The Federal Housing Administration (FHA) is increasing the “floor” and “ceiling” FHA loan limits in 2024 to $498,257 and $1,149,825, respectively, the FHA announced Tuesday.
The new FHA loan limits apply to forward mortgages for a one-unit property and take effect on Jan. 1, according to the publication of FHA Mortgagee Letter (ML) 2023-21. In 2023, those figures were $472,030 and $1,089,300, respectively.
The new FHA loan limits mark increases of $26,227 for the floor and $60,525 for the ceiling, respectively.
FHA Commissioner Julia Gordon said that these changes in the loan limits will further empower homebuyers in a high-price environment.
“The statutory loan limit increases announced today reflect the continued rise in home prices seen throughout most of the nation in 2023,” Gordon said. “The increases to FHA’s loan limits will enable homebuyers to use FHA’s low-down-payment financing to access homeownership at a time when a lack of affordability threatens to shut well-qualified borrowers out of the market.”
While home-price appreciation slowed in 2023, it still pushed home prices higher nationally, according to the Federal Housing Finance Agency (FHFA)’s third quarter 2023 Housing Price Index (HPI) report, also published on Tuesday.
Home prices increased by an average of 5.5% between the third quarters of 2022 and 2023, according to the FHFA report. This growth rate is much lower than the rate seen during the same period last year (12.3%).
“[FHA] calculates forward mortgage limits based on the median house prices in accordance with the National Housing Act,” the FHA explained. “FHA’s Single Family forward mortgage limits are set by Metropolitan Statistical Area (MSA) and county and are published periodically.”
As of Tuesday afternoon, individual county limits on FHA’s database are not yet updated.
The FHA national low-cost area mortgage limits are 65% of the national conforming limit of $766,550 for a one-unit property. The high-cost area mortgage limits are 150% of the national conforming limit, according to FHA.
There are some exceptions. Mortgage limits for special areas, including the states and territories of Alaska, Hawaii, Guam and the U.S. Virgin Islands account for higher construction costs. The ceiling rate for these areas is $1,724,725 for a one-unit property in 2024.
FHA also announced the national lending limit for government-backed reverse mortgages, known as the Home Equity Conversion Mortgage (HECM) program, on Tuesday. HECM loan limits were increased for the eighth consecutive year in a row to $1,149,825 in 2024.
Meanwhile, the FHFA also announced on Tuesday that conforming loan limits will increase to $766,550 in 2024.
For the first time since 2021 when Americans relocated in droves, Nashville once again is a top migration destination, according to a new report from Redfin.
Nashville, also known as Music City, is No. 9 on the list of the most popular destinations for homebuyers looking to relocate to a new metro area in October. Most people surveyed relocated there from Los Angeles.
“A lot of Nashville locals have been priced out of homeownership, but when you’re coming from somewhere like California or New York, housing prices here still seem reasonable,” Redfin Premier real estate agent Kristin Sanchez said in a statement. “Nashville has relatively low property taxes, insurance costs and utility prices, along with no state income tax, all of which definitely help if you’re looking for a lower cost of living.”
While a lot of Sanchez’s clients were from California, she also reported working with people from Chicago, New York and Florida. Housing affordability remains one of the strongest assets of the Nashville housing market, but many buyers also relocated for professional reasons. Big companies such as financial firm AllianceBernstein or Amazon have headquarters in the city.
The typical home in Nashville in October went for $448,910 compared to $880,000 in Los Angeles.
Sacramento, Las Vegas and Orlando were the most popular migration destinations in October
Sacramento, California, was the most popular destination among homebuyers relocating to a new metro area in October. Many people moving to Sacramento were from San Francisco, where the typical home costs $1.5 million versus the $578,000 in Sacramento.
Myrtle Beach, South Carolina, came in at No. 4 after appearing on Redfin’s list of most popular destinations for the first time in July at No. 9. Four Florida metros ranked in the top 10 in October: Orlando, North Port-Sarasota, Cape Coral and Tampa.
These metros have some elements in common: their affordability in comparison to outbound destinations, their location in the Sun Belt and their exposure to significant climate risks.
