Archive for September 2012

Basel III Will Increase Mortgage Costs, Limit Riskier Lending: Fitch

September 24, 2012


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Proposals found in Basel III to raise capital requirements for mortgage loans would increase borrower costs for traditional mortgages and make nontraditional mortgages less available at regulated banks, according to a commentary from Fitch Ratings.

“U.S. regulators’ ‘notice of proposed rulemaking’ (NPR) addressing capital requirements and risk-weighted asset (RWA) calculation criteria would, if adopted, ultimately push banks away from all but the most conventional and low risk forms of mortgage lending,” Fitch stated.

Nontraditional loans that carry higher risks fall under Category 2, while traditional loans are in Category 1. Under the NRP, Category 2 loans, such as negative amortization mortgages, loans with a balloon payment, loans lacking verification of a borrower’s ability to repay, loans that take more than 30 years to mature, require banks to hold two to three times more capital, Fitch explained.

“For example, current capital rules place a 50% risk weighting on mortgages with an 85% loan to value. However, under the NPR, the same loan could generate a 150% risk weighting if classified as a Category 2 loan,” the agency stated.

Fitch also added that under current regulations, risk-based capital charges are not applied to mortgages that are sold, even when the seller provides representations and warranties to buy back loans that go into default within 120 days of sale.

However, under the NPR, lenders would be required to “hold capital for the duration of the credit-enhancing reps and warranties, including early default and premium refund clauses that regulators regard as off-balance sheet guarantees,” the agency explained.

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Basel III Will Increase Mortgage Costs

FHFA to Raise G-fees for High Default States

September 24, 2012

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The Federal Housing Finance Agency (FHFA) plans to change the guarantee fees (g-fees) the GSEs charge on single-family mortgages. Starting in 2013, g-fees will be higher in some states than others, according to a notice sent to the Federal Register.

Currently, g-fees are the same throughout the country. However, the FHFA has noticed “a wide variation among states in the costs that the Enterprises incur from mortgage defaults,” according to its notice to the Federal Register.
As per the current national model, “borrowers in states with lower default-related carrying costs are effectively subsidizing borrowers in states with higher costs,” the FHFA stated.

The proposed method of adjusting the g-fees considers three aspects of a state’s foreclosure environment, including the number of days it generally takes a GSE to foreclose a property and “obtain marketable title to the collateral,” the daily carrying cost to the GSE in the state, and “the expected national average default rate on single-family mortgages acquired by the Enterprises.”

FHFA notes the five highest-cost states include Connecticut, Florida, Illinois, New Jersey, and New York.

In these states, lenders would pay a g-fee increased by between 15 and 30 basis points.

Lenders could pass the fee on to borrowers by adjusting the interest rate. However, FHFA states, “Because the upfront fee is paid only once, its impact on the annual interest rate is much smaller than the upfront fee itself.”

For example, a borrower with a 30-year fixed-rate loan in the amount of $200,000 would pay between $3.50 and $7.00 per month.

“The size of the fee adjustments are intended to reflect the disparity in costs, as compared to the national average,” the FHFA stated in a press release announcing its notice.

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FHFA to Raise G-fees 

Fixed Mortgage Rates Find New Lows in Wake of QE3 Announcement

September 23, 2012


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The Federal Reserve’s announcement confirming a third round of quantitative easing sent long-term mortgage rates tumbling to all-new record lows this week.

Freddie Mac’s Primary Mortgage Market Survey showed a drop in both the 30-year and 15-year fixed. According to the survey, the 30-year fixed-rate mortgage (FRM) averaged 3.49 percent (0.6 point) for the week ending September 20, down from 3.55 percent the week before.

The 15-year FRM also fell this week, averaging 2.77 percent (0.6 point). The previous survey showed an average of 2.85 percent.

Adjustable-rate mortgages (ARMs) saw so slippage, however. The 1-year ARM saw no change from last week, averaging 2.61 percent (0.4 point). The 5-year ARM actually increased, rising to 2.76 percent (0.6 point) from 2.72 percent before.

