Fannie Mae Revised Outlook

Fannie Mae's April Economics and Mortgage Market Analysis attributes the current state of temporary weightlessness to a pair of major shocks - the political turmoil which continues in the Middle East and North Africa and the earthquake and resulting nuclear catastrophe in Japan coupled with what it calls multiple cross-currents in both the U.S and Europe. These include budget problems on all levels of government and related cut-backs in spending, concern over federal monetary policy and "rising headline inflation" driven by increasing food and energy prices.

Meanwhile, there appears to be a slowdown in economic activity in the first quarter of the year with consumer spending growth poised to come in well short of the high-water mark set in the fourth quarter of 2010. Business investment and nonresidential investment in structures also slowed and housing is showing renewed softness. Just as the picture begins to seem bleak, Fannie Mae's economists post some good news - more new jobs created in March, an unemployment rate that dropped to its lowest level in two years, and the best quarter for the Dow Jones Industrial Average in 12 years. Despite the overall gloom in the report, Fannie Mae says the contraction in growth is expected to be temporary with a modest acceleration projected for the second half of the year. The group predicts economic growth to average 3.1 percent for 2011, a downgrade from 3.5 percent projected in the March forecast. The key to this outlook is continued improvement in the labor market and moderating oil prices in the second half of the year. Fannie does however exhibit nervous sentiments on the potential for further downgrades, saying "significant challenges lie ahead, which could potentially lower growth this year by much more than we project."

The report calls housing the "Achilles Heel of the Expansion." Activity weakened across the board in February. Existing home sales fell 10 percent, perhaps partially due to earlier weather conditions and distressed sales continue to account for more than a third of total housing sales. The distressed sales are a particular hurdle for the new home market which set a new record low in February and is now 9 percent below the old record set last August. The lack of sales activity has resulted in sharp drops in housing starts which are now only about four percent above the record lows in January 2009 and the second consecutive monthly drop in the issuance of single-family permits suggest continued sluggish home building activity near term.

Distressed sales and a winding down of programs to support the housing market have affected home prices which have shown persistent declines. The FHFA purchase-only price index fell in January for the seventh time in eight months while the CoreLogic and Case-Shiller indices show year-over-year home price appreciation during the firsthalf of 2010 and then renewed declines following expiration of the home buyer tax credits. Market expectations for home prices have deteriorated over the past several months according to multiple surveys of consumers.

Some of the shifts in housing projections since the March report are disquieting. Median prices of existing homes which were projected to float in the $211,000 to $223,000 range through the end of 2012 have been downgraded to a range of $160,300 to $167,500 in the first three quarters of 2011, falling again at the end of this year and beginning of next before recovering to around $167,000 by Q4 2012. Housing starts have been downgraded to 478,000 for the year compared to 508,000 in the March report and total housing sales projections were modified slightly from 5.56 million 5.53million.

Mortgage originations are still projected to total $1.038 billion with 40 percent coming from refinances and the estimate for the 30-year interest rate remains at 5.4 percent at year-end.

Bottom Line: Fannie Mae says home prices are falling right now but interest rates should remain low throughout the year. Sounds like a good time to be a home buyer!

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How Would a Government Shutdown Impact the Loan Process?

With a possible government shutdown on the horizon, I thought it interesting to report this article from Mortgage News Daily, written by Adam Quinones. Bottom line...potential issues on FHA loans, verifying employment for buyers with government jobs, current paystubs for borrowers with current government jobs, verifying tax transcripts, and likely higher interest rates. Here is the article:

Congress to pass a "Continuing Resolution" by Friday, April 8th to avoid a government shutdown. From Wikipedia: A continuing resolution is a type of appropriations legislation used by the United States Congress to fund government agencies if a formal appropriations bill has not been signed into law by the end of the Congressional fiscal year. The legislation takes the form of a joint resolution, and provides funding for existing federal programs at current or reduced levels.

RTRS-WHITE HOUSE SAYS PROCESSING OF SOME PAPER-FILED IRS TAX REFUNDS WILL BE SUSPENDED IF THE GOVERNMENT DOES HAVE TO SHUT DOWN

RTRS-WHITE HOUSE SAYS PROCESSING IRS TAX AUDITS WOULD ALSO BE IMPACTED BY A GOVERNMENT SHUTDOWN

RTRS-PROCESSING OF SMALL BUSINESS ADMIN LOANS WOULD BE AFFECTED IF GOVT SHUTS DOWN - U.S. OFFICIAL

RTRS-US OFFICIAL - GOVERNMENT SHUTDOWN WOULD IMPACT FHA, HAVE "SIGNIFICANT IMPACT" ON HOUSING MARKET IN PEAK HOME-BUYING SEASON

