by Lawrence Yun, Chief Economist, NAR Research
You wake up one Monday morning to find Fannie Mae (FNMA) and Freddie Mac (FHLMC) no longer exist - that was a scenario that NAR staff - and no doubt a number of other economic, financial and housing market watchers - have been contemplating over the past month. Well, the government did, in effect, take over Fannie and Freddie. And guess what - on the Monday morning after the official announcement, the sun still came out. The question is: will this mean darker skies for housing and our economy?
Predictions
The federal government had no choice because the capital situation of two organizations was insufficient to face the upcoming realities of rising mortgage defaults. We will now have to wait and see what impact the government's action will have. I think we can make some predictions.
First of all, it is likely that mortgage rates will trend down over the short run. But how much of a decline will depend on how actively the government - more specifically the Treasury Department and the new Federal Housing Finance Agency (FHFA) - loosens the mortgage liquidity spigot. For over the next 12 months at least, the FHFA has the authority to purchase more than the normal amount of mortgages from lenders to put into its portfolio holdings. That means all conforming loans, including the newly conforming jumbo loans up to $625,000, will qualify for purchase by the FHFA. That will help drive down mortgage rates. In about two years' time, when the housing recovery is assumed to be well underway, the government will trim its mortgage portfolio. Then Fannie and Freddie will be completely restructured. It will be up to the next administration and Congress to determine that structure. And be assured that NAR will make its 1.3 million voices heard during those discussions.
The credit spread between the 10-year Treasury and the 30-year mortgage rates has greatly widened in recent months due to the uncertainties that surrounded the fate of Fannie and Freddie. The typical historic spread has been about 150 to 180 basis points. That means if the 10-year Treasury yield is 4%, then the 30-year mortgage would be about 5.5% to 5.8%. Recently though, we have seen the spread at 250 to 300 basis points. With the government's takeover of Fannie and Freddie, the spread will surely narrow and hence result in lower mortgage rates. That is good for the housing market.
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Marina Vialtsina
Showing posts with label Fannie Mae. Show all posts
Showing posts with label Fannie Mae. Show all posts
Sunday, October 5, 2008
Friday, October 3, 2008
Impact of Fannie/Freddie Takeover
Events in the capital markets during September have clearly overshadowed the mortgage delinquency and foreclosure report, which came out prior to the news about the federal government takeover of Fannie Mae and Freddie Mac. The obvious question arising from these events centers on the impact that this move will have upon the mortgage industry and the performance of existing and future loans.
While there are still a large number of details left to be resolved, much depends on the government's degree of involvement in Fannie and Freddie. Assuming that the Treasury and the Federal Housing Financed Agency (FHFA) increase liquidity in the two enterprises, we can expect mortgage rates to decline in the short run. FHFA can accomplish this through its authority to purchase a larger amount of mortgages, including the newly conforming jumbo loans (up to $625,000). In the long run, the performance of the mortgage market will likely be conditioned by the restructuring of Fannie and Freddie and the recovery of the housing market.
While there are still a large number of details left to be resolved, much depends on the government's degree of involvement in Fannie and Freddie. Assuming that the Treasury and the Federal Housing Financed Agency (FHFA) increase liquidity in the two enterprises, we can expect mortgage rates to decline in the short run. FHFA can accomplish this through its authority to purchase a larger amount of mortgages, including the newly conforming jumbo loans (up to $625,000). In the long run, the performance of the mortgage market will likely be conditioned by the restructuring of Fannie and Freddie and the recovery of the housing market.
Sunday, July 20, 2008
Fed Chair Says Fannie, Freddie Are OK
Fed Chair Says Fannie, Freddie Are OK
Federal Reserve Chairman Ben Bernanke reassured Congress on Wednesday that Fannie Mae and Freddie Mac are in “no danger of failing.”
The two mortgage giants are "adequately capitalized," Bernanke said. However, "weakness of market confidence is having an effect" on the companies, making it difficult for them to raise capital.
"We will work our way through these financial storms," Bernanke said.
He called the depressed housing market the central economic issue and urged Congress to approve legislation helping consumers refinance out of troubled mortgages, set a stronger regulator for mortgage giants Fannie Mae and Freddie Mac, and approve a new Treasury Department plan to bolster the two firms, which back half of U.S. mortgages.
