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The U.S. government may continue to play an outsized role in the nation’s roughly $10 trillion home loan market under a proposal President Barack Obama is set to endorse on Tuesday.
The plan, along with a sweeping set of new and old housing recommendations and ideas, will be unveiled in Phoenix, as Obama launches his second-term housing policy agenda in the same city where he made one of the biggest broken promises of his first term .
Under Obama’s plan, mortgages provided by private-sector lenders that are bundled into securities and sold to investors could obtain a taxpayer guarantee in return for a fee, according to the White House.
The private sector would have to shoulder some of the initial losses if defaults were to rise, a condition usually triggered by falling home prices. After that, taxpayers would absorb the remainder of losses stemming from an extreme downturn in the nation’s property market. The insurance fee collected by the government should be “actuarially-fair,” the White House said, meaning it should equal the expected payout.
Though short on specifics, Obama’s endorsement of such a plan marks a turning point in the ongoing Washington debate over how to reform the nation’s housing finance system. Five years after twin housing giants Fannie Mae and Freddie Mac were rescued by taxpayers, policymakers have struggled to advance a proposal that would ensure continued access to a bedrock of the U.S. housing market — the fixed-rate 30-year mortgage — but also would reduce the government’s role in funding home loans.
The White House had avoided publicly weighing in on how to reform Fannie Mae and Freddie Mac. In 2011, the administration outlined three policy options. Though it had quickly narrowed those options to a few core ideas, officials have said, the administration refrained from publicly discussing them out of fear White House involvement would poison discussions on Capitol Hill.
Julia Gordon, director of housing finance and policy at the progressive advocacy organization Center for American Progress, praised Obama’s expected remarks for having the discussion about the future of housing policy in the context of “middle-out economics,” rather than focusing on investors and asset classes. Obama is in the middle of delivering a series of policy speeches discussing ways to improve the economy by emphasizing middle-class households.
Fannie Mae and Freddie Mac own or guarantee nearly half of all outstanding home loans. In the aftermath of the 2008 financial crisis, Fannie Mae, Freddie Mac and the rest of the U.S. government have backstopped more than 90 percent of new home loans. Taxpayers now own or guarantee roughly three of every five outstanding mortgages.
The cost of a taxpayer guarantee could be high, especially if the administration’s preference is for the fees to equal expected payouts. A senior administration official said that the cost of the current system, which helped lead to the financial crisis, was “trillions and trillions of dollars in lost equity that we are still rebuilding.”
If the plan ultimately is signed into law, “ credit would be modestly more expensive than it was,” the official said.
Policy analysts reckoned there’s little chance Obama’s plan could make it into law before the 2014 election, despite what appears to be a growing bipartisan consensus on the future of U.S. housing finance.
Taxpayers pumped in nearly $190 billion to save Fannie Mae and Freddie Mac so the companies could continue to make good on guarantees that investors were counting on. Now reporting record profits thanks to conservative lending standards, fewer defaults and rising home prices, the companies have returned more than $130 billion to the U.S. Treasury.
Obama’s plan resembles legislation put forward by a bipartisan group of senators led by Bob Corker (R-Tenn.) and Mark Warner (D-Virginia). The lawmakers call for a public entity that would offer a government guarantee to issuers of mortgage bonds that would guarantee investors against losses. Those issuers would have to have sufficient capital to cover up to 10 percent of losses from defaults, after which taxpayers would step in.
Industry and consumer groups ranging from the Mortgage Bankers Association to the Consumer Federation of America have endorsed key planks of the Corker-Warner proposal.
The senior administration official said the Corker-Warner proposal was “consistent” with Obama’s ideas to reform housing finance, though the official said the proposal fell short in ensuring continued access to credit for first-time home buyers or in providing for rental housing.
Still, a powerful group of House Republicans is trying to advance a proposal that would drastically reduce taxpayer involvement in the housing sector. They remain a roadblock to any deal.
House and Senate Republicans are likely to object to other ideas Obama will attempt to advance on Tuesday, such as a government initiative that would allow more borrowers to refinance their home loans into cheaper, taxpayer-backed mortgages.
The site of Obama’s address on Tuesday is a short distance from the spot where the president announced his signature anti-foreclosure effort at the outset of his presidency. At a high school in the Phoenix suburb of Mesa, Obama explained how his mortgage modification program would work and how many people it would help.
In February 2009, Obama said that up to 4 million homeowners would be able to modify the terms of their mortgages under a government plan that would cap payments to income and prevent foreclosures.