The rising threat posed by natural disasters such as hurricanes and flooding prompted many homeowners insurance providers to pull out from risk-prone areas in recent months. This could have a negative impact on home prices in those markets.
Homebuyers flee expensive cities
Homebuyers are deserting San Francisco, New York City and Los Angeles at a faster pace than any other metros in the United States. That’s according to a Redfin measure, the net outflow, which calculates how many more Redfin.com users are looking to leave a metro than move in.
It’s a common trend for people to leave expensive job centers in search of more affordable housing elsewhere. This explains why many homebuyers leaving Los Angeles chose to relocate to Las Vegas, where home prices are 50% lower.
However, some people are choosing to stay in expensive cities, especially when the median home sale price cools. San Francisco, for example, posted a net outflow of 25,700 in October 2023, down from 35,700 in October 2022.
Redfin attributes this decline to softening home prices in October, when the median home sale price was 10% below the record-high level in April 2022.
Rohit Chopra, director of the Consumer Financial Protection Bureau, defended the agency’s proposal to prevent credit bureaus from considering medical debt in consumer credit scores will have little impact on creditors because medical debt has “little predictive value in credit decisions.”
Bloomberg News
A proposal by the Consumer Financial Protection Bureau to ban medical debt from credit reports is drawing the ire of the financial services industry, which claims not enough has been done to study the root cause of the problematic medical billing: The fractured health care system.
Advocates have been pushing for years for the CFPB to take medical debt off credit reports, claiming millions of consumers are pursued for debts they don’t owe or that are inaccurate. In September, the CFPB released an outline of a sweeping proposal to amend the Fair Credit Reporting Act. The plan was announced by Vice President Kamala Harris from the White House, with CFPB Director Rohit Chopra saying that medical debt has “little predictive value in credit decisions.”
In comments that closed last week about the proposal, financial firms and trade groups said that if enacted, the plan would restrict lending, increase costs and result in more denials of credit to low- and moderate-income consumers. Experts claim the CFPB’s proposal would make credit reports less accurate, increasing risks for lenders.
“Conceptually, the CFPB is getting into a dangerous place, because they’re saying medical debt doesn’t have predictive value — and that’s not their job,” said Kim Phan, a partner at the law firm Troutman Pepper, who focused on privacy and data security. “The industry has the right to decide what has value and what doesn’t.”
The CFPB said it expects to publish a report in December summarizing the feedback it received on its proposal from small businesses that will include written comments from stakeholders. Next year, the bureau plans to issue a notice of proposed rulemaking that will give the public an opportunity to comment on the plan before it is finalized.
Phan said that unless the CFPB scales back the proposal or makes changes, she expects the bureau will be sued by a trade group or credit bureau once a final rule has been issued. Taking medical debt off credit reports impacts a consumer’s credit capacity, which is one of the seven factors of credit used in underwriting decisions, Phan said.
“If a consumer earns $30,000 a year and just took on $100,000 of medical debt, their capacity to take on new credit is much more restricted,” Phan said.
The CFPB estimates that roughly 100 million people struggle with unpaid medical bills. The scope of the problem is so large that roughly 50 consumer groups banded together to urge the CFPB to take action.
Chi Chi Wu, senior attorney at the National Consumer Law Center, said consumers get stuck with unpaid medical bills for many reasons, though the majority are due to an insurance company denying a claim, paying only part of a claim or a health care provider demanding payment.
“Medical bills are complicated and bizarre and bureaucratic because, unlike a credit card, where the consumer has bought something, a third party is involved in the payment process,” said Wu, who is the lead author of the legal manual Fair Credit Reporting. “Everybody knows the health care system in this country is a mess. Consumers are asking why they got a bill when the insurance company was supposed to cover it.”
Still, collectors say that taking medical debt off credit reports does not tackle the underlying problems with medical billing disputes. Consumers will still owe the debt and the CFPB will be taking away a traditional tool that creditors use to spur debtors to pay: The threat of nonpayment that impacts a consumer’s credit score.
