Seattle Bubble

News & discussion about real estate & the housing bubble in the Seattle area.

Seattle Bubble - News & discussion about real estate & the housing bubble in the Seattle area.

Entries Tagged as 'Freddie'

125% Refinance: Pricing You IN for a Decade or More

By The Tim on July 2nd, 2009 at 9:20 AM · 145 Comments

Astute readers have no doubt have learned by now of yesterday’s announcement by HUD Secretary Shaun Donovan that the federal government’s “Making Home Affordable” plan will now allow mortgages owned or guaranteed by Fannie Mae and Freddie Mac to be refinanced with loan-to-value ratios of up to 125%.

I won’t go into all the details of the announcement since you can find good coverage of the changes over at the P-I or Rain City Guide. Instead, I thought it would be interesting to see what the long-term financial picture might look like for someone who plans to take advantage of this program.

Let’s take a look at some hypothetical home borrowers who currently owe $400,000 in various mortgages with difficult terms or high rates, and whose home is presently worth $320,000. They jump on the new FHFA Home Affordable Refinance Program and refinance into a single 30-year fixed-rate loan at a 5.75% interest rate with a 125% loan-to-value ratio.

I hope that our hypothetical couple doesn’t want to move any time in the next 13 years, because under a relatively optimistic home value appreciation scenario that’s how long it will take before they will be able to sell without bringing money to the table:

125% Loan-to-Value Home Refinance

Note that the home sale proceeds line assumes paying 6% of the sale price to real estate agents, as well as an additional 2% to account for excise taxes and other costs of selling. You can also download the spreadsheet I used to create these charts and tweak the values yourself.

With the home value appreciation tweaked to a slightly less rosy scenario, it takes 17 years before our couple can break even selling their house:

125% Loan-to-Value Home Refinance

According to a 1993 study by the Census Bureau (pdf) only ~10% of home owners stayed in one house for over ten years. A 2001 study (pdf) by the NAR-funded Joint Center for Housing Studies put the median length of home ownership at 8.2 years. Refinancing one’s home into a 30-year loan for 125% of the house’s value will most likely lock the borrower into their present home for a period of time longer than 90% of people usually stay in their homes.

If the goal of this new 125% loan-to-value program is to financially imprison people in their current homes for a decade or more, then it looks like it could be a rousing success. However, I’m not sure how many currently struggling home borrowers would really consider that to be much of a “help.”

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Morning News Links: Boeing Profit, Prime Defaults

By The Tim on April 22nd, 2009 at 9:01 AM · 37 Comments

Here’s a brief roundup of some of this morning’s housing and economic news:

Let me know in the comments if you think a brief daily feature like this would be a useful addition to the site.

→ 37 CommentsCategories: News
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Highlights of the FHFA Streamlined Modification Program

By The Tim on November 11th, 2008 at 4:25 PM · 45 Comments

Here are the basics of the latest mortgage bailout initiative from Fannie Mae and Freddie Mac that was announced today by the Federal Housing Finance Agency.

To qualify, borrowers must:

  • Have a loan owned or guaranteed by Fannie or Freddie.
  • Owe 90% or more than the home is worth.
  • Be 90 days or more behind on payments.
  • Demonstrate financial hardship.
  • Not have filed bankruptcy.
  • Presently occupy the home.

Possible remedies under the plan include:

  • Interest rate reduction.
  • Loan term extended from 30 to 40 years.
  • Deferred principal.

Note that principal reduction is not among the possible remedies (nor should it be, in my opinion). What this means is that this plan is really only useful for individuals that really want to keep living where they are now for an extended period of time (10+ years). If you owe $400,000 on a house that’s only worth $300,000 and you want to sell a year or two down the road, reworking your loan in this manner will be of little help.

The plan goes into effect December 15th.

I’d also like to briefly address a quote from FHFA Director James B. Lockhart that appears in the press release:

Foreclosures hurt families, their neighbors, whole communities and the overall housing market. We need to stop this downward spiral.

Note that when a family goes through foreclosure, it’s not as if they end up on the street. They simply have to go back to renting, which is often financially where they probably should have stayed in the first place. And somehow I don’t seem to recall ever hearing high-ranking housing officials saying the converse of the above statement during the inflation of this ridiculous bubble:

Skyrocketing home prices hurt families, neighborhoods, whole communities, and the overall housing market. We need to stop this upward spiral.

