Fannie Mae (the quasi government mortgage giant) is raising fees for mortgages it buys. Banks and mortgage lenders often sell the mortgage to Fannie Mae shortly after completing the loan. Mortgages get more expensive - again
And Fannie doubled its “adverse market delivery charge” to 0.5%. That is an across-the-board fee assessed against every loan Fannie buys, according to a Fannie spokeswoman. Fannie first instituted the charge this spring.
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The added fees will be passed on to borrowers and could mean quarter-point increases in interest rates.
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Fannie will also eliminate buying Alt-A loans by the end of 2008. Alt-A loans, a category between prime and subprime, accounted for about 11% of the company’s loans during the last years of the boom. They have been used mostly by people who couldn’t or wouldn’t document their incomes, their assets or both. These buyers will find it harder to obtain financing once Fannie stops buying the loans.
According to Yun, however, the cutback in Alt-A will hurt people buying second homes to rent out or resell, rather than first time homeowners. “These are people who often rely on their good credit to buy investment properties putting little or no money down,” he said.
Related: Mortgage Rates Rising - Fed Funds Rate Changes Don’t Indicate Mortgage Rate Changes - Jumbo and Regular Mortgage Rates By Credit Score - Homes Entering Foreclosure at Record
I commented on, WaMu Free Checking: The High 3.3% APY May Be Worth A Look, yesterday:
I agree it is worth considering. It has FDIC insurance. But the bank is not very stable. The stock price, for example, was above 40 in the last year. It is below 5 now. But as long as your entire deposit is covered by FDIC you are in safe (though if a bank goes under - not that likely - there can be a delay in getting your money). Normally a bank’s assets would be bought out by another bank.
And today I read of the second largest bank failure in the history of the USA, IndyMac Bank seized by federal regulators:
Regulators said depositors would have no access to banking services online and by telephone this weekend, but could continue to use ATMs, debit cards and checks. Online banking and phone banking services are to resume operations Monday.
Federal authorities said based on a preliminary analysis, the takeover of IndyMac would cost the FDIC between $4 billion and $8 billion.
It is important to make sure your deposits are FDIC insured (in the USA), and to know the limits of the coverage.
FDIC Failed Bank Information Information for IndyMac Bank, F.S.B., Pasadena, CA
IndyMac was a huge mortgage focused bank. Their stock price had fallen from a high of nearly $30 in the last year to below $5 in April, $2 in May and $1 in June. It is a very good thing we have the FDIC.
Related: Credit Crisis (August 2007) - Credit Crisis Continues - Homes Entering Foreclosure at Record
Foreclosure Filings Continue to Rise
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last week the Mortgage Bankers Association reported that about 2.47 percent of home mortgages were in foreclosure during the first quarter of the year, almost double the 1.28 percent rate of a year earlier, and the highest point since the group began compiling such figures in 1979. A Credit Suisse report this spring predicted that 6.5 million loans will fall into foreclosure over the next five years, reaching more than 8 percent of all U.S. homes.
There numbers really are astounding. How lame were the decisions of banks and mortgagees that nearly 1 in 40 mortgages are in default (and that number likely increasing in the next year to much more?
Related: Homes Entering Foreclosure at Record (Sep 2007) - Homes Entering Foreclosure at Record - Ignorance of Many Mortgage Holders
This year, the average discount rate has fallen every month while the average 30 year mortgage rate has climbed all but 1 month (a 5 basis point drop). In January, 2008 the discount rate averaged 3.94% and 30 year conventional fixed rate mortgages averaged 5.76%. In May, 2008 the discount rate had fallen to 1.98% (for a 196 basis point drop) and 30 year conventional fixed rates had risen to 6.04% (for a 28 basis point increase).
The chart shows the federal funds rate and the 30 year conventional fixed rate mortgage rate from January 2000 through May 2008 (for more details see: historical comparison of 30 year fixed mortgage rates and the federal funds rate).