Federal Reserve Chairman Ben Bernanke reassured Congress on Wednesday that Fannie Mae and Freddie Mac are in “no danger of failing.”
The two mortgage giants are "adequately capitalized," Bernanke said. However, "weakness of market confidence is having an effect" on the companies, making it difficult for them to raise capital.
"We will work our way through these financial storms," Bernanke said.
He called the depressed housing market the central economic issue and urged Congress to approve legislation helping consumers refinance out of troubled mortgages, set a stronger regulator for mortgage giants Fannie Mae and Freddie Mac, and approve a new Treasury Department plan to bolster the two firms, which back half of U.S. mortgages.
Friday, July 11, 2008
Foreclosure rescue to pass Senate; House next
Struggling homeowners who can't afford their mortgages and banks facing big losses would get government help under a foreclosure rescue that has broad bipartisan support.
The plan is headed for Senate passage Friday, but faces a bumpy road, with the House planning a rewrite and the White House threatening a veto without major changes.
With the last procedural hurdles scaled Thursday, the package was on track for resounding approval in the Senate. It has drawn broad support in the Senate, reflecting widespread interest by lawmakers in both parties in sending election-year help to struggling homeowners facing tough economic times.
The centerpiece of the plan would let the Federal Housing Administration back up to $300 billion in new loans to give struggling homeowners more affordable, fixed-rate mortgages. It allows lenders who agree to take a substantial loss on the mortgages to reclaim at least some money and avoid a costly foreclosure.
Rep. Barney Frank, D-Mass., the Financial Services Committee chairman and an architect of the bill, said the few but significant revisions House leaders are seeking could be made in as little as one week. Key players are preparing for a week of intense negotiations to resolve differences on Capitol Hill and with the White House, with an eye toward producing a bill President Bush could sign later this month.
The measure includes a long-sought modernization of the FHA and would create a new regulator and tighter controls on Fannie Mae and Freddie Mac, the government-sponsored mortgage giants. It also would provide $14.5 billion in housing tax breaks, including a credit of up to $8,000 for first-time home buyers.
Congressional Democrats are divided over important elements of the plan, including limits on loans the FHA may insure and Fannie Mae and Freddie Mac may buy. The Senate measure sets them at $625,000, while House leaders — including Speaker Nancy Pelosi, D-Calif., — want the cap as high as $730,000.
House leaders also oppose the immediate effective date of the Senate plan, preferring to phase in the new regulations for Fannie Mae and Freddie Mac over six months.
Another key point of dispute is $3.9 billion in the Senate measure for buying and rehabilitating foreclosed properties. The House's band of conservative "Blue Dog" Democrats oppose the money, arguing that it would swell the deficit unless paired with cuts or tax increases to cover the cost.
But many Democrats, particularly members of the Congressional Black Caucus, are fighting to keep the funding, which they say will help prevent the communities hardest hit by the housing crisis from sliding into blight.
The White House singled out the money in its veto threat, calling it a bailout for lenders who helped cause the mortgage meltdown.
Lawmakers and the Bush administration agree on the central concept behind the measure: allowing the government to backstop new mortgages for struggling homeowners.
To make it more palatable to Republicans, the Senate measure would take responsibility for any losses away from taxpayers and instead cover them by diverting an affordable housing fund drawn from Fannie Mae and Freddie Mac profits.
The plan is headed for Senate passage Friday, but faces a bumpy road, with the House planning a rewrite and the White House threatening a veto without major changes.
With the last procedural hurdles scaled Thursday, the package was on track for resounding approval in the Senate. It has drawn broad support in the Senate, reflecting widespread interest by lawmakers in both parties in sending election-year help to struggling homeowners facing tough economic times.
The centerpiece of the plan would let the Federal Housing Administration back up to $300 billion in new loans to give struggling homeowners more affordable, fixed-rate mortgages. It allows lenders who agree to take a substantial loss on the mortgages to reclaim at least some money and avoid a costly foreclosure.
