It’s Tuesday News Day and these are this weeks hot topics concerning the real estate market, the financial market, general market conditions, and interest rates.
The Wall Street Journal – Loan Size to Be Cut for Fannie, Freddie
In an effort to scale back the government’s dominance in the mortgage market, the Federal Housing Finance Agency (FHFA) is planning for a reduction in conforming loan limits for implementation on January 1, 2014. Under the change, there would be a decrease in the maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac. Currently both of the enterprises cannot back loans of more than $417,000, although the cap can reach as high as $625,500 in expensive markets like California.
The real estate industry has questioned the consequences of adjusting conforming loan limits, such as reducing the pool of potential home buyers or derailing the current housing recovery.
The FHFA has yet to announce how far it will reduce the loan limits, but stated that a “gradual reduction in loan limits is an appropriate and effective approach to reducing taxpayers’ mortgage-risk exposure.”
In response to the proposal, Gary Thomas, president of the NATIONAL ASSOCIATION OF REALTORS®, commented the following: “It would be counterproductive to make changes to the loan limits before private capital is fully engaged.”
In 2008, the caps were increased to address concerns about mortgage liquidity during the financial crisis. Critics contend if the caps are changed, larger loans will be more difficult and costly to obtain.
The Mortgage Bankers Association announced it expects to see the loan limits adjusted downward to $400,000 for the majority of the country and $600,000 in pricier markets.
By reducing the limits for Fannie Mae and Freddie Mac, more business could be shifted to the Federal Housing Administration since it has less restrictive terms.
In other news…
The Hill – Improving number of housing markets hit record high in September
More than 80 percent of the 361 metropolitan areas tracked by the National Association of Home Builders/First American Improving Markets Index (IMI) experienced improvement in housing permits, employment, and house prices. Out of 361 metros, 291 qualify as having improving housing markets, which is a gain of 44 markets from last month.
MarketWatch – Survey: Americans’ outlook on housing hits a ‘plateau’
A new survey from Fannie Mae indicates rising mortgage rates appear to have put a damper on expectations about the housing market among potential homeowners. In addition, the possibility that the Fed will begin to wind down its asset purchase program has also impacted consumer sentiment. The share of respondents who said it was a good time to buy fell slightly.
USA Today – Economists line up behind Yellen for Fed chief
In a signed letter, more than 350 economists have called on President Obama to select Janet Yellen as the next head of the Federal Reserve, citing her leadership and prescient warnings about the housing crisis in 2005. Yellen currently serves as Vice Chair. Nobel Prize winner Joseph Stiglitz and Alan Blinder, a former economic adviser to President Clinton and former Fed vice chair, are among the economists who have signed the letter.
The Wall Street Journal – Barns, Reborn as Homes
Barn enthusiasts are generating buzz by converting barns into spacious, modern residences. Many homeowners are also disassembling barns and moving them to a new site or using parts for other projects. But as a real-estate investment, experts warn there is little guarantee that barn conversions will increase in value or sell quickly.
The New York Times – Invasive Tactic in Foreclosures Draws Scrutiny
The ways in which the nation’s largest banks have utilized property management firms has drawn criticism due to possibly illegal tactics. As banks deals with millions of foreclosures, allegedly some firms hired by banks have wrongfully dispossessed homeowners, damaged homes, or bullied tenants into leaving.
Bloomberg – Banks Seen at Risk Five Years After Lehman Collapse
Sunday marks the five-year anniversary of Lehman Brothers’ bankruptcy filing, and while the amount of capital at the six largest U.S. lenders has almost doubled since 2008, more than 50 bankers, regulators, economists, and lawmakers have expressed concerns that deficiencies in the financial system have not been sufficiently addressed to prevent the same conditions that led to the last crisis.
Wall Street Journal – Mortgage Lenders, Home Buyers Feel Rate Squeeze
Large and midsize banks have been warning investors of declining profitability in the home-loan business due to the impact of rising interest rates on the demand for mortgages. Losses in the mortgage-origination business have also led banks to cut jobs.
Talking Points…
The availability of mortgage credit declined in August, according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA). Decreases in availability of loans that have an interest-only feature are attributed to the MCAI’s drop.
During August, the MCAI decreased 0.7 percent to 111.5. This is the first drop following four consecutive months of increases. Such a decrease in the index is indicative of lending standards tightening.
The MCAI is calculated using several factors related to borrower eligibility (credit score, loan type, loan-to-value ratio, etc.). August’s index reflects a reduction in the availability of certain loan features, particularly interest-only and terms exceeding 30 years.
If you have any questions about the current real estate market give me a call at (408) 840-3852 or shoot me an email at Thomas.Feng@gmail.com to discuss your situation and how to get the most out of the current real estate housing market.
Because of the many legal and tax situations that can arise through the sale and purchase of real estate ALWAYS consult with your ATTORNEY or ACCOUNTANT before making ANY decisions in ANY transaction
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* THIS ARTICLE WAS POSTED AT Thomas Feng’s Bay Area Connect *