RTRS-US OFFICIAL-NUMBER OF FEDERAL WORKERS WHO WOULD BE IDLED COULD BE IN THE SAME VICINITY AS THE 800,000 IMPACTED IN LAST SHUTDOWN

RTRS-US OFFICIAL-ELECTRONIC FILING OF US TAX RETURNS WILL CONTINUE IN THE EVENT OF A GOVERNMENT SHUTDOWN

RTRS-SIGNIFICANT NUMBER OF PENTAGON CIVILIAN EMPLOYEES WOULD BE FURLOUGHED IF GOVT SHUT DOWN - U.S. OFFICIAL

RTRS-US OFFICIAL-MILITARY WILL BE PAID UP TO APRIL 8TH IF GOVT SHUTS, SALARIES WILL ACCRUE AFTER THEN BUT PAYMENTS WILL BE DELAYED

RTRS-OBAMA SAYS GOVERNMENT SHUTDOWN WOULD HURT U.S. ECONOMY RIGHT WHEN IT'S GAINING MOMENTUM

RTRS-OBAMA URGES DEMOCRATS AND REPUBLICANS TO MAKE COMPROMISES TO GET BUDGET DEAL, KEEP GOVERNMENT RUNNING

HOW WOULD A GOVERNMENT SHUT DOWN HAVE A "SIGNIFICANT IMPACT" ON THE HOUSING MARKET?

INITIAL THOUGHTS: The government's servers won't be taken off-line. The network will still be up and running. Essential staff will still be in place. FHA Connection is web-based but ordering FHA Case Numbers ASAP is advised. The IRS is an important part of the loan application process. Tax transcripts are generally accessible online but i t seems like a safe move to get 4506-T ordered now. One obvious thought is not being able to verfiy the employment status of borrowers with government jobs. Plus there could be a delay in getting current paystubs. FHA and Ginnie Mae aren't the only program offices within HUD though.

