Secondary Markets Impacted by Changes in HUD and Lender FHA Programs

By rchrisman@robchrisman.com

 

The "Tiny Home" movement is interesting, but...84 square feet? That is enough to store my Hot Wheels, Match Box, and slot car collections. Am I thinking about this the wrong way?

We sure have had a lot of housing indices announced in the last several business days, often with apparently conflicting information. Lenders and real estate agents prefer not to see too much appreciation, given the negative impact that skyrocketing values have on first time home buyers and in outpacing wages. No one wants to see housing stock prices heading down either. Let's take a look at new home sales trends.

 So what the devil is a "new home?" "The Survey of Construction includes two parts: the Survey of Use of Permits (SUP), which estimates the amount of new construction in areas that require a building permit, and the Non-Permit Survey (NP), which estimates the amount of new construction in areas that do not require a building permit. Less than 2 percent of all new construction takes place in non-permit areas." The information is overseen by the Commerce Department but carried out by the Census Bureau and partially funded by HUD. How many have vinyl siding or were one story? You can see stats on this site.

 A while back I received this note from Tom LaMalfa correcting the all-too-widespread notion that first-timers only account for around one-third of home buyers. Tom noted that this is not true - that is NAR propaganda based on a weak survey methodology. For example, back in November, and based on hard data, FTHBs accounted for 56.7%.  All the details are contained in this link.

 This week we learned that U.S. new home sales came in weaker-than-expected. The decline came heavily in the West region which suggests that the overall housing market is still fine especially after last week's strong existing home sales reading. New home sales were slightly soft in March, following a bad miss on housing starts and building permits data reported last week. The median selling price fell to $288K, down 3.1% from February. Sales grew 18.5% in the Midwest while the West saw a decline of 23.6%. At the current sales pace, the inventory of unsold new homes stands at a 5.8 months' supply, which is closing in on the 6.0-months' supply that is typically associated with normal periods of buying and selling. (Last year at this time there was a 5.1 months' supply of unsold homes.)

 In terms of overall numbers, a while back HUD reported that seasonally adjusted annualized new home sales hit 490,000. While up, the last time new home sales were this low before the Great Recession was in 9/91. Moreover, new home sales hit their all-time low of 270,000 in 2/11. Since that staggering low, the compound annual growth rate has been a profoundly lackluster 13.3%. There's no reason to expect 2016 to show significantly improvement.

 And going back to last summer, New Home Sales were +5.7% in August at a seasonally adjusted annual rate of 552,000 - 5.7% above the revised July rate of 522,000 and is 21.6% above the August 2014 estimate of 454,000. The median sales price of new houses sold in August 2015 was $292,700; the average sales price was $353,400. The seasonally adjusted estimate of new houses for sale at the end of August was 16,000, a supply of 4.7 months at the current sales rate.

 In September New Home Sales were -11.5% versus the revised August rate of 529,000, but is 2.0% above the September 2014 estimate of 459,000.  The median sales price of new houses sold in September 2015 was $296,900; the average sales price was $364,100. The seasonally adjusted estimate of new houses for sale at the end of September was 225,000. This represents a supply of 5.8 months at the current sales rate. Sales of new single-family houses in October 2015 were at a seasonally adjusted annual rate of 495,000, 10.7% above the revised September rate of 447,000 and is 4.9% above the October 2014 estimate of 472,000.

 They were up again (4.3%) in November to an annual rate of 490,000. This is 4.3% above the revised October rate of 470,000 and is 9.1% above the November 2014 estimate of 449,000. The median sales price of new houses sold in November 2015 was $305,000; the average sales price was $374,900. The seasonally adjusted estimate of new houses for sale at the end of November was 232,000. This represents a supply of 5.7 months at the current sales rate.

 Plenty of borrowers rely on the FHA's slate of programs for financing. In recent years, given the FHA's capital issues and the continued penalties and settlements that lenders are experiencing, we can't ignore the question of the viability of the FHA program going forward. And the impact of FHA, HUD, and DOJ news on Ginnie Mae and its ability to do its job in the face of budget constraints.

 Certainly the government continues to be involved in the program. The Senate recently voted 66-31 to adopt an amendment that would include energy costs in the Federal Housing Administration's mortgage underwriting process. The amendment, offered by Georgia Republican Sen. Johnny Isakson, would reduce the amount of energy used in homes and help create energy efficiency retrofit and construction jobs. "The mortgage underwriting process, as we all know here, is about evaluating a borrower's ability to afford a mortgage, and history tells us that if we play around with it, it does not end well when we forget this," Sen. Richard Shelby (R-Ala.) said on the Senate floor in opposition of the amendment. "This amendment would weaken FHA's underwriting standards, leading to greater safety and perhaps soundness concerns for the FHA portfolio, which received a $1.7 billion bailout in 2013. It would require that appraisals be inflated to account for the value of energy efficiency upgrades as determined by HUD."

