FHA Reserves Look Shaky – Is Another Bailout Pending?

The Federal Housing Administration (FHA) once considered one of the safest agencies backing mortgage loans now has many worried that its reserves may have dipped below the Congressionally-required level.

The FHA was designed to help first-time homebuyers and those with less-than-perfect credit. During the housing boom, the popularity of FHA loans waned as the standards and documentation requirements remained high and many other loans required few hoops to jump through. In 2006, FHA loans made less than 3 percent of the all U.S. Mortgage loans. As of the second quarter of 2009, the market share has skyrocketed to 23 percent.

This is largely because the FHA did not suffer the same losses as many other lenders and agencies during the housing bust and became one of the last remaining options for new and lower-income buyers.

Yet as its market share has grown, so has its loan delinquency rates. In June 7.8 percent of FHA-backed loans were 90 days late or more, up from 5.4 percent last year at the same time. And because the FHA requires only a 3.5 percent down payment on its loans, as home values have plunged in the past few years, many FHA borrowers are now underwater in their loans. This situation often leads people to walk away from their monthly payments and give in to foreclosure.

The FHA is required to have reserves that are equal to 2 percent of all the loans it insures. As of last year, the reserves were down to 3 percent, a huge drop from the 6.4 percent it had in 2007.

While FHA officials maintain that the agency will not need a government bailout, that doesn’t keep people from worrying about it based on the numbers. The current value of the FHA’s reserves will be made public on September 30 in the agency’s annual review.

ref: blog.mortgage101.com/2009/09/04/fha-reserves-look-shaky-–-is-another-bailout-pending

Have We Just Shifted the Mortgage Debt Burden?

A recent Washington Post article brings up how deeply involved the Federal government has become in the current housing market. In order to keep the mortgage markets from freezing up during the dire days of the housing crash, the government stepped in and took over Fannie Mae and Freddie Mac, two of the nation’s largest mortgage financiers.

“While this made it possible for many borrowers to keep getting loans and helped protect the housing market from further damage, the government’s newly dominant role - nearly 90 percent of all new home loans are funded or guaranteed by taxpayers - has far-reaching consequences for prospective home buyers and taxpayers,” the article says.

And together with guarantees made by the Federal Housing Administration, “The [government] outlay has already reached about $1 trillion over the past year and is rising. During that time, the government has pumped more money into the mortgage market than has been spent on Medicare or Social Security or the defense budget, more even than Washington has paid to bail out banks and other struggling companies.”

And with Treasury and Federal Reserve programs, “all told, the government now stands behind 86 percent of all new home loans, up from about 30 percent just four years ago, according to Inside Mortgage Finance.”

Among the biggest concerns about the government takeover of all these loan guarantees is that many of the loans are looking ripe for default and foreclosure. Fannie and Freddie have lost more than $150 billion since the beginning of 2008 and FHA loan delinquencies are also rising. So, instead of truly curtailing housing market problems, have we simply shifted the responsibility from individual homeowners, lenders, and companies to the American public (taxpayers) at large? So we all go down together instead of just one industry? Or will the Fed just print up some more money to continue bailing out the housing market if things really go south?

ref:  blog.mortgage101.com/2009/09/09/have-we-just-shifted-the-mortgage-debt-burden

Where are Mortgage Rates Headed in September?

During the first two weeks of September 2009, mortgage interest rates have trended downward and are considerably lower than August’s averages. According to mortgage company Freddie Mac, the average rate on a 30-year fixed rate loan last week, excluding points, was 5.07 percent, down from the average for all of August which was 5.19 percent.

Is the lower trend likely to stick around for the rest of the month? It’s always hard to say, especially because there are two big factors this month that might try to pull rates in opposite directions. First, the Federal Reserve recently announced that the amount of consumer credit across the nation dropped by $21.6 billion in July, and credit availability dropped even more than reported in June. The Fed said that after six straight months of decreasing consumer credit figures, this is the largest decline since the Fed started its survey in 1943. What this means for interest rates is that when consumer credit shrinks fewer people are borrowing money, and there are fewer mortgage backed securities (MBS) for investors to buy. As the price for those increases because of a shriveled supply, it could push mortgage rates down as lenders try to attract more borrowers back to the mortgage table.

The second factor, however, is that the Fed has also announced its plans to stop purchasing U.S. Treasury bonds. It has been buying these up throughout the year to pump more liquidity into the markets, but as the economy has started to show signs of life again, the Fed has decided to back off in hopes that the market is beginning to correct itself. Some predict that this move will cause bond yields to rise and bring mortgage rates with them.

So far, rates have moved lower this month, so maybe the consumer credit issue is the more influential factor right now. Rates are near historic lows right now - so in the long run, they really only have one direction to go and that is up. For those who can qualify for funding, now is a great time for a mortgage loan.

ref: blog.mortgage101.com/2009/09/14/where-are-mortgage-rates-headed-in-september

FDIC Pleads Case for Unemployed Homeowners

At least one government agency is trying to save a sizable segment of homeowners from foreclosure – the unemployed. While plenty of people are simply walking away from their mortgages because their loans are underwater, there are also plenty of Americans unable to make their payments as a result of job loss during this tough economy.

The FDIC, according to a CNN report, has asked several big banks to start reducing monthly payments for six months for those homeowners who have recently lost jobs.

Apparently, this practice called forbearance plans, has been used by banks in the past, but fewer are willing to extend a compassionate reach these days as it is not as likely that borrowers will be able to get back into the job market within a matter of months.

“With more Americans suffering through unemployment or cuts in their paychecks, we believe it is crucial to offer a helping hand to avoid unnecessary and costly foreclosures,” said FDIC chairman, Sheila Bair, on Friday.

Currently, unemployed homeowners facing foreclosure do not qualify for loan modifications under the Obama housing bailout because they cannot provide sufficient income for future payments.

The FDIC believes that aiding these normally responsible borrowers will keep the fragile and recovering housing market from more downturns.  At this point, the forbearance plan recommendation will only be required of the 53 lending institutions across the country that have bought failed banks and have contracts with the FDIC. The effect will certainly be limited, but the FDIC hopes that more major lenders nationwide will see the benefit and voluntarily participate.

I have to admit, this seems like the segment of borrowers that truly need (or perhaps deserve) some extra help. I would think that in many cases these are not the homeowners that took on mortgage loans they never could afford, but simply fell prey to the vicious economy and need a little breathing room to get back on their feet.  Since this isn’t a true bailout, but simply payment deferment, it seems like a pretty good idea.

ref: blog.mortgage101.com/2009/09/11/fdic-pleads-case-of-unemployed-homeowners