Posts Tagged ‘FNMA’

Have you ever heard of the Home Valuation code of Conduct or as its better known “HVCC”? If you have done any conventional mortgage business since June of 2009 or FHA mortgage business since January 2010, you have not only heard about it you have undoubtedly been affected by the agreement. Essentially HVCC is an agreement that was drawn up by the Office of Federal Housing Enterprise and Oversight that requires the GSE’s (Government Sponsored Enterprise’s) namely FNMA “Fannie Mae” and FHLMC “Freddie Mac” to only accept appraisals that are done by a company that is independent of the loan process. Bottom line is any entity (lender, broker, escrow, title, etc) that is listed on the HUD 1 Settlement Statement as being paid at closing cannot order the appraisal. Why is this a bad thing? Simple, we now have national third party appraisal companies that have cropped up and lenders are directing their sales people and their brokers to use. They charge approximately the same price for an appraisal (350-400 dollars) for a standard URAR appraisal. BUT they only pay the appraiser, who does all of the work, approximately half of the fee. This has put the independent appraiser in a position to have to do twice the work to make what he/she was making in the past. Why is this important? I will finish the thought in next week’s Blog.

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Let’s talk about short sales. The definition of a short sale is to sell a home short of what is owed to a lending institution thereby making them lose money. Short sales are used when a home owner decides that their property is no longer worth what they paid for and they don’t want to go into foreclosure with their lender. The homeowner will list their property with a real estate agent who, upon receiving an offer, negotiates with the lender to get them to accept a deficiency on their loan. As you can imagine lenders are not fond of losing money so they fight with the agent and homeowner to not accept the negotiated price. It is up to the agent to prove the deficient value and up to the homeowner to show that they can no longer make the payment. This process is a lengthy one and can take up to 6 months, even more in certain situations. But this is a far better alternative than foreclosure for all parties concerned. The homeowner gets to stay in the house, sometimes without payment, the agent makes a commission, and the lender gets the property back damage free. President Obama, HUD, FNMA, FHLMC, and most servicing company believe that this is a WIN/WIN for all concerned. So why is it this not the preferred method for upside homeowners to dispose of their properties? Simple, most lenders are stuck in the old REO (real estate owned) days where the homeowner is foreclosed on and physically removed from the property by law enforcement. I will compare the two methods of home transfer, REO vs. Short Sale, next week.

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As we wind down towards the end of 2009, it is important to note which direction interest rates tend to go as we inch closer to 2010. After Thanksgiving the month of December sees Mortgage Bond traders on Wall Street tending to take more time off as Christmas approaches, with the week between Christmas and New Years being a ghost town for all of Wall Street. What does this mean for people who are trying to figure out when the best time to lock the interest rate on their loan is? The easiest way to describe this time is “be cautious”. Rates normally go up during the last month of the year but there have been exceptions. Last year being one of them, we saw rates slightly dip during December but if you look at a bond chart you will see the rates were all over the board. If you don’t have time to watch the market or you don’t understand how the bond market relates to FHA or Conventional (FNMA, FHLMC) interest rates, then by all means follow my Twitter account, @Hollander_FHA. I post a tweet a few times a day letting my followers know what is happening with the market. If you are unable to follow then my recommendation is to lock in your rates before Thanksgiving.

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I was asked a question earlier this week, “Why are mortgage interest rates so volatile?” The answer is extremely complicated so I tried to come up with a way to explain rate volatility while not making her eyes gloss over with boredom. The easiest answer is profit and loss. Lenders only change rates when they believe they can make more of a profit (rates come down) or they are worried that their rate spread might be impacted (rates go up). This is a very simplistic way to view the mortgage market but in a pinch it will help a person who is not in the mortgage business to understand when the right time is to lock. For instance today the FNMA 30 year mortgage bond closed 25 basis points higher than when it opened this morning. This left lenders in a position to reprice conventional and FHA rates better. Why would they do this? In a word, profit. The lower interest rates are, the more deals they will close. But the lender will not allow their interest rate spread to be affected. So, by Monday if the Bond market is down, rates will go up. If you follow my twitter account @Hollander_FHA, you will see my tweets that tell you when to lock a rate or when to float with the market. When I say lock it means rates are going up and when I say float it means rates are coming down.

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After a turbulent week we closed with interest rates climbing a little. This was due to better than expected economic news and the fact that Fed Chairman Bernanke stating that the economy was close to a recovery. That sent the stock market up and the bond market down. This ultimately raised mortgage rates. I believe that this was nothing but smoke and mirrors with the national unemployment rate rising to 9.5% unemployment rate rose to 11.2% in California and over 12% in Nevada. These numbers have not been seen since the early 80’s. The reason for my disappointment is this. If mortgage rates continue to climb and we see FHA rates climb to 6% it will halt approximately half of the loans currently in process. The reason for this is they will no longer qualify. My belief is that today was just another dip on the current rollercoaster ride that has become the FNMA 30 year mortgage bond market. Til next week.

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Foreclosures have risen 7% from June to July. In fact, they are up by 32% from July 2008. This means that this is the third time this year that foreclosure activity has set an all time new record. Nevada, California, Arizona, Florida and Utah are the top 5 foreclosure states. Coupled with the fact that Fed chairman Ben Bernanke decided to leave the fed funds rate at .25% and alluded to the fact that he will recommend that the rate hold through the rest of 2009. This means that conventional and FHA Interest rates will hold steady for the rest of this year. Of course there are bound to be peak and valleys in the FNMA 30 bond market and rates will adjust accordingly. The bottom line is this: The American economy is just starting to bottom out and our recovery will be slow. BUT with rising foreclosures and low interest rates the time to purchase a home is now. This will put money back into the economy and it will help our recovery.

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The FNMA 30 year mortgage bond continued its weekly roller coaster ride this week and went from good to bad as the week progressed. Friday saw the worst prices of the week which increased rates substantially from Monday’s opening. The reason for the increase in interest rates was a surprising decrease in unemployment claims. This is just another turn in an already crazy market. I fully expect interest rates to recover and go back down in the next few weeks. In fact it will probably happen earlier if the current roller coaster ride continues. Just an FYI, FHA interest rates traditionally don’t adjust as quickly as Conventional rates. So if you are looking to lock in a FHA interest rate with your lender you may notice that your rate has not moved much this week.

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