Friday, August 29, 2014

Economists Grow More Optimistic About Housing’s Outlook

The strengthening job market has more economists gaining confidence about the direction of the housing market over the next two years, according to a newly released Reuters poll of 29 housing analysts, including investors and economists.
What’s more, economists expect home resales to continue to inch up in 2015, reaching 5.29 million by the second quarter of 2015.The economists surveyed expect existing-home sales to increase to 5.25 million units in the first three months of 2015. Currently, existing-home sales stand at 5.09 million. In May, the economists surveyed had expected much slower gains at 5.1 million expected in the first quarter of 2015.
The job market is why most of the economists are starting to change their tone about housing’s outlook. For the last six consecutive months in July, employers added more than 200,000 jobs.
"Low mortgage rates and improving labor market dynamics should remain conducive to gradual growth in the housing sector," Gennadiy Goldberg, a strategist at TD Securities, said in a recent note to clients.
The housing analysts surveyed expect mortgage rates to rise more slowly than they originally thought in May. Still, they do expect rises are looming with expectations that the Federal Reserve will slowly begin to increase its benchmark interest rate around the middle of next year. The Fed has held the benchmark interest rate near zero since 2008.
The economists polled expect the 30-year, fixed-rate mortgage to rise to 5.25 percent in 2016. That is a slight drop from the 5.68 percent average they had predicted in the May poll.
The 30-year fixed-rate mortgage is currently averaging 4.10 percent, according to Freddie Mac.
Nevertheless, the economists say the housing recovery likely won’t be derailed by a gradual increase in mortgage rates.
"If a rise in mortgage rates comes with a stronger economic recovery, the housing market will be able to absorb it," Alexander Lin, an analyst at Bank of America Merrill Lynch, told Reuters.

Thursday, August 21, 2014

Obama Administration Settlement With Bank Of America Will Strengthen FHA Fund, Provide Billions In Consumer Relief

U.S. Department of Housing and Urban Developement
Press Release
August 21, 2014

Washington – The Obama Administration today announced an almost $17 billion global settlement with Bank of America. $1 billion of the total settlement amount resolves claims arising from allegations of fraud involving certain Federal Housing Administration (FHA)-insured single-family mortgage loans and a failure to perform under its servicing contract with the Government National Mortgage Association (Ginnie Mae). Under the terms of the settlement, Bank of America will pay $800 million to resolve the claims relating to FHA and $200 million to Ginnie Mae. The remaining nearly $16 billion of the total settlement amount resolves fraud claims involving the pooling of residential mortgage backed securities, collateralized debt obligations, and other claims by the United States, along with the States of California, Delaware, Illinois, Maryland, New York, and the Commonwealth of Kentucky, and includes $7 billion in consumer relief with a focus on borrowers that were in the hardest-hit areas during the housing crisis.

"Today’s settlement with Bank of America is another important step in the Obama Administration’s efforts to provide relief to American homeowners who were hurt during the housing crisis,” said U.S. Department of Housing and Urban Development (HUD) Secretary Julián Castro. “This global settlement will strengthen the FHA fund and Ginnie Mae, and it will provide $7 billion in consumer relief with a focus on helping borrowers in areas that were the hardest hit during the crisis.  HUD will continue working with the Department of Justice, state attorneys general, and other partners to take appropriate action to hold financial institutions accountable for their misconduct and provide consumers with the relief they need to stay in their homes. HUD remains committed to solidifying the housing recovery and creating more opportunities for Americans to succeed.”
This settlement is part of the ongoing efforts of President Obama’s Financial Fraud Enforcement Task Force’s RMBS Working Group.

Working with the Department of Justice, HUD’s Office of General Counsel, Office of Housing, and Office of the Inspector General worked extensively on the fraud investigation involving FHA-insured single-family mortgage loans that were underwritten by Bank of America during the period from May 1, 2009, to April 1, 2011. HUD also provided assistance with respect to a breach of contract claim involving Bank of America’s role as one of two master subservicers for Ginnie Mae’s portfolio of defaulted single-family mortgages.

The $7 billion in consumer relief will focus on areas that were hardest hit during the housing crisis. Consumer relief will take various forms including loan modification for distressed borrowers, including FHA-insured borrowers, and new loans to credit worthy borrowers struggling to get a loan in hardest hit areas, borrowers who lost homes to foreclosure or short sales, and moderate income first-time homebuyers. Bank of America will also make donations to community development funds, legal aid organizations, and housing counseling agencies to assist individuals with foreclosure prevention and to support community reinvestment and neighborhood stabilization. They will also provide financing for affordable rental housing with a focus on family housing in high-cost areas.  An independent monitor will be appointed to ensure compliance with the terms of the agreement.

