Categories





The Phaserl








TheLibertyMill


The Government Is Desperate To Re-Stimulate Housing Sales

by Dave Kranzler, Investment Research Dynamics:

The Fed printed $2.5 trillion to prop up the mortgage market and the Government “refurbished” all of the mortgage programs it sponsors (Fannie Mae, Freddie Mac, FHA, VHA, USDA) in a way that positioned the Government/taxpayer as the new subprime lender of choice. The two programs combined inflated a new housing bubble – one that ended up fueling housing price inflation more than sales volume. The FHA program was the first program to replace the collapsed subprime mortgage lenders of the mid-2000’s with a 3.5% down payment program. It’s market share of mortgage underwriting rocketed from 2% in 2008 to around 20% currently.

As home sales began to falter in mid-2014, the Government rolled out a revision to the Fannie and Freddie programs in early 2015 that reduced the down payment requirement from 5% to 3% and reduced the monthly cost of mortgage insurance. The VHA and, believe it or not, the USDA (U.S. Dept of Agriculture) programs provide low interest rate mortgages with zero down payment.

Fannie and Freddie permit the borrower to “borrow” the down payment or receive down payment assistance from a home seller willing make price/fee concessions in an amount up to the 3% down payment. In other words, under FNM/FRE, a homebuyer can close a conventional FNM/FRE mortgage with zero down payment. These alterations to the taxpayer guaranteed mortgage programs provided another short-term bounce in home sales volume and sent home prices soaring.

The housing market is headed south again. Just in time, the Government is making it even easier for a potential buyer to load up more debt to leverage into the American dream. Fannie Mae is raising the debt-to-income ratio on its 3% down payment product from 43% to 50%. DTI is the total household monthly debt payments divided by pre-tax income. While the credit standards are not quite as insane as during the last housing bubble, the current mortgage underwriting standards facilitated by the Government do not allow any cushion for household financial instability. This is especially true considering more than 50% of all households can’t write a $500 check to cover an emergency.

The latest iteration from the Government reeks of desperation. But wait, it gets even better. Some mortgage companies are now offering a 1% down payment mortgage that includes a 2% “gift” from the mortgage company in order to conform to the 3% FNM/FRE underwriting convention. The mortgage lender pays the 2% portion of the down payment.

However, this is not a free lunch “gift.” The mortgage lender assesses a higher rate of interest to the borrower than would be otherwise available from a standard FNM/FRE 3% down-payment mortgage. The mortgage lender, as the servicer of the mortgage, keeps the difference between the interest rate on the mortgage paid by the borrower and the amount of interest payment “passed-thru” to FNM or FRE. Over the life of the mortgage, assuming the borrower does not default, the mortgage company makes substantially more than was “gifted” to the borrower.

Read More @ InvestmentResearchDynamics.com

Help us spread the ANTIDOTE to corporate propaganda.

Please follow SGT Report on Twitter & help share the message.

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>