Cool Tools News Spool

Category: Residential Mortgage

  • Fannie survey says it’s a seller’s market

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    Based on Fannie Mae’s Home Purchase Sentiment Index (HPSI), it looks like consumers think we’re in a seller’s market. (I’m sure that comes as a big surprise to you.) For only the second time in the history of the index, the net share of those saying it’s a good time to sell exceeded the net share saying it’s a good time to buy. This happened because of an 8-point decline in the good time to buy index to a record low and a 6-point rise in the good time to sell index, which reached a record high.

    I think the surprising result isn’t that we’re in a seller’s market but that it took so long for this reality to show up in the index. While the buy index is only slightly lower than it was last year and hasn’t varied a lot over the last 12 months, the sell index is 19 points higher than last year.

    Changes in other components of the index were less dramatic. The net share who thinks mortgage rates will rise fell by five points, but the vast majority of respondents still believes rates will rise. The net share who thinks home prices will rise also fell by five points. This result seems anomalous as recent home price data all point to increasing and sometimes rapidly increasing home prices.

    The survey also showed that consumers’ confidence in their personal financial situation continues to be strong with a net 71% not concerned about losing their jobs and a much larger share expecting household income to rise this year. The share who believes the economy is on the right track also ticked higher to 47%, which bests the wrong track share by seven points.

    Fannie’s housing survey reflects the attitudes of 1000 consumers about the housing market and the economy. Fannie has conducted the survey each month since June 2010. Click here for a link to the survey results.

  • Fannie housing index shows renewed confidence

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    Fannie Mae’s Home Purchase Sentiment Index reversed a 5-month slide in Jan, climbing two points. The index is 1.2 points higher than this time last year, which may bode well for spring home buying.

    The rise mirrors increases in other measures of consumer confidence, which recently hit post-recession highs. In the Fannie survey, I think the most interesting result was the five-point rise in the net share of consumers reporting significantly higher income in the last year. A higher percentage also expects their financial situation to improve in the coming year. Given the growing concern about home affordability, if consumers are feeling more flush, it may abate some of this concern.

    One dramatic result of the survey was the share who expects home prices to rise in the next year, which increased 7 points. This probably reflects growing concerns about home affordability, but interestingly, it runs counter to the recent hard data, which shows home prices moderating. If home prices continue to moderate, it might give you an opportunity to present prospective homebuyers with this contrarian news that would come as a welcome surprise.

    Finally, the share who said now is a good time to sell rose two points, while the share saying it’s a good time to buy fell three points. I suspect this, too, reflects concerns about affordability.

    Fannie’s housing survey reflects the attitudes of 1000 consumers about the housing market and the economy. Fannie has conducted the survey each month since June 2010. Click here for the survey results.

  • Use your real estate commission as your down payment

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    Today’s news spool is going to cover a couple loan guideline changes that may help you in your business.

    As I reported several weeks ago, FHA is changing its treatment of deferred student loans to be consistent with other loan programs. If a student loan appears on a homebuyer’s credit report without a corresponding payment, we can use 1% of the loan balance as the effective payment for qualifying the buyer. Previously, we had to use 2% of the balance. FHA originally said the effective date for the change was 6/30, but it recently clarified to say that lenders MUST start using the lower percentage on 6/30. We can (and we will) start using the lower amount immediately.

    If you’re buying a home, and you’re representing yourself in the transaction, Fannie Mae and Freddie Mac will allow you to use your commission on the transaction for a conventional loan.

    Fannie is a bit more restrictive. While you can use the commission to cover closing costs, you have to demonstrate sufficient funds to close not counting the commission, and your commission counts towards the limit on interested-party contributions. This is the percentage (like 6%) we quote you when you ask, “How much can the seller contribute towards closing costs.”

    With Freddie, the commission can count towards your funds to close. Additionally, you can use your commission to cover closing costs and down payment, and it does not count towards the contribution limit. Thus, you can get the seller to contribute the max towards your closing costs and use your commission to cover the rest.

  • Housing stronger than indicated by Fannie housing survey index

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    Industry reporters focused on the negative in the latest Fannie Mae housing survey. The headline Home Purchase Sentiment Index (HPSI) dropped about 2% from Dec to a reading of 81.5. But if you analyze the survey data, I don’t think the results are as dire as the headlines would have us believe.

    The most significant negative I saw in the report is the year-long decline in the share of folks who think now is a good time to buy a home. I suspect that’s a reflection of the so-called affordability crisis. Whether a crisis actually exists, the media is beating it into people’s heads that housing is becoming unaffordable.

