MReport May 2018

TheMReport — News and strategies for the evolving mortgage marketplace.

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62 | TH E M R EP O RT 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 The Truth Behind GSE Reform Will changes to Fannie Mae and Freddie Mac lead to increased monthly mortgage payments for borrowers? A n analysis by Zil- low determined that proposed reforms to the GSEs, Fannie Mae and Freddie Mac, may increase monthly payments by up to $400 a month. The changes being considered by Congress are intended to reduce tax payer risk in the event of another market crash. Fannie and Freddie have been under government conservatorship since September 6, 2008 following the housing crisis. However, Zillow's analysis shows the changes may decrease housing affordability as borrowers seek alternatives, by seeking shorter loan durations and facing higher rates. Zillow Senior Economist, Aaron Terrazas, said,"Some GSE reform proposals could lead to the end of the 30-year mortgage as we know it, which has long been the bed - rock for financing homeownership in America." "If monthly payments do rise and, more importantly, stay elevated, at some point we'd expect home prices to come down a bit in response to this decreased purchasing power, and some long- time owners could opt not to sell to preserve their smaller monthly payments." Borrowers seeking alternatives to the 30-year mortgage may face increases in their monthly rates by as much as $400 as they move from a 30-year loan to a 15-year fixed-rate mortgage. Additionally, 30-year non-conforming loans, which are not guaranteed by the GSEs, would cost borrowers around $20 more per month. "A shorter loan period would mean the lifetime cost of the home is lower, and some house - holds may be able to absorb the extra monthly cost on their mort- gage," Terraza saids. "But in the nearer term, first-time homebuyers or buyers on the margin could feel a real pinch as homeowner - ship becomes significantly less affordable." Zillow notes that until these changes are officially signed into law, there is now way to know for certain how GSE reform will impact borrowers. Consumer Housing Sentiment Slips The U.S. housing market may be starting to get volatile, according to Fannie Mae's Home Purchase Sentiment Index. F annie Mae's latest Home Purchase Sentiment Index report found that consumer confidence in housing took a hit in February. The worry seems to be stemming from some general upheaval at the federal financial level. "Volatility in consumer housing sentiment continued into February, with the new tax law beginning to impact respondents' take- home pay and the stock market creating negative headlines due to early-month tur - bulence," said Doug Duncan, SVP and Chief Economist at Fannie Mae. "Additionally, consumers' expectations for higher mortgage rates suggest that consumers expect the Fed to hike rates a few more times in 2018." In raw numbers, Americans' feelings about the housing economy translated into a nearly 4 percent drop in confidence in February. The net share of respondents to Fannie's sur - vey who said now is a good time to buy a home decreased 5 percent (to 22 percent) from January, while those who said it's a good time to sell dropped 2 percent (to 36 percent). The number who said home prices will go up in the next 12 months decreased to 45 percent overall in February. That's a 7 percent drop that mirrors the number of consumers who said mortgage rates will go down over the next 12 months. "Americans expressed a weakened sense of job security, with the net share who say they are not concerned about losing their job decreasing 2 percentage points," the re - port stated. "Finally, the net share reporting that their income is significantly higher than it was 12 months ago increased 1 percentage point." The number of respondents who said they are not concerned about losing their job fell 2 percent, to 71 percent. However, wages are up, if only barely. The number of those who told Fannie Mae that their household income is significantly higher than it was 12 months ago rose 1 percent, to 17 percent, while those reporting a significant decrease in their income compared to a year ago dropped by 2 percent, to 9 percent overall.

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