The Federal Reserve has positioned as a buyer in secondary mortgage markets that had seized up but are vital to enabling lenders to make new home loans. Mortgage lenders sell many of their loans to institutional investors, and higher rates charged by these investors to hold pooled bad credit mortgages make it more difficult for loan officers and mortgage brokers to offer lower rates on new mortgage loans. Conventional and FHA mortgage rates were both slightly lower than the previous week.
The gap has narrowed in just a few months between Treasuries and the mortgage rates that the agencies and mortgage lenders have to carry to make them attractive. Read the original article > Mortgage Interest Rates Drop.
The U.S. Department of Housing and Urban Development released its first revision to the Real Estate Settlement Procedures Act in 30 years. The new form requires disclosure of yield spread premiums paid to mortgage brokers. HUD claims the new loan disclosure revisions for a new standardized Good Faith Estimate that HUD estimates will save borrowers about $700. “For the first time ever, HUD is requiring mortgage lenders and brokers to provide borrowers with an easy-to-read standard Good Faith Estimate that will clearly answer the key questions they have when applying for a mortgage loan,” HUD said.
The current financial crisis began with the collapse of Fannie Mae and Freddie Mac in July. The dominant institutions in the American mortgage market, and among the most powerful institutions politically, became wards of the government in a matter of weeks. What was their fatal flaw?
One popular explanation, often advanced by the GSEs themselves, is their “affordable-housing goals.” In 1992, as part of the Federal Housing Enterprises Financial Safety and Soundness Act, Congress required the GSEs to devote some of their home loan purchases to housing for families in the lower half of the income distribution, and also to families living in areas considered to be “underserved.” Housing for both homeowners and renters is included. Specific %age targets were set on a transition basis; the U.S. Department of Housing and Urban Development was required to revise the targets periodically, by regulation, which it has done 3 times (1996, 2001, and 2005).
The law requires HUD to set goals on the basis of the kinds of mortgage loans the GSEs actually buy — their market — and the importance of lower-income borrowers and underserved areas in that market. Research in the late 1990s showed that the GSEs were already buying the better-quality bad credit mortgages and also low-documentation loans (“Alt-A”), so the goals in 2001 and 2005 included these loans as part of their market.
The home financing goals will then be factored in as %ages of the mortgages the GSEs actually bought between 2001 and 2004, for example, out of every 100 loans they bought, 50 were supposed to be for homeowners and renters in the lower half of the income distribution. This may sound high, but in those years other mortgage lenders, making loans to similar types borrowers as the GSEs, made more than 57% of their loans to lower-income families. Effective in 2005, the goal was raised to 52%, with a further increase to 53% for 2006.
RESPA continues to promote affordable-housing goals, but is that realistic? They let the GSEs off the hook and shift the blame to the Bush administration, at the same time diverting attention from the refusal of congressional Democrats to allow stronger regulation of Fannie and Freddie after their accounting scandals surfaced in 2003. The goals are even blamed by some conservatives, who see them as credit allocation, and overlook the special privileges conferred on the GSEs by their federal charters which create something close to a federally sponsored duopoly in the mortgage financing market.
