January 2017 - The World's Local Bank

TheMReport — News and strategies for the evolving mortgage marketplace.

Issue link:

Contents of this Issue


Page 62 of 67

TH E M R EP O RT | 61 SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T San Francisco, almost all the buildable land has been developed and the only way to build a new house is to tear down an existing one, which does not increase the inventory. In other markets, there is an abundance of buildable land to be developed, but it is distant from the center of the city and has fewer amenities. The result is a higher cost to commute and to find those amenities, such as health care or shopping. The in - creasing scarcity of land in prime building locations has resulted in higher building costs, Becketti said. The third trend is the increas - ing use of land restrictions, ac- cording to Freddie Mac. Becketti noted a recent paper from Peter Ganong and Daniel Shoag, which stated that the income gap be- tween rich states and poor states narrowed for a century because per capita income grew faster in poorer states than in richer states. This was driven by migration; workers in poorer states moved to richer states, which resulted in both increased wage growth in poorer states and restricted wage growth in richer states. "Over the past three decades, however, the rate of convergence has slowed. Ganong and Shoag provide evidence that increasingly- strict land-use regulations in the richer states are responsible for this slowdown. Regulation has boosted housing costs in richer states, making migration more difficult for low-skilled workers, while leaving it still attractive to high-skilled workers who can earn enough to defray the higher housing costs," Becketti said. "The authors estimate the increase in hourly wage inequality from 1980 to 2010 would have been 10 percent smaller if the convergence in state income per capita had maintained its earlier, more-rapid pace." These three trends could affect the homeownership rate, housing inequality, creation of wealth through homeownership, house price volatility, and shifts among shares in the mortgage market for FHA and VA loans, the private sector, and the GSEs in the long term, according to Freddie Mac. FHFA Raises Maximum Loan Guarantee Limits For the first time since the recession, conforming loan limits rise. T he Federal Hous- ing Finance Agency (FHFA) announced in November that it will raise the amount Fannie Mae and Freddie Mac can guarantee on mortgage loans next year. The new maximum con - forming loan limits for mort- gages acquired by Fannie Mae and Freddie Mac in 2017 will in- crease from $417,000 to $424,100 in most parts of the country. It will be the first time the baseline loan limit has increased since 2006. The baseline of $417,000 was set by the Housing and Economic Recovery Act of 2008, with the requirement that the limit be ad - justed annually in order to reflect the changes in the national median home price. The recession, how- ever, got in the way. A long period of declining home prices nationally stifled the growth of the baseline, and HERA stated that the loan limit could not rise again until the average U.S. home price returned to pre-decline levels. "The 2017 conforming loan-limit increase announced today was prompted by the fact that house prices have surpassed the pre-de - cline level established in the third quarter of 2007, according to the FHFA index. Nominally, the price recovery is officially complete, but in real purchasing power-adjusted terms, houses prices are still far below the pre-decline peak. The underlying story is consumer house-buying power is better than it has been in a generation," said Mark Fleming, Chief Economist at First American. Along with the news of the baseline increase, FHFA published its third-quarter 2016 House Price Index, showing that for the first time since Q 3 2007, U.S. aver - age home values are finally in a place where the baseline limit can increase. According to the FHFA, that average for Q 3 of this year was roughly 1.7 percent above the value for the third quarter of 2007. This allows the baseline loan limit to increase by that percentage. According to FHFA, the prereq - uisite for increasing the maximum limit occurred in all but 87 U.S. counties in Q 3. The new limit of $424,100 is the limit for most of the country, but some high-cost areas will see an accordingly higher ceil - ing. In areas where local median values are between 115 and 150 percent higher than the national median, the limit will rise to meet the higher price point. FHFA capped the baseline at $635,100 for properties in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. In its September 2016 Mortgage Monitor released in early November, Black Knight Financial Services discussed the possible effects of the FHFA raising the conforming loan limit for GSEs. "Our analysis shows that there are approximately 17 times as many originations—roughly 100,000 in total over the past 12 months—right at the conform - ing limit compared to preceding dollar-amount buckets, and that originations drop off by about 70 percent immediately above the limit," Black Knight Data & Analytics EVP Ben Graboske said. "In addition, the data shows that a GSE loan originated right at the conforming limit is nine times more likely to carry a second lien than one that is not. One example scenario shows that, with all else being equal, raising the conform - ing loan limit by $10,000 could result in a one percent increase in originations—approximately 40,000 new loans and $20 billion in new loan balances."

Articles in this issue

Archives of this issue

view archives of TheMReport - January 2017 - The World's Local Bank