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The Federal Housing Administration, weighed down by losses on souring loans, will likely need a cash infusion from the U.S. Treasury for the first time in its nearly 80-year history when the current budget year ends, according to sources familiar with the matter. The agency, which offers private mortgage lenders guarantees against homeowner default, has nearly exhausted its reserves for the mortgages it backs, making it necessary for the government agency to turn to the Treasury Department for a cash injection. The FHA has never needed to tap the Treasury before because it has been able to take other actions,...

Housing: Under pressure from civil-rights activists, federal bank regulators have killed tougher mortgage rules requiring minimum down payments and credit scores for loans bundled into securities. Here we go again. The Fed, FDIC, SEC and three other agencies regulating Wall Street have adopted the same weak underwriting standards the Consumer Financial Protection Bureau set earlier this year for loans. The Dodd-Frank Act was supposed to require banks and other issuers of mortgage-backed securities to retain 5% of the credit risk of the bonds on their books to avoid the moral hazard that led to the financial crisis, when lenders quickly...

The U.S. Justice Department has subpoenaed documents from what was Wall Street’s largest mortgage due-diligence firm as it ratchets up an investigation into bank actions in the years before the financial crisis. The Justice Department delivered a subpoena to Clayton Holdings LLC last month for an extensive number of documents related to the firm’s work on residential mortgage-backed securities deals. Information sought includes due diligence reports, internal communications related to reviews of pools of loans and correspondence with clients, according to a copy of the subpoena filed as an exhibit in federal court. Let’s take the case of the FHA....

Is the economy finally healing? It has been over 4 years since the alleged end of the recession. Foreclosures are improving, mortgage rates came down a bit and Q2 GDP was revised upwards to 2.5% from 2.2%. today The Freddie Mac Loan Commitment rate for 30 year fixed actually fell a bit. This is not surprising giving the recent trends in the Treasury 10 year yield. Still, the 10 year Treasury yield is up 115 basis points since May 1st. freddke30us10 FHA Serious Delinquencies and Foreclosures are down to 7.57% as of June 2013, a noticeable decline from 9% at...

House Financial Services Committee Chairman Jeb Hensarling spoke yesterday in Texas on housing reform. Hensarling pointed out that the Protecting American Taxpayers and Homeowners (PATH) Act specifically: * Ends the costly Fannie and Freddie bailout; * Protects and restores the FHA by defining its mission; * Increases mortgage competition, enhances transparency, and maximizes consumer choice; and * Breaks down barriers for private investment capital. Here is a markup of the PATH bill. The PATH bill is superior to the Senate’s Corker-Warner bill that proposes winding down Fannie Mae and Freddie Mac, but creates yet another government insurance corporate (The Federal...

According to Kate Berry of American Banker, the cost of doing business with the Federal Housing Administration could skyrocket if the agency adopts a new method for calculating lenders’ liability for poorly underwritten loans that default. The method under consideration would have the FHA examine a random sampling of each lender’s loans, calculate the percentage of loans in the sample with underwriting defects, and then extrapolate that rate to the lender’s FHA portfolio. Lenders would then have to compensate FHA for the “estimated total risk” to the agency’s insurance fund. “If this goes through, it means it will be a...

Like the USA, the UK can’t leave well enough alone and is trying to reinflate their housing market through a program called “Help to own.“ At least the UK government calls it by it’s rightful name: a “scheme.” Here is how it works. * Help to Buy equity loans are open to both first-time buyers and home movers on new-build homes worth up to £600,000. * you’ll need to contribute at least 5% of the property price as a deposit * the government will give you a loan for up to 20% of the price That would be 100% Cumulative...

Rising mortgage rates, rising home prices. What is happening to the jumbo-conforming loan spread? In the fixed-rate market, the jumbo mortgage rate remains higher than the conforming mortgage rate. But the spread between the two has shrunk for the first time to early 2007 (and before) levels. jumboconfrs The jumbo-conforming spread actually began to increase in late 2007 and peaked in January 2009 at 184 basis points. It is now 28 basis points, below the average from 2000 to July 2007 of 29.5 basis points. jumboconformigspread On adjustable-rate mortgages (ARMs), the spread between jumbo ARMs and conforming ARMs is actually...

An alleged "worst case scenario" shows the FHA could lose as much as $115 Billion. Since these worst case scenarios are always famously optimistic, the best course of action would be to shut the agency down. I was quoted as saying just that by the Heartland in Congressional Report Raises Spectre of FHA Bailout. The Federal Housing Administration's (FHA) losses over the next 30 years could be much higher than originally projected, according to the findings of a congressional committee. The dismal forecast has some bracing for another taxpayer-financed bailout. The House Oversight and Government Reform Committee, chaired by Rep....

Subprime: For years, the administration has denied FHA troubles. But emails reveal it not only knew of them, but also withheld evidence of projected insolvency from Congress. Under Obama, the Federal Housing Administration has increasingly backed new home loans to so-called rebound borrowers who recently defaulted on past mortgages. The agency is letting lower-income borrowers get loans just three years after foreclosure with as little as 3% down and subprime-low credit scores. In fact, 40% of newer FHA-backed loans are subprime. The risky lending has led to higher delinquencies. Now at 17%, delinquencies on FHA loans are so high the...

