Mel Watt, the director of the Federal Housing Finance Agency, gave his first public speech this week since becoming the agency’s director in January. The speech outlined a broad shift in housing-finance policy, including maintaining the mortgage finance giants’ role in parts of the housing market, spurring more home lending, and aiding distressed homeowners.

Making sense of the story

• Due to concerns about the slowing housing market, Watt announced that the government-sponsored enterprises would not reduce the limits on loans they guarantee.

• The CALIFORNIA ASSOCIATION OF REALTORS® President Kevin Brown commented, “C.A.R. commends FHFA Director Melvin Watt for his announcement today that the FHFA will not reduce loan limits on loans eligible for purchase by Fannie Mae and Freddie Mac. Lower loan limits would have had an adverse effect in many parts of the country, but especially here in California where rebounding home prices and decreasing home affordability would hamper mortgage activity and impact the housing recovery.”

• Currently, Fannie and Freddie will buy loans as large as $417,000 in most markets and as large as $625,500 in certain “high-cost” markets, including southern California.

• Watt stated he would not comment on housing finance reform efforts, noting that “Congress and the [Obama] administration have the important job of deciding on housing finance reform legislation, not FHFA.”

• The director announced the launch of a neighborhood stabilization pilot project in Detroit to help stabilize communities hardest hit by the foreclosure crisis.

• Watt said this year the FHFA would explore establishing an independent dispute resolution program when lenders believe a repurchase is unwarranted.

• Notably, Watt commented that he would focus on reducing taxpayer risk without necessarily shrinking the size of Fannie Mae and Freddie Mac, thereby suggesting he will aim to perpetuate the presence of the two government-sponsored enterprises in mortgage finance.

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Talking Points …

• There was decreased housing affordability in all regions of the state during the first quarter of 2014, according to the CALIFORNIA ASSOCIATION OF REALTORS®. The state’s housing affordability has dropped 23 percent since its peak in the first quarter of 2012, and has steadily declined since then as rising interest rates and increasing home prices contributed to the lack of affordability.

• Home buyers needed to earn a minimum annual income of $86,419 to qualify for the purchase of a $416,720 statewide median-priced, existing single-family home in the first quarter of 2014.  The monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $2,160, assuming a 20 percent down payment and an effective composite interest rate of 4.46 percent.

• Approximately 77 percent of the counties reviewed by C.A.R. experienced a quarter-over-quarter decline in affordability, and all counties realized a double-digit decline in year-over-year comparisons.

Americans Shut Out of Housing as FHA Fees Jump
Source: Bloomberg

For many buyers seeking a mortgage backed by the Federal Housing Administration, homeownership may no longer be attainable with increases in mortgage insurance fees, especially at a time when housing affordability remains a challenge for many Americans. The new FHA fees can tack on a couple hundred extra dollars every month, which experts argue has contributed to the decline in first-time buyers.
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Former Treasury Secretary Timothy Geithner has released a new book that provides his view of the financial crisis and defends several crisis-era decisions on housing. In describing the future of the U.S. mortgage market, he writes, “Congress will have to make some tough choices about the mortgage market—not just how to reduce the government’s dominant role, but how to balance the trade-off between safety and accessibility. We should require substantial down payments for borrowers, which would make it harder for some families to become homeowners but would help reduce the risk of the terrible collapses we saw in this crisis.”
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According to a new survey, only 42 percent of Americans understand that a credit score actually measures the risk of not repaying a loan and is not a measure of credit attitudes or knowledge. The results show that respondents had a vague understanding of how their credit scores are calculated and used.
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