Stumbling housing market reignites housing policy debate

real estate

Surely 2015 is to be the year when the housing market would bounce back from its recent disappointing performance; at least that’s what I wrote back in November. But as January’s news from the National Association of Realtors® (NAR) is not as rosy as we expected; a housing policy debate, that has been subdued since 2010, gets heated.

The NAR revealed in a February 23rd press release ( that although the pace of home sales increased compared to the same time last year, existing homes sales have declined to the lowest rate in nine months. The typically optimistic Lawrence Yun (NAR Chief Economist) was cited as saying “the housing market got off to a somewhat disappointing start to begin the year with January closings down throughout the country.”   Adding that “seasonal influences” can make January data erratic, the combination of low inventory and home price gains over the pace of inflation seems to have slowed home sales – notwithstanding low mortgage interest rates.

Keeping mortgage interest rates low is not the sole solution; however, if it was, the housing market may have bounced back several years ago. Although a myriad of causes have been blamed for a lackluster housing market that has been trying to make a comeback for six years, most are correlational and incidental.

However, Richard X. Bove (Equity Research Analyst at Rafferty Capital Markets) recently made a case for a sole cause in his February 23rd commentary (There’s a new mortgage crisis brewing; Bove described how mortgage markets are in trouble; rules and regulations put into place to strengthen the market by increasing borrower standards have dried up a lot of the funding. And not necessarily in the way you might expect; besides shrinking the pool of qualified buyers, Bove suggested that the rules and regulations have made mortgage lending unprofitable and unpalatable for some lenders (leading them to walk away from the business).

As a response, it would seem as if the Federal Housing Finance Agency (FHFA) took steps to make mortgages increasingly available (returning to 3% down payment loans, and increasing the number of loans on Fannie and Freddie’s balance sheets). These actions, along with recorded losses in Q4 2014, Bove described, is making some nervous.

If you don’t remember, the FHFA was created in 2008 as a temporary conservator to Fannie Mae and Freddie Mac; whose original goals included: ensuring a positive net worth for Fannie and Freddie; reducing Fannie and Freddie’s mortgage portfolios; and facilitating a streamlined and profitable model for Fannie and Freddie.

Bove’s catch-22 conclusion, of either hindering the housing market by stopping Fannie and Freddie’s growth or increasing Fannie and Freddie’s debt obligations with continued growth, is not a new dilemma. The debate has been ongoing since 2008.

Having faded somewhat since 2010, the housing policy debate heated up during testimony given by FHFA Director Mel Watt on January 27th during the congressional hearing, “Sustainable Housing Finance: An Update from the Director of the Federal Housing Finance Agency.” Trey Garrison of HousingWire succinctly portrayed opposing views (January 27, 2014; FHFA hearing: GOP fear housing policy headed for Crash 2.0; “Democrats said policies in the past year are necessary to expand housing opportunities to lower income and challenged borrowers…” while, “…Republicans…said the administration is adopting dangerous policies that risk another housing crash that will put taxpayers on the hook for billions.

By Dan Krell
© 2015

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

A new housing finance system is one step closer

Closing Fannie & FreddieThe end is near for Fannie and Freddie.  The next step to remaking the housing finance system.

Like FHA, Fannie Mae and Freddie Mac were also financially battered during the financial and housing crises.  While FHA became the mortgage to rescue many distressed home owners, the Federal Housing Finance Agency (FHFA) was created in 2008 as conservator for the hemorrhaging Fannie and Freddie.  Although the writing was on the wall about necessitating change in the conventional mortgage sector, there could only be speculation about what that change would entail.

Fast forward to June 2013, and the bipartisan bill S.1217 Housing Finance Reform and Taxpayer Protection Act of 2013 was introduced as the groundwork for replacing Fannie and Freddie with the (to be created) Federal Mortgage Insurance Corporation (FMIC).  Moving along to last week, Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) released a draft for “A New Housing Financing System” (

Building upon S.1217, the Bipartisan Housing Reform Draft’s intention is stated to “…protect taxpayers from bearing the cost of a housing downturn; promote stable, liquid, and efficient mortgage markets for single-family and multifamily housing; ensure that affordable, 30-year, fixed-rate mortgages continue to be available, and that affordability remains a key consideration; provide equal access for lenders of all sizes to the secondary market; and facilitate broad availability of mortgage credit for all eligible borrowers in all areas and for single-family and multifamily housing types.

In addition to supervision and enforcement authority, the purpose of the FMIC is to maintain a re-insurance fund that will insure mortgage backed securities meeting FMIC guidelines.  The re-insurance fund is to be modeled after the Deposit Insurance Fund (maintained by the FDIC), and to be funded by private companies.  Additionally, the new system is meant to protect taxpayers by requiring future mortgage backed security guarantors to be private and hold a minimum of 10% private capital as a first loss position; bailouts of these private institutions are to be prohibited.

