USA Today reports that home prices are rising fast, up 4.6% from a year ago in August. The reason given is lack of supply, something this space has mentioned before. August made six months in a row of housing gains and September should be more of the same according to market researcher CoreLogic.
USA Today writes,
Last year, some housing experts thought home prices would keep falling through 2012. There were fears that lenders would flood the market with foreclosed homes, which would drive down prices as a result of the mortgage settlement between large lenders and federal and state officials.
Neither scenario has played out. What’s more, low mortgage interest rates — which last week reached an all-time low average of 3.4% for a 30-year fixed-rate loan — and improved consumer confidence are helping demand.
The rise of home prices has lifted 1.3 homeowners from being underwater to having positive equity according to CoreLogic.
Well, happy days are here again. Except, according to Zillow, 30% of homeowners are still
underwater while CoreLogic has the number at 20%.
And while mortgage rates are at historic lows, few can get the money, reports Nick Timiraos for the Wall Street Journal. According to Timiraos, “thousands of would-be homeowners are being locked out of the market because lenders, facing a hard-line stance from Fannie Mae and Freddie Mac, have grown wary of making new loans.”
You see Fannie and Freddie are putting back mortgages to originating lenders if the paperwork isn’t up-to-snuff. We’re talking $66 billion worth of mortgages made between 2006 and 2008. “The balance of outstanding demands from both companies at the end of July was up 37% from a year earlier. Most of these loans have defaulted, so banks face losses when they take them back,” writes Timiraos.
Mortgage lenders are saying the GSE put-back process “has become more and more ridiculous.” And because of that, mortgage underwriting aren’t just trying to determine if loan applicants will pay the loan back, but they must collect enough paperwork to make the deals put-back proof.
“Why do I care about that $100 deposit? Why am I triple checking your credit score?” says Barry Sturner, president of Townstone Financial, a Chicago lender. “Because I’m scared to death of the buyback.”
Timiraos cites Ellie Mae, mortgage software provider, with an incredible statistic, “The average conforming loan for a home purchase that was denied by lenders in August had a borrower with a solid credit score of 734 and a 19% down payment.”
Such an applicant would be a lead pipe cinch to be approved any other time.
Instead of screening the loans they were buying during the boom, Fannie and Freddie have hired what bank executives call “bounty hunters” to comb through loan files looking for mistakes and documentation deficiencies that can allow the GSEs to put the loans back to originating bank after the bust.
Fannie and Freddie are operating with a “gotcha mentality,” says Laurence Platt, an industry lawyer at K&L Gates in Washington. He says more loans are being put back for reasons that have nothing to do with why a borrower has defaulted. “But for their monopoly-like powers, they couldn’t get away with that.”
With 20% to 30% of homes still underwater and purchase mortgage money nearly impossible to obtain, don’t look for this housing rally to have any legs.