Premium FHA knowledge

HousingWire Magazine, May 2012

Premium FHA knowledge

How changes at the agency could affect borrowers, the market and the FHA

By Andrew Scoggin

As the housing market collapsed around it, the Federal Housing Administration moved in to prop up the remains.

The FHA, at the height of the subprime boom, insured just 3.4% of single-family mortgages originated in 2007, per total dollar volume. That share skyrocketed a year later to 16.1%, trickling down to 12.8% in 2011.

As of mid-November 2011, the FHA oversaw an insurance portfolio of $1.3 trillion.

“FHA has played a huge role in providing liquidity in the mortgage market for the past several years,” said Charles Coulter, deputy assistant secretary for single-family housing in the Department of Housing and Urban Development. It’s a role that’s countercyclical to the dearth of the private market, he said.

After all, it is the reason the government created the FHA. Formed in 1934, the agency helped to shore up a mortgage insurance space that all but collapsed during the Great Depression.

But this time around, as the FHA significantly bolstered its market share during the recession, its own insurance fund suffered. Its reserves, as a percentage of all backed loans, fell to 0.24% in 2011, well below the required 2% level.

That led to insurance premium increases, the latest of which took effect in early April. The FHA says this will help shore up the fund, but others aren’t so sure, warning of a possible dip into Treasury Department funds.

“Their scenario is quite rosy, and they’re hoping they’ll grow their way out of this,” said Ed Pinto, a fellow at the American Enterprise Institute, a conservative think tank. “That’s not necessarily a recipe for success.”

When the FHA makes premium changes, Coulter said it is usually done with the impact on three different areas in mind: borrowers, the housing market and the agency’s mutual mortgage insurance fund. The April changes to the one-time, upfront premium are driven primarily by the FHA’s shrunken capital ratio, Coulter said.

It’s a significant increase, a 75-basis-point boost — up from 1% of the initial mortgage amount. But borrowers can still receive financing on it and fold it into the loan.

“We’re doing it in a way that has the least impact on the borrower,” Coulter said. An upfront premium increase is not as detrimental as adding onto the annual insurance premium, he said.

But the FHA is also raising its annual premiums on new loans by 10 basis points, though not of its own volition. Legislators included the increase in the December measure to temporarily extend the payroll tax cut, the same one that increased the guarantee fees charged by Fannie Mae and Freddie Mac.

Unlike that g-fee bump, the proceeds from the FHA premium increase will stay with the agency. The FHA also decided to raise rates on mortgages above $625,000 another 25 basis points to address an additional risk in those loans, Coulter said.

The changes probably won’t do much to upset the housing marketplace, said Mark Calabria, director of financial regulation studies at

the Cato Institute, a libertarian think tank. It could put downward pressure on prices in markets with a constrained housing supply, he said, because borrowers focus more on the monthly payment rather than the loan balance.

Pinto notes the higher upfront rate could also bump up the initial loan-to-value ratio of the mortgage. That’s assuming borrowers continue to pay the minimum 3.5% down payment, but Pinto said that makes it an even riskier proposition for them.

“Unless house prices really rebound, they’re not going to have enough equity to sell the house in three or four years,” Pinto said.


Another set of premium changes that reduce the rates on streamlined FHA refinances could have a more direct, positive impact on existing borrowers.

The move, announced by the White House in early March, will allow certain homeowners to refinance at a lower interest rate with a next-to-nothing upfront premium charge of 0.01%. That’s down from 1%, and it also includes a reduced annual premium of 0.55% from 1.15%.

“This is not something the government by itself can solve,” President Barack Obama said at the time of the announcement. “But I’m not one of those people who believe that we should just sit by and wait for the housing market to hit bottom.”

Eligible mortgages include only those already backed by the FHA and originated before June 2009, the same date used for the Making Home Affordable Program’s loan modifications and refinances.

