• Require periodic payments without risky features;
• Have terms not to exceed 30 years;
• Limit upfront points and fees to no more than three percent with adjustments to facilitate smaller loans (except for Title I, Title II Manufactured Housing, Section 184,Section 184A loans and others as detailed below); and
• Be insured or guaranteed by FHA or HUD.

The Downside to F.H.A. Loans

By LISA PREVOST

A good-news week in the credit patch -- an exceedingly odd mix, but good. Weakness in Europe, authorities in China tightening into a bubble, a softening data-pattern here, an add to mortgage supply, and a woozy stock market conspired to hold lowest-fee mortgages to 5.25%, the post-August high. That despite Treasury auctions of $81 billion in long-term paper. Bond ghouls love lousy news. The National Federation of Independent Business survey (www.nfib.com, “SBET”) in January found no meaningful improvement in a small-business “L” non-recovery, and overall retail sales poked along at a .4% gain.
The euro-zone trouble with its weak members entered a new phase. Germany said at mid-week that it would intervene to prevent a Greek default, and interest rates and stock prices here rose fast, fear abating. All of that is reversing as no one in Europe has said how Greece might be supported. Nor has anyone in Greece offered a credible plan for austerity: meeting euro treaty requirements would mean semi-permanent poverty (as it would for the rest of Club Med); to depart the euro for necessary currency devaluation would mean recession, but recovery one day. Poverty doesn’t sell well. The euro-game now resembles the months before Fannie and Freddie required a total US guarantee, as markets crashed one inadequate backstop after another. Overnight the capacity of the euro-strong to bail out anybody has weakened: 4th quarter European GDP rose a negligible point-one percent, in Germany itself, zero. Germany’s long-running cognitive dissonance... to take over Europe, or to leave it? Here, a great many people still worry that the Fed’s effort to get credit going will result in inflation. The Fed has tripled the monetary base, but that money can reach the economy only via loans, and bank lending in January is still in free-fall (12% annual rate of contraction). Nevertheless, Bernanke this week had to explain to Congress how the Fed would withdraw all this monetary stimulus. The Gods were merciful: snow saved him from going, and he explained by web posting.

The Fed will have trouble with timing: given limits to predicting the future, it will tend to be late to withdraw, and then over-do it, but nobody should worry about its ability to pull back. Some things are hard for the Fed, some easy. Rebuilding financial markets after a systemic failure is much like one of those game shows in which you’re given a tube of Elmer’s, a broken iPod, five trash cans, a rear-view mirror, the engine from a ’67 VW Beetle, and three hours to build a replacement for the Hubble telescope.

Withdraw money? Just swing the hammer: sell the MBS and bonds the Fed bought. Speaking of which... the whole mortgage world (and several other minor planets) have wondered what will happen when the Fed stops buying MBS in March. The private credit system is just as broken now as July 2007, utterly unable to provide an adequate supply of mortgages. Very good news: the authorities have noticed, and acted.

In an operation too technical for Congress to object (just try to appeal to the Tea Party half-cups in your district by yelling: “Freddie Mac is buying from its own MBS-PC guarantees those loans now 120+ days delinquent! To arms!!”), Fannie and Freddie will inject $100-$200 billion into the markets for MBS or Treasurys. Doesn’t much matter which. That will buy time, supply, and keep rates down until... ummm... May? This delicate move has the fingerprints of the Fed, which dares not buy more for its own account lest Congress notice, not unless the economy dips and it’s time again to elbow women and children from the lifeboats. Also Geithner’s. The White House? Financial Czar Larry Summers now responds to all recovery questions just like my last building contractor: “Six months.” Christina Romer, a very fine economist, chair of the Council of Economic Advisors, has no power and the unfortunate TV appearance of Mayberry RFD’s Aunt Bee. The unemployed and frightened are not up for grins.


If signs of economic stall are confirmed, this group may at last understand that hyper-tight credit will not repair a period of too much credit, and recalibrate.

Reverse Mortgages

Good news for 2010

1) FHA lending limit for FHA Reverse Mortgages (HECMs) is 625,500 extended throughout 2010
2) HUD-mandated counseling for borrowers is improved to keep seniors safe (some overkill---think RESPA) but overall a positive for consumers
3) Reverse mortgages remain a viable option for seniors who need to tap their equity to pay off existing mortgages or other debilitating debt, provide for home care services, or just offer more choices to enhance their retirement years---and allow them to live in their homes with no repayment due until they die or move
4) A new reverse mortgage used to purchase a home with either variable or fixed (5.56%) interest rates, requiring a substantial down payment from the borrower, but leaving them with an easier cash flow---no further payment required

People who haven't owned a home that they've lived in for 3 years can still take advantage of the $8,000 incentive to make the move from renter to owner through April of 2010. Uncle Sam also decided to throw a financial bone in the form of a $6,500 tax credit to owners of existing homes who sell and purchase another between this past November 7 and the end of next April.

Fed Chairman Ben Bernanke assured the markets last Monday that the recovery is moving slowly and rates will most likely remain low for a long time into the future. The credit markets, of course, love hearing that the recovery is, at best, lumpy gravy, knowing that the smoother and stronger it flows, the sooner interest rates will start to climb. So the 10-year Treasury note’s yield declined by about 10 basis points on Bernanke’s words.


The next day, though, Richmond Fed President Jeffrey Lacker asserted that the economy has moved strongly into recovery and that the Fed is on the ready to take steps to keep inflation from rising. (Higher interest rates are among such steps, of course. The Fed needs only to whisper the words to the markets and interest rates will take flight.)

Today November 30th, US Treasury Dept. will meet with Mortgage Sevicers to see what can be done to speed up the process with getting help to home owners in trouble.