In a recent article, Barry Habib, CEO of the Mortgage Market Guide talks about the challenges mortgage lenders and brokers have with their clients after the Federal Reserve lowers key rates.  Mortgage lenders in every state report similar challenges after Fed meetings.  Claudio Pereida, a mortgage broker in Orange County said, “every time the Fed lowers the rates, my clients call me and expect their mortgage in process to have the rate reduced.”  He continued, “locked or unlocked borrowers really believe that if the Fed lowers interest rates that their rate showed be dropped as well.”  He tries to explain to them that it doesn’t work that way but the customers seem to feel that they aren’t being treated fairly.  Many refinancing borrowers call their loan officer and demand a rate reduction.  Many patient homeowners are perplexed as to why mortgage refinancing rates have not dropped during Fed’s last six rate cuts.

According to Bryan Dornan, a mortgage banker from California, “In most cases, the home lenders anticipate the Fed cutting the rate and actually lower the rates prior to the Federal Reserve meeting and announcing the key rate discounting.” This can be challenging to explain to borrowers who have watched a three point reduction by the Federal Reserve yet have no positive effect on mortgage rates for refinancing purposes.  How many mortgage lenders and brokers out there have lost borrowers with loans in process for similar issues?

The Federal Reserve meets today to discuss the economy and key interest rates that significantly affect credit and mortgage rates. It is widely anticipated that the Fed leave the key interest rates at 2%, which would keep the prime-lending rate for consumers at 5%.  The Federal Reserve has signaled that its next move on interest rates is likely a hike but when the Fed changes directions remains unclear. Several Maryland FHA Mortgage Lenders indicated in a recent article that, rate and term refinancing has declined for conventional loans but has increased slightly for FHA streamline refinance loans.  According to Drew Mchale, “FHA streamline business is very volatile, because if the interest rates rise at all, then borrowers typically back out of the loan, because the benefits disappear.”

Charles Plosser, president of the Federal Reserve Bank of Philadelphia, last month said the Fed probably will need to boost rates “sooner rather than later” even if employment and financial conditions haven’t revived.  Richard Fisher, president of the Federal Reserve Bank of Dallas, opposed the Fed’s decision in June to leave mortgage rates unchanged. He said he preferred a rate increase then to fend off inflation.  Mortgage lenders eagerly await the Fed’s next moves.

Recently, Dale Kasler wrote an article that celebrated the rise of FHA loans in the mortgage industry. He noted the rise in FHA loan applications and new initiatives by HUD. The Federal Housing Administration’s loan program,  were nearly forgotten during the years of soaring real estate prices and various no-money-down mortgages, is fueling new lending throughout the Sacramento region.  Mortgage brokers said Monday the FHA program, in which the federal government’s guarantees make loans more affordable, accounts for the vast majority of their business. That’s become increasingly true as credit markets tighten and conventional mortgage guidelines become more restrictive.

Some experts said the FHA’s guarantees are playing a major role in the fledgling recovery in Sacramento’s real estate market.  “This is the best game in town,” said Michael McGee of Winchester McGee Real Estate & Loans in Rancho Cordova. “It’s the only game in town, really.  Jon Kaempfer, a loan consultant with Vitek Mortgage Group in Sacramento, said he does 60 % to 70 % of his loans through the FHA mortgage refinance loan program, “like I did in the old days.”

With conventional lenders demanding down payments of 5 % or 10 %, the 3 % down payment required by FHA has become a bargain. That could make the FHA “the new lender that’s going to deal with risky loans,” said Steven Krohn, an economist and analyst with the Real Estate Group Inc., a consulting firm in Sacramento  “They’ve moved in to kind of remove the financing risk from the banks and the investors.”  At the same time, Krohn said, the FHA program is putting confidence back in the market.  “It’s important that the housing market revive itself,” he said.

The FHA mortgage loan program never went away. But during the boom, market dynamics made the program far less relevant. Borrowers could get mortgages without any down payments. And rising home prices put most deals off limits to FHA guarantees, which were capped at $362,790.  Recent reports indicate that California FHA mortgage lenders have not benefitted much from the increased FHA loan limits, because most banks still consider loans above $417,000 as a jumbo loan and the loan to value restrictions are greater. “Everybody was buying $400,000 or $500,000 homes – you couldn’t do an FHA loan,” said Kaempfer, a board member of the California Association of Mortgage Brokers.

 

 

Bloomberg’s Edward Evans just reported that IndyMac Bancorp  the second- largest independent home mortgage lender in the U.S. filed for bankruptcy after a run by depositors left the California mortgage lender short on cash. Before IndyMac was forced to halt lending, was one of the rare lending giants who offered, “A-paper”, sub-prime, construction and FHA mortgage loans to people with a vraiety of credit profiles.  IndyMac filed for bankruptcy today in a California court.  They are seeking relief under Chapter 7 of Title 11 of the U.S. code, the Pasadena, California-based company said in a Securities and Exchange Commission filing.