“The principal motivation behind that move was to help homeowners, but to do it in a way to target borrowers that were most affected by the housing downturn,” FHA’s Coulter said.

Calabria, a former FHA and Senate Banking Committee staffer, isn’t convinced the streamlined refinance changes make much difference for borrowers, despite how good it sounds.

“It’s fair to say in anybody’s defense, what do you do? What is the option?” Calabria said. “It’s not easy to address the fundamentals.”

The refinance changes, which the Obama administration estimates could affect 2 million to 3 million homeowners, fall mostly on one side of the dichotomy the FHA must maintain.

John Weicher, who led the FHA from 2001 to 2005, said the agency strikes a balance between the public interest and financial stability. At times it will take on more risk to support new homeowners, and in harder spells tighten credit standards and raise premiums to boost its capital ratios.

“Whatever you’re doing with FHA, you start with the fact that it’s established to promote homeownership,” said Weicher, now a senior fellow at the Hudson Institute, a conservative think tank. “It’s always a balance, and the balance changes from time to time.”


Another change to the streamlined refinance program could drive more lenders to get involved, as the FHA won’t count a refinanced

mortgage against a company if it defaults. It’s the primary reason Fairway Independent Mortgage will now participate in the program, said Dan Cutaia, head of the company’s risk management operations.

In 2011, Fairway originated $3.6 billion in loans, a third of those backed by the FHA, according to Cutaia. It’s likely to have more of an effect on lenders, Cutaia said, than the increases on new purchase loans.

“I don’t think the premium increases will put a dent in whether or not a borrower is going to buy a house,” Cutaia said.


The refinance changes, which go into effect in June, will have a negligible impact on the FHA’s reserve fund, Coulter said. Those refinanced loans will likely perform better on reduced premium payments, he said.

Still, Weicher said it’s possible the FHA could be missing out on potential revenue, even with a modest dip in defaults.

“You would like to keep the premiums coming in on the good loans,” Weicher said. “The benefits for FHA will come somewhere down the road.”

The premium increases will add $1.48 billion to the fund over 2012 and 2013, according to recent congressional testimony by Housing and Urban Development Secretary Shaun Donovan. FHA Acting Commissioner Carol Galante told legislators $8 billion total will be added to the reserve fund in 2013. The FHA, in its most recent actuarial review, projects its capital ratio on the reserve fund to go back above 2% in 2014.

“I would not call us worried at this stage of the game,” Coulter said, “but I would call us focused.”

The FHA’s fund will receive a boost, to the tune of nearly $1 billion, from settlements with lenders, including more than $500 million from a Bank of America deal. That helps to cover a $688 million shortfall that the Obama administration estimated for the fund in its fiscal year 2013 budget, but Donovan said that doesn’t include revenue from the increased premiums.

The raised premiums signify an FHA that’s desperate for cash, Pinto said. The agency has altered overall premiums four times since April 2010, and has paid out $37 billion in insurance claims in the past three years. That’s more than double than in the three years prior combined.

Galante said the agency wouldn’t need a bailout, but some outside observers aren’t so sure. University of Pennsylvania professor Joseph Gyourko said in October that the FHA would need $50 billion to $100 billion from the Treasury Department over the next several years.

A bill in the House, which passed the committee stage in late March, would allow the FHA to raise premiums up to 2.05%, giving the agency more flexibility. The measure held bipartisan support.

But like so much other congressional action during an election year, any changes made to the agency are more likely to be structural than substantial. If and when the FHA needs some extra cash, Calabria said that would likely shift the debate.

“We don’t shut government programs down just because their liabilities are greater than their assets,” Calabria said.



Silicon Valley housing market gets Facebook bump, May 18, 2012

Silicon Valley housing market gets Facebook bump

By Andrew Scoggin

While the rest of the county buzzed Friday about Facebook’s first day as a public company, real estate agent Brian Chancellor saw the effect months earlier.

