Fannie Mae and Freddie Mac are Better than Ever

Despite negative earning reports

Fannie Mae

On the surface, it may look like Fannie Mae andFreddie Mac are in financial trouble again. But in reality, both government-sponsored enterprises have emerged from the financial crisis churning out more profits before taxes than they ever have before. Per The Economist:

Last week, Fannie Mae reported annual net income of $14.2 billion and annual comprehensive income of $14.7 billion in 2014. This compares to net income of $84.0 billion and comprehensive income of $84.8 billion in 2013, which included the release of the company’s valuation allowance against its deferred tax assets.

On the other side, Freddie Mac posted net income of $7.7 billion for the full-year 2014, compared to $48.7 billion for the full-year 2013. Freddie’s 2014 net income and comprehensive income declined from 2013 by $41 billion and $42.2 billion, respectively. 2013 results included an income tax benefit of $23.3 billion that primarily resulted from the release of the deferred tax asset valuation allowance in the third quarter of 2013.

“Falling market interest rates forced the pair to declare losses from their derivatives on their accounts, although the impact of this will even out in the long term,” the article stated.

Since Barack Obama’s administration in effect expropriated shareholders stakes in 2012: virtually all earnings now go to the Treasury.

Two challenges to this arrangement are before federal courts. Critics contend that the government is sowing the seeds of another crisis by encouraging both firms to loosen their lending standards for political reasons. But in the meantime the American government can look forward to some healthy dividends from the pair.

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Thinking of Buying? What are you Waiting for?

Posted: 23 Feb 2015 KCM Crew

Thinking of Buying? What are you waiting for? | Keeping Current Matters

If you are planning on becoming a homeowner, or moving up to the home of your dreams in 2015, here are four great reasons to consider buying a home now, instead of waiting until spring.

1. Prices Will Continue to Rise

The Home Price Expectation Survey polls a distinguished panel of over 100 economists, investment strategists, and housing market analysts. Their most recent report projects appreciation in home values over the next five years to be between 11.7% (most pessimistic) and 27.5% (most optimistic). The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting no longer makes sense.

2. Mortgage Interest Rates Are Projected to Increase

Although Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have softened recently, most experts predict that they will begin to rise over the next 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac & the National Association of Realtors are in unison projecting that rates will be up almost a full percentage point by the end of 2015. An increase in rates will impact YOUR monthly mortgage payment. Your housing expense will be more a year from now if a mortgage is necessary to purchase your next home.

3. Either Way You are Paying a Mortgage

As a paper from the Joint Center for Housing Studies at Harvard University explains:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

4. It’s Time to Move On with Your Life

The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise. But, what if they weren’t? Would you wait? Look at the actual reason you are buying and decide whether it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer or you just want to have control over renovations, maybe it is time to buy.

If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.

 

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Today’s Update from Robert J Petrelli

The National Association of REALTORS® (NAR) reported on Monday that Existing Home Sales in January fell to their lowest levels since last April as tight inventories, seasonal weather and the ongoing rise in prices kept buyers out of the market. Sales fell to an annual rate of 4.82 million units, below the 4.95 million expected. Despite the decline, sales are up by 3.2% from a year ago. A spokesman from the NAR said, “low rates are attracting potential buyers, but the lack of new and affordable listings is leading some to delay decisions.”

 

Robert J. Petrelli | President Mount Vernon Mortgage Corporation 440 Washington Street | Weymouth, MA 02188

  1. 781-337-2432 | ph. 800-869-5882 | fx. 781-337-2885

RJPetrelli@MtVernonMortgage.com | www.MtVernonMortgage.com

MLO13035 / NMLS13035 / MA Mortgage Broker License MB1492

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Two Graphs that Scream — List your Home Today!

Posted: 19 Feb 2015 KCM Crew

Two Graphs that Scream - List Your Home Today | Keeping Current Matters

We all learned in school that when selling anything, you will get the most money if the demand for that item is high and the inventory of that item is low. It is the well-known Theory of Supply & Demand. If you are thinking of selling your home, here are two graphs that strongly suggest that the time is now. Here is why…

DEMAND

According to research at the National Association of Realtors (NAR), buyer activity last month (January) was three times greater than it was last January. Purchasers who are ready, willing and able to buy are in the market at great numbers.Buyer Demand | Keeping Current Matters

SUPPLY

The most recent Existing Home Sales Report from NAR revealed that the months’ supply of housing inventory had fallen to 4.4 months which is the lowest it has been in over a year.Months Inventory of Homes for Sale | Keeping Current Matters

Bottom Line

Listing your house for sale when demand is high and supply is low will guarantee the offers made will truly reflect the true value of your property.

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Mortgage Lending Gets Riskier for the Fifth Straight Month

Growing share from nonbanks contribute upward pressure

high risk

The riskiness of mortgage loan originations rose in January, the fifth straight monthly increase, according to the monthly report from American Enterprise Institute‘s International Center on Housing Risk.

The composite National Mortgage Risk Index for Fannie Mae and Freddie Mac purchase loans hit a series high of 11.94% in January, up 0.4 percentage point from the average for the prior three months and 0.8 percentage point from a year earlier.

