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Did Freddie Mac bet against homeowners seeking to refinance?

By Elliot Njus, The Oregonian

Taxpayers bailed out Freddie Mac and its sister mortgage giant Fannie Mae to the tune of about $185 billion, so naturally a January report suggesting Freddie may have conspired against homeowners seeking to refinance raised hackles. But a government watchdog reported Wednesday the problematic investments it cited were simply a prudent hedge.

Investigative journalism nonprofit ProPublica and NPR alleged in a joint report Freddie was investing in a derivative that would pay off more if mortgageholders kept paying high rates. At the same time, it was making it more difficult for borrowers to refinance into lower rates.

On Wednesday, the watchdog said there was no evidence of collusion. Some reports suggested Freddie had been cleared of all charges, but the report does admits the investments may have created an incentive for Freddie to keep borrowers in their current loans. From The Wall Street Journal developments blog:

The report explained that Freddie had retained the inverse floater positions because there was stronger demand for other securities. …

While Freddie Mac’s trading unit could, in theory, misuse internal data and interfere with refinancing, the inspector general found “no evidence of collusion” between those sides of Freddie Mac’s operations. [more]

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Real Estate Recovery: See it, Believe it… and Then Invest in It!

Submitted by Wall St. Daily as part of our Contributors Program

A smart investor recognizes that the market is a forward-looking beast. He also knows that the market regularly scales “walls of worry,” and that prices rise before everyone realizes a recovery is imminent.

The average investor? Well, he sits on the sidelines and, in turn, misses out on significant profits.

Don’t believe me? Look no further than the real estate sector for proof…

Be Greedy When Others Are Fearful

Back in February , when I predicted the real estate market hit rock bottom, my inbox overflowed with venom for making such a preposterous claim. Hundreds of readers unsubscribed, too.

Of course, homebuilding stocks were already telegraphing a recovery. But nobody wanted to believe it because home prices were still falling across the country. They let the “wall of worry” blind them from the opportunity.

As I wrote at the time, though, “prices are going to be the last thing to bottom out.” Well, they just officially did.

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FHA loosens condo rules

Responding to lender, condominium association and consumer outcry that the existing FHA condominium lending guidelines are too strict, the Federal Home Administration (FHA) has announced a round of changes which will hopefully make it easier for borrowers to qualify for FHA condo loans. The full FHA announcement can be found here.While some of the changes are a step in the right direction, I think overall they are a mixed bag, as FHA left some of the most onerous provisions intact. I’m skeptical that these new changes will have a major impact on condominium sales, but of course, any loosening of the strict requirements is a positive move.

Condo fee delinquency rule increased to 60 days overdue
FHA is softening its stance on delinquent monthly condo fees and home owner association (HOA) dues. FHA is now allowing up to 15 percent of a project’s units to be 60-days delinquent on condo fees, up from just 30 days delinquent under the prior rule.

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Expanded investor purchasing allowed

Under the new rules, investors can come in and buy more units in a project than they could previously. They can now buy up to 50 percent of the project units, up from just 10 percent before, but with an important caveat: the developer must convey at least 50 percent of the units to individual owners or be under contract as owner-occupied.

Owner occupancy limits and total FHA financing percentage unchangedThe biggest disappointment of the new rules is that the main impediment to FHA condo financing remains unchanged, and that’s the 50 percent rule. Before any new buyer can obtain FHA financing, 50 percent of a project’s units be sold to third party buyers. This is what I’ve called the Catch-22. FHA provides the most first time home financing, so how can a developer expect to sell out his project if he cannot offer initial FHA financing? I agree with the National Association of Realtors and the Community Association Institute on this one. Get rid of the 50 percent rule or decrease it to 25 percent or less.Another restriction that hasn’t changed is the number of units that can have an FHA-backed loan. Only half the units can have FHA financing, so a borrower can’t get FHA approval if his unit would put the number of FHA financed units over 50 percent. That limitation remains unchanged, and that’s a killer for a lot of projects.

Spot approvals remain dead
Mortgage lenders used to love FHA “spot approvals” which could by-pass the involved standard FHA approval process in order to get individual unit financing. Problem was is that they love spot approvals way too much, and they got abused. FHA did not resurrect spot approvals from the dead on this go-around. Maybe they will be back when the economy gets better.

More commercial space OK
Projects can also have more space devoted to non-residential commercial uses than before. You see this a now in Boston with Starbucks and a bank office on the ground floor of a new condominium building. Up to this point, only 25 percent of project space could be used for commercial purpose. Now 50 percent of the project can be commercial, although certain authority for approval is reserved for the local FHA office. This will benefit the newer mixed use projects in urban markets.


Fidelity insurance coverage required

Important for all condominium professional management companies. If the condominium engages the services of a management company, the company must obtained its own fidelity coverage meeting the FHA association coverage requirements or the association’s policy must name the management company as an insured, or the association’s policy must include an endorsement stating that management company employees subject to the direction and control of the association are covered by the policy. This is a substantial change to the previous requirements that required management companies to obtain separate fidelity insurance for each condominium.

5 Reasons to Buy a Home Now

by The KCM Crew

Based on prices, mortgage rates and soaring rents, there may have never been a better time in real estate history to purchase a home than right now. Here are five major reasons purchasers should consider buying:

Supply Is Shrinking

With inventory declining in many regions, finding a home of your dreams may become more difficult going forward. There are buyers in more and more markets surprised that there is no longer a large assortment of houses to choose from. The best homes in the best locations sell first. Don’t miss the opportunity to get that ‘once-in-a-lifetime’ buy.

Price Increases Are on the Horizon

Prices will bounce along the bottom this winter. However, projections call for appreciation after that. Several studies and surveys call for price increases over the next few years starting in 2013. One such survey shows that prices will increase over 10% by 2016.

Rents Are Skyrocketing

Rents historically increase by 3.2% on an annual basis. A study issued earlier this year projects rent increases of 4% for the next two years. Trulia recently reported that rents this year have actually shot up by 5.4%.

Interest Rates Are at Historic Lows

Federal Reserve Chairman Ben Bernanke has kept interest rates low in an effort to stimulate a lethargic economy. He understands that low rates will help housing and housing is a key to bringing back the economy. As the economy approves, the need to keep rates low will no longer exist. The 30-year-mortgage rate before the financial crisis was 6.57% (August 2007).

Buy Low, Sell High

We would all agree that, when investing, we want to buy at the lowest price possible and hope to sell at the highest price. Housing can create family wealth as long as we follow this simple principle. Today, real estate is selling ‘low’. It’s time to buy.

CLICK HERE to visit the KCM Blog

Fed Plans to Buy $40 Billion in Mortgage Securities a Month

By Joshua Zumbrun

The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a bid to boost growth and reduce unemployment.

“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said today in a statement at the end of a two-day meeting in Washington.

The FOMC said it would likely hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

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