Sign up to be on the conference call, reviewing the Chartbook. It will be Monday, April 29 at 11 AM EST. Mortgage Media Contributing Editor Dave Stevens will be analyzing the data.
Three housing topics to watch in the coming months
As the first quarter of 2019 comes to an end, we are watching three important trends and developments that will impact the mortgage industry, borrowers, and homebuyers for the balance of 2019 and beyond.
GSE Single Security: The FHFA recently issued its final rule on the GSEs Single Security Initiative. This initiative will unify Fannie Mae and Freddie Mac’s currently separate mortgage-backed securities into a single, comingled security, called the unified mortgage-backed security, or UMBS. The final rule requires Fannie Mae and Freddie Mac to align their policies, programs and practices that can impact cash-flows to holders of To-Be-Announced (TBA) -eligible mortgage-backed securities. In March, with this final rule set, SIFMA, the industry trade association – which sets guidelines for what constitutes TBA-eligible – approved revisions to those guidelines. This action effectively made UMBS a reality. The market had anticipated these actions, and the price differential between Fannie and Freddie securities had converged some time ago. Before this change, Freddie Mac needed to subsidize its security to the detriment of taxpayers. We will be monitoring how the combined UBMS security, which is expected to go live on June 3, 2019 trades.
FHA’s credit box changes. The FHA recently announced changes to its credit box to mitigate its concerns about endorsing mortgages with higher risk characteristics. The mortgage market has recently witnessed sustained relaxation in debt-to-income ratios for new originations, driven largely by higher house prices and rising mortgage rates (page 15). FICO scores in the FHA space have also dropped, prompting the agency to take action. With the latest changes, FHA’s automated underwriting system will refer certain higher-risk mortgages for manual underwriting, which is more labor intensive and costly for lenders. It is too early to tell whether this will discourage lenders from originating the affected mortgages and to what degree. In the coming months, we will be monitoring the credit characteristics of new FHA originations to identify the impact of this change on credit availability.
Shrinking months supply of housing: The supply of homes available for sale has gradually shrunk over the last several years as demand for housing has outpaced new home construction (page 20.) As of Feb 2019, the supply of homes on the market stood at 3.5 months, same as in Feb 2018, but lower than February of prior years. This number is highly seasonal because homebuying activity tends to be concentrated in the spring and summer months.
House price appreciation slowed somewhat during the fall and winter months due to lack of affordability in certain geographies and higher rates. However, with the recent pullback in rates, the start of the homebuying season, and a continued strong economy, demand will likely pick up again. What remains to be seen is whether months supply will continue its downward trend in 2019.