FHA loan limit tops $400,000 in Austin, DFW

 Loan Guidelines, Residential Mortgage  Comments Off on FHA loan limit tops $400,000 in Austin, DFW
Dec 142019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Just before Thanksgiving, we found out the 2020 conforming loan limit increased to $510,400. Late last week, FHA released its 2020 loan limits. By statute, the minimum FHA loan limit is 65% of the conforming limit, or $331,760 for a single-family home.

However, FHA allows higher limits in areas where 115% of the median home price exceeds the minimum. In TX, higher limits apply once again in the Austin, San Antonio, Dallas-Ft. Worth, and Midland metros. Higher limits no longer apply for the Houston metro and Gillespie Co (city of Fredericksburg).

The San Antonio metro took the prize for the greatest increase this year both in dollar amount and percentage rise. The limit rose more than $33,000, or 9.3%, to $393,300.

The Midland area limit also rose significantly, by $23,000 or 7.2%, to $341,550.

The limit in the Austin and DFW metros both rose to $404,800, the highest in the state. The Austin limit was 3.8% higher than last year. The DFW limit was only 2.3% higher.

Remember that these limits apply to all the counties in the metro, not just the cities themselves. Also, these limits apply to single-family homes. Higher limits apply for two- to four-unit properties.

Rate update: Trade deal blues

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Trade deal blues
Dec 132019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

In the last week, bond markets pretty much have confirmed that the only thing that matters is the trade dispute with China. Last Fri, we got a blowout jobs report. In previous times, rates might have jumped at least an eighth of a point in response. This time – nothing. Wed, Fed head Powell said the Federal Reserve won’t raise short-term rates unless inflation moves up significantly. Given that inflation seems mired below the Fed’s target rate, that comment should have caused jubilation in bond world leading to lower rates. Did it? Nope.

Now to be totally honest, both events did cause short term ripples within the markets, but rates never left their current range. It seems pretty obvious that traders are waiting for something before placing their bets on higher or lower rates.

That something is real factual news about the trade dispute. New tariffs are scheduled to begin this Sunday, and this time the tariffs target consumer products.

You can understand traders’ reluctance to pick a side. Many analysts believe the new tariffs, as proposed, will sap consumer demand. The American consumer has been the sustaining force in the economy this year. It doesn’t matter how good the economic data was last month. If the tariffs go into effect, it’s possible the data turns negative next month.

Now, it’s certain that the Trump Administration recognizes this. It’s also certain that the Chinese recognize the intense pain the tariffs could cause it’s already faltering economy. Thus, both sides have an incentive to announce a last minute reprieve, and it appears today they’ve done so. But the bigger question still remains: Will we get a trade deal?

Congress eliminates VA loan limits

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Dec 072019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Starting Jan 1st, Veterans and servicemembers who are entitled to VA loan benefits are eligible for 100% financing regardless of the home’s price. The Blue Water Navy Act, passed by Congress earlier this year, has removed the loan limit for a VA loan.

Previously, federal law tied the maximum guaranty amount for a VA loan to the Freddie Mac conforming loan limit. This meant that in 2019 if a veteran wanted to purchase a home priced greater than the loan limit (just north of $484,000), the Veteran was responsible for 25% of the amount above that limit.

With the change, Veterans with full VA loan entitlement now can borrow the full amount of the purchase price without needing to factor a down payment. However, for Veterans with diminished entitlement, either from having an active loan or a default on a previous VA loan, VA still calculates their remaining entitlement based on the Freddie Mac loan limit.

The Act also changes the VA funding fee. Starting Jan 1st, the no down payment Funding Fee will be 2.3% for first-time use for all Veterans, whether Regular Military, National Guard, or Reserves. This is a slight increase for Regular Military, but a decrease for others. For subsequent VA loans, the Funding Fee rises to 3.6% for all. Congress intended the increase to fund other benefits that are part of the Act.

The Act also provides a new Funding Fee exemption for active duty servicemembers who have been awarded a Purple Heart.

A half million dollar home loan with a low down payment

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Dec 062019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Congress tasked the Federal Housing Finance Agency (FHFA) each year to reset conforming loan limits based on the change in the average U.S. home price for that year. FHFA reported that home prices rose 5.38% last year, so accordingly, it increased the loan limit by the same amount to $510,400 for a single-family home.

A conforming loan is one eligible for purchase by Fannie Mae and Freddie Mac, the two government behemoths that control most of the home loan market. Except for government loan programs, Fannie and Freddie programs offer the best combination of low interest rates and low down payment requirements. For both the minimum down payment is 3%; thus, it’s now possible to purchase a half million dollar home with a $15,000 down payment.

