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The Fed Chief Chimes in On A Cure For the Mortgage Mess - Higher FHA Loan Limits is a Great Place to Start

The Federal Reserve chairman, Ben Bernanke, came out today and offered his opinion on the cure for the mortgage mess. If the powers that be listen, I believe its the first step on the lengthy road to recovery.

Bernanke suggested a wider range of mortgage products for low income and other borrowers who have been hit hard by the market and the credit crunch.

He said that the Fed is keeping close tabs on the markets and is "prepared to act as needed."

Foreclosures are at or near an all-time high in most areas. Depreciating home values have made it impossible for people to refinance out of adjusting ARMs. These homeowners can't make the new adjusted payment so they are deliquent or are going into default.

And this is expected to get even worse next year as 2 million more homes adjust to higher rates.

Bernanke suggested "a broader range of mortgage products which are appropriate for low- and moderate-income borrowers, including those seeking to refinance" might help the situation.

He then added that FHA may be able to help.

"The Congress might wish to consider FHA reforms that allow the agency more flexibility to design new products and to collaborate with the private sector in facilitating the refinancing of creditworthy subprime borrowers facing large resets," Bernanke said.

Then he threw Fannie May and Freddie Mac into the mix. "They should be encouraged to provide products for subprime borrowers to the extent permitted by their charters."

What does this mean in real life? When the Fed talks, people listen.

I recently had dinner with someone close to the FHA leadership here in Las Vegas. He believes FHA will be raising their loan limits to match conforming loans of $417,000 in most areas.

That is terrific news for the real estate market and for lenders. Read FHA Loans are Back and Just In Time--What You Need To Know About Them to catch up on your FHA lessons.

It also means, I believe, we will see a "more liberal" Fannie and Freddie Mac when it comes to refinances.

The guidelines are already pretty liberal but I believe you will see even looser guidelines to accomidate low to middle income borrowers who simply want to save their home from rate adjustments.

I don't know about you but it gives me comfort to know that my Fed Chief is on top of this.

If Congress, Fannie and Freddie all listen to the Chief, this is good news for us all!

Posted by Aaron Gordon, Home Loan Consultant, Las Vegas, NV on 08/30/2007 12:58 PM

Comments (31)

fannie mae, mortgage mess, fha

31 Comments on The Fed Chief Chimes in On A Cure For the Mortgage Mess - Higher FHA Loan Limits is a Great Place to Start

AUG

2007

Aaron,

I agree with you and am looking forward to helping these folks.

Great Post

Gary--- You are welcome. Me too!!

Aaron, you haven't written much so far, but every word is worth reading. I appreciate the ability you have of clearly explaining things. I just added you to my subscription list.

Did I hear correctly VA eliminated loan maximums today?

Any help would be greatly appreciated by people all over the US.

Sean Allen
The Mortgage Professionals
www.TheMortgageProfessionals.biz

I would be wonderful if the Fed figures out how to help the average homeowner rather than bailing out some big multinational corporation

Jim--- Thanks!!

Karen--- Starting September 1 the cap has been lifted. I haven't heard anything about how high yet but they will go above $417,000 where they are now.

Sean-- You are right!

Michael--- Read Bill Gross' blog. His opinion is for a mass government bail out like the one done during the S&L crisis:

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+September+2007.htm

Gross says "Write some checks, bail ‘em out, prevent a destructive housing deflation that Ben Bernanke is unable to do. After all "W", you're "the Decider," aren't you?"

Jim--- By the way, I really appreciate that. It means a lot.

At our event in San Diego, last week, Brian Buffini told us statistics that made 5,000 people, in attendance, take a breath. 97.3% of all mortgages in this country are current and paid on time. Yet, the news and media keep up this badgering of the market with foreclosures. Why? Bad news sells. It is that simple. Let your clients know, the market is more stable than they think. Good credit history, same job for at least 2 years, good qualifications, among others, still work fine. We need to spread the postive information.

It's a Good Life!

Fran Rokicki, Clubnet~Mentor, Broker~CT

Fran--- You are right and its true. In fact I am writing a newsletter that will go out next week in my marekt about how when you analyze our market in 2000, before the incredible real estate boom, that our local sales are exactly where they were then and historically before. Its simply business back the way it used to be.

Just another stall tactic. They just said it was even harder to refinance so all of a sudden they will make it easier. From what I hear ...even if your credit is AT you still will have a difficult time refinancing more than getting a regular mortgage. It didn't help matters by lending unqualified people money to buy homes they really could not afford. We are all in this together and it will probably be another 2-3 years before there is relief.

Neal--- I am not so sure this time.

I think the Fed Chiefs think long and hard before they say anything as they know markets move on their words. I dont think he was suggesting financial relief. What he was suggesting was making the government loan programs like FHA and VA even more accessable for more people and for Fannie and Freddie to do the same.

VA has already made the move today and will now allow jumbo loans.

If you have great credit and can prove income and some equity, its not that hard to refinance today.