Rep. Barney Frank, D-Mass., the Financial Services Committee chairman and an architect of the bill, said the few but significant revisions House leaders are seeking could be made in as little as one week. Key players are preparing for a week of intense negotiations to resolve differences on Capitol Hill and with the White House, with an eye toward producing a bill President Bush could sign later this month.
The measure includes a long-sought modernization of the FHA and would create a new regulator and tighter controls on Fannie Mae and Freddie Mac, the government-sponsored mortgage giants. It also would provide $14.5 billion in housing tax breaks, including a credit of up to $8,000 for first-time home buyers.
Congressional Democrats are divided over important elements of the plan, including limits on loans the FHA may insure and Fannie Mae and Freddie Mac may buy. The Senate measure sets them at $625,000, while House leaders — including Speaker Nancy Pelosi, D-Calif., — want the cap as high as $730,000.
House leaders also oppose the immediate effective date of the Senate plan, preferring to phase in the new regulations for Fannie Mae and Freddie Mac over six months.
Another key point of dispute is $3.9 billion in the Senate measure for buying and rehabilitating foreclosed properties. The House's band of conservative "Blue Dog" Democrats oppose the money, arguing that it would swell the deficit unless paired with cuts or tax increases to cover the cost.
But many Democrats, particularly members of the Congressional Black Caucus, are fighting to keep the funding, which they say will help prevent the communities hardest hit by the housing crisis from sliding into blight.
The White House singled out the money in its veto threat, calling it a bailout for lenders who helped cause the mortgage meltdown.
Lawmakers and the Bush administration agree on the central concept behind the measure: allowing the government to backstop new mortgages for struggling homeowners.
To make it more palatable to Republicans, the Senate measure would take responsibility for any losses away from taxpayers and instead cover them by diverting an affordable housing fund drawn from Fannie Mae and Freddie Mac profits.
Tuesday, May 6, 2008
Mortgage Market Update - Oil hits a new high
MMG Update - Tuesday, May 6, 2008 9:14am ET
Current Trend Direction: Sideways
Risks favor: Floating
Current Price of FNMA 5.5% Bond: $100.59, +19bp
Bonds are moving higher this morning after bad news was released for Fannie Mae, the largest provider of US home financing. The company said it lost $2.19 Billion in the first quarter due to the current housing and credit crisis, which equates to a loss of $2.57 a share compared with a profit of 85 cents a year ago. And like Freddie Mac, the company plans to raise capital and cut its dividend. Stocks traded lower on the news, pushing money into Bonds and helping Bond pricing improve.
In other headlines, oil hit a new record high of $120.93 this morning. Oil prices have doubled over the past twelve months, pushing the average price at the pump to $3.60 a gallon. Goldman Sachs is forecasting that black gold could rise to $150-$200 a barrel in the next twelve months. If this plays out as they suggest, the inflationary effects of high oil prices could pressure Mortgage Bonds lower, causing home loan rates to move higher...so this will be a story to watch. In other words, it might be the time to buy now while rates are low. And, because of the inflation alone, we may see higher home prices.
For now, Bonds continue to ride a dual floor of support at the 50 and 100-day Moving Averages. We will continue to Float for now, and watch how the Bond behaves near this strong floor.
Current Trend Direction: Sideways
Risks favor: Floating
Current Price of FNMA 5.5% Bond: $100.59, +19bp
Bonds are moving higher this morning after bad news was released for Fannie Mae, the largest provider of US home financing. The company said it lost $2.19 Billion in the first quarter due to the current housing and credit crisis, which equates to a loss of $2.57 a share compared with a profit of 85 cents a year ago. And like Freddie Mac, the company plans to raise capital and cut its dividend. Stocks traded lower on the news, pushing money into Bonds and helping Bond pricing improve.
In other headlines, oil hit a new record high of $120.93 this morning. Oil prices have doubled over the past twelve months, pushing the average price at the pump to $3.60 a gallon. Goldman Sachs is forecasting that black gold could rise to $150-$200 a barrel in the next twelve months. If this plays out as they suggest, the inflationary effects of high oil prices could pressure Mortgage Bonds lower, causing home loan rates to move higher...so this will be a story to watch. In other words, it might be the time to buy now while rates are low. And, because of the inflation alone, we may see higher home prices.
