In early September, the Federal Housing Finance Agency (FHFA), the entity that oversees Freddie Mac and Fannie Mae, gave notice that it would revise the conforming loans limits in an attempt to stimulate the private sector, specifically the private mortgage securitization (PLS) market. Though any reduction in the loan limits is expected to be relatively modest, it could have more far reaching impacts at the local level and for the affected borrowers.
Each year, the FHFA adjusts the national conforming loan limit which defines the space within which Fannie Mae and Freddie Mac can finance mortgage. The national limit is $417,000, but that varies by county and can increase to $625,500 in high cost markets. The FHA’s limits, which range from $261,050 to $725,750, are based off of the conforming limit so the FHFA’s actions would impact FHA borrowers as well.
NAR Research estimates that if the national conforming limit were lowered to $400,000, roughly 145,000 total conforming mortgages and 49,000 conforming purchase mortgages would have been impacted in 2012 . If the FHA limits were also revised, the impact would be larger by roughly 15,000 and 7,000 borrowers, respectively. The total number was inflated due to the refinance boom in 2012. However, strong price growth in 2013 has likely pushed more home buyers toward the conforming limits. Most estimates have the impacted volume at roughly 2-5% nationally.
The Federal Reserve released its survey of senior loan officers (SLOOS) earlier this week. On its face, the survey suggests a modest loosening of credit for prime and non-traditional lending. However, the picture is a little more mixed for those groups and credit for borrowers with less than pristine credit remains tight.
Respondents to the SLOOS survey indicated an improvement in mortgage lending to prime and non-traditional borrowers. However, lending to subprime borrowers tightened from last quarter.
Yesterday marked an important turning point for housing finance. The Federal Reserve voted on a final Basel III rule that is significantly friendlier to residential housing finance than the earlier proposal. While the FDIC and OCC must still vote on it, the finalization of this rule is important as it opens the door for completion of the qualified residential mortgage rule. The completion of this set of rules will in turn provide clarity to the banking and capital markets, allowing them to pursue expanded mortgage lending as interest rates and profitability rise with the improving economy.
Recently released government data for 2011 from the Home Mortgage Disclosure Act (HMDA) shows just how tight mortgage credit has been. Incomes of prospective purchasers have increased since 2004, but the loan to income ratio has declined. The median household income for a homebuyer using conventional financing rose from $79,000 in 2007 to $ 90,000 by 2011, while the national median household income has remained flat since 2007 at about $50,000, This indicates that either 1) more loan applicants with higher incomes were applying and those with lower incomes were self-selecting themselves out of the process, and/or 2) that banks income standards had become more stringent.
Each month, the National Association of REALTORS® obtains up-to-date and on-the-ground incisive comments from REALTORS® who participate in the REALTORS® Confidence Index (RCI) survey. The RCI survey tracks expectations about overall market conditions, buyer/seller traffic, price, buyer profiles, and issues affecting real estate.
The selected comments reflect the general sentiment expressed by REALTORS® who participated in the October 2012, conducted during October 22 through November 5, 2012. All real estate is local and conditions in specific markets may vary from the national trend.
REALTORS® reported that access to financing remains tight, so cash buyers, who are typically investors, are winning the bids against first-time homebuyers. There are reports that banks are asking for higher credit scores, with a report of a bank rejecting a score of as high as 800. It also appears that self-employment can be a problem in obtaining a mortgage. The mortgage application process continues to be deemed as too drawn out to the point of thwarting or jeopardizing the sale. There is also lack of assistance for helping current homeowners who are slightly delinquent to modify keep their homes.
- “Banks are ignoring settlement dates and can’t even give you a reason for a delay. There is no accountability on their end of the transaction. Three settlements in October were delayed due to lender issues.”
- “1st time buyers finding it difficult to qualify for loans”
- “I had two buyers with over 800 credit score and the bank would not loan. They ended up paying cash and looking for a loan after the closing.”
- “The lack of assistance from the mortgage companies for helping current home owners modifying their loan due to being underwater or slight delinquency to help them stay in their homes!!!!”
- “Cash buyers are winning bids. FHA buyers hardly have a chance.”
- “Concerned about purchases by investor groups – hundreds of homes purchased from Fannie/Freddie – basically no information forthcoming regarding this – concerned about what effect this will have long term in our area – are we going to have no “real” home owners for years to come? Not a good plan – list with realtors, to be purchased by home owner.”