Posted tagged ‘LTV’

What Does Fannie Mae’s New LTV Threshold Accomplish?

November 4, 2013


Fannie Mae’s new LTV threshold will reduce the exposure for taxpayers if it does nothing else. More down payment means a lower amount financed and therefore less risk. For a more detailed look at this subject – please read the article below.

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As of November 1, Fannie Mae is no longer purchasing loans without minimum down payments of at least 5 percent. Industry experts with the Urban Institute’s Housing Finance Policy Center argue this move is arbitrary and likely to provide little benefit to the GSE or to taxpayers.

Fannie Mae’s decision to lower its maximum threshold for loan-to-value (LTV) ratios from 97 percent to 95 percent follows a similar decision by Freddie Mac a few years ago. While neither GSE will support loans with LTVs higher than 95 percent now, the Federal Housing Administration, Veterans Administration, and U.S. Department of Agriculture (USDA) will.

“Fannie’s policy change isn’t limiting taxpayer risk-rather it’s limiting options for borrowers,” according to Laurie Goodman and Taz George of the Housing Finance Policy Center.

In a blog post on the Urban Institute’s Metro Trends Blog site, Goodman and George said, “This change places yet another barrier in front of low- and moderate-income families, who are already facing a tightening credit box.”

While it would seem Fannie’s objective in lowering the LTV requirement would be to reduce risk, the two authors say this action would be a misguided attempt. They say, “If the intent was to reduce risk, this was a crude way to accomplish it,” mainly because among loans with LTVs of 80 percent or higher, credit scores are a better default forecaster than LTV ratios.

In fact, the default rate on loans with LTVs of 95 to 97 percent and high FICO scores is lower than the default rate for loans with LTVs of 90 to 95 percent and lower FICO scores, according to the Urban Institute.

To read the complete article – please use the link below.

New LTV Threshold 

Researchers Examine Credit Profiles: Today vs. Pre-Crisis

October 10, 2013


It looks like doing away with Freddie and Fannie is a foregone conclusion. Now that these are again very profitable operations they will now be handed over to the buddies of our elected representatives. Not only that but it will make it much harder to get a mortgage. For a more detailed look at this subject please read the article below.

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Mortgage lending remains tight compared to historical norms, and lending could tighten even further as the government takes steps to lessen its role in the market, according to a recent report by Moody’s Analytics and the Urban Institute.

While the report concedes “underwriting does not appear overly tight in terms of debt-to-income or loan-to-value ratios,” the report’s authors said the credit scores required to obtain a mortgage loan today are abnormally high.

Not only is the average credit score of a GSE-backed loan today about 50 points higher than that of a GSE loan pre-crisis, but also the researchers pointed out, “Households with high scores today earned them during a tough economic period with high unemployment, weak stock prices, and declining house values.”

“In contrast, households had a much easier time obtaining high credit scores in the late 1990s and the early 2000s,” they said.

On the other hand, current debt-to-income ratios average between 35 and 45 percent, just slightly higher than the 30 percent average of pre-crisis days, according to the report.

Loan-to-value ratios today average between 85 and 90 percent, again just slightly higher than pre-crisis average of 75 to 80 percent.

Looking ahead, the researchers say, “Some impending moves by Fannie and Freddie and possibly the FHA will tighten the credit box further.”

To read the complete article please use the link below.

Examine Credit Profiles

Household Net Worth Growth Slows in Q2

September 29, 2013


This is a great indication of how much the housing industry impacts the national economy. When home sales slow down so will the growth of net worth and vice versa. Please read the article below.

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Household net worth improved $1.3 trillion in the second quarter — half as fast as the first quarter — as real estate values grew $626.7 billion, the Federal Reserve reported Wednesday in its quarterly Flow of Funds report.

But, with a drop in mortgage debt — including home equity loans and lines of credit –- from $9.39 trillion in the first quarter to $9.34 trillion in the second, homeowner equity grew to 49.8 percent in the second quarter from 48.1 percent in the first.

Household investment in the stock market grew $265 billion in the second quarter compared with $929 billion in the first when overall net worth grew $2.8 trillion.

Owners’ equity as a percentage of real estate value has been on a steady upward trajectory since dropping to 36.3 percent in the first quarter of 2009. It rose to 45.4 percent at the end of 2012 and to 48.1 percent one quarter later. The 2.7 percentage point increase in the first quarter of this year is the fastest quarter-to-quarter growth this century. Even with the increase, though, the equity percentage remains sharply lower than 57.7 percent in 2000.

After falling $223 billion in the first quarter, disposable personal income grew $98.6 billion in the second. The first quarter drop reflected the rollback of the cut in payroll taxes which ended January 1. With the increase, second quarter disposable personal income — essentially after-tax income — was $12.39 trillion, about $130 billion less than the record $12.52 trillion in the fourth quarter last year.

To read the complete article please use the link below.

