Yikes! More changes to FHA?
FHA collects an "upfront mortgage insurance premium" on every loan they do in addition to a monthy premium which is used to hedge against losses suffered through foreclosures etc. FHA needs to keep a hedge equal to or greater than about 2% of all the FHA loan volume they have guaranteed at any given time. That actual number has fallen from 2% to .53% according to data released last month. That means the hedge of protection contains about 75% less money as it relates to the volume of FHA loans that are guaranteed.
Why? Defaults are up...and so are originations!
Interestingly: the Upfront MIP that provides the money for this reserve is currently at 1.75% of the loan amount...and can be financed. Monthly Mortgage Insurance premiums also put money into the reserve at a rate of about $55.00/month per $100,000 initially borrowed. It will take some time for the difference between the 1.75% upfront MIP collected and the monthly premiums to make up a 2% reserve on each deal. When we see the volume of FHA loans increase by billions of dollars...that reserve is bound to be in the "red" for a while. Should we worry? Maybe some. Some analysts are worried that a cash infusion to FHA may soon be requested of the tax paying populace.
Crazy: FHA loans went from being about 6% of the market in 2007...to almost 30% of all loans done in 2009. Today: FHA and VA loans are about 40% of the loan applications in many of our markets. Some of you may not have enough fingers to count all the "govies" you have going right now.
FHA has become an attractive option with reduced mortgage insurance monthly premiums along with lower down payment amounts required. Perspective: FHA's risk is increasing daily as far as the volume of loans they are insuring...but the FHA loan is also a fully documented loan with currently reasonable credit requirements.
The Proposed changes: (Possibly on Temporarily on each of these):
1. increase the upfront Mortgage Insurance Premium,
2. increase the minimum credit score requirements and
3. increase the amount of required down payment.
We will have to see where it goes as with any of this stuff. The hard news: Stricter guidelines will remove a segment of borrowers that has been purchasing homes. Whenever there are less buyers (demand is down) we see an increase in supply...and a decrease in home values. The good news: Continued focus on credit quality makes the mortgage backed securities more attractive as a "reasonably safe" longer-term investment to investors.
FNMA 4.5% SLIPPED again today and is currently down about 19 basis points.
Dow is down about 17points.
Gold nearly hit $1220/oz breaking records.
Oil hovering under 80 bucks and was pushed down some by the stronger dollar on the day today.
ADP jobs report came in a little worse than many expected and marks the 22nd month with negative job growth. (Negative 169,000 reported today. Remember that an estimated 175,000 jobs need to be created to keep up with those entering the job market monthly according to some. SO: negative 169,000 becomes a larger defecit. However: all of this boils down to estimations...so to keep it in perspective. Read the entire ADP report here: http://www.adpemploymentreport.com/
Tomorrow could be VERY volatile with announcements of government auctions along with some other reporting. Hold onto your hat. Continue to encourage borrowers to get in on these rediculous rates and good luck in the marketplace!
Cheers!
Chad
Chad
--
Chad Schauers
Have you metChad?
MetLife Home Loans
406.522.0922
406.522.0924 (fax)
1924 W. Stevens, Ste. 202
Bozeman, MT 59718
Cell: 406 799 8613
ccschauers@metlifehomeloans.com
