Tag Archives for " Limits "

FHA to Implement New Home Loan Limits

September 8, 2011 – After three years of higher loan limits in some areas, the Federal Housing Administration (FHA) announced in August that single-family home loan limits will be lowered starting Oct. 1. This change is in accordance with the Housing and Economic Recovery Act (HERA) that was passed in July 2008.

The Economic Stimulus Act passed in February 2008 under President George W. Bush raised limits for home loans insured by the FHA to 125 percent of the median house price in the area. This was an effort to “mitigate the effects from the economic downturn and the sharp reduction of mortgage credit availability from private sources,” according to a May market analysis from the U.S. Department of Housing and Urban Development.

While initially the new loan limits stipulated in the HERA were set to take effect in January 2009, financial strains in the credit market delayed congressional implementation until now. The loan limits beginning on Oct. 1 will be in effect until Dec. 31, 2011. The floor loan limit in low cost areas will stay at $271,050 for one-unit properties, while the ceiling limit in high housing cost areas will change from $729,750 to $625,500, or 115 percent of the median house price (whichever is lower).

The new loan limits will take effect in the highest cost metropolitan areas in the country, which amounts to 669 counties out of the 3,234 total in the U.S. in which the FHA insures home loans. According to the FHA, loans in these areas accounted for about three percent of loans granted last year. Any loans insured by the FHA before Oct. 1, 2011 will not be affected by these new limits, including streamline refinance loans. Limits in Hawaii, Guam, the Virgin Islands and Alaska are higher than in other areas because of higher construction costs.

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Federal Reserve Limits Banks’ Ability to Lend

The Federal Reserve caused an increase in cost to borrow short-term funding, which now limits banks’ abilities to make cheap short-term loans.

The Fed’s plan to increase borrowing and lower U.S. interest rates has spiraled into another issue entirely. In order to pay for long-term government bonds, the Federal Reserve sold short-term funding. The short-term loan sales have increased the cost to borrow in the $5 trillion repurchase agreement and have burdened bank’s ability to accept the short-term loan debt.

The repurchase agreement, or repo, is costing banks more to fund new corporate and consumer short-term loans.  Additionally, it is increasing the cost for Real Estate Investment Trusts (REITs) to help borrowers buy homes. The Fed might intervene and try to reduce the high repo rates.

The cost to borrow repo loans have increased to 23 basis points (one hundredth of a percentage point), a significant increase from 10 basis points at the start of the year. Although the high rates provided by repo loans are financially hurting consumers and businesses, they are luring in large investors, according to UBS interest rate strategist Boris Rjavinski.

“The Fed would much rather see money market funds sponsor direct forces of credit creation to consumers and companies, but as long as repo is an attractive alternative, it’s going to siphon some of the money market funds lending capacity away from other loans,” Rjavinski said to Reuters.

He also questions the Fed’s goals.

“If the Fed’s intention is to provide unlimited liquidity and ensure a cheap cost of credit, elevated repo rates run counter to this goal.”

But the Fed is still holding true to its plan. Eric S. Rosengren, president of the Federal Reserve Bank of Boston, said its actions are producing the expected result: lower rates on long-term loans, which can stimulate the economy. The Federal Reserve has kept the important short-term loan rate near zero for nearly four years and is expected to hold until 2015.

Although the Fed is remaining positive, Rosengren realizes that growth in the economy has been “painfully slow.”

“Given that the current inflation rate is quite low and is expected to stay low for several years, we have the flexibility to push for more improvement in labor markets,” Rosengren said to the Boston Globe. “We should continue to forcefully pursue asset purchases at least until the national unemployment rate falls below 7.25 percent and then assess the situation.”

The main concern for Rosengren is about large tax increases and spending cuts which begin in January, unless Congress can agree to reduce deficits. He worries that without a decision, a recession would be reached again.

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Government Shutdown Limits New Mortgages, Experts Say

A widespread government shutdown impacted mortgage loan applications more than interest rates did this week.

Rate reports provided by loans.org show that mortgage loan interest rates declined minimally for the week ending Oct. 3, 2013.

The 30-year fixed-rate mortgage averaged 4.08 percent, down from 4.15 percent last week.

The 15-year FRM averaged 3.11 percent, another decrease from 3.18 percent reported last week.

The final rate, the 5/1 adjustable shifted down only four basis points. The rate went from 2.96 percent last week to 2.92 percent this week.

Don Frommeyer, president of the National Association of Mortgage Brokers (NAMB), said that despite the shutdown, business is as usual in the housing market except for three areas dealing mainly with information verification.

First, lenders can’t confirm potential borrower’s tax information via the IRS 4506 verification. Secondly, the shutdown extends to the Social Security offices, leaving identification information inaccessible. Finally, Frommeyer said that any government employee in the mortgage loan application process will likely have to wait for the government to reopen so their employer can verify their employment status.

The shutdown will also impact housing agencies that are already late. Frommeyer said that the USDA was already 57-60 days behind schedule before the shutdown and it will only worsen.

“I would like the government to go back to work so everything can be straightened out,” he said.

Although the shutdown could have an impact on mortgage loan interest rates if it continues for several weeks, Frommeyer said the debt ceiling is a greater concern. If the debt ceiling is not raised, it could have a sweeping impact on the bond market and the stock market.

“If we are still down and they don’t do something about this debt ceiling, who knows what’s going to happen,” he said.

Other housing professionals believe that the shutdown has impacted the housing market more significantly. Bruce Taylor, president of ERA Key Realty Services, said it has been “pretty horrendous” on mortgages and interest rates.

But the total impact depends solely on the length of the shutdown.

“One week, no problem. One month, big problem,” Taylor said.

Freddie Mac’s weekly mortgage loan interest rate survey, which is used by housing experts across the country, was not released due to the shutdown. These reports, in addition to jobless claims, are required in order to determine the market’s direction.

Taylor said there are multiple things that consumers and economists get from government reporting systems and without them, it will create uncertainty.

“If it goes on for many weeks, it’s going to wear every little corner of the financial market,” he said. 

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