From The Dallas Morning News "Are N. Texas home prices rising too fast?"

Here is some good news for Real Estate professionals. Steve Brown with Dallas Morning News wrote an article that puts Dallas real estate market in perspective:

"Dallas area has recouped everything lost in the recession and then some when it comes to residential real estate values."

"In July, the price of pre-owned single-family homes in North Texas was up 12 percent from a year earlier.  And pre-owned condominium prices jumped an unheard of 17 percent year of year."

"The median price of houses sold by real estate agents through their multiple listing service is about 40 percent higher than it was in January 2009."

Information courtesy of Steve Brown and The Dallas Morning News

FHA Underwriting Guidelines changes for Disputes on Credit Report

For most borrowers working with credit repair companies, "Disputes" listed on credit report are not allowed for most lenders under FHA Guidelines. Here is the revision FHA made effective October 15, 2013, to following:

*Guidance on collections and disputed accounts
*Clarify guidance on judgments

This guidance applies to all FHA programs with the exception of non-credit qualifying streamline refinances and the Home Equity Conversion Mortgage.

HUD 4155.1, Mortgage Credit Analysis for Mortgage Insurance 4.C.2.d, Collections and Judgments is re-named Credit Analysis of Collections and Judgments 4.C.2.e, Paying Off Collections and Judgments is re-named Capacity Analysis of Collections and Judgments 4.C.2.f, Previous Mortgage Foreclosure is re-named Handling of Disputed Accounts Re-designation of sections; Previous Mortgage Foreclosure through Short Sales, starting with 4.C.2.g to 4.C.2.m. HUD 4155.1 4.C.2.d Credit Analysis of Collections and Judgments Collections and judgments may indicate a borrower’s disregard for credit obligations and must be considered in the creditworthiness analysis. The guidance below applies to loans with collection accounts and all judgments. Medical collections and charge off accounts are excluded from this guidance. Documentation Requirements: Collection Accounts and Judgments Applicable to Manually Underwritten Loans: The lender must document reasons for approving a mortgage when the borrower has collection accounts or judgments. Regardless of the amount of outstanding collection accounts or judgments, the lender must determine if the collection account or judgment was a result of:  the borrower’s disregard for financial obligations;  the borrower’s inability to manage debt; or  extenuating circumstances. The borrower must provide a letter of explanation with supporting documentation for each outstanding collection account and judgment. The explanation and supporting documentation must be consistent with other credit information in the file. Applicable to Loans Run Through TOTAL Mortgage Scorecard: TOTAL Mortgage Scorecard Accept/Approve – There are no documentation or letter of explanation requirements for loans with collection accounts or judgments run through TOTAL Mortgage Scorecard receiving an "Accept/Approve" despite the presence of collection accounts or judgments. These accounts have been already taken into consideration in the borrower’s credit score. If TOTAL Mortgage Scorecard generates a "Refer," the lender must manually underwrite the loan in accordance with the guidance above applicable to manually underwritten loans with collection accounts and judgments. 4155.1 4.C.2.e Capacity Analysis of Collections and Judgments Collections - FHA does not require collection accounts to be paid off as a condition of mortgage approval. However, FHA does recognize that collection efforts by the creditor for unpaid collections could affect the borrower’s ability to repay the mortgage. To mitigate this risk, FHA is requiring a capacity analysis of collection accounts with an aggregate balance equal to or greater than $2,000, as described below. If the total outstanding balance of all collection accounts for all borrowers is equal to or greater than $2,000, the lender must perform a capacity analysis as detailed below. Unless excluded under state law, collection accounts of a non-purchasing spouse in a community property state are included in the cumulative balance. All medical collections and charge off accounts are excluded from this guidance and do not require resolution. Capacity analysis includes any of the following actions:  At the time of or prior to closing, payment in full of the collection account (verification of acceptable source of funds required).  The borrower makes payment arrangements with the creditor. If the borrower has entered into a payment arrangement with the creditor, a credit report or letter from the creditor verifying the monthly payment is required. The monthly payment must be included in the borrower’s debt-to-income ratio.  If evidence of a payment arrangement is not available, the lender must calculate the monthly payment using 5% of the outstanding balance of each collection, and include the monthly payment in the borrower’s debt-to-income ratio. TOTAL Mortgage Scorecard Accept/Approve/Refer - Regardless of the Accept/Approve/Refer recommendation by TOTAL Mortgage Scorecard, the lender must include the payment amount in the calculation of the borrower’s debt-to-income ratio.   4155.1 4.C.2.e Capacity Analysis of Collections and Judgments Continued Judgments - FHA requires judgments to be paid off before the mortgage loan is eligible for FHA insurance. An exception to the payoff of a court ordered judgment may be made if the borrower has an agreement with the creditor to make regular and timely payments. The borrower must provide a copy of the agreement and evidence that payments were made on time in accordance with the agreement, and a minimum of three months of scheduled payments have been made prior to credit approval. Borrowers are not allowed to prepay scheduled payments in order to meet the required minimum of three months of payments. Furthermore, lenders are instructed to include the payment amount in the agreement in the calculation of the borrower’s debt-to-income ratio. FHA requires judgments of a non-purchasing spouse in a community property state to be paid in full, or meet the exception guidance for judgments above, unless excluded by state law. Reference : For information on the Credit Analysis of Judgments, see HUD Handbook 4155.1 4.C.2.d. HUD 4155.1 4.C.2.f Handling of Disputed Accounts, Continued Disputed Derogatory Accounts Indicated on the Credit Report If the credit report utilized by TOTAL Mortgage Scorecard indicates that the borrower is disputing derogatory credit accounts, the borrower must provide a letter of explanation and documentation supporting the basis of the dispute. The lender must analyze the documentation provided for consistency with other credit information in the file to determine if the derogatory credit account should be considered in the underwriting analysis. Guidance for TOTAL Mortgage Scorecard Accept/Approve loans with disputed accounts . Disputed Derogatory Credit Accounts greater than or equal to $1,000 If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is equal to or greater than $1,000, the mortgage application must be downgraded to a "Refer" and a Direct Endorsement underwriter is required to manually underwrite the loan as described above. Disputed Derogatory Credit Accounts less than $1,000 If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is less than $1,000, a downgrade is not required. Excluded Accounts  Disputed medical accounts are excluded from the $1,000 limit and do not require documentation.  Disputed derogatory credit accounts resulting from identity theft, credit card theft, or unauthorized use are also excluded from the $1,000 limit. However, the lender must provide in the case binder a credit report, letter from the creditor, or other appropriate documentation to support the dispute, such as a police report disputing the fraudulent charges. Mortgagee Letter 2013-24, Continued HUD 4155.1 4.C.2.f Handling of Disputed Accounts, Continued Disputed derogatory credit accounts are defined as follows:  disputed charge-off accounts,  disputed collection accounts, and  disputed accounts with late payments in the last 24 months. Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance for determining if the mortgage application is downgraded to a "Refer". Non-derogatory disputed accounts are excluded from the $1,000 cumulative total. Non-Derogatory Disputed Accounts and Disputed Accounts Not Indicated on the Credit Report. Non-derogatory disputed accounts include the following types of accounts:  disputed accounts with zero balance,  disputed accounts with late payments aged 24 months or greater, and  disputed accounts that are current and paid as agreed. If a borrower is disputing non-derogatory accounts, or is disputing accounts which are not indicated on the credit report as being disputed, the lender is not required to downgrade the application to a "Refer." However, the lender must analyze the effect of the disputed accounts on the borrower’s ability to repay the loan. If the dispute results in the borrower’s monthly debt payments utilized in computing the debt-to-income ratio being less than the amount indicated on the credit report, the borrower must provide documentation of the lower payments. Paperwork Reduction Act The information collection requirements contained in this document are pending approval by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB control number 2502-0059. In accordance with the Paperwork Reduction Act, HUD may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a currently valid OMB control number.