    On the flip side, the share of folks who think now is a good time to sell is trending higher. This could lead to more inventory hitting the market for the spring selling season.

    If concern about personal finances was the factor driving the decline in folks saying it’s a good time to buy, it’s not showing up in the survey results. The share that expects their personal financial situation to improve has been rising for the last 6m, and job security has remained steady within the survey’s margin of error during the same period. However, while folks don’t express concern about their personal situation, the right track-wrong track survey of the economy continues to grow increasingly negative.

    I noticed several other positive nuggets in the report:

    – A steadily increasing share of folks expects mortgage rates to increase in the next year. That may create a sense of urgency among potential homebuyers.

    – Respondents expect rental rates to rise almost twice as fast as home prices. Got any renters sitting on the fence?

    – And, finally, the respondents are becoming increasing positive about the ease of qualifying for a mortgage.

    Fannie’s housing survey reflects the attitudes of 1000 consumers about the housing market and the economy. Fannie has conducted the survey each month since June 2010. You’ll find a link to the survey results at the end of my blog.

    Click here for the survey results.

  • Take advantage of new loan limits

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    While Fannie Mae and Freddie Mac left the conforming loan limit for single-family homes at $417k in 2016, HUD raised the FHA loan limit in 4 TX metros. Remember that FHA sets an area’s loan limit based on 115% of the area’s median home price.

    Median home prices rose in Texas last year, so loan limits rose in Austin, Houston, Dallas/Ft. Worth, and Midland. Austin’s limit rose slightly to $333,500 for a single-family home. Houston’s limit also rose only a little to $330,050. The DFW limit took the prize for the largest increase, rising $24k to $334,650, now the highest in the state. Midland also had a sizable increase, rising to $285,200. The limit in San Antonio didn’t change, remaining at $316,250.

    Remember that these limits apply to the entire metro area including surrounding counties. The FHA loan limit remains at the minimum, $271,050, for the rest of the state.

  • Industry to FHA: We need spot condo approvals

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    FHA condo loans are way down, and this has caught the attention of Congress. Because of FHA’s rigid and burdensome certification process, barely 20% of previously eligible condo complexes remain certified for FHA loans.

    Faced with a Congressional spanking, FHA recently announced some changes to its process. However, the changes are pretty weak and seem unlikely to convince many condo associations to seek certification.

    The most significant change is that FHA will allow condo units that are second homes to count towards the 50% owner-occupancy requirement for certification. Congress had suggested relaxing the requirement to 35%.

    In addition, FHA slightly reduced the paperwork required to recertify a complex, but it still requires recertification every 2 years. Congress had suggested lengthening that to 3 or 4 years.

    The changes don’t address spot approvals, which allowed lenders to make FHA loans on single units in non-certified complexes with certain restrictions. FHA dropped spot approvals a few years back.

    The changes are temporary while FHA pursues formal rulemaking. We can hope that the formal process will include spot approvals again.

    HUD may be moving slowly because of concerns about fraud. The owner of a FL mortgage company was convicted recently of making FHA condo loans to unqualified borrowers. However, the crime occurred during the go-go days prior to the financial crisis. Rules have been tightened significantly since that time. Besides, the fraud didn’t concern the condo’s certification but rather the borrower’s qualification. It doesn’t make sense for FHA to equate the two.

  • Number of homeowners set to explode

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    If you’re worried about the strength of the housing market, you may want to look at the Mortgage Bankers Association’s recently released Housing Demand report. The report predicts as many as 12.7 million new home-owning households by 2024, and it provides the statistics to back it up. That’s roughly 1.3 million a year – pretty significant.

    MBA considered two scenarios. In the first, it held homeownership rates at 2014 levels, which were the lowest in decades. Under this scenario, MBA predicts 10.3 million new owner households by 2024. In the second scenario, it assumed that homeownership rates will revert to their long term averages, which are less than the pre-crash highs but higher than today’s low. Under this scenario, MBA predicts 12.7 million new owner households.

    As you might imagine, the Millennial generation contributes positively to homeownership under both scenarios. However, it may surprise you that Baby Boomers are the main source of growth, 9.9 million households (96%) under the first scenario to 9.6 million (76%) under the second scenario.

    Based on other recent studies that show Baby Boomers preferring to age in place, I’d suggest the results may underestimate the already enormous effect of that generation on the number of new owner households.

    Regardless of which scenario plays out, it appears the next decade will witness much stronger housing demand and one of the largest expansions in the history of the US housing market.