HERE IS A LIST OF HUD PROGRAMS THAT COULD BE IMPACTED..... Community Planning and Development * Community Development Block Grants (CDBG) (Entitlement) * Community Development Block Grants (Non Entitlement) for States and Small Cities * Community Development Block Grants (Section 108 Loan Guarantee) * Community Development Block Grants (Disaster Recovery Assistance) * Community Development Block Grants (Section 107) * Community Development Block Grants for Insular Areas * Community Development Block Grants (Rural Innovation Fund) * The HOME Program: HOME Investment Partnerships * Housing Trust Fund * Shelter Plus Care (S+C) * Emergency Shelter Grants (ESG) Program * Surplus Property for Use to Assist the Homeless (Title V) * Supportive Housing Program * Continuum of Care Program * Section 8 Moderate Rehabilitation Single Room Occupancy (SRO) Program * Rural Housing Stability Assistance Program * Brownfields Economic Development Initiative (BEDI) * Economic Development Initiative ("Competitive EDI") Grants * Empowerment Zones * Self-Help Homeownership Opportunity Program (SHOP) * Capacity Building for Community Development and Affordable Housing * Housing Opportunities for Persons With AIDS (HOPWA) * Loan Guarantee Recovery Fund for Church Arson and Other Acts of Terrorism (Section 4) Federal Housing Administration (FHA) * Single Family Housing Programs o One to Four Family Home Mortgage Insurance (Section 203(b)) o Mortgage Insurance for Disaster Victims (Section 203(h)) o Rehabilitation Loan Insurance (Section 203(k)) o Single Family Property Disposition Program (Section 204(g)) o Loss Mitigation o FHA-Home Affordable Modification Program (FHA-HAMP) o Graduated Payment Mortgage (GPM) (Section 245(a)) o Adjustable Rate Mortgages (ARMs) (Section 251) o Home Equity Conversion Mortgage (HECM) Program (Section 255) o Manufactured Homes Loan Insurance (Title I) o Property Improvement Loan Insurance (Title I) o Counseling for Homebuyers, Homeowners, and Tenants (Section 106) o Good Neighbor Next Door o Energy Efficient Mortgage Insurance o Insured Mortgages on Hawaiian Home Lands (Section 247) o Insured Mortgages on Indian Land (Section 248) Risk Management and Regulatory Affairs * Manufactured Home Construction and Safety Standards Multifamily Housing Programs * Supportive Housing for the Elderly (Section 202) * Assisted-Living Conversion Program (ALCP) * Emergency Capital Repairs Program * Multifamily Housing Service Coordinators * Manufactured Home Parks (Section 207) * Cooperative Housing (Section 213) * Mortgage and Major Home Improvement Loan Insurance for Urban Renewal Areas (Section 220) * Multifamily Rental Housing for Moderate-Income Families (Section 221(d)(3) and (4)) * Existing Multifamily Rental Housing (Section 207/223(f)) * Mortgage Insurance for Housing for the Elderly (Section 231) * Supplemental Loans for Multifamily Projects (Section 241) * Supportive Housing for Persons with Disabilities (Section 811) * Multifamily Mortgage Risk-Sharing Programs (Sections 542(b) and 542(c)) * Mark-to-Market Program * Self-Help Housing Property Disposition * Renewal of Section 8 Project-Based Rental Assistance Healthcare Programs * New Construction or Substantial Rehabilitation of Nursing Homes, Intermediate Care Facilities, Board and Care Homes, and Assisted Living Facilities (Section 232); Purchase or Refinancing of Existing Facilities (Section 232/223(f)) * Hospitals (Section 242) Public and Indian Housing * Housing Choice Voucher Program * Homeownership Voucher Assistance * Project-Based Voucher Program * Public Housing Operating Fund * Public Housing Capital Fund * Public Housing Neighborhood Networks (NN) Program * Revitalization of Severely Distressed Public Housing (HOPE VI) * Choice Neighborhoods * Public Housing Homeownership (Section 32) * Resident Opportunity and Self-Sufficiency (ROSS) Program * Family Self-Sufficiency Program * Indian Community Development Block Grant (ICDBG) Program * Indian Housing Block Grant (IHBG) Program * Federal Guarantees for Financing for Tribal Housing Activities (Title VI) * Loan Guarantees for Indian Housing (Section 184) * Native Hawaiian Housing Block Grant (NHHBG) Program * Loan Guarantees for Native Hawaiian Housing (Section 184A) Fair Housing and Equal Opportunity * Fair Housing Act (Title VIII) * Fair Housing Assistance Program (FHAP) * Fair Housing Initiatives Program (FHIP) * Equal Opportunity in HUD Assisted Programs (Title VI, Section 504, Americans with Disabilities Act, Section 109, Age Discrimination Act, and Title IX) * Section 3 Program * Voluntary Compliance Policy Development and Research * Policy Development and Research Initiatives Government National Mortgage Association (Ginnie Mae) * Ginnie Mae I Mortgage Backed Securities * Ginnie Mae II Mortgage Backed Securities * Ginnie Mae Multiclass Securities Program * Ginnie Mae Platinum Securities Program * Healthy Homes and Lead Hazard Control * Office of Sustainable Communities o Sustainable Communities Initiative Temporary Programs * Housing and Economic Recovery Act of 2008 (HERA) Programs * HOPE for Homeowners * Neighborhood Stabilization Program (NSP1) * American Recovery and Reinvestment Act of 2009 (Recovery Act Programs) o Neighborhood Stabilization Program 2 o Green Retrofit Program for Multifamily Housing o Healthy Homes Demonstration Grant Program and Technical Studies Grants o Homelessness Prevention and Rapid Re-Housing Program (HPRP) o Lead-Based Paint Hazard Control Grant Program and Lead Hazard Reduction Demonstration Grant Program o Indian Housing Block Grants (Formula) o Indian Housing Block Grants (Competitive) o Public Housing Capital Fund (Formula) o Public Housing Capital Fund (Competitive) o Tax Credit Assistance Program (TCAP) * Dodd-Frank Wall Street Reform and Consumer Protection Act Programs o Neighborhood Stabilization Program 3 o Emergency Homeowners Loan Program Other Resources * Neighborhood Reinvestment Corporation (NeighborWorks America) * U.S. Interagency Council on Homelessness -------------------------------------

We see this childish Congressional behavior as politics in their purest form. STANDARD OPERATING PROCEDURES ON CAPITOL HILL. Playing this game of chicken with the bond market carries massive conseuqence. We're cutting off our nose just to spite our face here. The last thing we want to do is put the U.S. credit rating in the global spotlight. We don't want bond vigilantes chasing after our debt like they are EU debt right now. A "bitter fight over budget cuts" unfortunately would do just that. I hope our so called leaders in Washington avoid that bitter fight. I hope they act like adults and avoid grand-standing and pandering. We don't need bickering. We need common ground. We need to develop a plan and make some moves to restore confidence in our country.

READ MORE: Budget Battle Looms. Bond Vigilantes Lurk Besides the observations made above, we don't know exactly how a government shutdown would impact the housing market, we don't see anything positive coming from it though....mortgage rates certainly wouldn't react well!

WHAT ELSE ARE WE MISSING HERE? Do Fannie and Freddie count as government or is that just an "implied" shutdown? Did you know?