Matrix Blog

Posts Tagged ‘Conforming Mortgage’

[In The Media] CNBC Power Lunch Clip for 1-25-08

January 25, 2008 | 10:12 pm | Public |

I got a last second call from CNBC to provide commentary on the stimulus plan, specifically how and increase in conforming loan limits for both the GSE’s and FHA helps housing, if at all.

To view the clip.

The key point with the expansion of the loan limits is the potential increase in availability of mortgage products in higher priced home markets. Right now the east and west coasts have less representation in conforming loan pools because their price points are much higher. For example, the cost of living, specifically to housing in San Jose, CA is 5x as much as Cleveland, OH. This proposal could spread the access around. However, it also has the effect of restricting access in lower priced markets because the portfolio caps the GSEs abide by aren’t on the agenda to be raised. That limits the effectiveness of the expansion of loan limits (if you believe Fannie Mae and Freddie Mac can be receive adequate oversight).

OFHEO raises legitimate concerns about oversight of the GSE’s and the higher potential for risk. However, OFHEO was asleep at the switch when FNMA had accounting issues a few years back so I am not convinced OFHEO would be able to understand what changes would be needed to better oversee GSE actions. Also, any stimulus plan form needs to be implemented quickly or not at all. Government is not known for being nimble.

Interestingly, Diane Olick, who was interviewed in the above clip, mentions (via Housing Doom) that the Fannie Mae home page has changed in the past 2 years to reflect a different mission. I wonder if OFHEO understands what that change means?

The rate actions by the Fed this week and this expansion of loan limits, if passed, seem to push us in the right direction (symbolically and politically), in finding a solution to the weakening economyt. Much of the solution is correction and letting time go by.

In reality, its all about credit. So far, the symbolism in these gestures would go toward restoring confidence, but I suspect there is a long way to go.


Tags: , , , , ,


Better Than Coffee: Stimulating Discussion About Stimulus

January 25, 2008 | 12:44 pm |

The White House and the House agreed to a $150B plan to reinvigorate the economy, which because of the housing market slide, may either be in a recession or about to enter one.

Democratic and Republican congressional leaders reached a tentative deal Thursday on tax rebates of $300 to $1,200 per family and business tax cuts to jolt the slumping economy.

Its not a done deal, however, since the Senate still has to approve the measure and Senate Democrats are talking about tacking on additional items which could slow down its approval, but the speed at which the House approved may influence the Senate’s speed to approve as well.

Actually, the speed at which this was approved was annointed as a new sign of bi-partisan cooperation. The rebate elements and newfound cooperation are because its an election year and people vote with their wallets. I had fleeting thoughts that they know something we don’t know which prompted the quick action. I’ll try to keep those feelings in check as this unfolds.

Yesterday I participated in a roundtable discussion that addressed the impact of the stimulus package. The take away was that the rebate component was an important gesture, albeit political, but won’t be enough to prevent recession or further weakness. After all, the total stimulus plan represents about 1% of the US economy. Since 70% of the economy is consumer generated, the rebates are seen as a way to prime the pump. Whether its spent or saved, its a plus but a very small one at best. For a sense of Deja Vu, go here.

The idea of a expanding the OFHEO size restriction on conforming loans from $417,000 to $625,000 is a good thing, I believe, as well as doubling FHA loan limits from $367,000 to $729,750.

The California Association of Realtors has been saying that the conforming loan limit restriction is an impediment to economic recovery and I probably agree with them with some caveats. The existing conforming loan limit set by OFHEO seems to be arbitrary, simply because it doesn’t float with the housing market. When housing prices slipped, OFHEO kept the loan limit unchanged. The coastal markets, where housing prices are significantly higher, is disproportionately penalized by OFHEO restrictions.

By expanding the loan limits to be more consistent with local housing markets in higher priced areas, the availability of credit, may be expanded and that would help with refi and sales activity which could temper foreclosure actions and temper the slow down in transactions.

My concern is that there would be more risk placed on the GSE’s (Fannie and Freddie) and thats OFHEO’s concern as well. Congress forced portfolio size restrictions on the GSE’s in light of their accounting problems and I have yet to find whether this issue was addressed in the package. In other words, will more loans actually fall under this change or would there simply be a reallocation of mortgage types.

