FHA to Tighten Up Mortgage Standards in 2013

FHA to Tighten Up Mortgage Standards in 2013, Image by ponsulak & FreeDigitalPhotos.net

In an effort to make up for a large budget shortfall, the Federal Housing Administration announced it will publish new mortgage standards for certain home owners and replace a popular reverse-mortgage program on Jan. 31, 2013.

As among the changes, borrowers with credit scores between 580 and 620 will face stricter underwriting standards. Such borrowers will face stricter limits on their debt-to-income ratio.

The FHA also will soon require a minimum down payment of 5 percent for high-cost mortgages that exceed $625,500.

FHA also plans to suspend its popular reverse-mortgage option, which allows those 62 years and older to take cash out of their homes in a big, upfront payment, The Wall Street Journal reports. FHA will be replacing it with the Home Equity Conversion Mortgage saver, which offers lower cash payments than the large upfront payment of the other program.

The changes are part of an effort to make up for a $16.3 billion deficit FHA faces. The FHA reverse-mortgage program alone accounts for $2.8 billion of those losses.

Last month, the FHA also announced it would increase insurance premiums.

Source: “FHA to Tighten Mortgage Programs,” The Wall Street Journal (Dec. 18, 2012)

Housing Permits Soar to 4 1/2 Year High

Housing Permits Soar to 4 1/2 Year High, Image by ddpavumba & FreeDigitalPhotos.net

Housing permits — a gauge for future construction — soared 3.6 percent in November over December, reaching its highest level in more than four years, the Commerce Department reported Wednesday. The increase is a sign that growth in new-home construction will continue through 2013, according to the National Association of Home Builders.

The gain in housing permits was largely attributed to a 10.6 percent gain in multifamily permits.

“Many builders have reported improving conditions in their local housing markets and are increasingly optimistic about the spring buying season, but they are being very careful not to get ahead of demand,” says Barry Rutenberg, chairman of the NAHB.

After posting three consecutive months of strong gains, housing starts reversed course in November, dipping 3 percent to a seasonally adjusted annual rate of 861,000.

NAHB Chief Economist David Crowe called the housing starts in November a readjustment from significant gains the previous months to a “more sustainable level of production.”

Crowe says that new-home starts are on track for a projected 25 percent increase in housing production for 2012.

In November, single-family housing starts fell 4.1 percent; multifamily starts dropped 1 percent.

On a regional basis, single-family and multifamily starts rose 3.3 percent in the Midwest and 2.9 percent in the South. Housing starts fell 19.2 percent in the West and 5.2 percent in the Northeast.

Source: National Association of Home Builders and “Home Building Permits Near 4 1/2 Year High,” Reuters (Dec. 19, 2012)

Household Formation to Outpace Apartment Boom

Household Formation to Outpace Apartment Boom, Image by jscreationzs & FreeDigitalPhotos.net

A big growth in new household formation is expected to drive up housing starts in the new year that will outpace the apartment boom, according to forecasts by Freddie Mac’s Chief Economist Frank Nothaft.

Nothaft is forecasting a net growth of 1.2 to 1.25 million new Household Formation in 2013 that will provide a big boost to housing starts next year. That expected growth also will likely drive down apartment vacancy rates to 10-year lows and outpace the boom in new apartment construction, Nothaft says.

Unemployment is expected to improve slightly in 2013 and the job and income gains will help jump-start more household formation, according to Nothaft. Also, more adult children who took up residence in their parents’ homes are expected to move out next year, helping to increase household formation.

“The last few months have brought a spate of favorable news on the U.S. housing market with construction up, more home sales, and home-value growth turning positive,” Nothaft says. “This has been a big change from a year ago, when some analysts worried that the looming ‘shadow inventory’ would keep the housing sector mired in economic depression. Instead, the housing market is healing, is contributing positively to GDP and is returning to its traditional role of supporting the economic recovery.”

Source: “Freddie Mac Economist Sees New Households Outpacing Apartment Boom,” RISMedia (Dec. 15, 2012)

Incentives Still Help Seal Deals, Builders Say

Incentives Still Help Seal Deals, Builders Say, Image by Stuart Miles & FreeDigitalPhotos.net

While home buying has picked up, some builders say reluctant buyers may need an extra push to get moving. Some developers are offering up incentives or discounts paid by the developer at closing to help speed up deals, finish out housing projects, and sell hard-to-unload homes.

“[Incentives] can get buyers across the finish line,” says Eric Benaim, the chief executive of the brokerage Modern Spaces.

For example, developers with Benaim—a Long Island City, Queens project in New York—are offering buyers a credit equal to 6 percent of the unit’s cost for completing a purchase. The credit can be applied only to closing costs.

Other incentives may come in the form of offers to pay for transfer taxes and lawyer fees. Or some developers are creating special program incentives, such as Douglas Elliman in New York’s “1-1-1 buydown” program—which pays the equivalent of one point of a buyer’s mortgage interest rate for the first three years. For some three-bedroom units in a development, that could mean a more than $10,000 savings to a home buyer.

Incentives may take money out of developers’ pockets, but “you would spend the money on advertising anyway,” says Brian Meier, a Douglas Elliman broker.

Source: “Some Buildings Find Buyers Need a Nudge,” The New York Times (Dec. 16, 2012)

Fed Plans to Keep Interest Rates Low

Fed Plans to Keep Interest Rates Low, Image by renjith krishnan & FreeDigitalPhotos.net

The Federal Reserve announced Wednesday that it plans to keep interest rates low as long as the unemployment rate is above 6.5 percent. This was the first time that the Fed has ever identified an exact unemployment rate to be reached before it plans to raise interest rates.

To push rates lower, the Fed will continue to buy $85 billion in Treasury securities and mortgage-backed securities each month until the unemployment rate improves.

Since December 2008, the Fed has held short-term interest rates near zero. The move has helped reduce borrowing costs and helped mortgage rates reach all-time lows.

Many of the Fed’s senior officials say they do not expect the unemployment rate to reach 6.5 percent until the end of 2015.

In November, the unemployment rate was 7.7 percent. The last time it was below 6.5 percent was September 2008.

Source: “Fed Ties Rates to Joblessness, With Target of 6.5%,” The New York Times (Dec. 12, 2012)