For now, Bonds continue to ride a dual floor of support at the 50 and 100-day Moving Averages. We will continue to Float for now, and watch how the Bond behaves near this strong floor.
Friday, March 7, 2008
New FHA, Fannie Mae and Freddie Mac Loan Limits
My Dear Clients and Blog Readers: Further information is provided by Dick Gaylord, 2008 NAR President.
I know I have been mentioned this news before. Here it is some relief to our current market conditions, and it arrived today: the new FHA and Fannie Mae- Freddie Mac conforming loan limits have been released by the U.S. Department of Housing and Urban Development.
To find out the new limits in your area, simply click on this link: http://go-to.realtor.org/r/3OS1G5/C5JMU/ZB4YT4/DKPVD/J9A5D/B7/h, which will take you to the "mortgage limits" page at the HUD web site. On that page, enter your state and county information, chose the type of loan from the "Limit Type" drop-down box (FHA Forward, Fannie/Freddie or HECM). [Note: FHA Forward is what HUD is calling the temporary FHA loan limit.] Then click the "send" button at the bottom of the page. On the results page, you'll see the new loan limit for the type of loan you selected for your area.
You can also find a county-by-county listing of the new FHA and Fannie Mae-Freddie Mac loan limits at REALTOR.org by following this link: http://www.realtor.org/GAPublic.nsf/files/chart_hud_loan_limits_08.pdf/$FILE/chart_hud_loan_limits_08.pdf
The new loan limits for FHA and Fannie Mae and Freddie Mac are now calculated at 125 percent of the HUD published median prices, with a floor of $271,050 and $417,000, respectively, not to exceed $729,750.
Association is Realtors expect the impact of these loan limit increases on the housing market to be significant because of the infusion of capital into the mortgage market, which should result in lower interest rates across the board. In addition, there will be a direct impact on high-cost areas that previously required borrowers to take out costlier jumbo mortgages.
As NAR research points out, increasing FHA loan limits will help an additional 138,000 Americans achieve the dream of home ownership and will allow nearly 200,000 homeowners to refinance and potentially keep their home. In addition, NAR believes that increasing the loan limits for Fannie Mae and Freddie Mac will bolster the housing finance market, which continues to be severely stressed, by providing an immediate infusion of much needed liquidity to the mortgage market.
An economic impact study conducted by NAR in January 2008 estimated that increasing the GSE conforming loan limits would result in as many as 500,000 refinanced loans and could help reduce foreclosures by as much as 210,000. In addition, over 300,000 additional home sales could be generated, housing inventory would be reduced and home prices would be strengthened by two to three percentage points.
HUD was mandated in the Economic Stimulus Act to publish new loan limits within 30 days of the bill's signing by President Bush on February 13. NAR strongly supported this economic stimulus package because of the relief we felt it would bring our members.
I know I have been mentioned this news before. Here it is some relief to our current market conditions, and it arrived today: the new FHA and Fannie Mae- Freddie Mac conforming loan limits have been released by the U.S. Department of Housing and Urban Development.
To find out the new limits in your area, simply click on this link: http://go-to.realtor.org/r/3OS1G5/C5JMU/ZB4YT4/DKPVD/J9A5D/B7/h, which will take you to the "mortgage limits" page at the HUD web site. On that page, enter your state and county information, chose the type of loan from the "Limit Type" drop-down box (FHA Forward, Fannie/Freddie or HECM). [Note: FHA Forward is what HUD is calling the temporary FHA loan limit.] Then click the "send" button at the bottom of the page. On the results page, you'll see the new loan limit for the type of loan you selected for your area.
You can also find a county-by-county listing of the new FHA and Fannie Mae-Freddie Mac loan limits at REALTOR.org by following this link: http://www.realtor.org/GAPublic.nsf/files/chart_hud_loan_limits_08.pdf/$FILE/chart_hud_loan_limits_08.pdf
The new loan limits for FHA and Fannie Mae and Freddie Mac are now calculated at 125 percent of the HUD published median prices, with a floor of $271,050 and $417,000, respectively, not to exceed $729,750.
Association is Realtors expect the impact of these loan limit increases on the housing market to be significant because of the infusion of capital into the mortgage market, which should result in lower interest rates across the board. In addition, there will be a direct impact on high-cost areas that previously required borrowers to take out costlier jumbo mortgages.