Chancellor put a client’s house on the market in February for roughly $1.2 million — a bit underpriced, he said. The home in Palo Alto, Calif., sits adjacent to Menlo Park, the home of the social-media darling.

Twenty days and 38 offers later, the house sold for $1.65 million.

“It’s not uncommon that even when somebody goes well over the asking price … they may not get the home,” Chancellor said. “There are people who are putting in phenomenal offers and still not prevailing.”

As Facebook and its social media and tech brethren boom, so, too, does the housing market in Silicon Valley and surrounding areas. In San Mateo and Santa Clara counties, home sales rose 34% and 13% in April from a year earlier, according to San Diego-based DataQuick. San Francisco Bay Area sales as a whole grew 13%.

The Silicon Valley market picked up visibly starting in late January, said local real estate agent Francis Rolland. Reports surfaced around that time of an imminent Facebook IPO.

There just might be a little too much excitement, Rolland said. Some waited for the IPO to get into the market, and he said they might later find out it won’t change much.

“It’s a real effect, but it’s too hyped in a way,” Rolland said.

It’s not just about Facebook, Chancellor said, with tech-world newbies Yelp, Twitter, LinkedIn and Zynga along with standbys Apple and Google all based in Silicon Valley or San Francisco.

“Facebook is leading the pack, but there’s money here from tech companies,” Chancellor said.

It’s storyline already known by Chancellor, an area agent for nearly two decades. Now-defunct companies like disappeared almost as quickly as they appeared on the scene in the late 1990s and early 2000s during the dot-com bubble.

“The difference is that the techies of today are a little bit more self-aware,” Chancellor said. “The dot-com boom really was just greedy to say the least. I think this generation is more thought out.”

Prices, no matter how outrageous, aren’t rising quite as quickly this time around, said Suzanne Yost, president of the Silicon Valley Association of Realtors. The median price remained flat from April 2011 at $550,000 in San Mateo County, though rose 9.3% to $513,500 in Santa Clara County, according to DataQuick

Yost said appraisals are more stringent now than previous boom times, though there’s also awareness on the part of buyers.

“What we saw then was a much more rapid increase in prices,” Yost said. “We’re not seeing that yet here.”

A sparse amount of new construction is also limiting options for buyers, Yost said. The area’s geographic mix of hills and ocean makes for few empty patches of land.

Properties are moving fast, with reasonably priced homes spending just two or three weeks on market, Yost said.

Those looking to rent don’t have much of an option, with just 76 new units completed in the San Francisco metro since the second quarter 2011, according to research firm Marcus & Millichap.

Some prospective tenants, Chancellor said, will offer to pay more than the asking price or give six months’ rent upfront.

“It’s not to say we don’t have our issues, but as far as bright places to go in the world, we’re it,” Chancellor said.


(Original post — external link)

Rent your house for Super Bowl XLVI, make $10K a day?

The Indianapolis Star, Aug. 26, 2011


Rent your house for Super Bowl XLVI . . .
(But be sure you read all the fine print first.)

By Andrew Scoggin

The offer sounds enticing:

Rent out your home for the Super Bowl in February, and you could get big money – up to $10,000 a day.

It’s a quick, easy way to make some cash. At least that’s how signs posted across Indianapolis make it seem.

But it’s not exactly a sure thing, and officials are urging caution, whether going through home-rental companies or on your own.

“Obviously the signs that get put up, it’s an expectation that probably won’t be met,” said Bill Thomas, president and CEO of the Central Indiana chapter of the Better Business Bureau.

It’s a practice that started in 2008, Thomas said, with Super Bowl XLII in the Phoenix area. Companies charged hundreds of dollars, sometimes nonrefundable, to take photos of homes and post listings for them online.

It has been repeated since then in Super Bowl cities, with offers starting to appear in the summer leading up to the big game, Thomas said.

Dozens of companies offering Super Bowl home-rental websites can be found on the Internet, including Phoenix-based The site, which has listings for other major sporting events as well, charges a listing fee of $49.95 to stay on the site for a year.

