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FHA reserves fall below required levels

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FHA reserves fall below required levels

Housing and Urban Development Secretary Shaun Donovan says capital reserves of the Federal Housing Administration (FHA) have fallen well below legally required levels, due to significant losses on home loans made before this year. Donovan says the FHA has capital reserves equal to just 0.53 percent of the value of the thousands of outstanding U.S. home mortgages it insures, well below the 2 percent required by law and down sharply from last year's 3 percent. He warned that reserve levels could dip into negative territory if the U.S. economy turns sharply worse. The capital reserve fund is a secondary, surplus fund set up by Congress in 1990 to provide an extra cushion for the FHA in times of economic distress.

The fund contained $3.6 billion as of Sept. 30. The FHA also maintains a separate financing account, which is used to pay for expected losses. The two accounts total $31 billion, or about 4.5 percent of outstanding loans. Last year, the two funds represented 6.4 percent of outstanding loans. If the capital reserve fund falls below zero, FHA has the authority to get funded directly from the Treasury without having to ask Congress for more money. "We haven't used the bailout word today because ... even if we were to go below zero, there is no extraordinary action that Congress or anyone else needs to take," said Donovan. D Donovan added that it was only in the most extreme forecast, such as 12.5 percent unemployment and severe home price declines, that FHA capital reserves could fall below zero.

Jobs summit

President Obama, facing a 10.2% unemployment rate, now says he'll hold a jobs forum at the White House in December. "Even though we've slowed the loss of jobs -- and today's report on the continued decline in unemployment claims is a hopeful sign -- the economic growth that we've seen has not yet led to the job growth that we desperately need," the President said in a statement delivered at the White House. Those invited to the forum will include CEOs, small business owners, economists, financial experts, and representatives from labor and non-profits. Not everyone is convinced that more "stimulus" is the answer. And politically, Obama probably can't get away with passing another stimulus package with a big price tag. Instead the administration and Congress are looking for smaller initiatives that can be taken both by the government and the private sector.

One idea that has been floated to spur job creation is a hiring credit, with which employers would get a tax break for every new worker hired. But many economists and tax experts say it's a flawed concept since it would end up disproportionately rewarding employers that were planning to hire anyway. Lawmakers have so far extended and expanded some measures from the original $787 billion stimulus package passed in February -- including federal unemployment benefits, the homebuyer credit, and a big tax break for businesses looking to write off more of their losses. The sad fact is that the president can't do very much at all to improve the economy, and holding a summit is probably more of a PR stunt than anything else.

RCI shows problems with short sales

According to the latest Realtors Confidence Index (RCI), 29 percent of recent buyers purchased a home in foreclosure or through a short sale. The RCI is a key indicator of housing market strength based on a monthly survey of more than 50,000 Realtors, in which practitioners are asked about their expectations and insights on home sales, prices, market conditions, buyer preferences, financing options, and how those factors are influencing real estate markets nationwide.

Despite the high volume of distressed sales, Realtors report that their buyers encounter various challenges associated with things like short sales. Buyers who present a short sale offer can wait months before hearing whether their offer will be accepted. In addition, there is increased competition for foreclosed properties, and multiple bids are sometimes driving sales prices over list prices. Aside from the demand for short sales and foreclosed homes, today’s buyers are increasingly interested in a home’s energy efficiency and proximity to transportation corridors, reflecting concerns about rising energy costs. Many Realtors are seeing a growing preference among buyers for smaller homes, as people look to downsize and cut expenses.

Overdraft protection -- new rules

The Federal Reserve released a new rule to prohibit banks from automatically enrolling customers in overdraft protection programs. Currently, more than 75% of banks automatically sign customers up for overdraft programs, according to a study by the Federal Deposit Insurance Corp., and some banks charge as much as $39 when customers overdraw their bank account by even a few dollars. Starting on July 1, 2010, all banks will have to ask their customers to opt in to overdraft protection plans for ATM and most debit card transactions. The new rule only affects overdraft fee services on ATM and one-time debit transactions. Banks will still be allowed to automatically enroll customers in overdraft services for personal checks and automatic transactions like monthly bill payments. "The final overdraft rules represent an important step forward in consumer protection," Fed Chairman Ben Bernanke said in a statement. "Both new and existing account holders will be able to make informe d decisions about whether to sign up for an overdraft service."

The Fed has been under fire for not paying enough attention to consumer protection, but lately the Fed has picked up the pace of its consumer protection activity. Last year, it approved a rule to rein in credit card fees, but Congress enacted credit card rules that will take effect in February before the Fed rules go into effect. "This is a long-overdue announcement for American consumers," said Sen. Chris Dodd, chairman of the Senate Banking Committee, which is set to hold a hearing on overdraft fees on Tuesday. Usually if Dodd likes something, it's bound to be bad, but maybe there's a first time for everything...

30 year fixed rate down

The 30-year fixed-rate mortgage averaged 4.91 percent for the week ending November 12, 2009, down from last week when it averaged 4.98 percent, according to Freddie Mac. The 30-Year has been below 5 percent for five of the last seven weeks. The 15-year this week averaged 4.36 percent , down from last week when it averaged 4.40 percent. A year ago at this time, the 15-year averaged 5.81 percent. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.29 percent this week, down from last week when it averaged 4.35 percent. The one-year Treasury-indexed ARM averaged 4.46 percent this week, down from last week when it averaged 4.47 percent. “Mortgage rates eased further over the week, helping to promote an affordable home-purchase market and stimulate refinance,” said Frank Nothaft, Freddie Mac vice president and chief economist. “This comes at a time when house price declines are moderating and consumer demand for prime mortgages at commercial banks has picked up." Last year at this time, the 30-year FRM averaged 6.14 percent, the 1-year ARM averaged 5.33 percent, and the 5-year ARM averaged 5.98 percent.

Above Post Written by: Chris Mclaughlin with Short Sale Riches.com

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