Reference from:  U.S. Department of Housing and Urban Development
Mortgagee Letter 2013-24

Mortgage Market Update

Monday’s bond market has opened in positive territory, erasing part of Friday’s intra-day losses. The stock markets are mixed with the Dow down 7 points and the Nasdaq up 4 points. The bond market is currently up 6/32, but due to significant selling Friday afternoon, we will still see an increase of approximately .250 of a discount point if comparing to Friday’s morning pricing.

There is nothing of relevance scheduled for release today that has the potential to influence mortgage rates. The rest of the week brings us the release of three reports that do, in addition to the minutes from the most recent FOMC meeting and a congressional speaking engagement by Fed Chairman Bernanke. Only one of the economic reports is considered to be highly important to the markets and mortgage rates, but the others do carry enough significance to influence mortgage rates if they show a wide variance from forecasts.

Tomorrow also has nothing of importance scheduled, so look for stock movement to heavily influence bond trading and mortgage rates. Stock gains will probably pressure bonds and cause mortgage rates to move higher. If the major stock indexes show losses during the first couple days, we may see bonds thrive and mortgage rates remain unchanged or move slightly lower. It will also be interesting to see if last week’s pattern of afternoon selling in bonds carries into this week. Early gains in bonds this morning raises caution that it may. Therefore, proceed cautiously if still floating an interest rate and closing in the immediate future as the afternoon selling, for the most part, has been stronger than the morning buying. In other words, the afternoon revisions have been higher than the morning improvement s to rates.

Wednesday has three events that could affect mortgage rates. They include April’s Existing Home Sales report and Fed Chairman Bernanke’s appearance in front of Joint Economic Committee of Congress, both at 10:00 AM ET. That will be followed by the release of the minutes from the last FOMC meeting at 2:00 PM ET.

