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FHA Change and Fed Intervention

Two big announcements were made this week regarding the “mortgage world,” both of which came as a bit of a surprise.

Another FHA Cash-Out Guideline Change

The first item is the announcement by HUD, via Mortgagee Letter 2009-08 that, effective for case number assignments on or after April 1, 2009, the loan-to-value (LTV) of any cash-out refinance to be insured by FHA may not exceed 85 percent of the appraiser’s estimate of value.  This comes only about four months after HUD changed the rules for cash-out refinances that were greater than 85% LTV, but less than or equal to 95% LTV, whereas the transactions that fell into this category would require two independent appraisals prior to funding.

If we look back in history, we will see that we are actually now back to the FHA guidelines, for the most part, that existed prior to the subprime mortgage market.  You see, FHA changed their guidelines many years ago to be less restrictive so that they could compete with the subprime market.  Hindsight is 20-20.

What does this mean to you? If you have a cash-out need that has an LTV greater than 85%, you need to get the ball rolling on the refinance now.  FHA is currently the only program allowing more than 85% on this type of transaction and that will end very soon.  Your loan doesn’t have to close by the end of March, your case number just needs to be assigned by then; you need to apply now.

To read the full Mortgagee Letter, click here to open the MS Word Doc.

Federal Reserve to Print Money to Purchase Mortgage Related Securities and Treasuries

Earlier this week, I told several people that I didn’t see any significant rate drops on the horizon because, since last Fall when the Federal Reserve bought hundreds of millions of dollars in mortgage related securities, the government hasn’t done anything to lower rates further, just maintain them.  When I got home last night and saw the news, I found out that I was wrong.

With the adjournment of this week’s FOMC meeting (Federal Open Market Committee), we were greeted with some extremely favorable news regarding the Fed’s investment in Treasury securities and mortgage-related bonds. As expected, there was no change made to key short-term interest rates but the post-meeting statement did mention that economic conditions were worse now than at the time of their last meeting in January. They again mentioned concerns about deflation, meaning inflation is not a threat in their minds.
The big news was the size of the investment that the Fed is going to be making in mortgage-related bonds and securities. In a direct effort to push different interest rates lower, including corporate lending and residential mortgage rates, the central bank will be buying up to $300 billion in longer-term bonds over the next six months. They also said that they plan to purchase $750 billion in mortgage backed securities so free up more capital for mortgage lending. This will likely give the housing and mortgage sectors a much needed boost.

I look forward to seeing what this will do to the rates over the coming weeks and months.  If you would like to talk about your personal situation, please contact me to get started on a free quote!


Roll with the punches. Tomorrow is another day. – the late great Dicky Fox , original sports agent (from the film Jerry Maguire)

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