FHA Secure, Alonso Quixano, and Windmills
When FHA Secure was announced by the Bush Administration back in August of 2007, the FHA folks were perplexed. I know because I called them. First of all, FHA had already been doing unlimited CLTV refinances for a couple of years. Second, you didn’t have to be in default on your mortgage to qualify. And third, nobody had any idea what the hell the administration was talking about.
Those familiar with the Cervantes classic Don Quixote will remember Alonso Quixano, the county gentleman who descends into fantasy and reconstructs a farcical reality in which he fights unwinnable battles with imaginary enemies. The familiar phrase “tilting at windmills” has become iconic for the persistent pursuit of futile endeavors.
Still With Me?
Watching the administration and Alphonso Jackson of HUD descend into their own farcical reality has been disappointing. Like the great novel’s second half, the tale of FHA Secure appears to have evolved into a deliberate deception most painful to those for whom FHA Secure initially appeared to offer some hope.
Peter Berg, whose terrific watch dog blog FHA Mortgage Guide keeps close tabs on FHA financing, brings forth the disappointing reality of the statistics vs. the claims, as reported by HUD itself.
Despite the hundreds of thousands of homeowners Jackson claims to have helped (you will note that the these numbers are always in reference to FHA loans in general), “the glaring failure of the FHASecure program,” as Berg points out in his recent post FHA Mortgages at Mid-Year: Real Numbers Comes Out, is that “just 1,729 delinquent conventional borrowers have been helped in a period of six months.”
That’s a far cry from from the spin.
read comments (3)Sacramento Real Estate & Mortgage: A New Day
After 3 1/2 years of a real estate market in full retreat, affordable prices have once again sparked a frenzy of buying activity. Buyers are back. Some are first-time home owners previously sidelined by an overpriced market or frightened off by the free-fall in values. Some are investors who can now achieve a break-even cash flow while buying at the nadir.
Banks, heavily laden with foreclosures, are taking advantage of this turn of events by stoking the bidding fire with aggressively priced REO properties. It’s the eBay syndrome. Draw people in with low prices and let their emotions carry the price up. It works.
I am amazed too at the money that has emerged to take advantage of this. Reports of all-cash buyers (investors mainly) are frequent, and I have refinanced homes for clients, withdrawing enough cash to purchase investment property without financing restrictions. That is almost a necessity in cases where the property condition would preclude new financing.
So with prices bouncing off a hard floor and the sudden release of pent-up demand, the bottleneck seems to be with financing. Lenders are still reining in LTVs, raising credit score requirements, demanding repairs on rough properties, and generally behaving the way you or I would if we were worried about being able to sell these loans to investors.
Still, for those who can document income and good credit, there are still options. And a little down payment can do wonders. In fact, it’s a lot like it was a decade ago. And that makes pretty good sense.
Sacramento mortgage rates shot up to 6.24% this week from 5.5% during the week of January 24th, according to Freddie Mac’s weekly rate survey. Most people are still under the impression that the Fed adjusts mortgage rates or that mortgage rates move in lock step with Fed cuts. In recent weeks, Sacramento mortgage rates have done exactly the opposite. The market is a bit better this morning on news of flat consumer spending and lower consumer sentiment.
Nehemiah Gets The Cold Shoulder
I wrote about combining FHA + Nehemiah: a Path to 103% Financing a few weeks ago. It’s one of only a couple ways left to structure 100% financing. Several title insurance companies and at least one wholesale bank announced this week that they will disassociate themselves from deals where the Nehemiah program is being used. Nehemiah has survived numerous challenges in its non-profit status over the years, and it has another court test approaching. Are these companies are putting some distance between themselves and what will be hind-sighted as yet another contributor to the meltdown?
New Conforming Loan Limits
As the deadline approaches for HUD’s assessment of median prices, hopes fade for any meaningful increase in Sacramento conforming loan limits. According to my sources, Sacramento will be designated as a “high cost” area, but with median prices somewhere in the low $300k range, the formula may yield only a small increase, if any. Higher limits could unlock S.F. Bay Area markets and send more relocations our way to absorb inventory in the upper prices range.
Okay, time to get back on track. I am still recovering from the hacking that took down Lending Clarity and many other Tomato blogs. More than that, I’ve just been extremely busy pre-qualifying home buyers. Prices in many areas of the Sacramento real estate market have bounced off a hard floor and pent-up demand has buyers fighting it out once again over well-priced properties, often bidding prices up in the process.