As NAR research points out, increasing FHA loan limits will help an additional 138,000 Americans achieve the dream of home ownership and will allow nearly 200,000 homeowners to refinance and potentially keep their home. In addition, NAR believes that increasing the loan limits for Fannie Mae and Freddie Mac will bolster the housing finance market, which continues to be severely stressed, by providing an immediate infusion of much needed liquidity to the mortgage market.
An economic impact study conducted by NAR in January 2008 estimated that increasing the GSE conforming loan limits would result in as many as 500,000 refinanced loans and could help reduce foreclosures by as much as 210,000. In addition, over 300,000 additional home sales could be generated, housing inventory would be reduced and home prices would be strengthened by two to three percentage points.
HUD was mandated in the Economic Stimulus Act to publish new loan limits within 30 days of the bill's signing by President Bush on February 13. NAR strongly supported this economic stimulus package because of the relief we felt it would bring our members.
Saturday, February 23, 2008
How New FHA, GSE Loan Limits Impact You
Few posts ago, I have mention that new limit is coming....so, now, when it is here, how is it impacting you?
Last week, President Bush signed into law a $152 billion economic stimulus bill that includes temporary increases in loan limits for the government sponsored enterprises (GSEs) — Fannie Mae and Freddie Mac — and the Federal Housing Administration until Dec. 31. But what does this mean for you?
The NATIONAL ASSOCIATION OF REALTORS® launched a new resource Web page, http://www.realtor.org/gapublic.nsf/pages/economic_stimulus devoted to educating you about the new loan limits, which loans are eligible, and the implementation of these temporary limit increases.
NAR has developed estimates of the FHA and GSE single-family loan limits (http://www.realtor.org/GAPublic.nsf/files/new_loan_limits.pdf/$FILE/new_loan_limits.pdf) by state and county so that you can get a sense of how the loan limits will rise in your markets. As you can see, Nevada, for instance, is mentioned, but nothing was done for Las Vegas. However, Salt Lake City is there: FHA limit used to be $362,790, now it is $546,875 and same for GSE limit. Other effected Utah cities are Garfield, Grand, Iron, Juab, Kane, Millard, Morgan, Piute, Rich, San Juan, Sanpete, Sevier, Summit, Tooele (same before anf after numbers as SLC), Uitah, Utah, Wasatch, Washington, Wayne, Weber. As you see some cities are missing?
"The importance of immediately implementing the new limits cannot be overstated," said NAR President Richard Gaylord last week in a public statement. "Mortgage markets throughout the country need liquidity. Our research indicates that the increased FHA loan limits will help an additional 138,000 Americans achieve the dream of homeownership and will allow nearly 200,000 homeowners to refinance and potentially keep their homes.”
The FHA limit will increase to as much as $729,750 in high cost areas (to 125 percent of local median home prices). The GSE limit will jump to $729,750 for loans; currently Fannie Mae and Freddie Mac loans are capped at $417,000. So, when you hear and see these numbers, please know it is not about all of us.
Eligible loans from FHA include mortgages that were issued for credit approval on or before Dec. 31, 2008. GSE loans that are eligible include loans that originated after July 1, 2007 to Dec. 31, 2008.
The U.S. Department of Housing and Urban Development is required to publish the new mortgage limits by March 14; the limits will be effective for FHA immediately upon publication.
"This will be a major stimulus for the housing industry and for people who want to own a home,” Gaylord said.
Last week, President Bush signed into law a $152 billion economic stimulus bill that includes temporary increases in loan limits for the government sponsored enterprises (GSEs) — Fannie Mae and Freddie Mac — and the Federal Housing Administration until Dec. 31. But what does this mean for you?
The NATIONAL ASSOCIATION OF REALTORS® launched a new resource Web page, http://www.realtor.org/gapublic.nsf/pages/economic_stimulus devoted to educating you about the new loan limits, which loans are eligible, and the implementation of these temporary limit increases.
