The Three Percent Solution

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Th e M Rep o RT | 31 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ORIGINATION the latest ORIGINATION consistent with the principles put forward by the administration for housing reform," USMI said. "The MI industry has the capacity and capability to further reduce taxpayer risk and lower costs for many homebuyers while expand- ing access to mortgage credit." Republicans in both the House and Senate were also quick to decry the news, especially with it coming so soon after the FHA's bailout. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, had pledged to bring HUD Secretary Castro before the com- mittee to question him on FHA's financial condition and the thinking behind the move. In the days following the announcement of planned reduction, Sens. Bob Corker (R-Tennessee) and David Vitter (R-Louisiana) also called on the Obama administration to recon- sider the decision. They cited misgivings not only about the bailout, but also about the FHA's low capital reserve ratio. In their letter, addressed to Castro, the senators noted that the bailout funds are included on FHA's balance sheet in its 2014 actuarial report and that there are no plans currently in place to pay it back, making the reduction of its borrower costs "premature." "When assessing the health of FHA's balance sheet, we must re- member that it is currently being bolstered by a bailout with no plans of repayment," they wrote. Finally, the announcement brought out a fair share of skeptics, who were particu- larly doubtful about the Obama administration's claims that the fee reduction will help nearly a quarter of a million borrowers purchase their first home in the next three years. Brian Koss, EVP at the East Coast-based Mortgage Network, said he is hopeful about the po- tential boost to FHA business at his firm but uncertain about the supposed impact the administra- tion says the cut will have. "We don't see it having that big of an effect," Koss told MReport. "It's not a difference that's going to make someone say, 'I wasn't going to buy, [but] now I'm going to.'" The real effect, Koss said, will be on Americans who have been considering purchasing a home but were previously unsure about their buying power. "It really helps that person just make one more higher bid if they're competing on a home or maybe get the extra bedroom," he said. Meanwhile, HUD followed up the announcement by saying it would ensure that borrowers with applications in play can reap the benefits of the reduction by temporarily approving cancel- lation requests for active case numbers until February 26. "We are optimistic that more affordable FhA loans will have a positive impact on first-time buyers who have been entering the market at a lower-than-normal rate." —Chris Polychron, NAR What Will 2015 Bring for mortgage rates? Some analysts want the average 30-year fixed mortgage rate to rise to nearly 4.5 percent, while others call for an average closer to 5 percent. a fter years of economists predicting hikes, mortgage rates finally look set to increase in the coming year, though the trend is expected to be a bumpy one. With the Federal Reserve recently ending its monthly asset purchases and turning toward the possibility of bringing short- term interest rates up in 2015, analysts (including economists at Freddie Mac, Fannie Mae, the Mortgage Bankers Association, and other housing groups and companies) are calling for the average 30-year fixed mortgage rate to rise to nearly 4.5 percent, with some calling for an average closer to 5 percent. Greg McBride, chief finan- cial analyst for finance website, expects the average 30-year fixed rate will lift off from a final 2014 reading of 3.96 but still remain below 5 percent, mostly due to volatility in the year's first half. "I expect we'll see rates go even lower than they are right now in the first few months of the year, but as we go into the second quarter with the Fed's [rate hike] timetable coming into clearer focus, we're going to start to see mortgage rates go higher," McBride said. As of January, policymakers at the Fed had yet to assemble a timetable for when the central bank will start bringing up rates, but the perspective offered by most of the voting members of the Federal Open Market Committee seems to point to a slow build. In a panel hosted at the American Economic Association's annual meeting in early January, Boston Fed President Eric Rosengren said the central bank is in an unusual position at the moment, especial- ly as other central banks around the world make moves to ease their own monetary policy in the face of recessions. "Central-bank balance sheets are in a very different position than they normally are, so that is an unusual feature of this cycle," Rosengren said. "But certainly, the fact that we're at a point where [rate] normalization's be- ing discussed is a positive one." While the global economic sit- uation could mean another year of missed forecasts for mortgage rates, the Fed's turn toward (slightly) less accommodating monetary policy suggests 2015 will be the year in which rates start to ascend meaningfully. In the meantime, McBride says Fed officials need to be careful about what they say and do so as not to spook the financial markets—like in 2013, when just the mention of slowing down as- set purchases sent mortgage rates climbing. "This is a period of transi- tion, and the Fed has to prep markets for the eventuality of interest rate hikes. They have to communicate the timing of it once it comes into focus for them," he said. "And markets are particularly sensitive to monetary policy. All of that is a recipe for some sort of market overreaction somewhere along the way."

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