The effort, known as the Home Affordable Modification Program, has fallen far short of its goal.
Sheila Bair, the Republican former head of the Federal Deposit Insurance Corp. who has been praised by consumer advocates and liberal Democrats, wrote in her book after leaving government service that she “cringed” when Obama said he’d save 4 million borrowers from foreclosure .
“At the Phoenix announcement, the president was masterful in announcing the program, though I cringed as he threw out what I considered to be wildly inflated numbers on the programs’ impact,” Bair wrote. “Even with our own, more aggressive proposal, we had estimated the number of successful modifications at 2.1 million tops.”
Bair said many borrowers who entered HAMP ultimately were cheated.
Through May, fewer than 880,000 borrowers were making payments on new HAMP mortgages. Originally a $50 billion commitment, the program has shrunk to about $38 billion. Less than $9 billion has been spent so far on housing programs under the bank bailout program known as TARP.
Drop In Jobless Rate Puts Fed Closer To Ending Bond Buys
The Federal Reserve is nearer to dialing back its massive bond-buying program after the unemployment rate dropped last month, a top Fed official said on Monday, adding that he wants reductions to start this fall.
The U.S. central bank is buying $85 billion in long-term securities each month in order to keep interest rates low and boost hiring and investment. Fed Chairman Ben Bernanke said in June that the Fed would probably make cuts to the program later this year, with an eye to ending it by mid-2014, when unemployment will likely be around 7 percent.
“Having stated this quite clearly, and with the unemployment rate having come down to 7.4 percent, I would say that the (Fed’s policy-setting) committee is now closer to execution mode, pondering the right time to begin reducing its purchases, assuming there is no intervening reversal in economic momentum in coming months,” Dallas Federal Reserve Bank President Richard Fisher said in remarks prepared for delivery to the National Association of State Retirement Administrators.
Here are four things you should consider when negotiating a great deal on a potential new home, Keep in mind when attempting to bid on a home that if you go too high you’ll wish you would have gone lower, but at the same time going too low and you can hurt your chances of getting the home you desire.
The first thing you need to do is prepare yourself; Knowing more information about the property you want allows you to have more control over price negotiations and allows you to know what your max bid should be. Things like hiring a home inspector to help find out what repairs are needed to the home can help you get a home for cheaper or possibly give you the ability to negotiate the current owner of the home to fix these repairs. Another helpful thing to know about is the properties history with certain information and circumstances you can help yourself negotiate a better deal by knowing some things such as how long the property has been listed, a property on the market for a longer period of time you can attempt to go lower than you normally may. Also things like relisting’s, short sales or foreclosures or unique things about the property. Also after finding out property information you also may want to find out information about the seller which could potentially have them motivated to sell the home such as needing to move out quickly or getting a divorce.
The second thing to make sure of when negotiating is always be polite. Negotiating with the seller face to face is a starting point, as it makes it a more real thing and lets them know you’re serious about your interest. Also consider this negation to be like any other business deal, you can always offer a low price that helps you but by throwing something extra to the seller might have them more willing to accept the offer, for example letting them chose the closing date. Always be as professional as possible and courteous but don’t let the seller bully you at the same time. Always be out to try and achieve a win-win with your seller.
Number three, Modesty is key. Look at it as a game of poker try to keep things in your favor by not letting the seller see all of the cards up your sleeve. Example may be not letting them now how you plan on paying for the home which may change the way he goes about the price. And very important to always try to remain emotionally detached as falling in love with a home can be the death of a good negotiation and is usually something a seller can see and some will take advantage of this fact. Always remember there are plenty of houses for sale and other options will almost always exist. When given a counter offer, don’t respond to it instantly but be sure to sleep on it and make sure you have everything planned out be it to propose another counter offer or accept the deal.
Finally always be wise. Once you and the seller have finally come to an agreement, make sure to get everything in writing. Make sure you fully understand all of the costs that come with a home outside of just the mortgage.
A Negotiating game done correctly is one in which all parties can walk away happy. So prepare yourself, and get ready to enjoy your new home.
Mortgage rates were essentially unchanged today, with some lenders in marginally better shape while others were marginally worse. Some of this discrepancy can be accounted for by mid-day reprices where lenders republish rate sheets on occasions where the mortgage backed securities market moves far enough in one direction. Lenders reprice at different times and under different circumstances, meaning that some underlying market movements can be bad enough to motivate some lenders to reprice.