NAR has developed estimates of the FHA and GSE single-family loan limits (http://www.realtor.org/GAPublic.nsf/files/new_loan_limits.pdf/$FILE/new_loan_limits.pdf) by state and county so that you can get a sense of how the loan limits will rise in your markets. As you can see, Nevada, for instance, is mentioned, but nothing was done for Las Vegas. However, Salt Lake City is there: FHA limit used to be $362,790, now it is $546,875 and same for GSE limit. Other effected Utah cities are Garfield, Grand, Iron, Juab, Kane, Millard, Morgan, Piute, Rich, San Juan, Sanpete, Sevier, Summit, Tooele (same before anf after numbers as SLC), Uitah, Utah, Wasatch, Washington, Wayne, Weber. As you see some cities are missing?
"The importance of immediately implementing the new limits cannot be overstated," said NAR President Richard Gaylord last week in a public statement. "Mortgage markets throughout the country need liquidity. Our research indicates that the increased FHA loan limits will help an additional 138,000 Americans achieve the dream of homeownership and will allow nearly 200,000 homeowners to refinance and potentially keep their homes.”
The FHA limit will increase to as much as $729,750 in high cost areas (to 125 percent of local median home prices). The GSE limit will jump to $729,750 for loans; currently Fannie Mae and Freddie Mac loans are capped at $417,000. So, when you hear and see these numbers, please know it is not about all of us.
Eligible loans from FHA include mortgages that were issued for credit approval on or before Dec. 31, 2008. GSE loans that are eligible include loans that originated after July 1, 2007 to Dec. 31, 2008.
The U.S. Department of Housing and Urban Development is required to publish the new mortgage limits by March 14; the limits will be effective for FHA immediately upon publication.
"This will be a major stimulus for the housing industry and for people who want to own a home,” Gaylord said.
Saturday, February 9, 2008
House Passes GSE & FHA Loan Limit
House Passes GSE and FHA Loan Limit Increases, Senate to Consider This Week On January 29, 2008, the House of Representatives passed H.R. 5140, the economic stimulus package. This bill, agreed to by the Administration includes several important housing provisions. These include increases in the loan limits for Fannie Mae and Freddie Mac and also FHA. The bipartisan vote of 385-35 demonstrates the overwhelming support for this proposal. The House and the administration view strengthening the housing market as key to improving the national economy. Here is what was included in the package:
The FHA limit will increase to as much as $729,750 in high cost areas (to 125% of local median home prices). This is a one year increase, pending final passage of FHA reform (which passed the House and Senate last year).
The GSE limit will be increased up to $729,750 for one year. Currently Fannie Mae and Freddie Mac are capped at $417,000. It appears that there will be a formula similar to that of FHA, with GSE loan limits increasing to 125% of the local median home price, but not to exceed $729,750. In addition, the package includes a bonus depreciation provision for leasehold improvements. This will allow 50% of the cost of a leasehold improvement placed into service in 2008 to be deducted in 2008. The remainder of the cost of the asset will be amortized over the remaining 38 years of the structure's life. The Senate is expected to consider HR 5140 early this week. Contrary to some media reports, we believe that the GSE and FHA loan limits will both be included in the Senate package. NAR is currently conducting a Call For Action to the Senate, asking for their support of these provisions. If you have not yet responded, please visit www.realtoractioncenter.com to contact your Senators.
The FHA limit will increase to as much as $729,750 in high cost areas (to 125% of local median home prices). This is a one year increase, pending final passage of FHA reform (which passed the House and Senate last year).
The GSE limit will be increased up to $729,750 for one year. Currently Fannie Mae and Freddie Mac are capped at $417,000. It appears that there will be a formula similar to that of FHA, with GSE loan limits increasing to 125% of the local median home price, but not to exceed $729,750. In addition, the package includes a bonus depreciation provision for leasehold improvements. This will allow 50% of the cost of a leasehold improvement placed into service in 2008 to be deducted in 2008. The remainder of the cost of the asset will be amortized over the remaining 38 years of the structure's life. The Senate is expected to consider HR 5140 early this week. Contrary to some media reports, we believe that the GSE and FHA loan limits will both be included in the Senate package. NAR is currently conducting a Call For Action to the Senate, asking for their support of these provisions. If you have not yet responded, please visit www.realtoractioncenter.com to contact your Senators.
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