But now we have to do anything and everything to (attempt to) keep home prices at ridiculously high levels that prevent financially responsible families from becoming homeowners? Nonsense.

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Government Loan Limits Lowered $60k for Seattle

By The Tim on November 10th, 2008 at 4:55 PM · 18 Comments

As astute market observers may recall, back in March (pre-complete-government-takeover) the conforming loan limit for Fannie Mae and Freddie Mac-backed loans was bumped from $417,000 to $567,500 for the Seattle area (King, Pierce, and Snohomish counties). At that time, the local press was touting the new limits at “a big dose of first aid” and the “shot in the arm” for the housing market, while here at Seattle Bubble we asked the question: Will Higher Government Loan Limits Boost Seattle’s Market?

Our conclusion was that the added lending restrictions attached to the “Temporary Jumbo Conforming” loans set the bar sufficiently high as to prevent the higher limits from having the (apparently intended) effect of preventing home prices from falling further. Given that the median price of homes in the Seattle area have fallen 6-8% in the intervening seven months, it would appear that this assessment was accurate. Of course, one could argue that perhaps without the higher conforming limit, prices would have dropped 10% or more in the same time, and there’s really no way to know whether that might be true.

If we assume that the Seattle area’s $567,500 temporary conforming limit did in fact somehow soften the blow, however slightly, then the latest news that this limit is being dropped to $506,000 is likely to be unwelcome. However, it should be noted that as far as I am aware, all the same restrictions are still in place including, but not limited to:

  • Fixed-rate loans are limited to 90% LTV/CLTV (loan to value/combined loan to value).
  • Minimum FICO for any loan is 660.
  • Minimum FICO for LTVs greater than 80% is 700.
  • No late mortgage payments in the preceding 12 months.
  • Full doc only.

While the $567,500 temporary limit was based on a calculation of 125% of the median home price (source), the new $506,000 limit is “set equal to 115 percent of local median house prices” (source). So the new loan limit translates to a drop in government-calculated median home price from $454,000 around March to $440,000 around October.

Interestingly, although the King County SFH median price was $440,000 in May, the Snohomish County SFH median has never breached $400,000, and Pierce County topped out below $300,000. This is explained in the announcement pdf:

In calculating loan limits, FHFA used median house price estimates calculated by the Federal Housing Administration (FHA) of the Department of Housing and Urban Development (HUD). Those values have been estimated in a manner consistent with requirements of the National Housing Act, which requires that median prices for all counties in metropolitan statistical areas (MSAs) be set equal to the median price for the highest-cost county.

So will the new, lower limit put even more of a damper on Seattle area home sales? Or was the effect of the higher limit so negligible that the reduction won’t really matter?

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Poll: Does the Freddie / Fannie takeover change your outlook on housing?

By The Tim on September 8th, 2008 at 12:05 AM · 89 Comments

Please vote in this poll using the sidebar.

Does the Freddie / Fannie takeover change your outlook on housing?

  • Yes, it will help the market regain strength. (24%, 41 Votes)
  • Yes, it will weaken the market further. (20%, 34 Votes)
  • No, it won't make a difference. (56%, 101 Votes)

Total Voters: 174


This poll will be active and displayed on the sidebar through 09.14.2008.

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Fannie / Freddie Takeover

By The Tim on September 7th, 2008 at 1:59 PM · 44 Comments

This is pretty big news (to put it lightly), so I don’t want to ignore it even though I try to focus on Seattle-specific news here usually.

On Friday news came out that Fannie Mae and Freddie Mac will basically be taken over by the US Government this week.  I don’t see any point in rehashing the commentary and news you can find elsewhere, so I’ll just point you to some useful posts on the topic.

Calculated Risk: Original story, follow-up, follow-up, follow-up

Rain City Guide Post by Jillayne, follow-up

Market Ticker: Main story, follow-up, follow-up

I’m sure we’ll be talking about this plenty this week. Yikes.

Oh, one more, be sure to check out the forum thread on this subject that’s been going strong all weekend: Treasury Is Close to Finalizing Plan to Backstop Fannie, Freddie

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