“Just because the debt is not on a credit report doesn’t mean the consumer doesn’t have to pay it,” said Jennifer Whipple, president of Collection Bureau Services, a family-owned debt collection agency in Missoula, Mont. “The proposal is not addressing the issue the CFPB is trying to fix in terms of people having insurance billing or denial issues or unsupportable health care.”
Earlier this year, the three credit bureaus, Equifax, Experian and TransUnion, agreed to remove medical debts of $500 or less from credit reports, which represented roughly 70% of all medical debts. Debt collectors want the CFPB to study the impact of that change, with a focus on health care providers not being paid, before removing the remaining 30% of medical debts still on credit reports.
“It’s too important an issue not to study and not to use data-driven analysis,” said Scott Purcell, CEO of ACA International, the trade group for collectors and creditors.
Whipple, who is the treasurer of ACA, said the CFPB’s message to consumers is that they do not have to pay their medical bills because there will be no impact to their credit. That kind of message, she said, could result in some consumers thinking they don’t need to pay for health care coverage at all.
“If the message is that medical bills won’t be on a credit report, then consumers may think they don’t need to pay a high premium every month or maybe even carry health insurance,” Whipple said. “Folks on Medicare or Medicaid will think they don’t owe the debt and so they may not take the time to fill out the forms to continue to get coverage.”
Banning medical debt from credit reports is just one piece of the CFPB’s proposal, which would subject a wide range of companies to the Fair Credit Reporting Act’s requirements. The plan also has been criticized for restricting the sale of so-called credit header data by the three main credit bureaus, which some experts say could potentially cut off critical information to law enforcement agencies.
The FCRA requires that information on credit reports to be accurate, and was intended to provide a way for consumers to dispute erroneous information on credit reports and give creditors an unbiased and fungible metric of a borrower’s ability to repay. In its proposal, the CFPB said that consumer complaints about medical debt underscore how ineffective, time-consuming and costly the dispute process has become. Legal experts say the CFPB’s proposed changes will reverberate throughout the financial ecosystem with unknown consequences.
“Medical debt is an insurance problem, and to say you can’t collect it or report it doesn’t solve the insurance issues and it also doesn’t help poor people,” said Joann Needleman, a practice leader and member of the law firm Clark Hill.
Wu, at the National Consumer Law Center, said consumers often find out about a medical debt when they try to buy a car or refinance their mortgage and are told that they can’t get approved for a loan.
“Consumers will pay the debt because they don’t have time to go back and dispute it,” she said.
Andrew Nigrinis, an economist at Legal Economics LLC and a former CFPB economist, said the CFPB did not provide a valid economic analysis of the impact of the proposal. He also said the CFPB’s research that found removing medical debt would increase credit scores was hardly a surprise.
“It’s the same logic that if you took away mortgage delinquencies from credit reports, then obviously credit scores would go up,” he said. “It’s not a profound result.”
Medical debt is a major problem for states that failed to implement the expansion of Medicaid under the Affordable Care Act and have a high percentage of uninsured residents. In a study he conducted for the collections industry, Nigrinis found that the loss of predictive information on credit reports would result in more lending to unqualified borrowers, higher litigation costs to collect debts, and lost income for medical providers due to nonpayment of services.
“The debt collection industry is very competitive and they pass costs on to consumers,” he said. “Presumably, debt collection rates would go up and so would costs of financing and denials of financing.”
Needleman added that the CFPB “is deciding which debts that a consumer should pay — and that’s not their role.”
The trend in rates has been very linear in the 2nd half of the month and the day-to-day changes have been getting smaller and smaller. On 5 of the last 6 business days, the average 30yr fixed rate has moved by less than 0.02% by the end of the day.
Conveniently, most of the gentle moves have been in a friendly direction. With rates already at 2 month lows last week, the result is gentle descent to slightly lower 2 month lows.
Today’s improvement followed the bond market’s reaction to comments from the Fed’s Chris Waller who said that the Fed could cut rates if inflation continued to decline for several months. Waller also reiterated and amplified his previous comments on the slower pace of economic growth.
Specifically, last month Waller said that we’d either need to see slower growth or face a resurgence of inflation. Today’s comments hearkened back, saying “something appears to be giving, and it’s the pace of the economy.”