The Fed’s announcement adds to the other good news the housing market has been seeing, said Frank Nothaft, VP and chief economist at Freddie Mac.

“Following the Federal Reserve’s announcement of a new bond purchase plan, yields on mortgage-backed securities fell, bringing average fixed-mortgage rates to their all-time record lows, which should aid in the ongoing housing recovery,” Nothaft said. “New construction on one-family homes rebounded in August, rising by 5.5 percent to the fastest pace since April 2010. In addition, existing home sales increased by 7.8 percent in August to its strongest pace since May 2010.”

Bankrate’s weekly survey showed drops in all categories. The 30-year fixed plummeted to 3.70 percent from 3.81 percent last week, while the 15-year fixed fell to 2.95 percent from 3.04 percent. Meanwhile, the 5/1 ARM dropped to 2.69 percent from 2.75 percent.

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Fixed Mortgage Rates Find New Lows

Economists Far More Optimistic on Future of Housing Prices: Survey

September 23, 2012

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A strengthening housing market in the past few months has economists making more bullish predictions about the recovery, Zillow revealed Thursday.

The company released the results of its most recent Home Price Expectations Survey, showing that economists surveyed expect home prices to rise by a total of 2.3 percent during 2012. This change in sentiment is a major turnaround from June, when respondents predicted home prices would experience a net decline this year.

Predictions were varied, but respondents seemed to agree on a positive trend: The most optimistic quartile of panelists predicted a 4.4 percent increase in 2012 prices, while the most pessimistic panel predicted an average increase of 0.3 percent.

Economists surveyed also revised their forecasts for 2013-2016, predicting steady price growth in each year.

“This is further evidence that we’re seeing a true recovery in the housing market,” said Dr. Stan Humphries, chief economist for Zillow. “Not since mid-2010 – in the midst of the homebuyer tax credits – have we seen this group so bullish on housing. It’s refreshing to see this optimism at a time when the market seems to be making an organic recovery, in the absence of an artificial stimulant like the tax credits.”

In addition, the survey showed that more than half of respondents want to eliminate the mortgage interest tax deduction, with 50 percent saying it should be phased out gradually and 10 percent wanting it cut as soon as possible. Thirty percent said the deduction should have more eligibility restrictions placed on it, while 11 percent believe it should remain as-is.

“Although the mortgage interest deduction remains enormously popular with existing and aspiring homeowners, it costs the federal government about $90 billion a year,” said Terry Loebs, founder of PulsenomicsLLC, the company that conducted the survey for Zillow.

“Time will tell whether the unprecedented fiscal challenges facing the U.S., coupled with a housing market now on the mend, will embolden more policymakers to touch this lightning rod,” Loebs continued.

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Economists Far More Optimistic

Business Owners Survey – Findings and Summary

September 20, 2012

The George Washington University Graduate School of Political Management and have conducted a one-month survey of over 6,000 small business owners nationwide. Both presidential campaigns claim to promote policies that benefit small businesses, but nobody has asked entrepreneurs themselves which policies are most important to their businesses. The George Small Business Politics Survey is the only survey investigating the political issues that matter most to small businesses themselves, drawing data from an extensive, nationwide universe of job creators and entrepreneurs.

“Small businesses are deeply attuned to the effect of politics on job creation and the economy,” said Dr. David Rehr, a lead researcher on the study with the George Washington University’s Graduate School of Political Management. “Entrepreneurs are feeling squeezed by the tight lending environment and want their political leaders to curb the influence of money in politics.”

Some of the key findings include:

1 – 40% of all small business owners nationwide rated the economy and jobs as the most important factor in their choice for president. Ethics, honesty, and corruption in government is the second-most important factor for small businesses.

2 – The federal budget deficit looms large in the mind of small businesses, ranking behind only unemployment and the job market in the most important economic issues that small businesses are considering in their choice for president.

3 – Small businesses rate gas and fuel costs as the single most burdensome cost to their businesses. And self-employment taxes were rated as more burdensome than even personal income taxes or health care costs.

4 – Taxes are not a decisive factor for small businesses in this election, with only 3% of small businesses rating it as the most important issue in their choice for president – outranking only foreign policy and national security issues. Even among economic issues, tax policy was the top concern for less than 6% of small businesses.