Higher loan limits apply in certain “high cost” areas where 115% of the local median home price exceeds the new limit; however, FHFA hasn’t identified any of those “high cost” areas in TX. Higher limits also apply to two, three, and four unit properties.

Tracking the rising loan limit over the last few years gives a good sense of how quickly home prices have been rising. In 2017 the single-family loan limit first rose from its Congressionally-mandated value of $417,000. In three years, the limit has risen 22%.

The new limits are effective for loans that close starting Jan 1st, which means they will apply for homebuyers who are shopping for a new home now (assuming a normal 30-day closing).

FHA sets its loan limit independently of Fannie and Freddie, and I’ll report on it next week.

Rate update: All I want for Christmas is a trade deal

 Interest Rates, Residential Mortgage  Comments Off on Rate update: All I want for Christmas is a trade deal
Dec 042019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

I hope you and your family had a blessed Thanksgiving. It was a fairly uneventful one for bond markets with interest rates sticking to their recent range. In fact, rates have been stuck in this range since Sep. Sure, rates move a little week to week in response to headlines and economic data, but I still think the next trend for rates ultimately depends on a trade deal with China, an imminent resolution to which is looking increasingly unlikely.

The main wildcard at this time is the global economy. Earlier in the year, rates dipped invitingly based on weak economic data coming out of Europe and China. There was great concern that the US economy would follow suit. Instead, the US economy, except for manufacturing, showed resillence and even robustness in sectors such as housing. Europe and China now seem to be bottoming out, and some analysts are predicting renewed global growth next year.

As we’ve discussed many times, a growing economy tends to push up interest rates, so that’s the background through which we have to consider our current situation. A trade deal, even a partial one, is likely to foster renewed optimism and, in turn, economic growth. On the other hand, should the trade dispute deepen, it’s likely the hand-wringing and talk of recession will start again. While that’s good for lower interest rates, we risk talking ourselves into a recession regardless of the strength of our economy.

Rate update: Two reasons interest rates will remain flat this week

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Two reasons interest rates will remain flat this week
Nov 122019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

I’ve been writing for months about my concern about the Chinese trade dispute and its potential to move interest rates. Last week presented a poster child case for my concern. Rumors circulated that the US would rescind some tariffs and forego the planned Dec tariffs to induce the Chinese to sign phase one of a trade deal. Bond traders reacted swiftly to push rates to their highest levels in 3 months. Remember that resolving the trade dispute is considered good for the economy, and a healthy economy supports higher interest rates.

As we start this week, it looks like markets may be taking a breather. President Trump wouldn’t confirm the tariff rumors, and most of the other issues that had been weighing on rates – slowing world economies, Brexit, the impeachment battle – are far from settled. So, hitting pause makes sense while markets wait for a new source of inspiration.

I doubt we’ll get it this week, but we will have a couple candidates:

  • We’ll get two heavy-weight economic reports this week: the Consumer Price Index (CPI) measuring inflation and the Retail Sales Report. Inflation has remained muted this year, and few, including the Fed, expect that to change. Retail sales, an indicator of the consumer side of the economy, have remained solid despite the trade dispute, and most expect that to continue. If either report deviates significantly from expectations, expect interest rates to move accordingly.
  • Second, Fed head Powell has two days of Congressional testimony this week. Given that Powell had a press conference following the Fed’s meeting two weeks ago, I don’t expect he’ll reveal anything during his testimony that will move rates. However, markets will be vigilant just in case.

More info on FHA condo rules

 Loan Guidelines, Residential Mortgage  Comments Off on More info on FHA condo rules
Oct 212019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

I reported last week on the new FHA rules for approving a single condo unit in an otherwise ineligible complex, FHA’s replacement for the old spot approvals. At the time, I didn’t have many specifics. Now I do, so let’s look at what it takes to get a single-unit approval.

FHA considers the following characteristics for single-unit approvals:

  • At least 50% of the units in the complex must be owner-occupied, which includes second-homes that aren’t rented the majority of the year;
  • The HOA must have a 10% reserve account;
  • No more than 10% of the units may be owned by one person or entity;
  • The complex may be comprised of no more than 35% commercial space; and
  • No more than 15% of the units may be 60 days or more past due on their HOA dues.

And the really great thing is documentation of these characteristics generally is part of the standard buyer’s package the HOA provides to prospective buyers. With a single-unit approval, it’s the lender’s responsibility to make sure the complex complies with the rules, so the HOA doesn’t have to slog through FHA’s bureaucratic approval process.

Condos that receive single-unit approval are eligible for the same low down-payment options as other FHA loans, meaning a minimum down payment of 3.5%. The only exception to this is if the buyer’s financial situation is such that the lender cannot get an automated approval, in which case the buyer must make a 10% down payment.