    Click here to view the report.

  • FHA changes will disqualify some homebuyers

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    The new FHA handbook is now in effect, and I think you’re going to find the new loan guidelines reduce your pool of potential homebuyers.

    I discussed the changes in the treatment of student loans last time. This time, I’m going to detail other changes that may trip up some of your potential buyers.

    – An insufficient funds notice on a bank statement used to require a letter of explanation from the buyer. FHA wanted assurance the buyer didn’t make a habit of writing bad checks. An NSF now will force us to manually underwrite the loan. The main effect of this is a lower maximum debt ratio, meaning the buyer cannot afford as much home.

    – If your buyer was laid off in the last two years and had to take a lower-paying job, he’ll have difficulty qualifying for an FHA loan. FHA seemingly expects people’s income to rise every time they change jobs. Washington obviously didn’t experience the recession the way the rest of us did. I’m hopeful we can use letters to explain situations beyond your buyer’s control, but it remains to be seen how underwriters will apply this guideline.

    – If your buyer has income from a part-time job, we can use that income for qualifying only if the buyer has a two-year history of receiving the income.

    – This last change is going to drive parents nuts. Under the old handbook, if a parent gifted a child down payment money, we generally asked for a copy of the cancelled gift check and the child’s updated bank statement showing the available funds. Under the new handbook, we also need a bank statement from the parent showing the withdrawal of the gift funds. Now, the only one who’s going to see the parent’s bank statement is the lender, but I’ve run into many parents who were suspicious when we asked for a copy of the cancelled check.

    The new handbook offers many other changes, but I think these are the ones you’ll find cause the most heartburn.

  • FHA changes may hurt your first-time homebuyers

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    The new FHA handbook is now in effect, and I think you’re going to find the new loan guidelines reduce your pool of potential homebuyers.

    That said, probably the biggest change is a mostly positive one. The old handbook allowed for a lot of underwriter discretion. With FHA suing lenders to buy back defaulted loans, many lenders had instructed their underwriters to adopt conservative interpretations of the guidelines. In contrast, in the new handbook the guidelines are more black and white. Very little is left to underwriter discretion.

    Unfortunately, some of those black and white rules are even more conservative than what underwriters were applying before the new handbook and are likely to prevent some marginal homebuyers from qualifying.

    A change likely to impact many first-time homebuyers concerns student loans. With the previous rules, FHA would allow us to ignore student loans that were deferred greater than 12 months. The new rules eliminate this exemption. All student loans must be considered in a borrower’s debt ratio.

    Student loan servicers often don’t report a monthly payment for a deferred loan, and the new rules say we must use 2% of the loan balance if the servicer won’t report a payment. Fortunately, loan servicers typically will provide a payment based on the loan’s current balance if the borrower asks, and this payment typically is closer to 1%.

    The change makes FHA more consistent with conventional loan programs. However, Fannie Mae allows us to use 1% of the loan balance if the servicer won’t report a monthly payment.

    FHA still provides one advantage over conventional loans. It allows the use of the actual payment for income-based student loan repayment plans. These plans often have payments that are less than 1% of the loan balance.

    Next week we’ll look at several other significant changes.

  • TX home prices: Bubble or no bubble

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    Corelogic released a report last week identifying 14 metros that, in its opinion, are overvalued, and low and behold, 5 of those 14 are in TX. Corelogic defines overvalued markets as those in which prices have increased above the sustainable level based on the metro’s per capita income.

    The Austin metro led the pack with prices 42% higher than the sustainable level. The Houston area came in second at 25% overvalued. The Dallas metro came in eighth, San Antonio placed ninth, and Ft. Worth was 12th.

    Corelogic claims that the oil and gas boom is responsible for the population and job growth that has pushed up prices and that the current lower oil prices will lead to a bust.

    James Gaines at the Texas A&M Real Estate Center disagrees. He acknowledges that home prices in these metros have risen at almost twice their normal rate for the past few years, and he credits the oil and gas boom for some of that increase. However, he notes that supply and demand are very unbalanced at this time with most metros at 3 or fewer months of housing inventory for sale. If demand does fall, these markets have a lot of room to absorb it before they become buyer-dominated.

    A further point is that job growth in most TX metros, especially Austin and the DFW area, has been more diversified than in previous oil and gas booms. Tech, telecomm, and health sciences, which have fueled a lot of recent job growth, are unlikely to suffer from declining oil prices.

    So, Gaines says, “Bottom line, we don’t think there is really a bubble.”