There are no extremely high profile economic reports on tap this week, so the market is perhaps more willing to react to guidance from Fed speakers. It continues to be the case that next week’s economic data can have a much larger impact–especially Friday’s jobs report.
In another odd twist for 2023, the ability to split up after a divorce seems to be another casualty of the high mortgage rate environment.
Couples who may have locked in a very low mortgage rate in previous years — but who are now seeking to end their marriages — are finding themselves needing to remain in their homes together as high rates make moving out an unaffordable prospect, according to a report at the Wall Street Journal.
“Mortgage rates are over 7% and average home prices have hit record highs,” the report says. “This means more couples can’t afford to leave their home with its less than 3% mortgage interest rates and set up two different households. Renting isn’t always an option either given that rents have risen more than 9% over the last two years.”
The reality has led to awkward arrangements for impacted divorced couples. Separately “assigned” floors for estranged spouses, separate purchases of groceries and scheduled times for doing their laundry, to name a few.
“One woman locks her bedroom door and keeps her supply of batteries and toilet paper in her closet,” the report says. “Many don’t tell colleagues about the set up because it seems unthinkable or they are embarrassed. They try to maintain civility for the kids and hold tight until they can afford to buy, rent and furnish two homes.”
In one example, a couple bought a Mesa, Arizona, home for $600,000 at a mortgage interest rate of 5.62% in the summer of 2022. The initial plan was to refinance when rates improved, but they’re now seeking a divorce and living in a home that has dropped in value.
The couple remains on amicable terms and stayed in the home together for two months, but when it became too awkward they sought out new living arrangements. One found an affordable rental via social media, while the other is staying in the house but is not making any payments on it until it sells.
Another estranged couple in the Phoenix area worked out an arrangement on their home with a 3.25% mortgage rate. The wife bought out 40% of the husband’s equity and agreed to pay the remainder within three years.
“She would have preferred a clean break from her ex, rather than dragging the commitment on for three years, but she says it was the only option given today’s elevated mortgage rates,” the report said of the arrangement.
The wife blamed elevated mortgage rates on the unusual arrangement.
“If rates weren’t so high, I would have sold the house and moved somewhere within the city or refinanced,” she told the Journal.
Angelo Mozilo defended his compensation plan before the Committee on Oversight and Government Reform today, explaining how he built Countrywide from the ground up and based his pay largely on performance.
“My personal experience as a CEO is unlike that of many other American CEOs,” said Mozilo. “As a founder of the company, I was not brought in to serve as the CEO of an existing major enterprise, nor did I start out as an employee of an established company and then work my way up.”
“We shared a dream to create the first national mortgage banking company focused on providing homeownership opportunities to all Americans, including families who had been largely left behind by traditional mortgage lenders,” he said.
The former Countrywide boss went on to say that the Board and shareholders agreed upon a compensation plan for executives that would be performance based, and because the company was so successful, his earnings skyrocketed.
“From 1982 through April 2007, our stock price appreciated over 23,000 %. As a result, earlier in this decade, I received substantial income from performance based bonuses earned under a formula based on earnings per share,” he said.
“In short, as our company did well, I did well.”
Mozilo noted that his holdings had increased in value as the stock continued to march higher, and it wasn’t until 2004 that he began dumping shares as part of his planned retirement.
“In December 2004, in consultation with my financial advisor as we prepared for my retirement, I exercised a number of outstanding options, a significant number of which were about to expire, and sold the underlying stock pursuant to plans established with the advice of counsel.”
Despite this, Mozilo said he is still one of the company’s largest individual shareholders, because he believes in the company.
Lastly, he added he would not receive a bonus for 2007 or 2008, and that he decided to forego his severance pay to ensure the Bank of America purchase isn’t complicated as a result.
“I voluntarily gave up these benefits because I did not want this issue to detract from, or in any way to impede, the important task of completing the Bank of America transaction, one that I believe is critical for our employees, our shareholders, our customers and the economy in general,” he concluded.
Read the full testimony.
The Committee on Oversight and Government Reform has a report chock full of questions regarding Mozilo’s steep pay, ranging from his decision to sell shares while the company was borrowing money to repurchase shares, to a flawed “peer group” that inflated his level of compensation.