According to Bloomberg Briefs, there has been a jump in non-fixed rate notes. And this occurs whenever Treasury yields rise. But if we look at The Fed, Fannie Mae and Freddie Mac, they are currently invested primarily in fixed-rate products. The ARM (adjustable rate mortgage) share of mortgage applications has risen to 6.4% in recent months, but is well below historic highs. As we argued in a Mercatus research paper, “Do We Need the 30 Year Fixed-rate Mortgage?“, Mike Lea and I say no. In fact, ARMs have decided advantages over their fixed-rate cousin such as risk-sharing with the lender...

Nick Timiraos at the Wall Street Journal wrote that the FHA could suffer losses up to $115 billion over the next 30 years. In its annual audit, the FHA disclosed that under current conditions, its projected losses over 30 years would exceed its reserves by $13.5 billion. A more recent analysis, released in April by the White House’s budget office, showed the agency would require $943 million this year due to losses in its reverse-mortgage program, which allows homeowners who are 62 years or older to take cash out of their homes. (Yes, the reverse-mortgage program that I argued was...

May has been a difficult month for Ginnie Mae mortgage-backed securities investors (like The Fed). First, the US sovereign yield curve has increased since May 2nd. The spread between the Ginnie Current Coupon and the Bankrate 30 year FHA rate has risen from around 61 basis points to under 100 basis points. The Ginnie MBS 4.0% duration has been rising rapidly with the increase in the yield curve. See here for a definition of duration. The convexity of Ginnie 4.0s has increased as well. The good news for the FHA and Ginnie Mae is the rise in house prices over...

The cabinet nominee fought to keep the Supreme Court from reviewing his preferred extortion technique. One of the administration’s favorite legal theories, “disparate impact,” may get taken up again by the Supreme Court. Will the administration try to engineer some kind of payoff to take the issue away from the Court — again? In June 2012, the town of Mount Holly, N.J., petitioned the Supreme Court to review the legitimacy of racial discrimination claims premised solely on a disparate impact theory under the Fair Housing Act. Under this theory, a policy — such as requiring high credit scores for loans...

HUD Secretary Shaun Donovan said Congress and the Administration “should move forward this year with plans for overhauling the U.S. mortgage finance system,” including GSEs Fannie Mae and Freddie Mac, which were “seized by the government in 2008.” Donovan is quoted as saying, “Reform of the failed model of the GSEs, the private gains and socialized losses model, is a top priority and it’s critical that we make progress this year toward that goal.” There have been rumblings of GSE “reform” for the past several years. But the stock answer has been “But not now.” Fannie Mae’s record profits for...

Landing A Reverse Mortgage Just Got Tougher Mark Koba, CNBCApr. 14, 2013, 9:20 AMSeniors looking for a big cash payout from a reverse mortgage will have to look elsewhere for needed funds. A small but increasing number of defaults on the loan product has prompted a crackdown by the Federal Housing Administration (FHA) on the biggest payout loan to homeowners. The basic theory behind reverse mortgages — you must be 62 or older to apply — is that instead of making payments to a lender like in a traditional mortgage, the borrower receives non-taxable money from the lender, which does...

The Federal Housing Administration will charge borrowers higher mortgage insurance premiums on new FHA loans starting next week. If you are planning on getting an FHA loan in coming days, make sure your lender gets a case number from the FHA before Monday to avoid the higher fee. Lenders normally can get the case number assigned to the loan once the borrower applies for the mortgage. But if they are overwhelmed with applications, they may not get to it in time, says Cameron Findlay, director at Discover Home Loans. The annual fee on most FHA loans will increase by 0.1...

The economy is improving (at long last). Durable goods order surprised to the upside with a print of 5.7% SA. But the YoY NSA durable goods orders seems to be in a decline. And the housing market continues to exhibit price increases. The S&P Case-Shiller house price index rose 1.02% in January on a seasonally adjusted basis (SA). On a non seasonally adjusted basis, house prices rose only 0.1%. When we remove the seasonal adjustment, house prices nationally seem to be flat since the end of 2008 with some undulations. The big winners in January? The sand states where investors...

The Mortgage Bankers Association (MBA) released their application indices this morning. In a nutshell, mortgage applications fell -4.68% from the previous week. Purchase applications fell -2.53% and are at 1997 levels as the big push for homeownership from the Clinton Administration was starting. Refinancing applications fell -5.21%. They rose the previous week as mortgage rates started rising, but have cooled off this week. In fact, you can see a trend of decline in refi applications from last September. Mortgage rates have been trending up since October of last year. In refi news, the FHFA released a report showing that Home...

One of my favorite mortgage spreads to look at is the spread between retail mortgage rates (such as the Bankrate 30 year average fixed-rate) and the government agency/enterprise current coupon rates. Prior to November 2008, the spread between the retail mortgage rate and the Ginnie Mae current coupon rate was 22.60 basis points (median). But after October 2008, the median spread skyrocketed to 107.31 basis points. While the spreads vary over time, that is almost an 85 basis point increase in the spread. AND the correlation is falling. Why is this curious? Because the same thing happened to Fannie Mae...