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Slow Recovery Ahead for Six-Month Low in Mortgage Rates

Back in January, Freddie Mac’s Chief Economist Frank Nothaft projected mortgage loan rates to reach 5.1% by the end of 2014. However, as we approach the middle of the year, the market is not quite living up to expectations.

Mortgage interest rates are currently at their lowest level in six months, with rates on a 30-year fixed-rate mortgage averaging 4.21% in the first week of May. This represents a drop from the prior week’s 4.29%. Further, Nothaft is not expecting rates to recover quickly; during an economic forecast event at the US Chamber of Commerce, he projected a very slow and gradual rise throughout the rest of the year. With these new trends in mind, January’s forecast is being revised to a rate of 4.65% by the end of the year.

Hopefully, this new trend will translate to a boost in the housing market. Since mortgage interest rates jumped by over a full percentage point in 2013, home sales took a hit during the past fall and winter. Nothaft is expecting home sales to speed up and match last year’s numbers by the close of 2014, with new construction potentially beating out 2013.

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Fannie Mae Supports Lower Income Housing with Green Initiatives

The housing market and the environment are both big hot-button items in today’s political climate, and Fannie Mae is taking steps to address both in one sweeping action. With the help of the US Department of Housing and Urban Development’s Federal Housing Administration, the mortgage giant recently announced an effort aimed at increasing the availability of affordable housing to low-income families through the use of greener, more efficient housing units.

For a while now, Fannie Mae has been issuing millions of dollars through the Fannie Mae Multifamily Green Initiative. This program was designed to provide affordable multifamily housing with utilities designed for enhanced energy and water efficiency. The aim here is to decrease the utility costs of running such properties, thereby increasing the affordability of the homes for low-income renters.

This program is being enhanced with what is being called Green Preservation Plus. Under this new program, Fannie Mae will offer financing to property owners who want to acquire a mortgage loan or refinance an existing mortgage loan for multifamily properties aimed at low-income renters. The program gives borrowers lower debt service and an increased loan-to-value ratio, thereby providing them with the funds they need to rehabilitate or improve the property with energy and water efficient fixtures.

According to FHA Commissioner Carol Galante, “The Federal Housing Administration is committed to providing multifamily affordable housing property owners with the necessary financing tools to help implement energy efficiency improvements that will help the owners and tenants save energy and save money.”

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Foreclosure Activity Reaches Lowest Level Since Onset of Recession

The Great Recession has been marked with an unfortunate degree of foreclosure activity. Since the beginning of the financial crisis, the country saw a total of roughly five million foreclosures brought to completion as people struggled with employment and fell short in their mortgage loan payments. However, as of last April, the country finally reached an important milestone: foreclosure rates, which have been steadily dropping for a while now, have fallen to pre-recession levels.

In April, the total of properties that were either foreclosed or in some state of the foreclosure process was at roughly 46,000 nationally. This represents a drop of 0.4 percent from the previous month, and 18 percent from April of 2013. Foreclosure inventory represented 1.8 percent of all homes, which is down from the 2.7 percent of a year ago.

Every individual state has been reporting a double-digit drop in foreclosure activity, with the exception of New York and the District of Columbia. The states with the most total completed foreclosures over the past twelve months have been Florida, Michigan, Texas, California, and Georgia, accounting for roughly half of the nation’s foreclosures. The states with the highest percentage of foreclosure inventory among all mortgaged homes were New Jersey, Florida, New York, Hawaii, and Maine.

According to the chief economist of CoreLogic, the foreclosure pipeline could be cleared in as little as fourteen months.

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Many Americans Still Leery About Housing Market

Despite many months of positive trends, including rising home prices, declining mortgage loan delinquency, and increased home sales, a surprising number of Americans are still not convinced that the housing crisis is over. This is according to a survey conducted by the MacArthur Foundation.

This survey, conducted between April 8th and April 14th of this year, polled a nationally representative sample of 1,355 Americans. Of the surveyed population, a full 70% stated that they believed that the nation was still in the middle of a housing crisis, including a 19% who exhibited a belief that the worst was yet to come. This represents a slight improvement over the previous year, when 77% of respondents believed we were still in a housing crisis. Approximately one in four people said that they believed the crisis was over, representing an improvement from the one in five from 2013.

It would appear that this same attitude is serving to discourage many non-owners from buying their first home. While the survey demonstrated that 70% of non-owners still aspire to one day own their own home, two thirds of respondents do not believe that building equity and wealth through homeownership is still a viable option. With that in mind, 51% of respondents said that renting is more appealing that it was in past decades, while 54% said that buying a home was less appealing than it used to be.

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Job Creation Index Hits a New High

One of the most important factors in the health of the real estate market is the job market. After all, people can only achieve their dreams of homeownership when they are reliably and gainfully employed. Therefore, as a mortgage loan company, we are heartened to see the recent trends in employment.

According to Gallup’s US Job Creation Index, job creation is at an all-time high since the index began in 2008. In May of 2014, the index came in at +27, beating out the prior high of +26 from all the way back in January of 2008 when the country was just starting to fall into recession.

This number is based on a survey of the American workforce, where the percentage of people who reported that their workplace was reducing the size of its workforce is subtracted from the number of people who reported that their workplace was expanding the size of its workforce. In May, it was found that 40% of employees reported that their company was hiring new workers, while only 13% were experiencing a staff reduction. Another 41% reported no change in staffing.