[1/2]A “sold” sign is seen outside of a recently purchased home in Washington, U.S., July 7, 2022. REUTERS/Sarah Silbiger/File Photo Acquire Licensing Rights
Nov 28 (Reuters) – U.S. annual home price growth accelerated again in September, underscoring the rebound of the housing market as it entered the final quarter of the year, data showed on Tuesday.
Home prices rose 6.1% on a year-over-year basis in September, up from an upwardly revised 5.8% increase in the prior month, the Federal Housing Finance Agency (FHFA) said.
On a quarterly basis, annual house prices increased 5.5% between the third quarter of last year and the comparative period this year.
Home prices rose 2.1% in the third quarter compared to the second quarter of this year, reflecting the reacceleration since June that has taken place following a period of softness in the market.
The report also showed prices rose moderately on a month-over-month basis, in line with recent trends. Prices were up 0.6% in September, compared with an upwardly revised 0.7% month-over-month increase in August.
The cost of mortgage loans fell last week to a two-month low after topping out at almost 8% in October, the highest level in more than 20 years. Despite the dip, housing inventory remains low, which has kept a floor under prices paid for properties.
The Federal Reserve kept its benchmark overnight lending rate unchanged earlier this month after raising its policy rate from the near-zero level in March 2022 to the 5.25%-5.50% range in July 2023.
Investors do not expect another rate increase and are currently forecasting a rate cut in May of next year, given the Fed has indicated it would raise interest rates again only if progress in controlling inflation faltered.
Annual house prices rose the most in the New England and Middle Atlantic regions in August, with gains of 11.4% and 8.3%, respectively, the FHFA data showed.
A separate report on Tuesday bolstered the view that the housing market is ramping up again, with the S&P CoreLogic Case-Shiller national home price index posting a 3.9% increase in September on an annual basis. That compared to a 2.5% rise in August.
Prices in Detroit accelerated the most on a city basis, overtaking Chicago, which had held the top spot for fourth straight months, the Case-Shiller data showed.
Reporting by Lindsay Dunsmuir; Editing by Paul Simao
Our Standards: The Thomson Reuters Trust Principles.
The Census Bureau released the monthly New Home Sales report today, showing a decrease from 719k in September (revised down from 759k initially reported) to 679k in October. While this number is below the long term trend that emerged after the Great Financial Crisis, it’s still in league with the pre-covid highs.
The post-covid story for the housing market has been one of ever-dwindling inventory and its various effects. One of the most obvious effects of lower EXISTING home inventory is that NEW homes have captured a larger share of the market.
Existing homes have moved lower, almost exclusively from the peak. The divergence from New Home Sales has been especially notable since mid-2022 when rates really began skyrocketing. The following chart shows the percent change in both new and existing sales from the peak.
Perhaps most notable is the price trend during the time when sales were down more than 40%.
An inventory crunch is the only thing that could explain the juxtaposition of a sharp decline in sales and a sharp increase in values, but it’s important to note the 3rd ingredient in play during the highlighted time frame above: incredibly low rates. Prices stopped accelerating almost as soon as rates began to jump.
What’s the takeaway for the housing market? Today’s report doesn’t tell us much. Anything in the 650-750k range is fairly neutral. Additionally, the outlook may be rapidly changing to whatever extent the highest interest rates are behind us. That’s a possibility that will receive more clarity with next week’s economic data, but it will take several months to confirm.
Mortgage rates have risen. Home sales have fallen. And prices of houses in the Bay Area and California have gone up more than 5 percent.
While interest rates peaked at 7.8 percent in late October, home sales across the Golden State fell 11.9 percent from a year ago, the San Jose Mercury News reported, citing new figures from the California Association of Realtors.
Meanwhile, the cost of a typical home in the Bay Area rose 5.7 percent during the period to $1.27 million.
At the same time, the median price of a California home rose 5.3 percent to $840,360, according to the Realtors report, while overall number of home sales fell 27.2 percent.