Media Appearance: I’ll be on CNBC Power Lunch at about 12:30 today on a panel discussion covering this issue.

UPDATE: As far as I can tell, the portfolio caps on the GSE’s are not being expanded, which significantly mutes the benefit of expanding the loan limit because it will result in the spreading around of loans taking from lower priced markets and moving availability to higher priced markets. Hopefully the Senate version will expand them.


Tags: , , , , , ,


[5% Holiday Update] Declining Markets Get Smaller Mortgages

December 24, 2007 | 5:58 pm |

One of the problems with lack of transparency, is that people…errr…don’t know what you are thinking. Just like the fact that I have been weak in my quantity of postings as of late. I can’t explain it, because, well, I got tired of being, uhhhh…transparent. Needless to say, I am again transparent, and even more superficial.

One of the rumors floating around the appraisal/mortgage world for the past few weeks, covers the topic of Fannie Mae’s restriction on loans in markets they designate as declining. It was even suggested that a restriction in one market versus another, suggests redlining. However, I don’t see that correlation.

but i digress…

In a market that is declining, Fannie Mae will have a 5% higher loan to value ratio so instead of requiring 20% down, it might be 25% if the local market is declining. So markets with average mortgage amounts below the $417,000 conforming limit, this could have quite an impact.

>Current home price trends indicate that home values continue to decline in many markets across the country. As a result, and based on our continued monitoring of loan performance, Fannie Mae is reinstating a policy to restrict the maximum loan-to-value (LTV) ratio and combined loan-to-value (CLTV) ratio for properties located within a declining market to five percentage points less than the maximum permitted for the selected mortgage product.

Notice the use of the word reinstating. This is a recurring theme in mortgage lending these days. Its not the introduction of new lending guidelines, its simply the enforcement of existing guidelines.

In theory, the appraiser gets to lead the way in determining declining markets (in sarcastic tone: shocking!, amazing!, incredible!)

>Fannie Mae strongly encourages lenders to use supplemental sources and tools to independently assess current housing trends, unless the appraisal indicates that the subject property is located within a declining market. When the appraisal notes that the subject property is in a declining market, the maximum financing policy must be applied. When the appraisal does not indicate that the subject property is located within a declining market, Fannie Mae strongly urges lenders to implement processes and apply supplemental sources and tools to validate current housing trends and not rely solely on the information reflected in the appraisal.

But the appraisal industry has been neutered so severely by the mortgage brokerage and mortgage lending industry with pressure to “play ball” that I am not confident the appraisal industry is able to have this responsibility in the first place until proper regulatory restrictions protecting appraisers are in place. No more than a small percentage (you know who you are) of appraisers would be brave enough to show a negative time adjustment for fear of losing a client. I hope recent enforcement actions by the NY Attorney General and the SEC will make a difference.

Still, its a prudent and thoughtful first step for Fannie Mae to take. One of the things that drove me crazy in prior periods of market decline, lenders would send out policy notices saying they would not allow negative time adjustments. We would argue back, saying that this was an underwriting issue and it was simply a matter of adjusting the loan to value ratio, not to mandate rose colored glasses and ear plugs for the eyes and ears of the lenders. We either dropped them as a client or they changed their mind.

The byproduct of this action in declining markets will likely be even lower sales volume via stricter credit, placing more price stress in already distressed markets.

I can’t help but see the irony here: the reduction of Fannie Mae’s loan to value criteria in declining markets could actually lead to more foreclosure volume and more exposure for lender’s collateral. But in the long run, its a prudent action.

This restriction in declining markets should never have been lifted in the first place. It is better for the stability of the lending system by re-introducing the concept of risk awareness to lending decisions.

