Origination

Homes in the Western U.S. and South led in price declines in November, according to new figures compiled by the Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac. FHFA - which calculates its numbers solely on the value of homes collateralizing mortgages bought or guaranteed by Fannie and Freddie - said that nationwide home values fell 1.8% in November compared to the previous month. Year-over-year, prices fell 8.7%. In November the steepest declines occurred in the West North Central region of the nation (-2.7%), Mountain (-2.4%), South Atlantic (-2.3%) and Pacific (-2.2%). The Pacific region, which includes California, had the largest 12-month decline: -22.1%.

The average rate for a 30-year fixed-rate mortgage jumped back above 5% to 5.12% during the week ended Jan. 22, according to Freddie Mac. The average 30-year FRM rate had fallen below 5% the week before when it was 4.96% but remains below the 5.48% average rate seen during the same week the year previous. The week-to-week gain in the rate reversed 11 consecutive weeks of declines. "Fixed-rate mortgages followed bond yields and edged up this holiday week," said Frank Nothaft, Freddie Mac vice president and chief economist. "However, over the first three weeks of 2009, 30-year fixed-rate mortgages averaged 0.25 percentage points below their monthly average for December 2008. As a result the number of mortgage applications for refinancing was roughly about 86% of all conventional loans over the same time period." The average 15-year FRM rate, at 4.80%, also was up from the previous week when it was 4.65% but represented a decline from 4.95% the year previous. The average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage was 5.24%, down from 5.25% the previous week and the lowest it has been since Sept. 8, 2005, when it also was 5.24%. The average rate for one-year Treasury-indexed ARMs was 4.92%, up from the previous week's 4.89% and down from 4.99% the year previous. Average points were as follows: 0.7 for 30- and 15-year FRMs and for one-year Treasury-indexed ARMs and 0.6 for five-year Treasury-indexed hybrids.

With demand for its product red hot, the Government National Mortgage Association issued $24 billion of mortgage-backed securities in December, and moved to ask the Obama Administration for a 50% increase in staff. "We sent in a request for additional people," GNMA president Joseph Murin told MortgageWire. The guarantor wants to add 30 people to its current staff of 61. Mr. Murin said the Obama transition team has supported his request. "We're just waiting for appropriations," he said. "We're looking for analytic types." For calendar year 2008 GNMA issued a record $270 billion in MBS. In recent selected months it has been issuing even more MBS than Fannie Mae and Freddie Mac. (For the full story see the Monday edition of National Mortgage News.)

Congressman Al Green has introduced H.R. 600, a bill that would reinstate the controversial seller-funded down payment assistance banned last October despite being credited with helping over one million families become homeowners. Scott Syphax, president and CEO of the Nehemiah Corp. of America, Sacramento, CA, a DPA pioneer and supporter, applauded the bill that helps broaden homeownership opportunities for borrowers who qualify for Federal Housing Association-insured loans without using government or taxpayer dollars. "With foreclosures on the rise and banks maintaining their stranglehold on credit," he said, DPA can have a big impact on the market's recovery. "Through H.R. 600, DPA offers a simple solution that can empower thousands of worthy families to take advantage of depressed home prices therefore reducing the glut of homes on the market. Further, it does so without spending a single government or taxpayer dime, according to the Congressional Budget Office." Mr. Syphax said DPA is a source of opportunity for responsible, sustainable homeownership in times when the housing market is crumbling. DPA supporters hope President Obama's Administration will help reinstate the program.

Builders have seen the light, according to the latest NAHB's Builders' Economic Council survey. Nearly nine out of ten who started houses in the fourth quarter of 2008 are switching to smaller units with a lower price. Only 12% reported building larger, more expensive houses. The latest Census Bureau figures confirm what the builders are saying. While the average square footage of houses completed during the third quarter was on the upswing, the average size of those started in the quarter is going down. And the change is "significant," according to Gopal Aluhwalia, head of NAHB research. The average square footage in newly started single-family houses was 2,629 in the second quarter vs. 2,438 in the third quarter, a difference of nearly 200 square feet, or an amount equal to a good-sized bedroom. Until the third quarter, the size of houses had been creeping up almost steadily.

A January poll of builders across the land shows the market for new homes is continuing to deteriorate. The survey, which was released at the National Association of Home Builders' convention in Las Vegas, found that sales are declining across all price ranges. But the random sample of 417 NAHB members from throughout the country shows that things are growing progressively worse as the price range increases. Half the builders said the market for houses priced under $150,000 is in either substantial or some decline, while 80 percent - four out of five - said the market for houses priced from $250,000 to $1 million - is in full retreat. "Things are getting worse," said Gopal Aluhwalia, NAHB's research guru. The main reason people aren't buying, the builders said, is that they can't sell their current homes. But a substantial number are worried about their jobs (88%) or think prices will decline further (75%). Nearly 70% of the builders said they cut prices in the fourth quarter to move inventory, and nearly three out of five reported making no profit during the period.