The FMIC will also institute underwriting guidelines that are to “mirror” the Qualified Mortgage (QM).  The recent definition and rules for the QM announced by the Consumer Finance Protection Bureau (CFBP) were effective January 10th.  The QM is characterized to be a safer loan compared to some loans originated prior to the crises because the lender must assess and the borrower must demonstrate the ability to repay the loan; the ability to repay is based on typical factors that include the borrower’s income, assets, and debts.  Additionally, the borrower cannot exceed a total monthly debt-to-income ratio (all monthly obligations including mortgage payments) of 43%.

Conforming loan limits will be maintained, so as to provide the additional credit needed to purchase homes in “high-cost” areas.  If you’re a first time home buyer, you will need a minimum down payment of 3.5%; however if you’re not a first time home buyer you will need at least a 5% down payment for your home purchase.

The transition period is expected to be at least 5 years, however possible extensions may be required to prevent market disruptions and cost spikes to borrowers.  The plan is to simultaneously wind down Fannie and Freddie’s operations while increasing expansion of the new system.  The FMIC will take over the functions and duties of FHFA; and as of the FMIC’s certification date, Fannie and Freddie won’t be able to conduct new business.

by Dan Krell
© 2014

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Are home prices really rising as fast as reported; how accurate are the home price indices

Home Prices

All major home price indices point to rising home prices, and a few are reporting some very large percentage increases for a limited number of metro areas.  But as home price indices are reporting price gains, why are some home sellers getting push back from buyers on price; are home prices really rising as fast as they are reported to be?

Home price data through June used in the S&P/Case-Shiller Home Price Index ( released August 23rd indicated a second quarter National Index increase of 7.1%, while a 2.2% increase was reported during June in the 10-City and 20-City Composites.  Areas around the country that experienced the largest decreases in home prices have also experienced the highest price gains in the last 12 months.  Take for example the Phoenix metro area, where home prices increased 37.1% from the low in 2011.  Locally, however, the Washington DC metro area prices increased 1% in June (compared to a 2% rise in May).

Additionally, the House Price Index (HPI) published by Federal Housing Finance Agency (FHFA) indicated that home prices rose 2.1% nationally during the second quarter (  And although the HPI is up 7.2% compared to the second quarter of last year, the seasonally adjusted monthly index was up 0.7% in June.  Seasonally adjusted home prices for the Silver Spring-Frederick-Rockville, MD metro area indicate a decrease of 0.92% in the last quarter in light of the 4.63% one year increase; and a decrease of 1.1% in the last five years, compared to a 132.65% increase since 1991!

Something’s happening in the housing market, and experts are trying to explain what appears to be moderating home sale prices in an improving (and sometimes described as a “hot”) market.  David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices stated that “Overall, the [recent] report shows that housing prices are rising but the pace may be slowing. Thirteen out of twenty cities saw their returns weaken from May to June. As we are in the middle of a seasonal buying period, we should expect to see the most gains. With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened.”…“Other housing news is positive, but not as robust as last spring. Starts and sales of new homes continue to lag the stronger pace set by existing homes…”

Some explain the recent modest home sale price growth as an effect of distressed home sales.  Some experts hypothesize that the deep discounts paid for distressed homes since the financial crises and housing market crash have skewed home price indices lower than they would have been if the indices only accounted for non-distressed home sales; while home price gains in the last year might be more modest using only non-distressed home sales.   This has been an intuitive and viable explanation such that the FHFA published in August a Working Paper (Doerner & Leventis; Distressed Sales and the FHFA House Price Index) on the effects of distressed home sales on the HPI.  Although the data in this study was limited to two cities, the results are nonetheless remarkable and revealing.

The moderation of recent home sale prices, along with the findings of the FHFA Working Paper, underscore the importance in consulting with a real estate professional to compile and review neighborhood comps before deciding on the sale price of your home.

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By Dan Krell
Copyright © 2013

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

Saying goodbye to Fannie and Freddie

homesA recent Housingwire report (; Senators launch bill to boost secondary mortgage market) described a bipartisan effort to modernize the government sponsored housing finance entities.  The Senators’ plan will wind down Fannie Mae and Freddie Mac and replace them with one government “guarantor,” which is to be called the Federal Mortgage Insurance Corp.

This bipartisan effort is the latest in a succession of moves to repair and improve the nation’s housing finance markets, which began with the Housing and Economic Recovery Act of 2008 (HERA).  HERA was comprehensive legislation that was intended to address issues that caused or resulted from the financial crisis.  Besides focusing on modernizing FHA, HERA also set its sights on Fannie and Freddie by creating the Federal Housing Finance Agency (FHFA) to oversee the Government Sponsored Entities (GSE) and possibly reducing Fannie and Freddie’s role in the housing industry.

Although FHFA acted as “conservator” for Fannie and Freddie because of capitalization problems, poor financial performance and deteriorating market conditions; the role was intended to be temporary.  The oversight agency provided guidance in increasing liquidity so Fannie and Freddie would become streamlined and profitable.  Since FHFA took control, experts have speculated on the fates of the mortgage giants; some articulated an eventual shut down of Fannie and Freddie, while others described a modified role in housing finance.