Now thats a concept I think we can risk having.


mp3 mp3 download buy mp3 download mp3 download mp3 online free download mp3 buy music buy music online buy mp3 music mp3 music map mp3 music map movie movie theater movie download dvd movie rental adult movie free porn movie epic movie movie showtimes free sex movie movie trailer free movie downloads porn movie free movie dans movie movie review transformer movie yahoo movie movie listing xxx movie new movie free adult movie britney spears video myspace music video daddy video video of saddams execution amateur video video youtube video download free lesbian video video daniela cicarelli hanging live saddam video clip clip video clip free sex clip free porn clip free sex video clip funny video clip mini clip great clip porn clip free video clip sex clip youtube clip sexy clip sexy video clip deviant clip funny clip movie clip free movie clip utube video clip sex video clip free porn video clip free movie porn art clip image art clip valentine big booty clip clip game mini clip porn video clip free clip sound clip movie porn clip xxx clip earring clip free video xxx clip paper art clip dover clip lesbian clip gay movie gallery free xxx movie watch movie online new movie release scary movie celebrity movie archive lesbian movie disney movie gonzo movie upcoming movie watch free movie online movie rental amc movie theater gay movie free online movie psp movie movie soundtrack transformer the movie trailer movie phone free big movie horror movie free gay movie harry potter movie movie cinema

Tags: , , ,


The Problem With NAR Forecasting Is Not Temporary

October 25, 2007 | 9:51 pm | |

In the New York Times article today Reports Suggest Broader Losses From Mortgages indicates that employment levels will be impacted from the job losses associated with problems in the mortgage industry. So now we have, lower levels of mortgage production, lower levels of construction and lower levels of consumer spending.

I guess thats why federal funds futures are indicating a 70% probability that the Fed will cut rates at their next meeting by 25 basis points.

Since August, Lawrence Yun, Chief Economist of the National Association of Realtors, has kept characterizing the mortgage and credit market problems as temporary. Every month, as the blogosphere continues lament the loss of his predecessor, David Lereah, Mr. Yun has been able to continue the tradition of reality distortion and he does not disappoint.

Temporary? Relative to what? Will mortgage problems continue on forever? Of course not. Merrill Lynch reported an $8B loss due to mortgage related problems today. National lenders are having difficulty selling paper to the secondary market investors. Will this problem go away in a few months? I don’t see how.

If we relied on Mr. Yun’s use of the word temporary and heeded his advice back in August and September, credit market issues would have long been resolved. For next month, here are some alternatives to the word temporary. I vote for fugacious.

I have long lamented how NAR has missed its golden opportunity to gain the trust of the consumer as being the authority on the housing market, despite the fact that they are a trade group. Rather than leveraging the wealth of information at their disposal, they provided comments like this:

“Mortgage problems were peaking back in August when many of the September closings were being negotiated, and that slowed sales notably in higher priced areas that rely more on jumbo loans,” he said. “The good news is that mortgage availability has markedly improved in recent weeks with interest rates on jumbo loans falling, and more people are applying for safer and conforming FHA mortgage products.

The quote attempts to parse out problems with the mortgage markets from the timing of contract and closing dates. Elements of the statement are correct, but out of context, and ultimately paint an inaccurate picture.

Speaking of disconnect, did you hear George Carlin’s comments on The View about the fires in southern California regarding people losing their homes?

Tags: , , , , , , , ,


A Jumbo Mortgage Problem May Be Conforming

October 10, 2007 | 8:04 am | |

David Berson, Chief Economist for Fannie Mae, in his weekly commentary discussed a possible sign that there was improvement in the jumbo mortgage market because the spread between conforming and non-conforming mortgage rates was stabilizing, if not contracting. Jumbo mortgages are currently anything over $417,000. Mortgages at or below this threshold are considered conforming and are the type that GSE’s (government sponsored enterprises: Fannie Mae and Freddie Mac) can purchase from banks. This helps promote liquidity and lower mortgage rates throughout the country.

The problem with the credit markets (coming to a theatre near you: Mortgage Meltdown, Subprime Crisis, Credit Crunch) over the summer, was that investors came to the sudden realization that they did not know what loan products were actually in the portfolios they were buying. Did prime portfolios include slices of subprime or Alt-A in prime portfolios? Apparently they did. In other words, the risk did not match the pricing being paid for these loans pools. Thats why American Home Mortgage, Countrywide and others ran into difficultly when selling their mortgage paper in order to free up capital to continue to lend.

