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FHA to shore up cash in bid to stave off bailout

The Federal Housing Administration, facing a $16.3 billion deficit, will increase mortgage fees next year and take other steps in an effort to avoid a taxpayer bailout, the Obama administration said on Friday.

The agency, a primary source of funding for first-time home buyers and those with modest incomes, said it would raise the premiums it charges on loans it guarantees by 10 basis points, adding, on average, about $13 per month to a borrower’s cost.

A basis point is one-hundredth of a percentage point.

Housing officials would not say whether the steps would be enough to keep the mortgage insurer from turning to the Treasury Department for a cash infusion for the first time in its 78-year history. “I’m not going to place bets,” FHA Acting Commissioner Carol Galante told reporters.

The FHA’s role in the mortgage market has expanded rapidly since the U.S. housing bubble burst. It now insures about 1.2 million mortgages, supporting about 15 percent of all U.S. home loans, up from 5 percent in 2006.

Combined with government-controlled Fannie Mae <FNMA.OB> and Freddie Mac <FMCC.OB), which buy loans and repackage them as securities for investors, Washington’s footprint in the market has grown to account for nearly nine of every 10 mortgages.

The three firms have helped prevent a deeper housing bust, but heavy losses have sparked debate over how to strike the best balance between protecting taxpayers and keeping credit flowing.

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Dual Income Families Comprising Larger Portion of U.S. Home Buyer Marketplace in 2012

According the National Association of Realtors (NAR) recently released 2012 Profile of Home Buyers and Sellers report, dual income households are comprising a greater portion of the housing market and helping sales recover, according to an annual study released today.

According to the NAR report, sixty-five percent of all buyers are married couples, 16 percent are single women, 9 percent single men, 8 percent unmarried couples and 2 percent other; percentages of single buyers were slightly higher in 2011. However, just two years ago, 58 percent of buyers were married, 20 percent were single women, 12 percent single men and 7 percent unmarried couples; the overall market share of single buyers declined a total of 7 percentage points over the past two years.  Before 2010, the market shares moved within a very narrow range, generally a percentage point or two.

“The continued growth in married couples as single buyers shrink demonstrates that households with dual incomes are more successful in obtaining a mortgage.  However, given the historically favorable housing affordability conditions, most single-income buyers could also purchase a home and stay well within their means, if lending requirements were more sensible,” Bishop said.

First-time home buyers edged up to a 39 percent market share in the past year from 37 percent in the 2011 study.  Long-term survey averages show that four out of 10 buyers are typically first-time buyers, who are critical to a housing recovery because they help existing home owners to sell and make a trade.

The study shows the median age of first-time buyers was 31 and the median income was $61,800.  The typical first-time buyer purchased a 1,600 square-foot home costing $154,100, while the typical repeat buyer was 51 years old and earned $93,100.  Repeat buyers purchased a median 2,100-square foot home costing $220,000.

The median downpayment for all home buyers was 9 percent, ranging from 4 percent for first-time buyers to 13 percent for repeat buyers. “First-time buyers historically make small downpayments, but repeat buyers like to put down 20 percent if they can to avoid paying mortgage insurance,” Bishop said.  “The general loss in home value since the peak of the housing boom means many repeat buyers in recent years had to make smaller downpayments.  Fortunately, prices have turned up this year and are showing sustained increases, so we’re on the road to a recovery in home equity.”

First-time buyers who financed their purchase used a variety of resources for the downpayment:  76 percent tapped into savings; 24 percent received a gift from a friend or relative, typically from their parents; and 6 percent received a loan from a relative or friend.  Eleven percent tapped into a 401(k) fund, and 6 percent sold stocks or bonds.  Ninety-three percent of entry-level buyers chose a fixed-rate mortgage.

Forty-six percent of first-time buyers financed with a low-downpayment FHA mortgage, and 10 percent used the VA loan program with no downpayment requirements.  Forty-two percent cut spending on luxury items to buy their first home, 35 percent cut spending on entertainment and 27 percent cut spending on clothes.

Seventy-eight percent of recent home buyers said their home is a good investment, and 46 percent believe it’s better than stocks; 92 percent were satisfied with the buying process.

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State Grants Coming Soon for Eligible Home Buyers

The year is going well for local Realtors, according to Coldwell Banker Hubbell Briarwood Broker Jeff Thornton.

“Usually, this time of year we start slowing down, but I’m showing homes all weekend. Lots of people out there still looking,” Thornton said.

Thornton spent Friday afternoon showing listings to Glenn and Danise Peck, who might be able to get some help from the state to buy their new home.

“We’ll be providing down payment assistance funds to home buyers, for anyone that has never owned a home or has not owned a home in the last three years,” said Mary Townley, Director of Home Ownership at the Michigan State Housing Development Authority (MSHDA).

The money comes from a national settlement between 49 states and the country’s five largest mortgage providers. Michigan took away $97 million and a portion of that — $15 million — will go toward helping eligible home buyers.

“We are in the final stages right now of putting together the program, creating our process flows…We’re hoping to have this up and ready at the end of the year,” said Townley.

Once eligible, service members can get up to $5000 and non-service members can get $3000.

Thornton expects this money to be a significant help to first time home buyers.

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