Sunday, December 27, 2009

Government Housing Support Update

by Bill McBride on 12/27/2009 05:52:00 PM

Note: Scroll down or click for Last Week Summary and a Look Ahead

As everyone knows there has been a massive government effort to support house prices. Some of this has been aimed at limiting supply (modification programs, various foreclosure moratoria), and some has been aimed at increasing demand (tax credit, lower mortgage rates, loose lending standards).

Here is a quote from Secretary Geithner from a recent Newsweek interview by Daniel Gross:

"We were very careful from the beginning ... to say that we are going to focus the bulk of the financial force on bringing interest rates and mortgage rates down to cushion the fall in housing prices and help stabilize home values, which will feed into people's basic sense of financial stability."
To help keep this straight, here is a list of the status of a number of programs:

  • Housing Tax Credit: Buyer must sign a contract by April 30th and close by June 30, 2010 to qualify. The supporters have promised no extension, from the LA Times: No more extensions of tax credit for first-time home buyers
    Proponents of the $8,000 credit for first-time buyers and the $6,500 credit for move-up buyers made it clear during the debate on Capitol Hill that the benefits would not be renewed when they expire. And a lobbyist for the National Assn. of Realtors confirmed that at the group's annual convention last month.

    Lawmakers "made us promise practically in blood that we would not come back" for another extension, Linda Goold, the Realtor group's director of tax policy, told her members.

    During the debate, Sen. Johnny Isakson (R-Ga.), a former real estate broker and a longtime proponent of the tax credit, promised his colleagues, "This is the last extension."
  • Federal Reserve MBS Purchase Program: This is scheduled to end March 31, 2010, from the Fed:
    [T]he Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010.
  • Treasury MBS Purchase Program: This program will end Dec 31, 2009, from the Treasury:
    The program that Treasury established under HERA to support the mortgage market by purchasing Government-Sponsored Enterprise (GSE) -guaranteed mortgage-backed securities (MBS) will end on December 31, 2009. By the conclusion of its MBS purchase program, Treasury anticipates that it will have purchased approximately $220 billion of securities across a range of maturities.
  • HAMP Trial Programs Extended: The Treasury has extended any expiring trial modification program until at least Jan 31, 2010, from the Treasury:
    In order to provide servicers an opportunity to remain focused on converting eligible borrowers to permanent HAMP modifications, effective today and lasting through January 31, 2010, Treasury is implementing a review period for all active HAMP trial modifications scheduled to expire on or before January 31, 2010. Active HAMP trial modifications include trial modifications that have been submitted to the Treasury system of record that have not been cancelled by the servicer.

    During this review period, servicers should continue to convert eligible borrowers in active HAMP trial modifications to permanent HAMP modifications as quickly as possible in accordance with existing program guidance. Servicers may not cancel an active HAMP trial modification during this period for any reason other than failure to meet the HAMP property eligibility requirements.
  • Support for Fannie and Freddie: Treasury has uncapped the support for Fannie and Freddie for the next three years. From Treasury:
    Treasury is now amending the [Preferred Stock Purchase Agreements (PSPAs)] to allow the cap on Treasury's funding commitment under these agreements to increase as necessary to accommodate any cumulative reduction in net worth over the next three years. At the conclusion of the three year period, the remaining commitment will then be fully available to be drawn per the terms of the agreements.
  • Fannie / Freddie Low-Cost Refinancing program. This is the program that allows homeowners with Fannie and Freddie mortgages to refinance loans up to 125 percent LTV. I believe this program expires June 10, 2010.

  • FHA Loose Lending Standards: In his Dec 2nd testimony to Congress, HUD Secretary Donovan said the FHA would propose tighter lending standards by the end of January 2010. This included:
    •Focus on enforcement and lender accountability
    •Reduce the maximum seller concession from 6% to 3%.
    •Raise the minimum FICO score.
    •Increase the up-front cash for borrower (it isn't clear if this is an increase in the downpayment, currently a minimum of 3.5%, or requiring the borrower to pay more fees).
    •Increase FHA insurance premiums.
  • Various Holiday Foreclosure Moratoria: Fannie, Freddie and most of the large banks routinely suspend foreclosure activity over the holidays. This has been true this year too. Fannie and Freddie's holiday moratoria ends Jan 3, 2010, and Citi's holiday moratoria ends Jan 17th. The other banks programs end in early January too.

    There is probably more ...
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