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housing finance

November 30, 2010

The Dodd-Frank bill requires lenders to retain a five percent risk-retention in loans sold to the secondary market.  It is an idea driven by the lessons that we learned from the financial crisis. Give banks a moral hazard by making them hold some skin in the game. It is hoped that they would then respond by not making unsustainable loans.

The bill gives regulators some time to decide how to implement that requirement. The Dodd-Frank bill does offer some guidance. The Merkley Amendment sets an expectation that lenders will hold a five percent stake in any "qualified residential mortgage."   A "QRM," as it known, needs risk retention.  An exempted loan does not.

First Thoughts

This is a classic example of a rule that could have unexpected consequences. At first glance, it seems like common

October 27, 2010

FHA-guaranteed loans make up a larger share of the market. That gain is not limited to LMI communities. In 2006, for instance, FHA made up about one-fourth of loans in poor neighborhoods and about 11 percent of loans in upper-income neighborhoods. In 2009, it has grown to the point where FHA loans make up one in three new mortgages in upper income neighborhoods (and two-thirds in poor areas.)

The FHA trend began sometime ago. The role of FHA in 2009 is hardly changed from 2008, at least in terms of home purchases in low-income areas.

This is happening as a complementary piece to the conventional market. Poor areas and poor borrowers

August 19, 2010

The Federal Housing Administration has decided to rethink how it protects itself with a new guidance last month. The new rules have implications not just for borrowers, but also for private mortgage insurance companies.

The new rules, known as the Loan Level Pricing Adjustments (LLPA - pdf here), say that most FHA borrowers will now have to pay an upfront premium of 150 basis points on the amount of their FHA loan. Subsequently, they will be expected to pay another 50 basis points each year. That second charge is paid with the monthly payment.

One analyst at a private mortgage insurance company called me to tell me how much of a difference this will make for his company. He paints a tough picture for the market in the last year: the private firms were being squeezed by the low rates at FHA and the high origination fees built in to

July 30, 2010

In 2009 and 2010, lenders have flocked to the  guarantees offered by the Federal Housing Administration's loan program.

I have seen the first hints of that trend in Home Mortgage Disclosure Act data that I pulled from some of the bigger banks. FHA lending is way up. This is not just a reflection of how those guarantees appeal to lenders. It also shows something about the ability of buyers. FHA loans often come with higher origination fees. Nonetheless, many borrowers can only qualify for an FHA loan, because they do not have the down payment that is needed for a conventional loan.

Up until the end of the first-time homebuyer tax credit, home sales were slow. Now, they are sputtering. The supply of homes on the market is growing, and the number of sales is

April 20, 2009

There is nothing quite like a loan that you don't have to pay back.