Subprime Alternative: FHA Reform Deal Close
Both Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and House Financial Services Chairman Barney Frank (D-Mass.) said last week that differences between the Federal Housing Administration modernization bills in the House and the Senate could be resolved in short order. The legislation aims to provide safe loan alternatives to subprime mortgages, making homeownership more accessible. The FHA program is intended for mortgage borrowers with weak credit or little or no cash, who may not be able to get an affordable mortgage elsewhere. Among the changes on tap, home owners would no longer be required to have 3% equity or the cash equivalent to get an FHA-insured loan. The House bill would allow borrowers to get an FHA-insured loan with no money down if they can show they can afford the mortgage payments. The Senate bill requires 1.5%. The legislation would also permanently raise the program’s loan limits, which have not kept up with many housing markets. In 2005, there were roughly 5,000 FHA loans made, down from 109,000 in 2000. (www.cnnmoney.com)
CNNMoney.com (3/10/08); Jeanne Sahadi
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A Silver Lining in Housing Blues
Lenders in California are predicting a flood of new loan applications and refinancing following the government announcing last week that it was raising the maximum limits on mortgages backed by the Federal Housing Administration and Fannie Mae and Freddie Mac. They cited the pent-up demand for credit and the fact that the new rules are set to expire by the end of 2008. One loan officer even said that, with all the layoffs in the industry since the subprime market implosion, he’s concerned that there won’t be enough lenders to meet the onslaught. “It’s definitely going to stimulate buyers to jump off the fence,” said Tom Cortesi, a loan officer at First Financial in West Los Angeles. “I’ve been getting lots of calls about it.” The new jumbo loans won’t come without some restrictions, though. Fannie and Freddie could tighten loan-to-value rules, for example, which would require larger downpayments. And interest rates on the new, larger loans may not be as low as they are on the smaller conforming loans. Lenders are expecting more details from the FHA soon. (www.pasadenastarnews.com)
Pasadena Star News (3/8/08); Barbara Correa
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100% More Difficult: First-Time Home Buyers Struggle to Find Downpayment Money
Falling prices in many parts of the country have improved affordability for those interested in becoming home owners for the first time, but financing the purchase has become a bigger challenge. Lenders, in general, are requiring larger downpayments and higher credit scores, criteria that can trip up first-time buyers. According to the National Association of Realtors®, 45% of first-time home buyers opted for 100% financing between July 2006 and June 2007. The median percentage that first-time buyers financed was 98%. No-downpayment loans “are still happening, but with a lot more restrictions than before,” said Barton Pitts, president of Downers Grove, Ill.-based Professional Mortgage Partners. Borrowers today are going to have to verify their income and verify their financial assets to lenders, said Frank Nothaft, chief economist for Freddie Mac. A FICO credit score of 660 to 680 is now the minimum most lenders will consider to prove creditworthiness, he said. While there is no one-size-fits-all rule to mortgage requirements, experts say a first-time buyer will need about a 5% downpayment on a typical loan these days. Others are predicting heftier restrictions to entry. According to Guy Cecala, publisher of the industry newsletter Inside Mortgage Finance, a first-time buyer in many markets will soon need even more money down — perhaps 10%. “And I think before too long we’re going to see it up to 15% to 20%,” he added. (www.marketwatch.com)
MarketWatch.com (3/9/08); Amy Hoak
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Hemorrhaging Housing Market Threatens Latino Wealth
The president of the National Council of La Raza testified before Congress late last month that the subprime mortgage crisis is on track to reverse the financial gains Latinos have achieved so far in this decade. Between 2001 and 2006, the percentage of middle-class Latino families grew to nearly 20% of their overall national population, and the national Hispanic homeownership rate set a record in 2007, when it reached an all-time high of 50%. For the average Hispanic home owner, equity in a residence represents about 88% of net worth. Anything that could eliminate some of that equity would, in turn, erase Latino wealth. And that’s what’s expected to happen this year and next as adjustable-rate mortgages are reset at a higher interest rate. About 1.8 million ARMs are scheduled to reset in 2008 and 2009, according to the U.S. Treasury Department, and many of those loans will then go into default. Two out of five Latino borrowers have these high-interest subprime loans, compared with one out of five white borrowers and one in two African-American borrowers, according to La Raza. (www.chron.com)
Houston Chronicle (3/8/08); Shanon Buggs
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Housing Bust Dries Up Sawdust Market
The price of sawdust has soared since 2006, up from about $25 a ton to more than $100 in some markets, and the housing slump is to blame. Fewer new homes mean fewer trees cut for use in construction, which leads to less sawdust and other wood waste, driving up the price. Sawdust may seem like a lowly commodity, but it is widely used in today’s economy to make bedding for farm animals, lightweight coverings for steering wheels and dashboards and for particleboard. The Pacific Northwest is expected to produce about 15 billion board feet of lumber this year, a decline of almost 3 million board feet since 2006, translating into a shortfall of 1.5 million tons of sawdust and shavings. One Montana company that manufactures compressed sawdust pellets for special stoves that produce lots of heat but little ash is dealing with the sawdust shortage by mining old houses that are being torn down for lumber that can be ground up and sold. The company has also opened a free wood dump for any construction crew that wants to drop off any two-by-four trimmings from a local site. (www.Charleston.net)
Charleston Post and Courier (3/9/08); Joel Millman, Wall Street Journal
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Springfield Housing Tops in Midwest
Hardly the prototype of the bustling, fast-growing and hugely desirable markets associated with housing booms, Springfield, the capital city of Illinois, looks better and better as it continues to see double-digit price increases for homes. With a gain last year of 14.4%, to a median price of $108,600, Springfield placed tops in the Midwest in the strength of its single-family housing market, according to the National Association of Realtors®. By contrast, Midwest prices overall fell 3.2% last year. In the Chicago area, including Naperville and Joliet, prices sank 2.6% to a median price of $261,000. “The key here is that housing is affordable,” said Fritz Pfister, a real estate broker in the city. “We are seeing people from Florida and Arizona who found those areas to be too crowded and expensive, and they are moving back to Springfield.” “The healthiest housing markets today generally are moderately priced and are experiencing job growth and often population growth,” said Lawrence Yun, chief economist for the Realtors®. Weaker markets, such as Detroit, where home prices fell 13.8% in 2007, to $133,300, are experiencing job losses and an exodus of residents, according to Yun. (www.chicagotribune.com)
Chicago Tribune (3/10/08); William Sluis
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