Single-unit approvals really shouldn’t significantly affect the amount of time needed to close an FHA loan. FHA has a special process for registering spot-approval loans that may take up to 3 days. (Registration for other FHA loans typically is instantaneous.) However, this registration process is during the time when the buyer typically is gathering financial documents. Once FHA issues the “case number,” it’s the lender’s responsibility to make sure the condo qualifies.

FHA makes it easier to buy a condo

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Oct 122019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Currently, in order for a homebuyer to use an FHA loan to purchase a condo, the condominium project is subject to an approval process. The process is rather bureaucratic and takes time, AND it must be repeated every two years. Condo developers may muddle through the process to get units sold initially, but it seems few renew their approvals once the condo project is complete. If the project doesn’t have a current approval, a homebuyer may not use an FHA loan to purchase a unit in that project.

Many years ago, FHA would approve a single-unit in an otherwise illegible condo project – so called “spot approvals” – but FHA eliminated that option after the financial crisis.

I guess it’s a case of deja vu all over again because spot approvals are back. Apparently, the feds have realized that preventing FHA homebuyers from considering condos was exacerbating the housing inventory problem.

The new single-unit approval guidelines have a few limitations:

  • the condo project can’t have ineligible characteristics, like a rental desk;
  • the project must consist of at least 5 units;
  • it must be occupied or have been issued a certificate of occupancy for at least one year; and
  • no more than 10% of the units can have single-unit approvals.

The new guidelines go into effect on the 15th, so start shopping.

Rate update: My biggest fear

 Interest Rates, Residential Mortgage  Comments Off on Rate update: My biggest fear
Oct 092019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates seem to be range-bound once more. After the decidedly weak manufacturing and services sector reports last week, that may be a bit of a surprise. The talking heads predictably spouted doom and gloom scenarios of a pending recession, but it seems like investors weren’t listening very closely. Rates initially retreated on the headlines, but since then have held steady.

So, what is likely to be the next source of inspiration for rates?

I think the most important economic data to watch at this point are the confidence measures. Business confidence has been lagging most of the year due to the ongoing trade dispute with China. However, consumer confidence has been sky high. That may be changing – possibly due to uncertainty created by the impeachment drama or the constant downbeat news from the press or maybe something else. My biggest fear is that we talk ourselves into a recession.

If consumers pull back, the economy could erode quickly, which would lead to much lower rates as we close the year. Given the political considerations – election next year – I suspect political operatives will do what they can to encourage that erosion. Thus, I put higher odds on lower rates before the end of the year.

I think the most important economic issue still is the trade dispute with China. Earlier in the year, I was betting on at least a partial resolution, which I said would lead to higher rates. However, given our current political dysfunction, I doubt China will want to deal. We may see a temporary reprieve from some of the sanctions, which could tickle rates higher for a short time, but I expect the dispute will continue to dampen both domestic and global growth, which would keep a lid on interest rates.

Get rid of the 30-year mortgage

 Residential Mortgage  Comments Off on Get rid of the 30-year mortgage
Sep 252019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Get rid of the 30-year mortgage? So says Ed Pinto, a resident fellow and the co-director of the Center on Housing Markets and Finance at the American Enterprise Institute (AEI). In a recently posted article, Mr. Pinto argues that a 30-year term greatly increases the risk of foreclosure and has led to higher home prices for entry-level homes.

He cites statistics showing that foreclosure rates were almost zero during the 1950’s (prior to the advent of the 30-year mortgage) and that a 30-year loan is about twice as risky as a 20-year loan. He also notes that in the 50’s the median price of a home was roughly two-times median income. Today, the ratio is over 3.5.

Mr. Pinto’s arguments are thought-provoking, but I’m not sure the proposal, elimination of the 30-year mortgage, is reasonable. A 30-year term results in a lower monthly payment, making it possible for someone to purchase a higher-priced home than if she used a 20-year mortgage.

The issue of risk in my mind comes down to a question of public policy.

  • If 30-year loan rates reflect the higher associated risk of foreclosure, should that be acceptable?
  • If as a society we’re not willing to accept any risk of foreclosure, then are we willing to accept a higher interest rate (or government subsidy) to internalize the costs associated with supporting those who lose their homes?

Finally, Mr. Pinto argues that the 30-year mortgage has made entry-level homes less affordable. I’m not buying his correlation. While it makes economic sense that a lower monthly payment would lead to more demand for homes pushing prices up, the market would correct for that by creating supply to meet the demand. Moreover, there are too many other factors that could explain the fact that entry-level home prices have increased more quickly than move-up home prices, such as mortgage programs that target and subsidize first-time homebuyers.