Lawmakers Propose Allowing 401(k) To Pay Mortgage

A bill has been introduced to allow struggling homeowners to withdraw funds from their retirement accounts tax-free to make mortgage payments. The Home Act (news | actual bill) would allow borrowers to withdraw up to $50,000 from a retirement account or one-half of the current value of that account, whichever is smaller. The limit is a lifetime cap, and borrowers would be able to make multiple withdrawals until they reach the cap; the money must be used to pay on their mortgage within 120 days of withdrawal.

Meanwhile the MBA is among the industry groups calling on Congress to do no harm to the fragile housing market. It is closely watching the deficit-reduction super committee, which has targeted homeownership tax breaks such as the mortgage interest deduction and the capital gains exemption, Bloomberg reports. Moreover, the MBA continues to oppose efforts by regulators to impose minimum standards for mortgage borrowers, such as a 20% down payment, out of concern that such a move would not lower default rates but would prevent many home buyers from obtaining loans.

Mortgage Prepayment Stats
Mortgage prepayment speeds came out last week, and they showed a big increase. Every loan officer across the nation can tell you why: the reduction of conforming loan limits starting October 1. September was the last month where some of these high loan size borrowers, whose loans would no longer be considered conforming, could have refinanced back into an agency loan. I am sure that low rates figure in somewhere, but rates have been pretty good for quite some time. And new borrowers seem to be the only ones who can have their loans approved under recent guideline changes, so the newer loans are the ones reaping the benefits.

Rates are staying low, and many believe will go lower still, given the state of the economy. But as mortgage rates have improved, investors have increasingly become concerned about these jumps in prepayments on lower coupon, recently originated mortgages. However, due to the increase in annual FHA insurance premiums, these concerns have predominantly been restricted to Fannie and Freddie mortgage bonds. But what about prepayments on FHA & VA loans impacting Ginnie Mae securities?

A look at rate sheets show that the FHA rate being offered by originators is now 25-50 basis points lower than the conventional rate. The increase in annual insurance premiums only impacts FHA prepays. Prepayments on non-FHA loans are likely to be faster than speeds at the end of last year. Analysts point out that the impact of the net tangible benefit test fades as the loan seasons, and that in fact the most recent HUD outlook report showed that FHA-to-FHA refinancing applications jumped by 70% and that delinquencies on 2009-2010 vintage Ginnies have been increasing over the last couple of months. All of this adds up to many investors believing that FHA & VA loans will start to prepay at a faster rate. Uh oh.

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