Richard's Real Estate Thoughts

Recently the Fannie Mae Chief Economist, Doug Duncan, in the November Economics Development report offered this encouragement:

It's (Unofficially) Over!

Backed by this graph.

The report addresses many of remaining serious problem - consumer confidence, housing market stability, and JOBS, JOBS, JOBS.

But great encouragement is to be taken with the significant turn around in GDP, evidenced in the chart.

A concern is how much the tax credits have created demand that may not be sustained, and whether consumers will continue to spend.

The report states, "While the improvement in consumer spending may not be durable, it does not mean that the recovery is in doubt. The Conference Board's Index of Leading Indicators, which is a gauge for economic activity over the next six months, increased in September for the sixth consecutive month after reaching its trough in March. The string of gains in the index supports our view that the recovery is taking hold."

On the mortgage side, the report looks for a boost in existing and new home sales spurred by the extension and expansion of the home buyer tax credit. But despite this boost in purchases, overall mortgage orginations are predicted to decline significantly for 2010 as rates tend back upwards.

The more I look over the HUD RESPA changes that start January 1, the worse they seem.

The latest version of the RESPA FAQ is an astonishing 49 pages long.

HUD has simplified the Good Faith Estimate by making it 3 pages rather than 1 page. That is the logic of government.

The stated goals are to increase transparency, to increase accuracy, and to encourage shopping.

I think the accomplished facts are to increase banker advantage by enabling bankers to hid their premium income. Bankers have always been able to hid their premium income. Brokers have always disclosed their premium income. HUD now will require brokers to add the premium income to the upfront charges, creating the false perception that brokers are charging more upfront.

It is an advantage that the regulators are giving to banks. It amounts to an anti small business policy.

But even for bankers, as well as closing agents, it is astounding that HUD would impose such a poorly conceived encumberance as these new RESPA requirements. At a time when lenders, brokers, and others in the housing industry are struggling to get through the down turn, HUD decides it is best to add further cost and burdens of new software, new forms, and new training.

You would think that HUD is intent on further restricting the housing market.

At any rate, one of the more consumer unfriendly, and more poorly thought out, aspects of the RESPA reform is the requirement that any Good Faith Estimate is fully binding on the loan originator. For the consumer this means that application, including credit, will probably be required before the application can receive an estimate of costs.

From HUD's FAQ - "An application includes information the loan originator requires the borrower to submit in anticipation of a credit decision. If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information."

We will have to wait and see how this strict binding requirement impacts consumer ability to shop for terms, but I think it will limit them. And I think with the additional disclosure requirements placed on brokers, over that required of bankers, the consumer will be steered to larger bank lenders out of confusion rather than based on a fair and accurate understanding of the costs and terms.

The exact opposite of the stated goals of HUD.

For more on RESPA reform, please look at my article in November's Scotsman Guide.

 

Mortgage insurance company losses are a mounting concern for the industry.

 A concern that has not received much coverage in the media, nor in Congress. These companies have taken a beating in the market downturn.

Mortgage insurance enables home buyer to purchase with less than a 20% down payment. For FHA loans, the home buyer purchases government mortgage insurance from HUD. For conventional loans, the home buyer purchases private mortgage insurance.

Several companies offer mortgage insurance. All have taken heavy losses and as a result have tightened their lending guidelines. In many cases the MI companies have tightened their guidelines more than Fannie Mae and Freddie Mac have.

In other words, Fannie or Freddie might allow a loan to be, if the borrower can obtain mortgage insurance. But if the mortgage insurance is not availabie, then the loan cannot be made. Even though Fannie and Freddie guidelines would have allowed it.

Mortgage insurance is critical to home affordability and to the housind market.

Mortgage insurance is in trouble.

Standard and Poor's is looking closely at the larger mortgage insurance companies. This look may mean a credit rating downgrade.

The impact - higher premiums, tighter guidelines, less approved loans. It may be that Congress needs to look into what can be done to support this industry that is so vital to the continued housing recovery.

In an earlier post I suggested a twist on the home buyer tax credit that might have provided a boost to the struggling mortgage insurance industry, and might have actually helped create new home buyers. Both of these issues remain unaddressed.

As part of a $24 billion economic stimulus bill, the expanded and extended home buyer tax credit is now law.

The features of the bill are as publicized throughout the week;

• deadline extended through April 30
• April 30 deadline requires only that the contract is signed
• Qualified purchases must close by June 2010
• a reduced tax credit of up to $6500 is opened to existing home owners

Other provisions in the new stimulus focus on extending unemployment benefits. Today's increase in unemployment percentages provided the backdrop of today's signing

Here are the President's remarks. In his remarks, President Obama made the point that the credit is "fully paid for." Though he did not elaborate on that. I think he is referring to the deferring a seperate business tax credit.

The president also remembered those suffering in the Ft Hood shooting.

Congratulations to the Red Bank Lions football team. Last week they finished regular season play undefeated and with the number 1 ranking in the state.

Tomorrow they begin their playoff run.

Anything can happen of course, but this is a special team.

Great job and good luck tomorrow.

As the economy starts the turn around, employment becomes more important measure of the strength and sustainability. As a lagging indicator, employment gains will always trail recovery, but families and the economy need more jobs. The job creation target is 400,000 new claims. Today's New Unemployment claims number of 512,000, despite continuing improvement, remains above that magic job creation level.

This means the economy is still losing jobs. On a personal note, the paper mill in my hometown has just announced plans to close. The impact on my home town will be massive. 1100 jobs. Wow. And what do you do with a closed paper mill?

Tomorrow's unemployment numbers will be very important, more so than usually. September showed an increase breaking a trend of monthly improvement.

The question is - Was September's increase a blip or a trend. Expectations are unemployment will slide higher, maybe to 10%?

Estimates are that 16-20% are underemployed - combining the unemployed seeking work with the working parttime instead of full time or no longer seeking employment.

To sustain the recovery jobs must come back. With closing factories, the jobs may need to be in new industries.