5 – 39% of small businesses say that President Obama is the most supportive candidate of small business, whereas only 31% say the same of Governor Romney. And 28% are still not sure which presidential candidate is more supportive of small business.

6 – Only one in five small businesses believe that President Obama’s health care policy helps their business, and two in five small businesses say the opposite.

7 – “Six thousand small business owners have told an unusually nuanced story about the factors that drive their political decisions,” said Sander Daniels, co-founder of “When job creators speak, we need to listen.”

To see the complete survey please Click Here!

The full survey methodology and analysis is available, as are the anonymized raw data files in CSV format. Please contact Sander Daniels ( with questions or inquiries.

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2011 Lending Data Reveals Declining Conventional, FHA Activity

September 20, 2012

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The Federal Financial Institutions Examination Council(FFIEC) released Tuesday data on mortgage lending transactions in 2011 at 7,632 financial institutions in the United States.

The released data covers 2011 lending activity at banks, savings associations, credit unions, and mortgage companies covered by the Home Mortgage Disclosure Act (HMDA). The data includes disclosure statements for each financial institution, aggregate data for each metropolitan statistical area (MSA), nationwide summary statistics for lending patterns, and loan/application registers (LARs) for each institution.

The number of reporting institutions in 2011 fell nearly 4 percent from 2010, continuing a downward trend that started in 2006. The decline reflects mergers, acquisitions, and the closing of some institutions.

The data showed that the total number of originated loans of all types and purposes fell by about 780,000 – 10 percent – from 2010 to 2011, partly because of a 13 percent decline in refinancings. The overall drop in refinancings was the result of declines in conventional andFHA activity, as data revealed that VA-related refinancing activity actually rose 41 percent.

The VA market share of home purchase lending also increased in 2011, rising about 1 percentage point to 8 percent. While there still seems to be a heavy reliance on loans backed by FHA insurance, its share of first-lien home purchase lending fell 5 percentage points to 31 percent.

As far as loan pricing, the data reflected the second full year of HMDA data reported under revised loan pricing rules which govern whether a loan is classified as “higher-priced.” Lenders now report on loans with annual percentage rates (APRs) that are 1.5 percentage points above the average prime offer rates (APORs) for first lien loans or 3.5 percentage points above the APORs for junior lien loans.

The data revealed that a small minority of first-lien loans in 2011 have APRs that exceeded loan price reporting thresholds. The principal exception was for conventional first-lien loans used to purchase manufactured homes – 82 percent exceeded the reporting threshold.

For conventional first-lien loans used to purchase site-built properties, about 3.9 percent of reported loans exceeded the threshold (up from 3.3 percent in 2010). The incidence of higher-priced lending for FHA-insured loans on site-built properties was virtually the same, while loans backed by VA guarantees were less likely to be classified as higher-priced (only about 0.4 percent incidence).

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2011 Lending Data Reveals Decline

Home Prices Make Slight Monthly Drop in August: Zillow

September 20, 2012

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Lately, the expectation has been for home prices to continue rising, but a recent report from Zillow put a damper this view.

Home prices dropped in August month-over-month after rising for nine consecutive months.

However, the drop was mere a 0.1 percent. At an average of $152,100, prices were still up on a yearly basis, showing an increase of 1.7 percent.

“Home values took a small hit in August, but this shouldn’t be cause for alarm,” said Zillow Chief Economist Dr. Stan Humphries. “The back half of the year is always softer than the front half, and this year is no exception. We’ve been encouraging folks to focus on the longer term trends and not monthly blips. Home values will rise a little and fall a little, month by month, in the near future, but we believe the overall trend will remain positive albeit still below normal rates of appreciation.”

The larger markets to see monthly price decreases were Chicago (-0.7 percent), New York (-0.3 percent) and Boston (-0.2 percent) metros.

On the other hand, rent increased 0.2 percent on a monthly basis and 5.9 percent yearly, rising to of $1,280.

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Home Prices Make Slight Monthly Drop