Broadview Mortgage Reports: FHFA to Increase Homebuyer Access to Credit

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Following the mortgage crisis, rules became so strict that the growth of the housing market is currently being hindered, but the FHFA has revealed plans to lower credit requirements for buyers and thus allow a significant amount of potential homebuyers back into the market.

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The housing market has exhibited slow recovery and a weak start to the busy spring season, but despite these facts, home prices still increased for the eleventh consecutive quarter. The Federal Housing Finance Agency (FHFA) reported in the House Price Index (HPI) that home prices increased 1.3% in the first quarter of 2014. Since the first quarter of 2013, home prices have increased a total of 6.6% in the first quarter of 2014 year-over-year. Many attribute the continuous price increase to the scarcity of homes on the market, which is subsequently hiking up demand and making homes for valuable.

The states that exhibited the top annual appreciation in the country are 1. Nevada, 2. District of Columbia, 3. California, 4. Arizona, and 5. Florida. These states were also some of the hardest hit by the mortgage crisis of 2008. The report maintained that home value increases were observed in 42 states and the District of Columbia in the first quarter of 2014. By region, the home prices in the Pacific grew the most in quarter 1 of 2014, by 2.1% quarter-over-quarter, and 13.2% year-over-year. The 13.2% home price increase in the past year has helped lift thousands of homeowners from being underwater on their mortgages. The mid-Atlantic region grew much slower than the Pacific region, at 0.1% quarter-over-quarter. However, the House Price Index did maintain that although the home values are continuing to grow, they are also beginning to show some plateauing activity. Just between February 2014 and March 2014, the year-over-year increase in home prices fell from 6.9% to 6.4%. This may also be attributed to a slow start to the busy season of home buying because of the long and harsh winter throughout the United States that may have pushed many Americans out of the home-buying market during that time period. Regardless, the housing market is continuing on its road to recovery, and the HPI contends that Fannie Mae and Freddie Mac’s share of distressed sales financing decreased more than 10% since 2013, which is always good news.

The Home Price Index is calculated using home sales prices on conforming, conventional mortgages either sold to or guaranteed by government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, as stated by Yahoo! Finance. The Index accounts for the change observed on single-family home prices in various locations throughout the United States. In order to conclude with final numbers, the report is weighted by using the average price changes of the sales or refinances on the properties. The report also accounts for the estimated rate of change for mortgage defaults, prepayments, and housing affordability in each respective location as well.

According to National Mortgage Professional, the sales of new homes being built has picked up. The percentage of newly built single-family homes increased 6.4% in April of 2014. The rate of new homes being built was depressed after the mortgage crisis and for the years that followed. The increase in new homes being built indicates that people are beginning to have a renewed perspective on the housing market and their actions reflect more confidence in the housing market and the U.S. economy as a whole. The article mentioned that, “Builders are gradually increasing sales, but tight credit conditions, particularly for first-time home buyers, are impeding a more robust economy”.

Current tight credit conditions are inhibiting many Americans for getting into mortgages and as a result it is impacting the growth of the housing market. In a recent speech, FHFA Director Mel Watt included plans to loosen mortgage credit requirements for borrowers. Currently, tight credit conditions are blocking many responsible Americans out of home buying and thus it is having a direct impact on the growth of the housing market. As the housing market is a big component of the big picture of the United States economy, stimulating the housing market will also impact the growth of the economy. This was reinforced in an article by The Washington Examiner, which maintained that “overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery”. Currently, the high credit requirement standards are hindering recovery and are way too strict in general for the recovery that the economy hopes to see. The decision by the FHFA will be able to play a crucial role in shaping the housing market for years to come, and the decision favors long-term gains. Previously, many politicians wanted the GSEs to reduce their market share, and have the private sector take over the housing market. However, at this point, the private market does not have the capacity to take over that market share from Fannie and Freddie as further noted by The Washington Examiner.

Due to stringent regulation placed on lenders in response to the mortgage crisis of 2008, the credit score that a typical borrower needs in order to obtain a guaranteed loan is significantly higher than it was in the past. CNN Money refers to the heightened credit score requirement as “higher than we would expect given economic fundamentals”. The same article included information from credit rating agency, Moody’s, suggesting that if the credit scores that were accepted by lenders was the same as it was before the housing bubble burst, “then the pool of potential mortgage borrowers could increase by more than 12.5 million households”. If this is true, it means that there is an untapped market in the millions that is currently being locked out of the housing market by lenders.

The FHFA has also outlined plans to provide education to homebuyers as a result of providing homebuyers more access to credit. A new FHA housing counseling program is aimed to launch later in 2014. The program is called Homeowners Armed With Knowledge, or HAWK. The program will offer “a 50 basis point reduction on the upfront mortgage insurance premium and a 10 basis point reduction in the annual premium at the time of the loan origination for first-time homebuyers who complete the program,” says On top of those reductions, any loans that remain in good standing during the life of the loan could receive reductions, which could thus save thousands of dollars for the homeowner on the total amount spent on the mortgage. The HAWK program will encourage home buying while simultaneously empowering homebuyers by providing them with more knowledge about the mortgage process.

Broadview Mortgage values the opportunity to educate consumers to understand which direction that their current or future mortgage is taking them in. If you have any questions about the information herein, feel free to reach out to the Author, Brittany Williams, at Brittany.williams(at)broadviewmortgage(dot)com. If you would like a quick pre-approval click here, and for assistance with down payment or buyer assistance, click here. You are also always free to give us a call toll free at (855) 692-7623.

Since 1988, Broadview Mortgage has distinguished itself through honest business relationships with clients, loyalty to employees, and commitment to empowering and educating those communities. Broadview Mortgage is a mortgage banker and direct lender made up of loan officers with years of experience in the firm and sheer excellence in customer service. The firm works to explore several financial solutions from which it’s clients may choose. Business is initiated and conducted on a word-of-mouth basis. Broadview Mortgage is a delegated underwriter for the Federal Housing Administration (FHA), the Veterans Administration (VA), and the Federal National Mortgage Association (FNMA). Broadview is also approved to participate in several state, county and city programs for First Time Home Buyers.

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Brittany Williams