The home building slump has resulted in a loss of more than three million jobs, according to an analysis by economists at the National Association of Home Builders. Because production has dropped by more than one million units since starts hit their peak in 2005, 1.4 million construction workers have had to seek employment elsewhere, the NAHB said at its annual convention in Las Vegas. "But the loss doesn't stop there," according to the report, which says the slump also has resulted in the loss of nearly 562,000 jobs in the businesses which make building products and nearly 583,000 jobs in such service-related industries as architects, lawyers and engineers. That adds up to 3.05 million jobs that no longer exist, and $145 million in lost wages. Home building also is generating far less tax income for federal, state and local governments. "When one million single-family homes are not built, it means a loss of $89 billion in government revenue," the report said. Also lost is the $4.9 billion that is usually spent on appliances, home furnishings and property alterations in the first year after one million fewer families move from one house to another, the NAHB claimed.

If economics is the "dismal science," then Frank Nothaft is living up to his billing as the chief economist at Freddie Mac, at least in the short term. "The only good thing I have is that mortgage rates are at a record low," Mr. Nothaft told MortgageWire at the National Association of Home Builders' convention. But even that bit of good news is problematic, the economist said, because lenders' underwriting requirements are so stringent these days that it is far more difficult to qualify for financing. Still, he told a convention session that he expects a housing recovery to begin in the second half of 2009 and pick up a solid head of steam in 2010. Former Fannie Mae chief economist David Berson also expects sales to stabilize and grow stronger into next year. But Mr. Berson, who now is chief economist and strategist at PMI, Walnut Creek, Calif., also believes house prices will continue to fall. In 97% of the metropolitan statistical areas PMI follows, the probability is that prices will be lower in two years than they are now, he told the convention. "The risk has gone up almost everywhere, and there's a better than 50-50 chance of lower prices in slightly more than half the markets." At the same time, Mr. Berson assured the meeting that this too shall pass. "Eventually, the unsold inventory will get worked off," he said. "I don't want to minimize the problems we're going through now, but ultimately we will get through this period and get back to basic demographic trends."

Turmoil in the capital markets is leaving no segment of the housing business unscathed. Now feeling the pinch is the multifamily sector, where developers at the National Association of Home Builders' annual convention in Las Vegas say tight financing conditions have severely hampered their ability to produce both affordable and market-rate projects. Robert Greer of Michaels Development, Marlton, N.J., a big developer of low- and moderate-income apartments, said big investors - including Fannie Mae and Freddie Mac - are not actively seeking low-income housing tax credits because they have no profits to offset. Consequently, the firm, which has built more than 40,000 LIHTC units over the past 30 years, has had to scramble to find equity investors. So far, the firm has been successful, Mr. Michaels said, but assembling the capital needed to get projects off the ground is becoming more and more difficult, especially for firms that are smaller than his. The Lawson Cos., a market-rate apartment builder in Virginia Beach, also is feeling the pain. "We're struggling just like the rest of the housing industry," said president Steve Lawson. "The credit markets have turned upside down on us." When money is available, Mr. Lawson said, underwriting is so tight that he has to bring "twice as much equity" to the table as he used to. The Virginia builder fears that when members of the Generation Y start forming households, there won't be enough apartments to handle the onslaught. The NAHB is forecasting just 188,000 million multifamily starts for 2009, down more than 100,000 units from 2008. But it could ratchet its prediction down further if the credit markets don't thaw soon.

In a few weeks, President Barack Obama will lay out a comprehensive plan to stabilize the banks, revive credit markets and address the housing crisis, according to Timothy Geithner, the president's nominee to be Treasury secretary. The president of the New York Federal Reserve Bank told a Senate panel that the plan will include a bankruptcy provision to help struggling homeowners and possibly a proposal to move toxic assets off bank balance sheets into a "bad bank." Mr. Geithner stressed the comprehensive plan is still under development and he did not want to provide specific details. But he noted the administration wants to craft the bankruptcy proposal so it does not harm the mortgage market and drive capital away. "We are supportive of doing that in the most careful possible way," he said during his confirmation hearing. He also noted it's "enormously complicated" to draw up a bad bank plan that is cost effective. A team is looking at it today, he testified. "It is possible it will be part of the solution going forward." In stabilizing the banks, the administration wants to get the credit markets going again, including commercial and residential mortgage markets. "We also have to provide much more substantial direct support for credit markets," Mr. Geithner said.