Friday, December 23, 2011

FHFA: Home Prices Decline 0.2% in October

Home prices in the U.S. decreased 0.2 percent on a seasonally adjusted basis in October, according to the Federal Housing Finance Agency’s (FHFA) House Price Index released Thursday. On a yearly basis, prices declined 2.8 percent in October.

This slight decrease brings prices to levels seen in February 2004.
Current prices are about 19.2 percent below their peak in April 2007.
FHFA also revised the previous month’s index, lowering the 0.9 percent increase reported for September to a 0.4 percent increase.
FHFA calculates monthly purchase prices of homes backed by Fannie Mae and Freddie Mac mortgages.
On a regional basis, two of nine regions saw increases from October 2010 to October 2011 – the West South Central region (0.7 percent) and the East South Central region (0.1 percent).

Mortgage Rates...How Low Can They Go?

Mortgage interest rates continue to head south. Freddie Mac reported Thursday that the 30-year fixed-mortgage rate as well as adjustable rate products all sank to new all-time record lows this week, while the 15-year fixed rate settled in to match its historic low.

The 30-year fixed-rate mortgage averaged 3.91 percent (0.7 point) for the week ending December 22, dropping below last week’s previous record low mark of 3.94 percent. The average 30-year rate is now nearly a full percentage point below its level this time last year of 4.81 percent.
“Rates on 30-year fixed mortgages have been at or below 4 percent for the last eight weeks and now are almost 0.9 percentage points below where they were at the beginning of the year,” noted Frank Nothaft, Freddie Mac’s chief economist.
Nothaft says all those percentage basis points translate into $1,200 less a year on a $200,000 loan when you compare current rates versus borrowing costs 12 months ago.
The 15-year fixed rate matched last week’s all-time record low at 3.21 percent (0.8 point). A year ago at this time, the 15-year rate was averaging 4.15 percent.
Adjustable-rate mortgages (ARMs) also hit new all-time lows in Freddie Mac’s survey this week.
The GSE puts the average rate for a 5-year ARM at 2.85 percent (0.6 point) That’s down from 2.86 percent last week and 3.75 percent a year ago.
The 1-year ARM came in at 2.77 percent (0.6 point) this week, down from last week when it averaged 2.81 percent. At this time last year, the 1-year ARM was averaging 3.40 percent.
Nothaft says the greater homebuyer affordability afforded by today’s rock-bottom interest rates helped push existing home sales higher for the second consecutive month in November to an annualized pace of 4.42 million, the most since January.
Freddie’s chief economist also points to positive indicators in the new home sector, with construction of single-family showing a back-to-back monthly gain in November, with the largest increase since June, and homebuilder confidence in December rising to its highest reading since May 2010.

Fannie Mae Removes 'Ability to Repay' from HARP 2.0 Guidelines

Fannie Mae has updated its Selling Guide to reflect the recently announced changes to the Home Affordable Refinance Program (HARP).

Most of the revisions had been previously announced in November, but there’s one nuance that stands out, and until this week, had been absent the HARP 2.0 discussion.
Fannie Mae has removed the “reasonable ability to repay” clause from the criteria for vetting borrowers for a new HARP 2.0 refinance.
The D.C.-based GSE says the terminology was scratched because the underwriting requirements specific to its refinance channels – Refi Plus and DU Refi Plus – are already clearly outlined within the Selling Guide.
Fannie states in its latest update, “For Refi Plus, the lender is no longer required to determine the borrower has a reasonable ability to repay the mortgage based on a review of the information provided on the new loan application.”
The previous guidelines for HARP loans processed through the manual underwriting channel (Refi Plus) put the onus on lenders to determine that the borrower had a reasonable ability to repay the mortgage based on information provided by the borrower and payment history. It also required that lenders verify and ensure the borrower had a source of income.
Barclays Capital explains that ability to pay has traditionally been measured using DTI (debt-to-income
ratio) but pursuant to HARP guidelines, no DTI calculation or evaluation is required if the borrower’s payment does not increase by more than 20 percent. A 45 DTI cap applies otherwise.
Under the revised guidelines, the ‘borrower ability to pay’ clause is no longer an underwriting requirement. Barclays says it appears Fannie Mae has taken subsequent feedback from lenders into account since the November 15th announcement of the HARP 2.0 framework and incorporated this change into its guidelines.
The analysts at Barclays say the removal of the ability to pay clause is a “significant and unanticipated change that could have ramifications for the HARP program.”
The GSEs promised to relax representation and warranty requirements under the new HARP program and in doing so, have reduced or waived most of the underwriting requirements on traditional loans.
The ability to pay guideline, however, has continued to burden lenders with a subjective underwriting evaluation process that contains rep and warranty risk, according to Barclays.
“In our conversation with lenders, this has been often highlighted as one of the significant hurdles to HARP refinancing,” the investment banking firm said. “Lenders argue that lack of clarity on what ‘reasonable ability’ precisely means could expose lenders to indemnification liability in the event that the loan defaults.”
Barclays went on to explain, “Though the GSEs have indicated that this clause exists to ensure prudent underwriting judgment and efficient choice between HARP and HAMP, lenders view this as a significant risk.”
Removal of the clause alleviates many of the remaining concerns about rep and warranty indemnification with respect to HARP refis, according to Barclays.
The firm says lenders can now underwrite HARP loans assessing borrower credit based on a straightforward metric – number of payments made – which reduces a significant layer of complexity with respect to rep and warranties liabilities for HARP loans.