Related: Affect of Fed Funds Rates Changes on Mortgage Rates - real estate articles - Bond Yields 2005-2008 - Jumbo and Regular Mortgage Rates By Credit Score
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The recent drastic reductions again emphasize (once again) that changes in the federal funds rate are not correlated with changes in the 30 year fixed mortgage rate. In the last 4 months the discount rate has been reduced nearly 200 basis points, while 30 year fixed mortgage rates have fallen 18 basis points.
I have update my article showing the historical comparison of 30 year fixed mortgage rates and the federal funds rate. The chart shows the federal funds rate and the 30 year fixed rate mortgage rate from January 2000 through April 2008 (for more details see the article).
There is not a significant correlation between moves in federal funds rate and 30 year mortgage rates that can be used for those looking to determine short term (over a few days, weeks or months) moves in the 30 year fixed mortgage rates. For example if 30 year rates are at 6% and the federal reserve drops the federal funds rate 50 basis points that tells you little about what the 30 year rate will do. No matter how often those that should know better repeat the belief that there is such a correlation you can look at the actual data in the graph above to see that it is not the case.
Related: real estate articles - Affect of Fed Funds Rates Changes on Mortgage Rates - How Not to Convert Equity - more posts on financial literacy
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Housing prices posted large declines over the last year. One important thing to keep in mind when looking at the recent results is how rare significant declines in housing prices have been. In general housing prices decline very little (less than 10% drops and normally less than 5%). Normally the turnover just decreases dramatically as people refuse to sell at lower prices and just stay in their house until prices recover. Housing Prices Post Record Declines:
Of those 20 metro areas, 17 posted their largest year-over-year declines ever. Ten of the 20 cities posted double-digit dips. The 10-city Case/Shiller index is down 13.6% year-over-year, the biggest drop since its launch in 1987
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Prices in the Las Vegas metro area have plunged more than any other city, down 22.8% over the 12 months through February. Miami prices plummeted 21.7%. In Phoenix, they’ve fallen 20.8%. Of the 20 cities Case/Shiller tracks, only Charlotte, N.C. showed higher prices, up 1.5% over the 12-month period.
Other metro areas recorded only modest price declines, including Portland, Ore., down 2.0%, Seattle, off 2.7% and Dallas, 4.1%. In the nation’s largest city, New York, metro area prices dropped a modest 6.6%.
Related: Home Price Declines Exceeding 10% Seen for 20% of Housing Markets (Sep 2007) - How Not to Convert Equity - Housing Inventory Glut (Aug 2007) - Mortgage Defaults: Latest Woe for Housing (Feb 2007)
It has long been the case that home owners refuse to accept falling prices and choose to demand higher prices than the market demands in a falling market. Therefore when prices should fall (to find buyers) instead the sales decrease as buyers don’t decrease prices to a level buyers are willing to pay. Be It Ever So Illogical: Homeowners Who Won’t Cut the Price
Three years ago, when the real estate bubble was still inflating, this sort of standoff was the exception. It’s the norm today. Overall home sales have fallen a remarkable 33 percent since the summer of 2005. Home prices, on the other hand, continued to rise until 2006 and are now only 5 to 10 percent below where they were in mid-2005, according to various measures.
A house is where you live–not an investment
Very good point - as long as you fall into that category of living there until you die. True for some people but far from all. Also, even for those people, it is not a complete view of the financial situation.
A reverse mortgage will allow you to sell the house and get paid for the rest of the time you live there. So you can build up equity over 20,30,40 years and then take a reverse mortgage and get payments every month (based on your investing in your house). Reverse mortgages, like many financial tools, can be applied poorly and is I would guess unethical behavior related to them is fairly high (so be very careful!). If you think of such an option you need to do your research and actually understand what you are doing - you can’t afford to be like the many ignorant mortgagors. The AARP offers information on Reverse Mortgages.
Additionally, you lock in a large part of your housing cost (you still have maintenance and taxes but you do not have every increasing rent. Now ever increasing rent is not a certainty but for many it is very likely rent will go up on average over the long term. Ownership of your home removes the risk of being priced out of the area you want to live by increasing rental prices over time. You also lose the potential of benefiting if rent prices fall over time, but I would say the more valuable of those options is avoiding the risk of rising rental prices.
Related: How Not to Convert Equity - Housing Inventory Glut - articles on home ownership and real estate