Report: Entry-level home buyers make up biggest share of market ever

First-time buyers made up a bigger share of the housing market in 2009 than any other year on record, according to a study released this afternoon.

The number of first-time home buyers rose to 47% of all home sales from 41% of transactions in last year’s study, and was the highest on record dating back to 1981, according to the Washington-based National Assn. of Realtors.

Home sales have been fueled in recent months by cheap foreclosure properties. Both investors and first-time buyers have jumped into the market to snap up these heavily discounted digs.

For first-time buyers, one major incentive fueling the spree has been a tax credit extended last week by the Obama administration and expanded to include move-up buyers. The Realtors group lobbied heavily for the legislation. Paul Bishop, vice president of research for the Realtors group, said in a statement that several factors have been at play, including the tax incentives.

Many independent economists, however, contend that the credits are being given to people who would have bought anyway.

Of those first-time buyers, 55% purchased their home with a loan backed by the Federal Housing Administration.

That news comes on a day on which an independent audit of the FHA’s finances shows that its cash reserves have shrunk to a level below its legal limit, meaning that this pillar of the recent housing market upswing might need a taxpayer-funded bailout.

From the Washington Post:

The audit examined the excess cash the agency must set aside to deal with unexpected losses in its flagship home-buying program, which has played a key role in supporting the housing market.

As of Sept. 30, those reserves had an estimated value of $3.6 billion, a sharp drop from the $12.9 billion available a year earlier, the audit found. The current total represents 0.53 percent of all outstanding single-family-home loans insured by the FHA, well below the 2 percent portion set by law. This is the first time reserves have fallen under that threshold since 1994.

-- Alejandro Lazo

Real estate roundup: Foreclosures, Realtors and the FHA

There is some more news on the local foreclosure front this morning, with Mathew Padilla at the Orange County Register reporting that outstanding foreclosure auction notices in Orange County rose to a record high of 8,895 at the end of September, “the highest in this housing downturn and probably the highest ever.”

Jim the Realtor at bubbleinfo.com took his own look at the Encinitas and South Carlsbad areas this week, and found 261 single-family homes on the auction and "real estate owned" lists.

Speaking of Realtors getting all tech-savvy on us, the National Assn. of Realtors has announced that it is creating its own online service to compete with services such as Zillow and Redfin.

And on the mortgage front, the Federal Housing Administration has released some new guidelines to make mortgages for condominiums more accessible. In other recent FHA news, the agency last week said it would delay a much-anticipated audit of its finances. For a refresher on some of the FHA’s woes, check out Times staff writer Jim Puzzanghera's story here.

Meanwhile, it appears as if the FHA’s funds are dwindling, as the Washington Post reported this week.

-- Alejandro Lazo

Ginnie Mae loan volume soars

Providing more evidence of Uncle Sam’s key role in supporting the housing markets, Ginnie Mae said today that it has doubled its output of mortgage-backed securities.

That’s good news for borrowers who can qualify for home loans that come with insurance or guarantees from the Federal Housing Administration, the Department of Veterans Affairs and certain other government agencies.

Ginnie Mae – the Government National Mortgage Assn. – bundles these government loans to create bonds sold to investors around the world. The process allows lenders to sell off their mortgages rather than keep them, using the proceeds to make new loans.

Since private loan securitization was done in by the subprime meltdown, these Ginnie Mae mortgage-backed securities, along with those from government-controlled Fannie Mae and Freddie Mac,  are the only outlet for lenders who don’t want to run the risks of keeping mortgages on their own balance sheets.

 Ginnie Mae said it issued a record $34.5 billion in mortgage-backed securities in March. For the first three months this year, issuance of the bonds totaled $89.7 billion, compared to  $38.9 billion for the first three months of 2008.

Ginnie Mae President Joseph Murin said the increase “represents our growing efforts to support the housing market and struggling homeowners during these turbulent times.”

In addition to FHA and VA loans, Ginnie Mae mortages include those provided through the  Department of Agriculture’s Rural Development program, and the Department of Housing and Urban Development's Office of Public and Indian Housing.

 

--E. Scott Reckard

Number of Fed-backed troubled mortgages rises

 

The mortgage woes of FHA borrowers are gaining ground. From an Associated Press brief  at latimes.com:

The government says the number of troubled loans backed by the federal mortgage insurance program is on the rise as economic troubles mount.

However, Housing and Urban Development Secretary Shaun Donovan is telling Senate lawmakers Thursday that the Federal Housing Administration is "unlikely to face the catastrophic losses borne in the subprime sector." He says in prepared remarks that that is partly because it didn't back loans for more expensive properties that have plummeted in value.

As of February, 7.2 percent of loans backed by the FHA were either 90 days overdue or in foreclosure, up from 5.8 percent last August.