Yearly Home Values Decline Nearly $700B, But Rate of Decline Slows

As 2011 comes to a close, Zillow anticipates home value declines for the year will total more than $681 billion. The rate of depreciation, however, is slowing.

The $681 billion decline this year is 35 percent less than last year’s $1.1 trillion drop in value.
Additionally, much of this year’s decline occurred during the first half of the year. Values declined $454 billion in the first six months of 2011, and by the end of the second half of the year, values are expected to wan another $227 billion.
“While homeowners suffered through another year of steep losses, the good news is that homes are losing value at a substantially slower pace as the market works its way towards the bottom,” said Zillow Chief Economist Stan Humphries.
“Compared to last year when we saw sharp declines following the expiration of the homebuyer tax credits, this year we saw some organic improvement in home values, in terms of a slowed depreciation rate which resulted in a smaller total value loss for the year,” Humphries said.
Nine of the 128 markets Zillow tracked experienced increasing home values over the year.
The largest gain was seen in the New Orleans area, where home values rose $3.5 billion. The Pittsburgh metropolitan statistical area (MSA) followed with a $2.7 billion upsurge.
In terms of dollar value, the greatest decline was seen in the Los Angeles MSA, where home values declined $75.5 billion.
New York ranked second with a $44.8 billion drop in value, and Chicago followed with a $41.7 billion decrease.

Calif. AG Wants Answers, Sues Fannie, Freddie

California Attorney General Kamala Harris filed a lawsuit against mortgage giants Fannie Mae and Freddie Mac this week, pressuring the government-sponsored enterprises to respond to some 51 questions regarding foreclosures and other actions taken by Fannie and Freddie in the state.

Fannie and Freddie own about 60 percent of California mortgages. Harris is investigating the GSE’s involvement in 12,000 foreclosed properties in the state where they served as landlords, as well as the GSEs' role in selling or marketing mortgage-backed securities, HousingWire reports.

The state is seeking a variety of information from Fannie and Freddie, including a list of which homes in the state that they foreclosed on, whether they have complied with civil rights laws protecting minorities and military members against unlawful convictions and foreclosures, and whether they complied with California's securities and tax laws.

Fannie Mae and Freddie Mac have not commented on the lawsuit. An attorney representing the Federal Housing Finance Agency, however, said the lawsuits’ 51 subpoenas were "frequently vague and ambiguous," HousingWire reports. Also, the FHFA attorney said Harris does not have the authority to issue subpoenas against the GSEs since they’re under federal control.

Source: “State AG Sues Fannie and Freddie for Answers,” Associated Press (Dec. 21, 2011)

Banks Lay Groundwork for Commercial Comeback

Some community bankers are gearing up for increased activity on the commercial real estate (CRE) front in 2012. A recent Federal Reserve Board survey of senior loan officers found that more than 13 percent of respondents noticed stronger CRE demand in the fourth quarter, up from 1.8 percent a year earlier.

"Barring Europe imploding, we do generally expect the economy to continue to improve and the real estate market to continue to improve," says Ryan Severino, senior economist at Reis Inc., a commercial real estate research firm in New York. "If someone is thinking about ramping up their [CRE] lending process, now would not be a bad time to do it."

Umpqua Holdings recently reported that it is enhancing its CRE divisions in certain cities. Many of those cities have lost many local competitors when the real estate market collapsed, and survivors want to take advantage on a recovery.

"We think the markets are starting to, and will continue to, come back," says John Swanson, who is leading Umpqua's new commercial real estate division. "Now is the time to bring in some experienced CRE people. With the downturn and reduction in many CRE groups over the last two-to three-plus years, I've had an impressive list of candidates to choose from."

Source: "More Banks Laying Groundwork for CRE Comeback," American Banker (Dec. 22, 2011)

Mortgage Rates Reach New Record Lows

Just in time for the holidays: Mortgage rates reached new all-time lows this week, pushing home buyer affordability even higher, Freddie Mac reports in its weekly mortgage market survey.

"Rates on 30-year fixed mortgages have been at or below 4 percent for the last eight weeks and now are almost 0.9 percentage points below where they were at the beginning of the year, which means that today's home buyers are paying over $1,200 less per year on a $200,000 loan,” Frank Nothaft, chief economist at Freddie Mac, said in a statement. “This greater affordability helped push existing home sales higher for the second consecutive month in November to an annualized pace of 4.42 million, the most since January.”

Here’s a closer look at mortgage rates for the week ending Dec. 22:

30-year fixed-rate mortgages: averaged 3.91 percent this week, with an average 0.7 point, beating last week’s 3.94 percent record. A year ago at this time, 30-year rates averaged 4.81 percent.
15-year fixed-rate mortgages: averaged 3.21 percent, with an average 0.8 point, matching last week’s all-time low. Last year at this time, the 15-year mortgage averaged 4.15 percent.
5-year adjustable-rate mortgages: averaged 2.85 percent this week, with an average 0.6 point, a new record after dropping from last week’s 2.86 percent average. Last year at this time, 5-year ARMs averaged 3.75 percent.
1-year ARMs: averaged 2.77 percent this week, with an average 0.6 point, also a new record after falling from last week’s 2.81 percent average. A year ago at this time, the 1-year ARMs averaged 3.40 percent.
Source: Freddie Mac