The rest of the discrepancy is due to the fact that markets simply didn’t move much in the first place. Even without the reprices, some lenders were in better shape this morning while others were worse. For the most part, the differences are microscopic and the most prevalent 30yr Fixed quote for a top-tier scenario best-execution remains at 4.5%. Paying additional closing cost to move to 4.25% continues to make sense in some cases, but the amount of time required to break even (extra costs divided by monthly payment savings) is closer to 6 years in some cases compared to just under 5 years last week.
The rest of the week is pretty straightforward from a risk/reward standpoint. Both are huge and risk will continue to generally outweigh reward as long as interest rates continue to generally be trending higher. The steeper trends toward higher rates beginning in early May and late June have been consolidating since the July 5th blowout. “Consolidation” is just another way of saying “moving mostly sideways with plenty of ups and downs but generally with lower highs and higher lows.”
Rates can consolidate for several reasons, but one of the most common is simply because they are moving through a period of weeks that contain inconsequential information relative to some extremely important information. That’s probably what this consolidation owes itself to, and tomorrow is probably the day where we start getting that information. It’s not just one event either, but a rather impressive confluence of events including the Fed’s Policy Announcement, an important employment report, and first look at Q2 GDP among other things.
Markets are also cognizant that the mighty Employment Situation Report is released this Friday, and taken together with tomorrow’s events, should be plenty to suggest the next move higher or lower from this consolidative perch. That’s all well and good if the data and events work in favor of lower mortgage rates or even if they’re at odds in such a way that rates can at least stay flat, but the risk is that the data is unified in suggesting higher rates. If that happens, it could happen BIG, and this afternoon would be the time where you’d wish you would have locked. On the flipside, you could lock today and regret it if rates are able to make a more meaningful recovery, but that’s a different kind of regret than the “wish I would have locked” kind.
Today’s Best-Execution Rates
•30YR FIXED – 4.5%
•FHA/VA – 4.25%
•15 YEAR FIXED – 3.625%-3.75%
•5 YEAR ARMS – 3.0-3.25%
For more information visit http://www.mortgagessiny.com
The Week Ahead: More Of Everything
Monday – Pending Home Sales at 10am is the only relevant piece of economic data in the US session. Even Pending Sales wouldn’t typically be too interesting, but the housing market is back as a potential consideration for Fed policy, and the purchase market is of particular interest (as a steep drop-off in refinance demand is not much of a surprise given the recent rise in rates).
Tuesday – The pace pics up, though not by much. Case Shiller Home Prices report at 9am, and while the effects of rising rates on purchases and prices is interesting, this price data is for the month of May, not capturing the brunt of the rate movement. Consumer Confidence at 10am is the most significant economic release by that point in the week, and the FOMC begins it’s two day meeting. This will also be the last chance to catch your breath (or lock) before the potential volatility sharply increases early Wednesday morning.
Wednesday – In the 8:15am time-slot, the increasingly well-regarded ADP Employment report stands the chance of inspiring quick changes in the outlook for the week’s headline event (Friday morning’s NFP). When ADP misses/beats big enough, it can have a big effect on trading levels, but it’s not the only thing going on that day. 15 minutes later, Q2’s first GDP reading comes out. Economists expect +1.0 compared to Q1’s final reading of +1.8. Chicago PMI hits at 9:45am (and can cause volatility at 9:42am when subscribers get the data 3 minutes early), but the day’s STILL not remotely through with potential market movers. The ‘biggie’ comes at 2pm with the FOMC Announcement. While the notion is on the table that the Fed will make some changes to the announcement that attempt to sooth recent volatility, there’s just as much chance that the text remains relatively unchanged. The latter suggests a more muted response, and even a surprise change wouldn’t pack its normal punch with Friday’s NFP on tap. To top all of the preceding off, this is also “month-end,” creating extra hustle and bustle in financial markets as money managers make last minute adjustments to portfolio balances in order to align them with various indices. This doesn’t have a default positive or negative connotation.
Thursday – Initial Jobless Claims at 8:30am is moderately important, but not critical ISM Manufacturing is the most relevant data point of the day at 10am with the Employment Index (component of ISM data) getting perhaps as much attention as the headline.
Friday – Incomes/Outlays (essentially ‘consumer spending’) and Factory Orders are second string reports compared to the mighty Employment Situation Report. Not only is it always the biggest potential market mover of any given month in terms of market data, but it’s importance is magnified by its current role in Fed policy. Put simply, as long as the jobs report keeps on track just under 200k payrolls, markets will continue to expect the Fed to announce the first reduction in QE3 asset purchases at the September policy meeting.
for more information visit http://www.mortgagessiny.com