For those not plugged into the industry, the replacement of the GSEs might be a surprise.  However, Housingwire reported in April (FHFA gears up for single GSE securitization platform) of FHFA’s initial plan to reduce Fannie and Freddie’s mortgage backed securities holdings.  The idea was to create a new single entity to facilitate the reduction of the GSEs secondary market involvement so as to increase private capital participation.

A June 25th press release quoted Senator Bob Corker (R-TN) ( as saying, “Five years after the financial crisis, it is past time for us to modernize our unstable system of housing finance”… “The framework we’re presenting here will protect taxpayers while maintaining market liquidity, and is the best opportunity we’ll have to finally move beyond the failed GSE model of private gains and public losses.”

Because there has not been much reform to housing finance since the financial crisis, the proposed legislation was crafted in response to the consequences of a $188 million Fannie and Freddie bailout.   The bailout resulted in a mortgage market where “nearly every loan made in America today comes with a full government guarantee,” and that private capital has all but disappeared from the mortgage secondary markets.

Co-sponsor Senator Mark Warner (D-VA) was quoted to say, ““Housing finance is the last piece of unfinished business remaining after the 2008 economic meltdown” …“We have designed thoughtful reforms that will protect taxpayers from future downturns while responsibly preserving the availability of the 30-year fixed-rate mortgage for homebuyers. We believe the housing market is ready for reforms like this, and that the private sector has been waiting for new rules of the road.”

Besides having the intention of protecting taxpayers from future bailouts, the Housing Finance Reform and Taxpayer Protection Act (S. 1217) is intended (among other purposes) to “wind down” within five years the FHFA, Fannie Mae, and Freddie Mac; “ensure that lending institutions of all sizes have access to the secondary markets;” and “transfer duties and functions” to a new entity – the Federal Mortgage Insurance Corporation (FMIC).

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By Dan Krell
Copyright © 2013

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

Has the housing market improved in the last four years

Dan Krell, Realtor®
© 2012

HousingIn retrospect, the beginning of the global recession in late 2007 was the end of the housing boom and may have spawned the foreclosures crisis and the financial crisis of 2008.  And although this period of time will undoubtedly become the basis of many future dissertations examining the “Great Recession;” you might ask “how much has the state of housing improved since 2008?”

If you recall, the Housing and Economic Recovery Act of 2008 (HERA) was anticipated to have wide reaching changes in the mortgage and housing industries as well as supposed to have assisted struggling home owners.  This multifaceted piece of legislation consolidated many individual bills addressing issues that were thought to either be the cause or the result of the financial crisis.  Besides raising mortgage loan limits to increase home buyer activity, the historic legislation was the beginning of changes meant to “fix” Fannie Mae and Freddie Mac, as well as “modernizing” FHA to make the mortgage process easier for home buyers and refinancing easier for struggling home owners. Additionally, this law was the origination of the Hope for Homeowners program to assist home owners facing foreclosure (

The Federal Housing Finance Agency (FHFA), originated from HERA, has been the “conservator” of the then sinking Fannie Mae and Freddie Mac. Since the FHFA took control, there has been conjecture as to what would become of the mortgage giants: some talked about closing their doors, while some talked about changing their role in the mortgage industry. Since FHFA became the oversight agency, Fannie Mae and Freddie Mac has strengthened their role in maintaining liquidity in the housing market by helping struggling home owners with their mortgages as well as freeing up lender capital by the continued purchases of loans (

The inception of Hope for Homeowners was the beginning of a string of government programs designed to assist home owners facing foreclosure, or assist underwater home owners refinance their mortgage.  Although there have been individual success stories, there has been criticism that these programs did not assist the expected numbers of home owners.  A January 24th CNNMoney article by Tami Luhby ( reported that “…the HAMP program, which was designed to lower troubled borrowers’ mortgage rates to no more than 31% of their monthly income, ran into problems almost immediately. Many lenders lost documents, and many borrowers didn’t qualify. Three years later, it has helped a scant 910,000 homeowners — a far cry from the promised 4 million…” and “HARP, which was intended to reach 5 million borrowers, has yielded about the same results. Through October, when it was revamped and expanded, the program had assisted 962,000…” (

HousingDespite the recent slowdown in foreclosure activity, there is disagreement about the projected number of foreclosures going into 2013.  A March 29th Corelogic news release (,000-completed-foreclosures-nationally-in-february.aspx) reported that there have been about 3.4 million completed foreclosures since 2008 (  And although an August 9th RealtyTrac® ( report indicated a 3% decrease from June to July and a 10% decrease from the previous year in foreclosure filings; July’s 6% year over year increase in foreclosure starts (initial foreclosure filings) was the third straight month of increases in foreclosure starts.

So, if you’re wondering if housing is better off today than it was four years ago, the answer may be a resounding “maybe;” It all depends on your situation.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 3 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.