This new high was strongest in the private sector, with an index of +29 for non-government jobs and only +14 for government jobs. However, both sectors appear to be showing improvement, with the government sector only two points shy of its previous high in 2008. All in all, it’s a very positive outlook for the recovering economy.

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4 Questions to Ask Before Buying

A lot of renters are eager to buy their first homes, but don’t want to make the same mistakes that so many first-time buyers made prior to the housing crisis. Indeed, deciding whether or not you could benefit from trading in your monthly rent for mortgage loan payments is a difficult decision to make. This is why the American Bankers Association (ABA) has come up with the following questions that every consumer should ask themselves when determining whether they should be renting or buying:

• How Much Do You Have in Savings? Ideally, you should have between three and six months of living expenses stored away for an emergency. Calculate what your emergency funds should be, and then calculate what you can afford in the way of a down payment on a home or a deposit on a rental property.
• How Much Will You Pay Every Month? Add together all of your financial obligations and calculate your monthly payments, then make a hypothetical budget for the home you wish to rent or buy. What do utilities cost in the area? Do you have to pay for trash pickup? What about renter’s insurance? You’re going to want to make sure that you can reasonably take on your monthly rent or mortgage loan payments.
• What is Your Credit Score? Whether you’re renting or buying, you’re probably going to have someone look at your credit score. The lower this score is, the less eligible you will be for desirable homes or rental properties. If you have a low score, you may want to put off your move in favor of bringing your score up a few points.
• How Long Do You Plan to Stay in the Home? Buying is generally only a good decision if you plan to live in the same place for an extended period of time. This allows you to build equity and avoid the extra grief and expenses that come with selling your home. If you think you may wish to move in the near future, you may prefer the flexibility and lower maintenance costs of renting.

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Home Price Increases Slow in May

For a long while now, our mortgage loan company has been observing great jumps in home asking prices. This was due in a large part to the torrential release of demand, pent up from years of recession, which overwhelmed the supply of homes on the market and put strains on the construction industry. Finally, however, it would seem that the market is beginning to correct itself and restoring some measure of stability for consumers.

According to the Trulia Price Monitor, asking prices in May showed a distinct slowing trend. With a year-over-year increase of only 8.0%, prices increased at their lowest rate in the past thirteen months. May’s rate is still well above the long-term historical norm, but it tells of a market that is more balanced and sustainable.

Though prices are slowing down across the country, the biggest slowdowns have been occurring in the Western United States. In the previous year, it was the West that saw the greatest increases in home prices. Today, of the top ten markets with the biggest price gains, over half were outside the West. All in all, this is good news for consumers who are looking for a little more stability in the housing market.

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The Rise of Ginnie Mae

Though most people know the names Freddie Mac and Fannie Mae, fewer are familiar with the group known as Ginnie Mae. This is because Ginnie Mae, or the Government National Mortgage Association (GNMA) has for a long time taken a distant third place within the world of single-family mortgage loan securitization platforms. However, in the wake of the financial crisis, it’s been Ginnie Mae that has been largely boosting the recovery of the market, and now this group is poised to overcome Freddie Mac.

Back in 2007, Ginnie Mae’s book of business came in at $445 billion, far behind the approximately 1.5 trillion of Freddie Mac and the 2 trillion of Fannie Mae. Today, Ginnie Mae’s business has more than tripled, bringing it up to 1.5 trillion. At its continuing rate of growth, compared to the plateaued performance of Freddie Mac, it is projected to overtake the mortgage giant within the next year.

So, what is the secret of Ginnie’s success? What sets it apart from Fannie Mae and Freddie Mac is that it offers less of a risk for investors. Ginnie Mae securities feature only government loans, which are reliably insured with an explicit government backing. It is then able to guarantee investors that principal and interest payments will be made in a timely fashion, even if the borrower defaults. The company effectively puts itself into a fourth loss position, behind a borrower, a government insurance provider, and a servicer. By contrast, the other mortgage giants act as both insurers and securitizers, putting themselves in a second loss position that represents a greater risk.

In the time of uncertainty that followed the financial crisis, Ginnie Mae’s credit guarantee proved to be a powerful stabilizer for the mortgage market. As it rides the wave of its recent success, we can likely expect it to play a much bigger role in real estate from now on.

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Home Builder Confidence Returns to Positive Territory

Every month, the National Association of Home Builders conducts a survey of new home builders to gauge their confidence in the current real estate market. This month, the outlook was positive for the first time since it crashed early this year. Should this trend continue, it represents good news for mortgage loan brokers throughout the country.

This survey is based on three measures. Firstly, respondents are asked to identify the current market for new home sales and their projections for the next six months as “good”, “fair”, or “poor”. They are then asked to rank their perception of current buyer traffic as “high to very high”, “average”, or “low to very low”. Of these three measures, two showed significant improvement; the index for current sales conditions jumped by four points to 57, and the index for the next six months jumped by six points to 64. Though the index for current buyer traffic remains below the crucial 50 mark, it has still showed improvement in the form of a three point jump to 39.

Improvement was seen across all four regions, with particularly strong gains in the West. The West showed a five point gain to 52, while the South rose two points to 51, the Northeast rose by one point to 35, and the Midwest jumped two points to 48. All in all, it’s an encouraging outlook for the continued recovery of the US housing market.

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