Meanwhile, mortgage rates have been locked in a narrow range since the beginning of the year. Freddie Mac’s Complication of Weekly Survey releases for 2008 shows this well. For most of this year, rates have stayed within a whisper of 6%. The weekly average belies the incredible daily volatility we have experienced.
The Treasury Bubble
With corporate earnings reporting the past couple of weeks, things looked bad. It’s just that they weren’t as bad as everyone expected, so that made them look good, well, in a relative sort of way. And despite a plunge in consumer confidence to the lowest level in 26 years, the last round of corporate write-downs have caused a lot of economists and Wall Street pundits to wonder whether the worst is over.
If it is, and if the investors who fled to the safety of bonds, especially Treasuries, sell off suddenly, expect interest rates to rise. Expectations for another 50 basis point Fed cut next week have already evaporated, and even hopes for 25 basis points are fading. With renewed inflation concerns on the table, higher mortgage rates could be just around the corner. That would not be a big help right now as we struggle back to our feet.
Real estate buying activity in Sacramento is highly concentrated in the foreclosure sector. Makes sense. Buyers want the best deal they can get, and bank-owned properties appear to offer the best chance for that. But financing those REOs isn’t always easy, especially as shrinking bank liquidity pulls the lending noose tighter.
The Problem with “As Is” Sales
Many bank owned properties have been abused or poorly maintained. The banks who now own them would prefer to sell “as is” to avoid throwing good money after bad. But you can bet those same banks wouldn’t finance those homes now if asked. Prices are even lower if the bank hasn’t had to spend money on fix-up, but securing a loan on a roughed-up property is a growing challenge
Traditionally, lenders are concerned with two categories of repairs: habitability and health & safety issues. Conditions that impair habitability include kitchens lacking appliances or cabinets, non-functional sink or toilet fixtures, damaged or removed flooring, or a leaky roof. Health & safety issues are self explanatory but can include even minor items like missing electrical outlet covers. Banks have always required that these items be repaired prior to close. But it’s getting tougher as banks balance sheets dry up, leaving them extremely vulnerable if they originate a loan that cannot be sold off immediately in the secondary market.
A Few Possible Solutions
Here are a few ways to deal with this challenge.
Sacramento Mortgage Rates: Where Are Rates Headed?
This certainly is a confusing time for borrowers. The Fed keeps cutting short-term rates, the falling Prime rate has brought down rates on home equity lines, and desperate lenders continue to advertise loans that don’t exist. Add several price changes each day and a dash of well-earned industry distrust, and it’s no wonder consumers are skeptical. It just seems like 30 yr mortgage rates ought to be lower than they are.
There are some simple reasons for this, none of which you’ll find in within easy access. But if you dig a little, the simple truth emerges. The debt markets are in a state of panic. Investors who created liquidity by buying mortgage backed securities–the Norway Sovereign Wealth Fund, the Peoples Bank of China, and PERS, among others–believed the Wall Street alchemists and their talking-dummy rating agencies who claimed that the toxic waste was potable. Now, after vomiting up $200 billion in losses and “write-downs” (keep in mind that the CDO market is about $2 trillion in size), they’re not exactly storming the punchbowl. So, the banks have to juice the rates to lure investors back. So far, it’s not working all that well.
So while the rate confusion reins, if you want to know where conforming mortgage rates are, Freddie Mac offers their Primary Mortgage Market Survey. It’s published every Thursday and shows average regional and national rates for popular loans. Depending on your qualifications–credit score, employment history, debt ratios, and reserves–your mileage may vary.
If what you’re hearing on the radio, reading in the newspaper, or being told by your neighbor about rates varies significantly from Freddie Mac’s figures, poor out the kool-aid, place your hand over your wallet, and walk calmly toward the nearest exit.
Need advice or a quote? Give me a shout.
Got an opinion or comment, leave it below. Yes, I’d love to have your thoughts, and you’d love to see your words in print, wouldn’t you?
Sorry folks. I guess server issues has taken me out of action the past few days. Tomato Blogs is working on the problem and seems to have restored the archives up through December. Hope to have it all back shortly. Don’t go away. I’ve got a week’s worth of pent up frustration and updates to share with you.