 FHA Connection has its new 203(k) Calculator that automates Maximum Mortgage Amount calculations required for both the Standard and Limited 203(k) programs. The 203(k) Calculator is accessible in both a public version on HUD.gov and a secure version within the FHAC system. As announced with FHA's March 14, 2016, SF Handbook update, mortgagees may begin using the 203(k) Calculator now but must use the calculator version within FHAC prior to endorsement for all 203(k) transactions with case numbers assigned on and after October 31, 2016. Mortgagees should thoroughly review the April 18, 2016, FHA Connection Release Notes for detailed information about using the calculator. 

 Previously, FHA required lenders to utilize 2% of the outstanding balance to establish the monthly student loan payment when the payment is zero or not available. Effective immediately for FHA transactions, PennyMac is aligning with FHA's update. In addition, effective immediately, for all VA transactions, PennyMac will be aligning with VA's policy clarification regarding unreimbursed business expenses (2106).  Analysis of unreimbursed business expenses will be dependent on the borrower's source of qualifying income. Click here to read announcement.

 FHA published Mortgagee Letter 2016-07: Expanded Permissive Loss Mitigation for Home Equity Conversion Mortgages (HECMs) and Mortgagee's Optional Extension to Submitting a Due and Payable Request. The ML provides mortgagees with an optional extension when submitting a due and payable request where borrowers are behind on the payment of their property taxes and/or hazard insurance premium by less than $2,000.

IN addition, FHA published its quarterly Lender Insightnewsletter. Issue #11 includes information on: annual recertification's, voluntary withdrawals, quarterly loan review update, test cases and more.

 FHA also published Mortgagee Letter 2016-08, Student Loans, which provides revised guidance for mortgagees when calculating student loan obligations for use in a borrower's debt-to-income ratio calculation. FHA believes that its approach provides the appropriate balance between expanding access to credit and ensuring that the borrower is able to maintain successful, long-term homeownership.

 Ginnie Mae has added new disclosure bulletins: Multifamily Database File, Platinum Files and Multifamily Loan Level Disclosure File Layout, version 1.0.

 Pacific Union Financial, LLC has documented its policy and requirements for properties secured by FHA Site Condominiums. The FHA Site Condominium Policy is available via the Pacific Union Website and contains standard HUD requirements with zero overlays. Properties meeting the definition of a Site Condominium according to the criteria within this policy are not required to be included on the FHA Approved Condo List.  In addition, Site Condominiums as defined within the policy do not require prior approval with HUD prior to submitting to Pacific Union.

 For Standard 203(k) Rehabilitation Mortgages, the Department of Housing and Urban Development (HUD) requires the use of a HUD-approved 203(k) Consultant. Under the new HUD Handbook 4000.1, lenders are required to select FHA-approved 203(k) Consultant from the FHA 203(k) Consultant Roster in FHAC. The HUD Consultant must be selected from an approved list that has also been reviewed by Sun West prior to ordering any Consultant services or making any agreements with the Consultant or the borrower.

 M&T Bank is now offering Manufactured Housing financing through its Correspondent Lending channel. Some requirements include Title II properties only; no single-wide units or leased lots. FHA 203(b) only, with minimum 660 FICO. The unit must have been built after June 15, 1976 and must be affixed to a permanent foundation. Contact your Account Executive for all requirements including availability per state. In Mortgagee Letter 2016-08 FHA announced a change in how to calculate and document monthly Student Loans payments, regardless of payment status.  This change can be applied immediately, but is required for FHA Case Numbers ordered on or after 6-30-16 for M&T clients.

 Ditech reminded customers that FHA underwriting guidelines have been clarified or updated related to the following topics: Net Tangible Benefit, Housing Payment History for Streamline Refinances, Tax Abatements.

 Shifting to the bond markets, we did have some news Tuesday. Durable Goods Orders were up 0.8% in Mar, an increase of $1.8 billion, per the U.S. Census Bureau. This increase, up two of the last three months, followed a 3.1% February decrease. And the S&P/Case-Shiller US Home Price Index was +.4% in February.  Lastly the Consumer Confidence Index was "94.2" in April, down from 96.1 in March. "Consumers' assessment of current conditions improved, suggesting no slowing in economic growth. However, their expectations regarding the short-term have moderated, suggesting they do not foresee any pickup in momentum." The $34 billion 5-year note auction was met with average demand. The news was enough to nudge rates higher yesterday, and yields moved up to multi-month highs, in spite of some folks saying that the news was disappointing.

 This morning we've had the MBA's Mortgage Index showing that apps last week (-4%, purchases -2% and refis -5%). Coming up are the March Pending Home Sales figures - not typically a bond market mover - and then later in the day the April FOMC rate decision - don't look for any changes. Tuesday we closed the business day with the 10-year sitting at a yield of 1.93% and in the early going this morning it is at 1.90% with agency MBS prices better by about .125.