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June 20th, 2012

Mortgage rates fall, FHA rule overturned

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4-FHA-logoAccording to HSH.com’s latest Weekly Mortgage Rates Radar, rates on the most popular types of mortgages were mixed this week. The average rate for conforming 30-year fixed-rate mortgages fell by 3 basis points (0.03 percent) to a new record low of 3.78 percent. Conforming 5/1 hybrid ARM rates increased by a single basis point, closing the Wednesday-to-Tuesday wraparound weekly survey at an average of 2.83 percent.

“Mortgage rates begin the summer at or near record-low levels, but whether they move lower or higher may depend upon what the Federal Reserve decides to do,” said Keith Gumbinger, vice president of HSH.com. “The Fed’s present program of purchasing mortgage-backed securities comes to an end in 10 days, and it’s not yet clear what – if anything – will come after that.”

The Federal Reserve’s Operation Twist, a process of selling holdings of short-term Treasurys and buying longer-term ones to replace them, also concludes at the end of June. Operation Twist has been holding long-term rates lower.

“Treasury rates are already at record lows, so there might be little to be gained by continuing Operation Twist,” said Gumbinger. “However, the mortgage market remains unsettled, and a case could be made to carry only the mortgage support program for a while longer yet. That would help mortgage rates to remain both low and stable for at least the rest of the summer. Absent the Fed’s steadying influence, mortgage rates might move somewhat higher.”

FHA rule overturned

Back in March we reported that, “beginning April 1, prospective FHA borrowers with credit disputes that total more than $1,000 will be denied FHA loan approval unless they meet a new standard.”

By the end of April we wrote that the plan was basically being put on hold. And earlier this week, we learned that the FHA, as many expected, decided to bail on this latest rule.

Jon Prior, of HousingWire.com, reported on Monday that, “The Federal Housing Administration rescinded a rule that would have forced potential homebuyers to settle ongoing credit disputes of more than $1,000 before getting financing, according to an alert sent to lenders Friday.”

Widespread industry fear over the reduction in FHA originations was likely the main component in overturning this qualification rule. One industry professional claimed that FHA originations could be reduced by up to 50 percent this year if the rule went into effect. The recently-increased FHA premiums, the negative impact this was expected to have on first-time buyers and the struggling mortgage and construction industries, were all reasons the FHA decided to set this restriction aside.

“According to the letter sent Friday,” wrote Prior, “the FHA completely revoked the rule. Any loans written to fit the guidelines in the week between April 1 and April 8 will not be deemed in violation of HUD requirements.”

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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