Even with slowing sales, most buyers aren’t pulling out of the market just because of interest rates, brokers say. The declining sales point more to a lack of inventory.
Jim Hamilton, president of the Silicon Valley Association of Realtors (Compass)
Buyers “are getting accustomed to those higher interest rates,” Jim Hamilton, president of the Silicon Valley Association of Realtors, told the Mercury News. “It’s a pretty dramatic jump, but it didn’t happen overnight either.”
Interest rates peaked at 7.79 percent in the last week of October, the highest rate in 20 years. Since then, rates have slipped to 7.44 percent.
After 14 months of decline, prices began moving up again in August. In the nine-county Bay Area, San Mateo County had the highest median home price at $2.1 million, while Solano County had the lowest at $620,000.
Most sellers don’t want to give up cheap mortgages and buy at rates two or three times higher than what they’re now paying, agents say.
With fewer homeowners moving and marketing their homes, buyers now compete for fewer properties. And that drives up prices, a trend likely to continue through New Year’s.
Price-savvy buyers may also be putting their house hunts on hold.
Kumi Hodge, a real estate agent based in San Ramon (Kumi the Realtor)
For every 1 percent increase in rates, buyers tend to lose 10 percent of their purchasing power, according to agents. A buyer that could afford a $1 million home in January, when rates were 6.4 percent, might now be only able to afford a home worth $845,000.
“If there’s not a need for more space, or relocating based on work, then people are sitting tight and waiting to see what happens with rates,” Kumi Hodge, a residential agent based in San Ramon, told the Mercury News.
Mortgage rates have pulled back in recent weeks giving consumers and loan originators some breathing room, but headwinds in the industry are far from over.
The decline in the 10-year Treasury yield and agency mortgage-backed securities (MBS) yields — due to a soft jobs report in late October — led to a slight pick up in seasonally-adjusted mortgage application volume. This marks a “welcome near-term reprieve for originators and many mortgage real estate investment trusts (mREITs),” according to a note from Piper Sandler, a leading investment bank.
“But this move is immaterial relative to the continued downward trend that has persisted throughout the past two years – particularly as we face the seasonally slow winter months,” the note said.
Piper Sandler forecasts further consolidation within the mortgage industry over the next few months with demand near multi-decade lows before picking up in 2024 as consumers re-adjust to higher mortgage rates.
Here are the three factors that Piper Sandler noted for continued mortgage industry headwinds:
Application demand remains low
The Mortgage Bankers Association’s (MBA’s) weekly mortgage application volume index reached the lowest levels in October since tracking the data in 2020. Application volume index declined 19% year over year as of Oct. 25 and decreased 45% below the previous trough in 2018, according to Piper Sandler.
Overall, purchase volume is now down 56% from the near-term peak in January 2021 and 9% below the previous trough in 2014.
Prepayment speeds continue to trend lower
Mortgage prepayment speeds on 30-year fixed rate pools of agency and government mortgages in October dropped 15 to 40 basis points from the previous month to 4.8% for Fannie Mae and Freddie Mac pools, according to Piper Sandler.
The drop in prepayment speeds indicates mortgage servicing rights (MSR) amortization expense should continue to decline, a positive development for mortgage companies with large servicing fee revenue streams.
Piper Sandler expects a drop in prepayment speeds to continue despite the near-term dip in mortgage rates, because very few borrowers have mortgage rates above current levels.
The industry would need to see a more persistent mortgage rate decline to near 6% for a more meaningful pickup in prepayment speeds, the note said.
Affordability remains a problem
Affordability has declined for nine straight months in October as median home prices have increased 8% and mortgage rates have increased 123 bps during this time period.
Piper Sandler estimates the median monthly payment is now $2,313 as of October 2023. That’s a 12% year-over-year increase and a 130% increase from the pre-pandemic levels in October 2019.
The median mortgage payment exceeds 30% of the median household annual income while home prices are 4.2 times the median annual income, Piper Sandler said. This finding is in line with the financial crisis high and well above the 2000-2022 average of 3.4x.
The industry would need to see a more meaningful decline in home prices and/or mortgage rates before home sales will start reverting back to pre-pandemic levels, Piper Sandler projected.