Richard's Real Estate Thoughts

MGIC is the defendant in a suit by Bank of America lending units for denying claims. This follows a prediction earlier this month by Moody' that mortgage insurance companies might start rejecting claims on defaulted loans - to the tune of an anticipated $4 billion.

The big push is to hold the lenders more accountable for the lending decision - and of course to keep the MI companies viable.

FHA is changing fast - appraiser independence, 5% downpayment, tighter streamline refinance standards, higher credit score standards, higher mortgage insurance premiums.

As the FHA market share increases, largely from the loss of competitive conventional programs, loan approvals will become more difficult.

The mortgage insurance industry may need help to rebound. Right now it appears that they are going to fight by withholding payment of many default claims.

The housing recovery needs a strong mortgage insurance industry, but it also needs mortgage insurance that actually pays on defaulted loans.

At any rate, conventional mortgage insurance remains a major aspect of the housing market that has not received needed attention.

See my previous post on this issue.

Here is a S&P report downgrading 5 mortgage insurance companies: Old Republic, PMI, MGIC, Radian, and Genworth.

FHA has just announced that the implementation of new procedures to separate appraisal orders from the origination process has been delayed until February 15, 2010. This change is a major part of numerous changes that FHA has made or is planning to make in the near future.

The push for appraiser independence is seen by FHA to be an important part of the push to improve its loan quality.

The changes to the appraiser ordering process involve the requirement that appraisal ordering must be separated from the loan origination process both for mortgage brokers and for lenders. Generally to accomodate this change lenders have set up arrangements with third party appraisal management companies, similar to arrangements made to comply with HVCC.

This change was announced with ML2009-28. It may be that many lenders were struggling to establish procedures to handle appraisal ordering, especially on the heel of preparing to accomodate the massive changes to RESPA disclosures which also takes effect in January 2010.

Chattanooga has made several top cities lists - and here is the most recent top city recognition for the Scenic City.

Forbe's Best Bang for the Buck

The award looks at "Solid housing markets, relatively stable employment, enviable cost of living and quick commutes make these metros among the country's most affordable to live." It looked at the 100 largest metropolitan areas.

Categories considered were housing affordability, travel time rank, real estate taxes, unemployment, vacanies, job forecast, and home prices. Chattanooga was only in the top 10 category in the travel time category, but we were relatively high in each category.

The category that we ranked lowest in is unemployment, but even there our prospects are bright with the development associated with the VW plant.

Add in other top rankings and Chattanooga is the place.

Other recognitions:

Top Natural Wonders

Top 50 Next Great Towns

Top 20 Best Towns

Top Retirement Choice

 

FHA continues to toughen its lending criteria.

In January, new appraiser independence guidelines will take effect for FHA lending. FHA is adopting the language of HVCC. The goal is to separate loan origination from the appraisal. Banks will set up separate appraisal ordering processes for their internal originators and for their broker originators.

Coming soon FHA will change the approval process for lenders and correspondent/brokers. This change will give lenders more say over which mortgage brokers they accept.  It will also increase the lender net worth requirement over 3 years. The new net worth requirement will be $2 million, with 20% liquid.

Tougher enforcement has already been evident - see TBW and Lend America and many others. Now there will be tougher lender approval guidelines.

We will see how this change will impact competition, but it may be that near future FHA lending guidelines will so severely restrict the number of qualified buyers that lender competition will be less of a concern.

The biggest, most impacting, change though, for consumers as well as for lenders, will be in the area of borrower qualifications. Already we have seen tightening for FHA Streamline refinances.

Coming soon:

• higher mandated credit scores
• larger down payment - to 5%?
• lower allowed seller paid closing costs - to 3%?
• increased mortgage insurance premiums

 Details are expected to be announced by the end of January, but in a recent NPR interview Secretary Donovan said,"We just lowered the percentage of what we call seller concessions." I have not seen the change, but Secretary Donovan said it has been done.

He wants "more skin." He want borrowers to bring more cash to closing. Apparently a lot more.

I take that to mean that the decision is finalized - more skin right now means lower seller concessions.

And soon it will mean higher down payments and higher monthly payments from higher mortgage insurance.

Here is the interview.

The House Financial Services Committee has just announced that a new 1200 page legislation is being sent to the House Floor for a vote next week.

The Wall Street Reform and Consumer Protection Act (HR 4173).

This bill addresses a wide range of issues in the whole financial system - consumer protections, the "too big to fail" institutions, executive compensation, derivative regulation, mortgage reform, and rating agencies.

BTW, ever notice how Congress people like catch phrases: "too big to fail", "skin in the game", "say on pay." Kind of cute isn't it. I think that catch phrases fit well in sound bites and that repeating these catch phrases over and over helps Congress people get re-elected.

This new massive reform would create a Consumer Financial Protection Agency, an inter-agency oversight council, and a Federal Insurance Office.

I am not sure the reason all these pieces of legistlation are so massive.

I am not sure the reason that new agencies are needed, or why new agencies are just added to the old agencies.

I am not sure who has read all these pages of new regulation, and who knows what their impact will be to the overal economy, still struggling to recover, and to the housing market, still trying to recover.

My suspicion is that we will get many new legislative burdens, few of which will actually impact the problems that we faced with the housing market crash. The problems that caused the housing crash could have been addressed with existing agencies and targeted changes to lending programs and guidelines.

What we are getting now probably goes well beyond the fixes needed for the market.

The problems began with the changes that Congress brought to the secondary market in 1999 with the Commodity Futures Modernization Act. I am not sure how these new changes that Congress is working on in 2009 can be counted on to do anything but cause more problems.

Read my latest article in Scotsman Guide

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Lead Article: Inside the Reg Z Maze