Household Net Worth

Report: Why Default Rates Were Lower in Europe Compared to the U.S.

August 5, 2013


Even though you think this might be a good idea these sorts of restrictive regulations would never fly in the U.S. Please read the article below and let me know what you think.

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Even though both the United States and Europe experienced price declines starting in 2007, the increase in mortgages default rates over time was much more severe in the United States compared to Europe.

For example, in the United States, prices fell 7.7 percent from 2007 to 2008, and default rates spiked 93.2 percent, according to a report from the Federal Reserve Bank of St. Louis. In Europe, prices fell 6.8 percent from 2008 to 2009, yet mortgage defaults increased by 11 percent.

The report authors, Juan Carlos Hatchondo, Leonardo Martinez and Juan M. Sánchez, attributed the difference to two specific regulations used in Europe to prevent mortgage defaults.

The first regulation in Europe holds borrowers accountable for paying the deficiency judgment, or different between the loan balance the home’s value, which makes defaulting less attractive. This makes mortgages in Europe “recourse loans” since borrowers are responsible for the remaining balance.

On the other hand, in most of the United States, mortgages are considered nonrecourse, but even when recourse is allowed, the deficiency judgment could be discharged in bankruptcy, according to the report.

Secondly, Europe enforces a policy that limits how much homeowners can borrow when using their home as collateral, with some countries placing limits on the loan-to-value (LTV) ratio. When comparing European countries with LTV-limits, the report showed the mortgage default rate was much lower on average, at 3.5 percent from 2007 to 2009 compared to 14.4 percent for European countries with no LTV limit.

“As a result of this policy, households have more home equity. More equity means that fewer mortgages end up underwater when house prices drop. As a result, the default rate is lower in Europe. In the U.S., LTV policies are much less restrictive,” the report stated.

To read the original article – please use the link below.

Lower in Europe 

Home Values Up in Q3 Per Fed Report

December 11, 2012


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Fueled by a $370 billion jump in the value of household real estate, household net worth grew $1.7 trillion in the third quarter to $64.8 trillion, the Federal Reserve reported Thursday in its quarterly Flow of Funds report.

And, while the value of owner-occupied household real estate increased, total residential mortgage debt fell $85.8 billion. As a result, owners’ equity increased almost $390 billion. Homeowners’ equity as a percentage of the value of the real estate rose to 44.8 percent, the highest level since 2007, according to the report.

The report is the most comprehensive look at aggregate household and corporate balance sheets and income statements, a sort of blood pressure reading on the economy and its components.

The second quarter drop in mortgage debt marked the 14th straight quarterly drop. According to the report, aggregate mortgage debt at the end of the second quarter was $9.489 trillion, the lowest level in more than six years when homeowners owed $9.49 trillion and their equity re: the improvement in household net worth more than reversed a $157.2 billion drop in the second quarter. An increase in net worth means assets grew faster than debts.

The increase in net worth is good news for a struggling economy according to the economic theory of “wealth effect” which holds that consumers tend to spend more if they “feel” wealthier, even if income drops and conversely.

Total household debt fell $10.9 billion in the third quarter, essentially flat in percentage terms, a decline of just 0.08 percent. Most of the change in net worth came from asset growth, attributable to the stock market. The value of stock holdings rose $524.4 billion in the third quarter, reversing a $386 billion drop in the second quarter.

The “wealth effect” theory differentiates between the growth in the value of real estate and stock market assets with the change in real estate values having a larger impact on spending.

To read the complete article please use the link below.

 Home Values Up

HARP on Track to Reach 1M Borrowers This Year

October 17, 2012


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Nearly 99,000 homeowners refinanced their mortgages in August through the Home Affordable Refinance Program (HARP), according to a new report released by the Federal Housing Finance Agency (FHFA) Tuesday.

The federal government’s HARP initiative, which is applicable for borrowers with loans owned by Fannie Mae or Freddie Mac, has put 618,217 homeowners into new mortgages with lower interest rates since the beginning of this year, when a broader group of borrowers were made eligible for the program.

According to FHFA, HARP is on target to reach a million borrowers in 2012. The agency attributes the continued high volume of HARP refinances to record-low mortgage rates and program enhancements that included the elimination of its maximum loan-to-value (LTV) ratio limit.

Fannie Mae and Freddie Mac loans refinanced through HARP accounted for nearly one-quarter of all refinances in August, 24 percent to be exact. In states hard-hit by the housing downturn–-Nevada, Arizona, and Florida–-HARP prefinances represented nearly half or more of total refis during the month.

HARP refinances for borrowers with LTV ratios greater than 105 percent accounted for more than 70 percent of HARP volume in Nevada, Arizona, and Florida and more than 60 percent of the HARP refinances in Idaho and California. Nationwide, LTV ratios above 105 percent characterized more than half of new HARP loans made in August.

To read the complete article please use the link below.