do you have to lose?

Here's to a great 2015 selling season!