But you are right. If this doesnt work, I do think we will eventually see government relief a few years down the road. But I think this plan in combination with the others already out there will work prior.

higher loan limits for FHA is not the answer, they would still have to debt ratio

High loan limits, higher debt ratios and a more liberal credit policy is going to be needed - I have heard that of the homeowners who took out a subprime mortgage 2 years ago 30% are currently late? How will FHA help these people under the current guidlelines

Jeff--- You are right. Its not the answer. However it is a start. This is a giant mess and it won't be a one step solution unless the government writes one big check to make it go away, which I don't see happening, especially in this administration. However, raising the limits does help.

John--- FHA will not be able to help everyone. They never have been able to.

Under current guidelines they may not be able to help some people. Those 30% who are deliquent may not be able to be helped by this idea.

But what about the others who are on time but face 2-8% rate adjustments next year?

Once again, this is only one big step in what will amount to hundreds of small and big steps in a solution. However, I would not be surprised if FHA does loosen the guidelines a bit to help out a few more borrowers.

good news.. maybe conforming will jump a little just to fill in some gaps that the jumbo market has killed recently!

Aaron Thank you for always keeping us informed! Although I don't do FHA, I may soon need to learn. So you updates are important. Average price in my area is still almost $700k and that in including the condos. FHA still dead in Calif.

David--- That would be nice but I am not sure we will see that soon.

Janet-- Thats one of the major reasons why the legislation to move it up is there. There are many areas like yours where it stiill is useless. Great loan amounts for you though!! :)

I think the politicians will start proposing their plans to help every American obtain a loan to buy a home. I also think someone will realize there was a lot of money being made in the sub prime market before the fed rate increases.

I heard the same thing about FHA raising the loan limits. This is a great start! I hope they move quickly.

AUG

2007

Thanks for the informative post. Appreciate the information.

Hey AAron...........Thanks for putting this in terms I can understand.

Duane Hosek in the Black Hills of South Dakota

Aaron, is you newsletter going to be print, or is it available in digital format? If it is could I sign up for it?

Laura--- I think you are right. Bush jumped in this AM.

Joan-- The news today shows they have. Bush announced there will be changes in FHA to help.

Bob and Carolin-- My pleasure!

Duane-- Thanks! Thats always been my M.O. :)

Jim--- Its delivered in email form and goes out to over 9,000 agents nationwide monthly. Email me at aarong@maverickmortgage.com and I will gladly add you. Thanks!

Aaron,

Thank you for the information. It is very encouraging to see Bernake step up and address the situation. I realize many people are still concerned about Jumbo products, but, our industry moves from the bottom up. I believe that assistance to those with loans that are resetting is of maximum importance. I hope that the next move is a reduction in the rate. It will jump start those first timers on the fence. Many of them of watched from the sidelines through 17 rate increases and a reduction may very well give them the impetus to move.

jmac

John--- I agree. I think another rate reduction is in the cards as well. Based on Bernanke yesterday and Bush today, I think the gov is on the same page as us.

RE: Higher FHA caps

This is INSANITY. Taxpayers should not be guaranteeing jumbos!

Where are my fellow Adam Smithers? My fellow capitalists? My fellow small government, free marketers? You're all lining up with tin cups!

Things are NOT THAT BAD!

SEP

2007

Lowering the Fed Funds Rate isn't going to provide a quick fix. It may provide a small amount of relief to ARMs, depending upon the size of the rate cut, since it impacts short-term interest rates. It would probably provide some near-term psychological relief to the markets (including the stock, bond and real estate markets), but it takes upwards of 12-months before a rate move is actually felt in the economy. Just look at how long it took the rate increases to have a big impact -- what was it, 17 separate quarter point increases over a year-and-a-half to bring us from 1% to 5.25% and then another 14-months on hold at 5.25%. If the Fed cuts the Fed Funds Rate too much, they risk sparking inflation and we could see the benchmark 10-year Treasury Note spike higher, which would in turn raise the rates on 15 and 30-year mortgages. That could be a huge unintended consequence from cutting the Fed Funds Rate that could make the housing market even worse. If the Fed leaves the Fed Funds Rate where it is or if they only cut it by a quarter point, it will probably be viewed as not doing enough to help and the news slant towards real estate, subprime and the looming resets will remain negative. If they do a "surprise cut" ahead of their September 18th meeting, the markets will probably greet it positively at first and then negatively as they will wonder if the Fed knows it's worse than everyone realized (what do they know that we don't?). To a large extent, the Fed is boxed in because they kept rates too low for too long. There is no easy solution or quick fix and expect it to become an even better buyer's market, especially if the formerly hot markets.

Those were my comment on the Federal Funds Rates. :-) Geri Quinn

SEP

2007

Great comments and very good info. Until we get all the facts on exactly what is coming out should we be excited? Or is this just another "See we are helping." ploy to try to ease the minds of people for the time being. I dont see how any of this will really help when people are in adjustable mortgages trying to refi and they are upside down, what solutions could there possibly be for them?

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