Site owner Todd Brenneman said the company operates like a high-end Craigslist, and also has a BBB “A-” rating. He said the company doesn’t use roadside signs because they’re “tacky.”

For the Dallas-area Super Bowl, Brenneman said about 230 homes were rented out, with competitive prices at $1,200 a night. About 20 houses, which he said were multimillion dollar homes, rented out for $5,000 a night.

That “up to $10,000” is probably a little far-fetched, Brenneman said. “Renting your home, nothing is guaranteed,” he said.

One company that advertises “up to $10,000 per day” for home rentals is Phoenix-based Owner Keith Johnson said he founded the website shortly after the 2008 Super Bowl.

The company charges a flat fee of $595 for photos and to be listed on its website for a year. rented out 15 to 20 homes for last season’s Super Bowl. The average asking price on the site was about $5,500, Johnson said.

The company has an “A-” rating from the BBB, with two complaints in the past three years.

The BBB’s Thomas recommended not working with companies that charge an upfront fee, even if it isn’t a scam.

“They really don’t have an interest per se in renting your home,” he said. “They just want the money upfront.”

In fact, there are plenty of horror stories that followed the Super Bowl in Dallas. One house-rental company, Phoenix-based, drew numerous complaints in the Dallas area, and about 30 over the past year in general.

Unsuccessful rental clients complained that they did not get their deposit back, as had been promised.

The complaints reported that the company closed up shop, said Jeannette Kopko, spokeswoman of the Dallas-area BBB. The website URL is now blank.

But, she warned that scammers could be operating under a new name. John Ames, Colleyville, Texas, tried to rent out three homes — his, his daughter’s and a rental property — with He paid about $3,000 in deposits, and the listings were posted online.

Soon, the company told him it had found renters.

Ames said the company seemed legitimate, asking for details from renters such as a damage deposit. He said he checked with the Phoenix-area BBB, whose rating for the company was low only because couldn’t back its “We’re No. 1” claim.

“If this was a scam thing, this wasn’t the first rodeo,” Ames said.

After an ice storm hit Dallas the week of the Super Bowl, Ames said, he could not reach the company.

Ames had hoped to make $50,000 to $65,000 on the venture, but he was out $3,000.

“Even though I look back at it, I don’t necessarily smell a rat,” Ames said. “Other than they didn’t give our money back.”

Some local residents are looking to rent during the Super Bowl without going through an agency. Mark Friedman, Avon, put his homes up for rent on Craigslist. He declined to say how much he’s asking for his three-bedroom condo, though he said one competitor was asking for $3,000 a day.

“If I don’t rent it, that’s fine,” Friedman said. “But I’d rather have more control in the situation.”

Friedman has done this before; he rented out his two-bedroom San Diego condo in 2003 for that season’s Super Bowl. He listed it online himself then, too, setting out insurance responsibilities for renters and taking a video record of the condition of the condo.

For a four-night stay for five, Friedman made $4,000.

Now, the retired 63-year-old said he’s just looking for some extra income.

The 2012 Indianapolis Super Bowl Host Committee does not have a stance on home rentals but points out that about 13,800 hotel rooms are available in the Indianapolis area.

That should be enough to accommodate the estimated 100,000 to 150,000 people expected to visit the city in the 10 days leading up to the Super Bowl, said Dianna Boyce, spokeswoman for the host committee.

She warned people to do their research before seeking to rent out their homes.

The Super Bowl rental signs have drawn the ire of at least one city department. Many signs found across Indianapolis violate city code because of how they’re placed.

Signs are not allowed in the right-of-way of intersections, which means anything from the sidewalk to the curb, said city Department of Code Enforcement spokeswoman Kate Johnson.

Inspectors remove the infracting signs, which could obstruct views and distract drivers, and throw them away. It’s really nothing new, Johnson said, as signs appear along roadways all the time.