Within the composite, the risk indices for Fannie Mae,Federal Housing Administration, and VA also hit series highs in January.

Donald Layton, the chief executive of Freddie Mac, doesn’t think the new 3% down payment mortgage option the government-sponsored enterprise is launching next month will contribute to that risk going forward.

Speaking in an interview with HousingWire after Thursday’s earnings call with investors, Layton said the 97% loan-to-value option will be limited to borrowers who can prove a “very good income.”

Furthermore, he reinforced that underwriting standards are stronger than ever and that their regulator, theFederal Housing Finance Agency, will maintain the overall direction of the products, also becoming available at Fannie Mae.

AEI says marked shift in market share from large banks to non-banks accounts for much of the upward trend, as non-bank lending is substantially riskier than the large bank business it replaces.

“With the NMRI once again hitting a series high, the risks posed by the government’s 85% percent share of the home purchase market continue to rise,” said Stephen Oliner, codirector of AEI’s International Center on Housing Risk.

The January results are based on more than 180,000 home purchase loans, nearly the universe of such loans with a government guarantee.  With the addition of these loans, the total number of loans that have been risk rated in the NMRI since December 2012 moved above 5.49 million.

“Policy makers need to be mindful of the upward risk trends that are occurring with respect to both first-time and repeat buyers,” said Edward Pinto, codirector of AEI’s International Center on Housing Risk. “Recent policy moves by the FHA and (Federal Housing Finance Agency) will likely exacerbate this trend.”

Other findings include:

  • The QM regulation has not reduced the volume of high DTI loans: over the past 3 months, 24% of loans had a total DTI above 43%, up two percentage points from the share in 2013:H2.
  • FHA is not compensating for the riskiness of its high DTI loans; Fannie and Freddie are compensating only to a limited extent.
  • FHA’s NMRI stood at 24.41% in January, up 0.2 percentage point from the average for the prior three months, and 1.5 percentage points from a year earlier.  The current level implies that nearly one-quarter of FHA’s recently guaranteed home purchase loans would be projected to default under severely stressed conditions akin to the 2007-08 financial crisis.
  • The softness in mortgage lending is not due to tight standards but to reduced affordability, loan put back risk, and slow income growth for many households.

 

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Today’s Update from Robert J Petrelli

Construction on new homes edged lower in January from December due to higher prices and tighter credit conditions along with adverse weather conditions across the country. Housing Starts rose by 1.063 million units on an annualized basis, which was below the 1.07 million units and down 2% from December. A decline in single family homes fell from the six and a half year peak in December. Within the report it showed that the Northeast was the biggest drag on the numbers due to a big storm last month. Wait until February storms are factored in next month! In addition, multi-family dwellings surged 7.5% in January. Still, the outlook for this year is good, according to National Association of Home Builders (NAHB) Chief Economist David Crowe, who was quoted as saying “Solid job growth, affordable home prices and historically low mortgage rates should help unleash growing pent-up demand and keep the housing market moving forward in the year ahead.”

Falling energy prices kept inflation tame at the wholesale level in January. The Producer Price Index (PPI) fell by 0.8% last month, led lower by a 24% plunge in gasoline prices. The Labor Department’s PPI program measures the average change over time in selling prices received by domestic producers for their output. In the past 12 months, producer prices were unchanged, the weakest annual reading since November 2010, after a 1.1% rise in December.

An increase in home loan rates in the latest week caused home loan application activity to decline, as reported by the Mortgage Bankers Association (MBA). The MBAs Market Composite Index, a measure of total loan application volume, fell by 13.2% last week, though volume is 14% higher from this time last year. Refinance volume fell particularly for larger loans, as evidenced by the decline of almost $25,000 in the average loan size for a refinance loan,” said Mike Fratantoni, MBA’s Chief Economist.

Robert J. Petrelli | President Mount Vernon Mortgage Corporation 440 Washington Street | Weymouth, MA 02188

  1. 781-337-2432 | ph. 800-869-5882 | fx. 781-337-2885

RJPetrelli@MtVernonMortgage.com |

MLO13035 / NMLS13035 / MA Mortgage Broker License MB1492

 

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Homeownership Rates: Are they Crashing?

Posted: 18 Feb 2015 KCM CrewHomeownership Rates: Are They Crashing? | Keeping Current Matters

The Census recently released their 2014 Homeownership Statistics, and many began to worry that Americans have taken a step back from the notion of homeownership.

Easy… Chicken Little

The national homeownership rate peaked in 2004, representing a 69.2% of Americans who bought vs. rented their primary residence. Many have noticed a decline in rate since then and taken that as a bad sign. However, if you look at the national rate over the last 30 years (1984-2014), you can see that the current homeownership rate has returned closer to the historic norm. 2014 ended the year with a rate of 64% just under the rate in 1985 and 1995.Homeownership Rates Historically | Keeping Current Matters

Bottom Line

With interest rates and prices still below where experts predict, evaluate your ability to purchase a home with a local real estate professional.

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