Fannie Mae Lowers Down Payment Requirements

Yesterday was a good day for mortgage and Treasury prices, with a fair number of intra-day changes. But overall, prices are trending worse due to concern about inflation, and are worse this morning by about .125. Consumer goods and oil, although down yesterday, has been on the march: gas stations are running out of 4’s to put up on their price signs. The Fed’s focus seems to have moved from economic growth and has inflation on its mind, and analysts are betting the next move in overnight funds is toward the upside. Jobless Claims continue high, U.S. Industrial Production (factories, mines, and utilities) was -0.7%, twice as weak as anticipated by economists, and capacity utilization, which measures the proportion of plants in use, fell to 79.7 percent, the lowest since September 2005. Lastly yesterday we had the Philadelphia Fed Index come out at -15.6 in May, better than forecast, from -24.9 in April. (Readings less than zero signal contraction.)

Today we had Housing Starts increase by 8.2%, but the increase is entirely due to multi-family homes, up by 36%. In contrast, single family starts fell by another 1.7%, albeit from an upward-revised base. This follows the large decline last month, when starts fell by 13.8%, and year-over-year starts are down 30.6% – no surprise given the inventory levels that are out there. Building Permits were up, and single family permits rose by 4.0%, the first rise in a while. After it we have the 10-yr sitting at 3.87%.

First, some good news. Fannie Mae announced a new, national policy on down payment requirements for conventional, conforming mortgages the company will purchase or guarantee. Starting June 1, 2008, Fannie Mae will accept up to 97% LTV ratios for conventional, conforming mortgages processed through DU, and 95% LTV ratios for loans underwritten outside of DU, in all geographic locations in the United States. “The new national down payment requirements of 3 or 5 percent will apply to loans for purchase of single-family, primary residences. Down payment requirements will vary for other occupancy, property and transaction types. The company will implement systems and operational changes over the summer to accommodate the new national policy. ‘We are able to adopt this new, national down payment requirement, even in markets where home prices are declining, because our new automated underwriting risk assessment model DU Version 7.0 will limit risk layering and assess each loan more precisely.””

Freddie Mac’s LP can accommodate these loans, and on June 15th they are adding a new informational feedback message in Loan Prospector which indicates the HUD conforming jumbo mortgage loan limit for the property on the transaction submitted. The new feedback message will eliminate the need for underwriters to go to a separate location to determine the HUD conforming jumbo loan limit and will confirm that the loan amount does not exceed the HUD loan limit for the county in which the property is located. The following new informational feedback message will be returned on all conventional, 1-unit submissions in Loan Prospector:

Remember when originators had their pick of investors offering 2nds and HELOC’s? And warehouse banks approved of that product? Chase has made a decision to exit the home equity and sub-prime businesses in their correspondent & wholesale channels. They will only be accepting home equity applications until end of business day today, and these deals must close by July 14th. In my limited investor knowledge, it leaves no one doing “stand-alones” aside from retail banks. Agents who want a piggy back 2nd have to do the 1st with the same lender, and they are all wholesalers such as Wells, Suntrust, and UBOC. US Bank, apparently, will do a “simo” 2nd with a 1st , but their underwriting is rumored to be very restrictive (such as the “payment shock” rule, where a borrower’s payment is not allowed to more than double their current rent or payment) so many view them as strictly a rate/term refi player.

Are you borrowing money to pay for food, clothing, or gas? That might be the new trend.

RMIC announced a collection of changes which encompass declining markets, expanded approval eligibility, new base prices, modifications, and soft markets. The effective date for the re-introduction of Expanded Approval eligibility under DU is June 2nd; other changes take effect July 14th.