But when another company sees a sign in that place, it tends to think it’s OK to post its own, Johnson said.

“They tend to multiply like rabbits,” she said.


Hard times in raging heat

The Indianapolis Star, Aug. 5, 2011


Hard times in raging heat

1936 temperatures, hardships trump current weather

By Andrew Scoggin

Despite what the record books say, the summers of 1936 and 2011 bear little resemblance.

Yes, Thursday’s high of 90 in Indianapolis did tie the record of 19 consecutive days of 90-and-above temperatures set in 1936. With a high forecast near 90 again for today, there’s a chance that the record could be broken.

But Indiana experienced weather in 1936 that Hoosiers haven’t seen the likes of since.

That summer, residents withstood temperatures of at least 100 degrees a record 12 times, including a nine-day streak. There was a separate 14-day, 90-and-above heat wave earlier in the summer –the fourth-longest on record. And Collegeville hit 116 degrees on July 14 of that year, the highest temperature ever recorded in the state.

The summer of 1936 is the benchmark for heat waves in Indiana, said Ken Scheeringa, an associate state climatologist from the Indiana State Climate Office.

Add in the Great Depression, extreme drought and minimal air conditioning, and 1936 made for a miserable time for many.

As many as 5,000 people died in 1936 nationwide from the extreme heat, said Daniel Johnson, a geography professor at Indiana University-Purdue University Indianapolis.

About 500 people died from extreme heat that summer in Detroit alone, he said. Death totals from the heat that year aren’t available for Indiana.

But Ruth Sawyer, 90, lived through it as a 15-year-old on the Eastside.

Her family’s two-story home didn’t have air conditioning or fans, so they often spent nights sleeping on blankets in the backyard, rather than in their upstairs bedrooms. Her father, Emmett Welch, worked as an upholsterer, and she said some days he’d come home sick from the heat.

“Those were some miserable, hot days,” she said. “So many people were poor people at the time. It wasn’t just us.”

Few at the time had refrigeration or air conditioning, and fans came at a premium. Fans ranged from less than $1 to as much as $35, according to Indianapolis Star archives, at a time when the average U.S. household income was about $1,500 a year.

Sawyer said her house had an ice box to keep food cold, and an “iceman” would drop off blocks of ice to store inside it. Kids would chase behind the delivery truck, she said, to get the shards of ice that fell off the back. A Penny Ice Fund, ran by The Indianapolis Star and Salvation Army, raised funds that summer so needy families could buy 25 pounds of ice for 1 cent.

Sawyer and her 11-year-old sister, Blanche, spent most days jumping rope and playing hopscotch in front of the house, staying cool by putting wet washcloths on their necks and heads. Her family often waded in the White River at night, while her dad kept watch by shining the headlights on the family car.

“That was so much fun for us,” Sawyer said. “It was just like a million dollars, to get to do that and cool off a little bit.”

The summer of 1936 came in the heart of the Dust Bowl era, which by that time had spread to Indiana, said Johnson, of IUPUI.

That extreme drought added to the heat, similar to what’s happening now in the lower Great Plains, Scheeringa said.

“When it dries out, it heats up,” he said. “It’s just a big cycle that just kind of feeds on itself. It goes out of control almost.”

While that’s a factor in this year’s heat wave, Scheeringa said there are other elements at play. He said a cooling in ocean temperatures, known as La Nina, can push the jet steam farther north than normal, meaning warm air can spread farther north as well.

Sawyer said she likes the living conditions today more than during that summer of 1936 — at least in terms of the extreme heat. Now, she’s able to stay inside in air-conditioned comfort, like most Americans these days.

But among her favorite memories was a trip that summer to Madison to visit family. Her dad stopped along the way at a gas station and came back to the car with 5-cent Cokes.

“We were a happy family going through hard times,” Sawyer said. “My brother and I often say, ‘Weren’t we the happiest family in the world.’ “