Without the GSE’s, investors were especially reluctant to buy mortgage paper from jumbo mortgage originators and as a result, jumbo rates began to spike because it was harder to get a jumbo mortgage. (Fannie and Freddie by definition can’t buy their paper.) The lack of liquidity caused widespread concerns that mortgage money in higher priced housing markets would evaporate, causing housing prices to decline. No buyers, falling prices, etc. At the same time, I suspect the flight to safety seen in the financial markets was also seen in falling conforming mortgage rates to a certain degree. In fact, because of restrictions placed on the GSE’s last year due to the accounting scandal, they were forced to comply with a cap on the volume of mortgage paper they could buy and perhaps that may have eased the liquidity problem somewhat. Fannie and Feddie wanted to buy more mortgage paper but were not allowed to under these restrictions (The debate over raising the conforming mortgage rate or mortgage volume limit by GSE’s is for another post).

To this day, when I talk to agents, clients and appraisers in the field, there is still the impression that jumbo mortgages are scarce. Yet I have had conversations with chief credit officers at various national and regional lending institutions whom are all chomping at the bit (non-equestrian) that this is a sigificant opportunity to grab market share. In addition, jumbo mortgage rates are falling, indicating that that financing is available. However, the reality is that underwriting guidelines are actually being followed now rather than using exceptions as the basis, so it is still more difficult to get financing on marginal deals.

Its very, very early, but the contraction of spreads between conforming and non-conforming mortgages suggest that the mortgage investors are getting a getting a little more comfortable with what mortgage risks are out there and how they should be reflected in pricing, rather than simply waiting on the sidelines. After all, thats their business.


Tags: , , , , ,


OFHEO Is Trying Hard Not To Conform

December 4, 2006 | 11:34 am |

The hoopla over this issue occured last week but I have been trying to wrestle with it.

The agency who was responsible for oversight of Fannie Mae and Freddie Mac, who had essentially evolved in rubber stamp agency for the GSEs (government sponsored enterprises).

These enterprises seemed to have free reign in their dealings with the mortgage markets. The risk taken by these government enterprises started to balloon and the reported earnings were being manipulated to enhance compensation by their officers. I guess that means that the competitive advantage these enterprises have over their secondary market competitors breeds this sort of behavior. GSE’s have been a stabilizing factor in the mortgage markets in general. Thats why mortgage rates are relatively uniform across the country by property type.

After the Fannie Mae accounting scandal evolved a few years ago, OFHEO started to wake up and re-take control. One of their first public actions was initiated, after a miscalculation was made by Fannie Mae in calculating conforming loans limits, OFHEO took over this role as well (as well they should). It was off by a few thousand dollars, which is probably not a significant issue, but the symbolism of OFHEO’s actions was what I found important to maintain the trust and integrity of the US mortgage market.

Last week, OFEHO (incorrectly presented by the LA Times as Fannie and Freddie making the decision) kept the loan limit of conventional mortgages unchanged [LA Times]:

The conforming loan limit, perhaps the most intently watched number in the mortgage business, will remain unchanged next year at $417,000.

The limit is the legislatively set ceiling on the size of loans that can be purchased or guaranteed by Fannie Mae and Freddie Mac, the two government-sponsored financial institutions that keep local lenders awash in cash for home loans.

Because the enterprises bring a certain amount of standardization to the market, and because investors throughout the world believe the government-sponsored enterprises’ securities are backed by the full faith and credit of Uncle Sam, rates charged on loans at or below the limit are often 0.25% to 0.5% less expensive than so-called jumbo loans above the ceiling.

The official loan limit sizes for conventional mortgages in 2007 [SOSD] are:

  • $417,000 for mortgages on single-family properties
  • $533,850 for mortgages on two-family properties
  • $645,300 for three-family properties
  • $801,950 for four-family properties

Its interesting that the decline of national median housing prices per OFHEO would have resulted in a $667 drop in the limit to $416,333, but OFHEO director James Lockhart said he would not order a lower limit next year “so as not to disrupt the end-of-year pipeline.

I don’t follow his reasoning, but nevertheless, I think its a good idea to keep investors from getting jittery, especial given the role the housing market plays into our economy, with the risk of recession rising for 2007.

