Mortgage debt rises for first time in 5 years
But the factors behind that stat may guide the mortgage landscape in 2014.
Home-mortgage debt rose in the third quarter of this year for the first time since the end of 2008, according to a new report from the Federal Reserve.
It is a healthy sign for the housing market, arguably, but it is not exactly what it seems at face value. Mortgage debt is growing largely because banks are foreclosing on fewer homes, thereby wiping away less debt.
In the past few years, record-low mortgage rates prompted millions of Americans to refinance their home loans, but a sluggish market, dominated by all-cash investors, kept loans to purchase a home in the negative. That too, however, is beginning to change.
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More than one-third of the housing market is still running on cash, but home sales rose in the first half of this year, pushing mortgage volume higher. The Mortgage Bankers Association is estimating that, thanks to that surge, the full-year 2013 purchase mortgage volume will be up 11 percent year over year.
Spring could also bring a new surge in sales, as potential buyers gain confidence from rising prices, but buyer demand will be hit head-on by a new mortgage landscape. The Federal Housing Administration, the government's insurer of home loans, just announced it would be lowering its loan limit in the very highest cost areas from $729,750 to $625,000, starting Jan. 1.
"As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play," FHA Commissioner Carol Galante said in a release. "Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved."
The FHA has already raised premiums and fees, and the average credit score of its borrowers is far higher than it was during the housing boom.
Then late Monday, the Federal Housing Finance Agency, overseer of Fannie Mae and Freddie Mac, announced it would again raise the fees it charges lenders, beginning in March. Those fees will likely be passed on to borrowers in higher rates.
"The new pricing continues the gradual progression towards more market-based prices, closer to the pricing one might expect to see if mortgage credit risk was borne solely by private capital," said the FHFA's acting director, Ed DeMarco, in a release. "These changes should encourage further return of private capital to the mortgage market."
The push to bring private capital back to the mortgage market by the FHA and FHFA would seem to indicate that government agencies and federal regulators believe the economy, and the housing market, can handle the changes and that investors are waiting at the ready. That is not necessarily a given.
"We appreciate the broader goal of attracting more private capital to the housing finance system, but we question the timing of the price hike, as it comes right as multiple other housing regulations take effect," wrote Guggenheim Partners' Jaret Seiberg of the hike in Fannie and Freddie fees.
A major new regulation, called the qualified-mortgage rule, also goes into effect in the new year, and that could raise borrowing costs even more, especially for borrowers who don't qualify for the new standards. Qualified mortgages are designed to protect both borrowers and lenders by limiting risk and providing banks with legal protections. The rules, however, are strict, and while lending will take place outside of qualified mortgages, it will do so at a far higher cost.
"For anybody to venture into that space, the investor requirements are going to have to have enough yield to offset the risk of losing one case," said David Stevens, president and CEO of the Mortgage Bankers Association. "They are going to expect very high margins."
Some lenders are already quoting rates as high as 10 percent for non-qualified loans, even 30-year fixed loans. While rates may not end up as high as that when the rules take effect, they will undoubtedly be higher for a large number of borrowers with lower credit scores and higher debt.
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THATS COMING FROM THE MORTGAGE BANKERS ASC. Th same bunch of hypocrits that said people should follow their obligation and pay their mortgages that they signed on the dotted line and should have know what they were getting into when they took out thos elarge mortgages regardless of their homes crashing values. The same Mortgage Bankers Asc that strategically defaulted on their loan on their headquarters in Wash DC because ut was cost effective for them to stop paying on their own mortgage and the headquaters was eventually sold in a short sale for a 90 million dollar loss to mortgee.
They shouldnt even have the right to spout their opinion !
FHA raised its GMI rates and more importantly if you have a loan that's 15yr its 11 -15 years of GMI and on a 30yr they raised the 5 years to life of the loan. I call it GMI gov't mortgage insurance. Example on the screwing of America
$300,000 loan 30yrs
GMI upfront fee 1.75% = $5,250 + $9,216 = $14,466 over life of loan
GMI annual fee 1.35% = $4,050 * 30 yrs = $121,500
Not taking in account the loan costs of the $5,250 or exact breakdowns but a ballpark figure total costs for the FHA to "help" you get a loan is over $135,000 on a $300,000 loan.
Monthly payment difference on $300k loan @4.5% = $1,520.06 P&I base rate
Upfront FHA fee raises monthly payment on loan to $1,545.66 or an additional $9,216.00
Annual fee bumps the payment from $1,545.66 to $1,883.16
To recap: Payment goes from $1,520 to $1,883 and your effective % rate goes from 4.5% to 6.2685% when FHA is used with a total gov't fees and interest of nearly $136,000 on a $300K loan. FHA making the poor, poorer one home loan at a time.
When a corporation can declare bankruptcy and continue on with business as usual, yet the person with a forgotten 50 dollar medical bill from 6 years ago is denied...there is a problem. This has set us up for a rental crisis which we are now experiencing...and with that goes more investors and higher prices. Isnt that how this whole thing started?