After the housing market crashed in 2007, the FHA was the only agency, government or private, to see gains in the years that followed. As a result, the moderate housing recovery is partially attributed to the Federal Housing Administration, but because of reverse mortgages and other losses, this agency may be facing a bailout by the end of 2013.
According to the Associated Press, the FHA may require a $1 billion bailout, even after increasing its mortgage insurance premiums earlier in 2013. As of right now, a Senate subcommittee revealed, the agency has $5 billion in losses stemming from reverse mortgages.
As AP points out, multiple factors contriToday, CoreLogic reported that the percentage of underwater mortgages on a national level continues to decline. Specifically, properties with negative equity dropped to 19.8 percent, or 9.7 million total, for the first quarter of 2013.
Since the end of 2011, decline has been steady, CoreLogic points out: 25 percent at the end of 2011, and by the fourth quarter of 2012, underwater mortgages dropped to 21.7 percent. However, the first-quarter 2013 amount is the first time underwater mortgages went below the 10 million mark in three years.
Rising home prices, according to a piece in USA Today, continue to lessen the amount of negative equity on a national scale; as of March, it decreased $50 billion, going down to $580 billion overall.
Between April 2012 and April 2013, USA Today points out, home prices went up 12.1 percent, moving 1.7 million homeowners out of the underwater mortgage range.
But having positive equity in a property extends further than the real estate market. While borrowers once hesitant to put their negative-equity homes on the market, for fear of a loss, are now less reluctant to do so, homeowners are less likely to default; can sell a property to move for better job opportunities; and, if qualified for refinancing, can get a lower interest rate and, thus, have more money to spend.
Nevertheless, even with a 19.8 percent average, certain markets are significantly higher than others. State wise, Nevada, Florida, This past week, mortgage rates increased to four percent – up from about 3.4 percent in early May 2013. The jump, as well, comes at the same time the Federal Reserve considers reducing its bond buy-back program, resulting in concern across the mortgage industry.
Stopping The Recovery
2013’s record-low interest rates fueled the housing recovery – and consequently, influenced economic stability. However, as a piece in the Washington Post points out, quickly-rising interest rates could halt all gains. While borrowers are snapping up properties because the rates are still low, with a five-percent increase in mortgage applications last week, a too-rapid upswing might make this frenzy short lived.
Homes Will Be Affordable for a While
Contrary to the statements published in the Washington Post, economics for Freddie Mac claim only when rates increase to seven percent will purchasing a home be unaffordable. Now and for a while, median-income borrowers can purchase median-priced homes with a 10-percent down payment on a 30-year fixed-rate mortgage in most markets.
Instead, one economist called the recent rate increase a “small, slowing effect on the home purchase market.”
Ambivalence has surrounded refinancing since rates took such a sharp upswing in May. On one hand, according to the Mortgage Bankers Association, refinancing applications dropped 11 percent over the past two weeks and decreased 36 percent since the start of May.
On the other hand, a Boston Globe piece points out, refinancing composes a great deal of all residential and even commercial mortgage activity. Specifically, even with the rising rates, refinancing made up 69 percent of all mortgage applications last week, according to the Mortgage Bankers Association. However, this amount is down from the 74 percent average from January through March 2013.Georgia, Michigan, and Arizona are all at or above 30 percent, with Nevada close to 45 percent. A year ago, Connecticut’s amount totaled 169,000, or roughly 25 percent of all mortgaged properties, according to a Zillow.com report from June 30. At the time, 31 percent of all mortgages were underwater nationally.uted to this deficit. First, even though the FHA opened up homeownership opportunities after the crash, the agency still saw $70 billion from defaulted mortgages between 2007 and 2009. On top of this, homeowners requesting and getting approved for reverse mortgages took large upfront payments, only to have difficulties paying them back later on. Falling home values, resulting in underwater mortgages across the country, further exacerbated the issue.
Legally, the FHA is required to have reserves equal to two percent of the total amount of mortgages it insures; right now, its reserves are $32 billion for more than $1 trillion of loans. To make up the difference, the 2014 fiscal budget has $943 million earmarked for any losses. The FHA, meanwhile, must decide before the end of September if the Treasury will assist it with funds.
Although the FHA has made multiple mortgage premium increases since 2009, 2013’s efforts are significant. Not only were premiums increased by 10 basis points (or 0.1 percent of the total), borrowers are now required to pay annual mortgage insurance for the full duration of the loan. Borrowers who put down less than 10 percent are required to have mortgage insurance for the life of the loan, while down payments for FHA loans $625,000 or over went up from 3.5 to five percent.