OFHEO ESTABLISHES PROCEDURES FOR 2007 CONFORMING LOAN LIMIT [OFHEO (pdf)]
2007 CONFORMING LOAN LIMIT TO REMAIN AT $417,000 [OFHEO (pdf)]


Tags: , , , , ,


Government Backed Loans: Take It To The Limit One More Time

January 17, 2006 | 12:10 am |

Redux of post on [Soapbox]

One of the byproducts of rising housing prices is the fact that government agencies and GSE’s (government sponsored enterprises) have had to keep pace too. The conforming loan limits are based on federal data on mean (average) home prices from the Office of Federal Housing Enterprise Oversight (OFHEO). Starting with Fannie Mae in November and Freddie Mac in January, all have changed their loan limits to be in compliance. Mortgage rates and options are usually less expensive with a conforming loan (under the loan limit).

Here’s my question:
If the loan limit is raised to keep pace with the market, why would Fannie Mae state in their press release that this could add as many as an additional 466,326 homeowners who would be eligible for a conforming loan?

Doesn’t that imply a higher tolerance of risk for the federal government? Since the OFHEO increases are based on market data (well not really) [Matrix], then the limit should rise and fall with the market. If more people qualify because of the increase, then wouldn’t the increase have to outpace the market? Hmmm, I’ll have to chart this one – more to follow.

Here’s the summary of each of the main 4 agencies or GSE’s that the OFHEO affected:

Fannie Mae
2006 Single-Family Mortgage Loan Limits [FNMA]

Single-Family Mortgage Loan Limits effective January 1, 2006:

First mortgages
One-family loans: $417,000
Two-family loans: $533,850
Three-family loans: $645,300
Four-family loans: $801,950
Note: One- to four- family mortgages in Alaska, Hawaii, Guam, and the U.S. Virgin Islands are 50 percent higher than the limits for the rest of the country.

Second mortgages
$208,500 In Alaska, Hawaii, Guam, and the U.S. Virgin Islands: $312,750

Freddie Mac
Freddie Raises Loan Limits [OT]

“Freddie Mac announced it will implement an increase in its single-family mortgage loan limit from $359,650 to $417,000 effective January 1, 2006. This increase in conforming loan limits is based on the October-to-October changes in the average house prices, as published by the Federal Housing Finance Board (FHFB), and on Supervisory Guidance issued by the Office of Federal Housing Enterprise Oversight. The FHFB figures come from its monthly survey of lenders. Both new and existing homes are included in the survey.”

Veterans Adminstration
VA Loan Lending Limits [VA]

“The Veterans Benefits Act of 2004 was signed by the President on December 10, 2004. The law changes the maximum guaranty amount of $60,000, for certain loans in excess of $144,000, to an amount equal to 25 percent of t he Freddie Mac conforming loan limit determined under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act for a single family residence, as adjusted for the year involved.

To illustrate, the maximum guaranty for 2006 would be $104,250. This is for 25 percent of the 2006 Freddie Mac conforming loan limit for a single family residence of $417,000.”

HUD
HUD Announces Higher Loan Limits For 2006 [Originator Times]

“Effective January 1, 2006, FHA will insure single-family home mortgages up to $200,160 in standard areas and up to $362,790 in high cost areas. The high cost amount is almost $50,000 more than last year. The loan limits for two-, three- and four-unit dwellings also increased.”

“The new loan limits are part of an annual adjustment HUD makes to account for rising home prices. Under federal law, loan limits are tied to the conforming loan limits of Freddie Mac and Fannie Mae, federally chartered corporations that buy and package mortgages.”

“Higher FHA loan limits don’t cost the government any money, because the FHA Insurance Fund is fully supported by premiums paid by borrowers who receive FHA insurance.”

Tags: , , ,

Get Weekly Insights and Research

Housing Notes by Jonathan Miller

Receive Jonathan Miller's 'Housing Notes' and get regular market insights, the market report series for Douglas Elliman Real Estate as well as interviews, columns, blog posts and other content.

Follow Jonathan on Twitter

#Housing analyst, #realestate, #appraiser, podcaster/blogger, non-economist, Miller Samuel CEO, family man, maker of snow and lobster fisherman (order varies)
NYC CT Hamptons DC Miami LA Aspen
millersamuel.com/housing-notes
Joined October 2007