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You wouldn’t know it to listen to most media, but local mortgage brokers are very, very busy making loans.
“We are so busy,” said Colleen Stewart, Branch Manager of Platinum Home Mortgage in Stockton.
“Our business is really very brisk,” said Patty Amador, President of Ambeck Mortgage in Modesto. “Last year was slow, but January was unusually busy. February was a little slower. This month (March) is just taking off.”
This is not just a local occurrence. According to the Mortgage Bankers Association, as of the week ending March 7th, the Government Purchase Index has increased 10 percent from the week before. These are largely FHA loans.
“Houses are affordable,” Stewart said. “People can buy houses and there are some very nice properties in range now. Low price does not mean dump”.
According to Realtor.com, there were more than 1500 single family homes priced between $150,000 and $250,000 in Stockton.
In Modesto there were almost 900 homes priced between $150,000 and $250,000.
The city of Tracy had 204 homes in that price range. Tracy’s population is less than a third that of Stockton and usually has a higher median price for single family homes.
“The name of the game right now is called FHA,” Stewart said. “FHA requires 3% down and their rates for 30 years are just under 6 percent.”
According to several veteran realtors who didn’t wish to have their names used, this may the best opportunity they have seen in two decades. Bank owned properties are selling at prices not seen since 2002. Sometimes even lower. What this means is that houses that were in the $400,000 range can be had for almost half of that in certain areas.
Lenders do not want non-performing loans on their books and are meeting the price the market is offering, which explains why mortgage brokers are now so busy.
“This is an opportunity first time buyers,” Amador said. “We see some investors but primarily its owner-occupied buyers.”
“Right now there are still some100 percent programs for certain borrowers,” Amador said. “There is some city bond money to help certain buyers.”
Interest rates for mortgages haven’t gone down since the Federal Reserve lowered the overnight bank loan rates and increased liquidity by offering Treasury bonds for mortgage backed securities for some investment banks. There is no direct correlation between the overnight rate and lower mortgage rates, though it is a common misconception because many times the former precedes the latter. Mortgage rates relate more closely to long term bond rates and perceptions of inflation.
Many lenders see an inflationary risk in the Fed’s recent moves toward liquidity. They also think a downturn in the economy may increase the risk of lost jobs and therefore non-performing mortgages. Hence, mortgage rates remain around 6 percent, which is still historically very low.
“Well, it’s kind of interesting how rates are behaving,” Amador said. “We’ve had a vacillation with our interest rates. For whatever the reason, maybe the fear of inflation and gas prices seems to hold them up.”
“Everyone thinks there is a correlation between short term rates,” Amador said. “But there isn’t. As for where they will go next, it’s very unpredictable. I would hesitate to make a guess.”
Will the increase in mortgage activity bring back the “no doc” loans and sub-prime loans that helped the nation enter the current crisis?
“No way,” Stewart said. “Lenders are very paranoid now. And they should be.”
History of the FHA
Congress created the Federal Housing Administration (FHA) in 1934. The FHA became a part of the Department of Housing and Urban Development’s (HUD) Office of Housing in 1965.
When the FHA was created, the housing industry was flat on its back:
Two million construction workers had lost their jobs.
Terms were difficult to meet for homebuyers seeking mortgages.
Mortgage loan terms were limited to 50 percent of the property’s market value, with a repayment schedule spread over three to five years and ending with a balloon payment.
America was primarily a nation of renters. Only four in 10 households owned homes.
During the 1940s, FHA programs helped finance military housing and homes for returning veterans and their families after the war.
In the 1950s, 1960s and 1970s, the FHA helped to spark the production of millions of units of privately-owned apartments for elderly, handicapped and lower income Americans. When soaring inflation and energy costs threatened the survival of thousands of private apartment buildings in the 1970s, FHA’s emergency financing kept cash-strapped properties afloat.
The FHA moved in to steady falling home prices and made it possible for potential homebuyers to get the financing they needed when recession prompted private mortgage insurers to pull out of oil producing states in the 1980s.
By 2001, the nation’s homeownership rate had soared to an all time high of 68.1 percent as of the third quarter that year.
The FHA and HUD have insured over 34 million home mortgages and 47,205 multifamily project mortgages since 1934. FHA currently has 4.8 million insured single family mortgages and 13,000 insured multifamily projects in its portfolio.
In the more than 60 years since the FHA was created, much has changed and Americans are now arguably the best housed people in the world. HUD has helped greatly with that success.