Home Loan Focus

Archive for May, 2008

Let’s get the bad news out of the way.  Since April 2007, home values as measured by average selling prices have dropped 3.7 percent.  It was actually 3.1 percent for the last 12 months but if you go back another 30-45 days the decrease added another 0.6 percent.

U.S. home prices fell a record 1.7 percent in the first quarter and the number of workers on jobless benefit rolls held at a four-year high, underscoring the economy’s woes, data on Thursday showed.

The continued slump in housing prices in the first quarter pushed them 3.1 percent below their year-ago level, the Office of Federal Housing Enterprise Oversight said. Like the quarter-to-quarter drop, the decline was the biggest in the 17 years the housing regulator has tracked the data.

Reuters

That was the bad news, the good news was hard to find.  30 year fixed mortgage rates did continue to dip a little bit, even as ARM rates increased.  As kids get out of school for the summer, people that might have wanted to move this summer are going to find themselves stuck living where they are and possibly skipping vacations too.  That trip to Disney World and a new house might be replaced with a barbecue in the back yard around new hundred dollar swing sets from Wal-Mart.

If the global market on interest brings reality to the US from the UK, US homeowners might expect an increase in the rate of interest that they are paying on mortgages.  Many people think that the managers of the US economy have been more proactive in working to save the mortgage industry in the US, but at the end of the day arbitrage is the typical factor that levels the playing field around the world.  That means that the higher rates seen in the UK will eventually help to increase the rates paid in the US as well as investors in the US demand a better return on investment like the one they receive in the UK.

Figures compiled by personal finance website MoneyFacts and carried in the Daily Telegraph show that the average rate for a two-year loan has hit 6.64 per cent, up from 4.34 per cent two years ago.

The Press Association: Cost of fixed-rate mortgages soars

The reality is that in a global economy candles can not be burnt from the same end forever and in this the UK and US economies have been and are still tied at the hip in many forms.

Home Prices continue to drop significantly.  They dropped 7.7 percent in 140 of 149 metro cities surveyed.

Part of that drop is being fueled by foreclosures which are still on the rise.  It is projected that 1 million additional homes will foreclose in 2008.

Foreclosure filing rates surged 65% in April according to the AP:

More U.S. homeowners fell behind on mortgage payments last month, driving the number of homes facing foreclosure up 65 percent versus the same month last year and contributing to a deepening slide in home values, a research company said Tuesday.

Nationwide, 243,353 homes received at least one foreclosure-related filing in April, up 65 percent from 147,708 in the same month last year and up 4 percent since March, RealtyTrac Inc. said.

AP Article

Its going to be a long road out of this housing market crisis for the US.  One that is going to be about as painful for US households as drug rehab is for heroin addicts.

The news has been full of stories about the rash of tornados that we have recently experienced in the United States.  We are pushing up on a record as we cross the 1,000 tornado line.

Well in the home loan market, many consumers feel like they have also been hit by a tornado and like the windy version that is even putting people out of homes or keeping them out of new ones.  That is especially true in Nashville Tennessee and neighboring Clarskville.

MGIC Investment Corp., one of six major mortgage insurance companies in the nation, will further clamp down on borrowers in the Nashville area in June after adding the entire metropolitan statistical area recently to its list of restricted markets.

The company’s growing blacklist, which now also includes parts of Utah, Connecticut and Kentucky, identifies markets where borrowers must have better credit scores and bigger down payments than normal to get the company’s insurance.

A second national mortgage insurance company toughened up on Clarksville recently.

Home loans are harder to obtain in Nashville area | www.tennessean.com | The Tennessean

What does that mean?  Well, it basically means that the insurance companies that insure against defaults are working to reduce their risks in geographical areas where they have statistically seen problems.  Its the equivalent of an insurance company charging more for someone looking to insure a home against flooding on the Eastern Shoreline or in South Florida.  They are also looking to decrease their pool of potential defaults by making the requirements to qualify for a loan at all more stringent. 

You can expect to see more of this issue in the news soon and you will also likely see some people calling this practice out as a new form of redlining, which is illegal.  That may or may not be a fair accusation in this case (probably not), but when hard hit areas include urban areas where disadvantage borrowers live, its not always easy to make a different set of rules for the people that live there even if the statistics do show a higher level of risk.  It may make logical sense for an actuary, but each of these decisions will be heavily scrutinized by lawyers up one side of the insurance company and down the other by legislators and trial lawyers looking for a cause.  Then PMI lenders will wish they got into the pharmaceutical industry to sell Orovo detox diet pills instead of working in mundane areas like research.  I predict that there will be a few actuaries that will calculate themselves right out of jobs without even knowing what happened.