Some quick reminders about changes that in affect:

1.  Self Employed Borrowers that use 2009 Income must have 2009 Tax Returns completed both personal and for their business.  We also must have IRS tax transcripts on file to close the loan.  If the returns are filed electronically this will take 2-3 weeks from that date.

2.  After this Friday the Up Front Mortgage Insurance Premium changes to 2.25% from 1.75%. Borrowers will need slightly higher income to by the same property.

3.  Other FHA changes expected later this summer is that the Up Front Mortgage Premium will drop to 1% and the monthly MI will go from .55% to .9% this will have more impact on qualifying price.

4.  There are only 24 business days to have a contract received and a loan assigned and in our system before the tax break expires.  As reported last week the Mortgage Bankers Association expects less than a 5% probability this will be extended.  Based upon the new sales report I also doubt this will happen.

5.  The good news (kind of), if the housing recovery stalls expect the return of some government stimulus.  Also expect the interest rate support from the government as well if rates climb too much from today.  Projections are for .25%-.5% increase.

Economic News:

Retail rates moved up toward the end of the week to just over 5%. Expectations for much better jobs numbers and a weak Treasury auction pushed the stock market and Treasury yields higher at mid week. There is growing sentiment that the Fed will have to sell the Mortgage backed securities (MBS) it owns which will put upward pressure on mortgage rates. Remember the Fed purchased $1.25 Trillion of these MBS and hold them on its balance sheet. 

The government has controlled the housing market for the last 18 months or so thru the GSE’s (Fannie Mae and Freddie Mac) and FHA. Collectively they own or control more than 50% of all mortgages and by some estimates 70% of mortgages done in 2009. There is increasing conversation about doing something for our national housing market the question is what and when. Do we privatize or nationalize? Do we find some sort of middle ground solution? How do we make the transition from what we have today to whatever solution is agreed upon? These are difficult decisions and ones that will impact our lives and our economy for years to come.

One of the elements of this housing reform will be the mechanism by which capital is raised. What will that process look like in the future? Clearly some portion of the funding will come from overseas investors. Perhaps the recent statements by David Stevens the FHA Commissioner will shed some light on the challenges associated with relying on foreign bankers and investors. In a recent speech Mr. Stevens said when referring to some conversations he had with international bankers about how these bankers/investors saw triple A rated securities turn to junk “We are at the point right now where no one trusts the American housing finance system”. If what he says is true one can only observe how far we have fallen in such a relatively short amount of time.