The FHA is the main source of home loans to borrowers with poor credit and low down payments after the subprime lending market's collapse.

I'd be curious to know what percentage will qualify as a "catastrophic." The trend line sure doesn't look good.

-- Lauren Beale

Thoughts? Comments?

Photo: Housing Secretary Shaun Donovan, left, Treasury Secretary Timothy F. Geithner and FDIC Chairwoman Sheila Bair gather at Dobson High School in Mesa, Ariz., for President Obama's recent unveiling of his plan for preventing home foreclosures. Credit: Gerald Herbert  / Associated Press

 

States put their home financing operations in the deep freeze

A source of home loans is drying up, according to "State Housing Agencies Get Caught in Credit Crunch" today at the Wall St. Journal: 

The credit crunch has claimed another group of victims: housing-finance agencies operated by state governments that cater to first-time homeowners....

Now, at a time when housing-finance agencies' services are needed more than ever, most states have sharply curtailed their housing-finance operations. A handful of states, including California, Texas and Wisconsin, have suspended their mortgage-lending programs altogether.

Here at home:

The California Housing Finance Agency, the nation's largest state finance agency, suspended its lending program due in part to problems related to variable-rate debt. The agency relied on the cheap debt to help it meet a challenge to make $1 billion in mortgages annually. "We could expand the program" while reducing loan rates, says Bruce Gilbertson, finance director for the CalHFA. "Quite honestly, it worked very, very well for a long time."

But variable-rate debt has effectively hamstrung the agency. That is because the intermediaries that CalHFA relied on to resell the bonds to investors and that guaranteed they would be buyers of last resort for the bonds were downgraded by credit-ratings firms. That scared off investors and left state agencies with higher servicing costs for those bonds.

Variable-rate debt poses the greatest immediate risk to agencies like CalHFA because higher rates they pay on the debt could drain funds. The agency won't make loans until it resolves those problems, and state officials hope the federal government will step in as a buyer.

Some specifics from the CalHFA website item "Temporary Suspension of Some CalHFA Programs":

The Pooled Money Investment Board (PMIB) voted on December 17, 2008 to defer all bond expenditures from the Pooled Money Investment Account (PMIA) until the State's budget shortfall is resolved. This freezes any disbursements from the PMIA.

As a result of the freeze, CalHFA was forced to discontinue several programs. CalHFA will suspend purchases of 30-Year Fixed Rate Mortgages until we receive an update and clarification from the PMIB. CalHFA will also temporarily discontinue the Extra Credit Teacher Home Purchase Program (ECTP), California Homebuyer’s Downpayment Assistance Program (CHDAP) and School Facility Fee Down Payment Assistance Program (SFF).

Please note that the 100%-financed Community Stabilization Home Loan Program (CSHLP) and SMART Program will continue to accept loans through the usual channels. Down payment assistance from non-CalHFA sources will continue to be accepted.

Apparently it's not bad lending that has sidelined these agencies, but interest rates on municipal securities, a lack of investors and other factors.

-- Lauren Beale

Thoughts? Comments?

More Californians turning to the FHA

Almost 10% of California mortgages were FHA-backed in 2008, compared with 2% in 2007. "Agency Copes With a Mortgage-Insurance Overflow" in Friday's Wall Street Journal calls into question the Federal Housing Administration's ability to handle the increase from across the nation:

Hundreds of private lenders, using the latest technology and paying high salaries, failed to adequately manage mortgage credit risk during the housing boom. Now, the Federal Housing Administration, using 24-year-old computer programs and civil servants who still handle some loan documents by hand, is trying to do better.

"Can the agency handle the responsibility it has already been given?" the WSJ story asks.

Steve Preston, the outgoing secretary of Housing and Urban Development, of which the FHA is a part, says the answer is yes. "We are handling the volume," he said in an interview, adding that the department moved resources from lower-priority projects earlier this year. The FHA, which insures lenders against defaults on home mortgages that meet the agency's standards, saw its share of new mortgages increase to 26% in this year's third quarter, up from 3% for all of 2007, according to Inside Mortgage Finance.

Not everyone agrees, however:

Congress in March increased loan limits on FHA-backed loans to $729,000 in the most expensive housing markets, up from $329,000. Next year, those limits will fall to $625,000 in the most expensive housing markets. Still, some housing experts worry that an outsized share of the FHA's new business is coming in these high-cost housing markets. "It's getting into markets that are a lot riskier than it has in the past," says Ann Schnare, a housing consultant.

Interesting that the FHA hasn't changed its ground rules while other lenders have been tightening standards. Down payments as low as 3% will increase to 3.5% next month, but still. Who else is accepting 3% down these days?

-- Lauren Beale

Thoughts? Comments?   

Photo: Steven C. Preston. Credit: Gerald Herbert / Associated Press