It does not look like we have quite turned the corner on the mortgage meltdown. Today another one bites the dust. On the heels of its parent company's bankruptcy, Amtrust Bank became the 130th bank to fail in 2009 when the FDIC took it into receivership on 12/04/09 at an estimated cost of $2 billion. New York Community Bank in Westbury, N.Y. assumed AmTrust Bank's $8.6 billion in deposits and purchased $9 billion of the failed bank's $12 billion in assets. If you follow the meltdown on the website www.ml-implode.com you find that this is the 374th major US lending operation that has closed since late 2006.
There are some bright spots however, today chairman Bernake promised to keep interest rates low for the long term in order to bolster the economic recovery. With mortgage rates currently at near 50 year lows, we are seeing some benefit from cheap money. This week's housing data exceeded expectations. October Pending Home Sales rose for the ninth consecutive month, increasing 4% to the highest level since March 2006. The index is up 32% from one year ago. Pending sales are based on contracts signed but not yet closed and are a leading indicator of housing market activity. The homebuyer tax credit again provided a lift.
Will any progress made be destroyed by pending changes to FHA lending guidelines? As a means to boost capital and improve the quality of future loans, the FHA is expected to make a series of major underwriting changes. The FHA plans to raise the minimum Fico score for new FHA borrowers, though it's unclear what that three-digit number will be, and if it'll be dependent on other factors. "We are currently analyzing what this floor should be, including the relationship between FICO scores and downpayments to determine whether we should increase FICO minimums in combination with changes to other underwriting criteria for lower downpayment loans," said HUD Secretary Shaun Donovan, in prepared remarks to Congress. The FHA is also calling for borrowers to have more "skin in the game," meaning a higher down payment requirement (currently set at 3.5%) will probably be implemented. Donovan noted in his testimony that the absence of seller-financed downpayment assistance loans would have kept the FHA's capital ratio above the two percent minimum. Maximum seller concessions on FHA loans are expected to be reduced from six percent to three percent, as the current above-market level exposes the agency to excess risk by creating incentives to inflate appraised values. Additionally, the FHA has requested authority from Congress to raise the annual mortgage insurance premium it charges borrowers to protect against future uncertainty in the mortgage market. Those who originate FHA loans will also be held to a higher standard, with plans to post a "Lender Scorecard" on the HUD website to ensure transparency and accountability (higher net-worth requirements were previously announced). The agency will also continue to step up enforcement efforts; they've already suspended seven lenders, including Taylor, Bean, and Whitaker, and most recently Lend America, and have withdrawn FHA-approval for 270 others.
The FHA currently insures nearly 30 percent of purchases and 20 percent of refinances in the residential mortgage market, so the decisions they make are critical.
More details regarding the changes are expected by the end of January.
Art Marine
Branch Manager
10220 SW Greenburg Road, Suite 250
Portland, OR 97223
503-764-4005 direct
503-799-7085 cell
1-866-510-4716 fax
art.marine@academymortgage.com
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