Monday, August 11, 2014

REO Inventories Shrinking for Fannie, Freddie

 

Government-sponsored enterprises Fannie Mae and Freddie Mac have been working through the REO inventory load they hold on their books, a move that helped them report a profit yet again in the latest quarter.
In the second quarter of this year, Fannie Mae’s REO inventory stood at 96,796 compared to 166,787 properties it held in the third quarter of 2010. Freddie Mac is also reporting a large decrease: In the second quarter of this year, it held 36,134 REOs on its books compared to its peak of 74,897 in the third quarter of 2010.
REO numbers have been steadily dropping over the last few quarters as foreclosures continue to fall nationwide.
Fannie Mae says that in the first half of this year it has seen a “modest increase in REO prices” compared with the “significant increase” in REO prices it saw during the second quarter and first half of 2013.
As the housing market improves, the GSEs are continuing to report profits. In the second quarter, Fannie Mae reported a net income of $3.7 billion while Freddie Mac reported a net income of $1.4 billion, its 11th consecutive quarter of positive earnings. Tim Mayopoulos, Fannie Mae’s chief executive, told reporters on a recent conference call that he expects Fannie Mae to remain profitable for the “foreseeable future.”
Both Fannie Mae and Freddie Mac came under government conservatorship in 2008. The GSEs must turn over their profits to the U.S. Treasury, a requirement for the government bailout. Fannie Mae and Freddie Mac will make their latest payments to the U.S. Treasury in September, which will amount to $218.7 billion to taxpayers in return for the $187.5 billion in aid they had received during the height of the financial crisis, Reuters reports.

FICO Scoring Changes May Help More Qualify for Mortgages

 
FICO, the nation’s most popular credit-scoring system, announced it is tweaking some of the criteria used in coming up with consumers’ scores, which could help consumers save more money in qualifying for mortgages and other types of loans.
The changes include reducing the toll that overdue medical bills can take on credit scores, as well as removing other past penalties from consumers who have paid off debts that had been assigned to collection agencies. A consumer whose only major delinquency comes from an unpaid medical bill could see their credit score rise by 25 points due to the changes.
The changes come after a recent Consumer Financial Protection Bureau study, which found that both paid and unpaid medical debts were unfairly penalizing consumers’ credit ratings. An estimated 64 million Americans have a medical collection item on their credit reports, according to Nick Clements of Magnify Money, a personal finance site.
The FICO changes will go into effect this fall, but borrowers may have to wait a year or more until they see the impact of the changes in their scores, lenders say.
The changes may help consumers with blemished past credit histories or high medical debts qualify for mortgages more easily. Consumers with higher scores also might qualify for a lower rate, housing experts say.
"In recent years the [credit score requirement] has been dialed so tightly that only fairly upper-tier consumers were able to qualify for a loan," says Lawrence Yun, National Association of REALTORS®’ chief economist. "We're looking at people who are currently being denied potentially being offered a mortgage because of this."
In June, the average FICO score for a closed mortgage was 728, a drop from 742 a year prior, according to data from Ellie Mae, a company that processes mortgage applications for lenders. FICO scores range from 300 to 850.
Borrowers with higher FICO scores can usually expect to pay less in interest on a loan. A borrower with a FICO score of 675 may nab a 4.75 percent interest rate on a 30-year fixed-rate mortgage, which would be about  $2,086 a month in payments on a $400,000 loan, according to Informa Research Services. In comparison, a borrower with a 700 FICO score may qualify for a rate of 4.212 percent, which could drop the monthly payment to $1,959 and bring a $127 savings.
The credit scoring changes will not remove any unpaid debts from a credit report, so some lenders may still be able to factor that information into their lending decision.
“This move will ultimately make a real difference in the lives of millions of Americans, who have been shut out of the housing market or forced to pay higher mortgage interest rates because of flawed credit scores,” Steve Brown, NAR’s president, said in a statement. “Since the housing crash, overly restrictive lending has been the greatest obstacle to home ownership. NAR will continue to support efforts to broaden access to credit for qualified homebuyers.”
In other news, two of the big national credit bureaus Experian and TransUnion recently reported they’ve  added verified rental payment data into credit files, which will be used to compute a consumers’ score when applying for a mortgage. A recent TransUnion study showed that the inclusion of rental data could raise some consumers’ scores. For example, nearly 20 percent of renters’ scores rose by 10 points or more after just one month.
Source: “New FICO Criteria Could Help Borrowers,” Los Angeles Times (Aug. 8. 2014) and “Experian, TransUnion Start Adding Rent Payment Data to Credit Profiles,” Los Angeles Times (Aug. 10, 2014)