Overall, I believe Wednesday will be the most important day of the week for mortgage rates, although Friday should be active also as it has the most important economic report and will have an early bond market closing ahead of next Monday’s holiday.

Mortgage Market Update

This week brings us the release of seven economic reports that may have the potential to influence mortgage rates. There is data scheduled to be posted four of the five days, including today. We saw plenty of movement in rates last week despite the lack of factual economic reports. Unfortunately for mortgage shoppers, they moved higher and this week may not be any different. Therefore, please proceed cautiously as this could be another ugly week for rates if the data gives us stronger than expected results.

The first piece of data this week is April's Retail Sales at 8:30 AM ET Monday morning. This is an extremely important report for the financial markets since it measures consumer spending. Consumer spending makes up over two-thirds of the U.S. economy, so this data can have a pretty significant impact on the markets. Current forecasts are calling for a 0.3% decline in sales from March to April. A weaker than expected level of sales should push bond prices higher and mortgage rates lower Monday morning as it would signal that economic activity may not be as strong as thought. However, an unexpected increase could renew theories of economic growth that would lead to more stock buying and bond selling that would push mortgage rates higher.

There is nothing of relevance scheduled for Tuesday, but Wednesday has two reports that we will be watching. April's Producer Price Index (PPI) is the first at 8:30 AM ET. It helps us measure inflationary pressures at the producer level of the economy. If this report reveals weaker than expected readings, indicating inflation is not a concern at the producer level, we should see the bond market improve. The overall index is expected to fall 0.5%, while the core data that excludes more volatile food and energy prices has been forecasted to rise 0.1%. A decline in the core data would be ideal for mortgage shoppers because inflation is the number one nemesis for long-term securities such as mortgage-related bonds. As inflation rises, longer-term securities become less appealing to investors since inflation erodes the value of those securities’ future fixed interest payment. That is why the bond market tends to thrive in weaker economic conditions with low levels of inflation.

The second report of the day Wednesday is April's Industrial Production at 9:15 AM ET. It measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.2% decline in production, indicating that manufacturing activity is growing. A larger than expected decrease in output would be good news for the bond market and mortgage rates because it would indicate that the manufacturing sector is not as strong as thought. This report is considered to be moderately important, so it will likely need to show unexpected strength or weakness to cause movement in mortgage rates. The PPI report will probably be the biggest influence on bond trading and mortgage rates Wednesday.

April's Consumer Price Index (CPI) will also be posted at 8:30 AM ET Thursday. It is the sister report of Wednesday’s PPI report, but measures inflationary pressures at the more important consumer level of the economy. These results will be watched closely and could lead to significant volatility in the bond market and mortgage pricing if they show any surprises. Current forecasts are calling for a 0.2% decline in the overall index and a 0.2% rise in the core data reading. As with the PPI, the core data is the more important of the two readings and will help dictate mortgage rate direction.

Also early Thursday will be the release of April's Housing Starts. This data measures housing sector strength and mortgage credit demand by tracking newly issued permits and actual starts of new home construction. It is expected to show a drop in new starts from March's reading, hinting at housing sector weakness. However, since this report is not considered to be of high importance to the bond market, it likely will have little impact on mortgage rates unless it varies greatly from forecasts, especially with a key measurement of inflation being posted at the same time.

The last two pieces of data come late Friday morning. May's preliminary reading to the University of Michigan's Index of Consumer Sentiment will be released just before 10:00 AM ET Friday. This index measures consumer willingness to spend, which relates to consumer spending. If consumers are more confident in their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 78.5, which would be an increase from April’s final reading, indicating consumers are more confident and more likely to spend than they were last month. If it shows a large decline in consumer confidence, bond prices could rise and mortgage rates would move slightly lower because waning confidence means consumers are less apt to make a large purchase in the near future.

The week’s calendar closes with the release of April's Leading Economic Indicators (LEI) at 10:00 AM ET Friday. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.3% increase from March's reading, meaning that economic activity is likely to strengthen slightly over the next few months. A decline would be good news for the bond market and mortgage rates, while an increase could cause mortgage rates to inch higher Friday.

Overall, it is likely going to be an active week for the financial and mortgage markets. I am predicting Monday or Thursday will be the most important day for mortgage rates, but we could see noticeable movement in rates multiple days this week. The lightest day will likely be Tuesday unless it is an overly volatile day for stocks.

Mortgage Market Update

This week has little scheduled that is expected to drive bond trading and mortgage rates. There are no relevant monthly or quarterly economic reports on the calendar. In fact, the only economic news even worth watching is the weekly unemployment update from the Labor Department that usually draws little attention. We do, however, have two Treasury auctions that can potentially affect rates the middle part of the week.

Friday’s Employment report led to a significant sell-off in bonds and a large spike in mortgage rates. With nothing scheduled to help bond traders forget about Friday’s selling, the negative tone in stocks could carry into tomorrow’s trading. This is especially true if stocks open the week in positive ground. In other words, we could be in for further increases to mortgage rates the next day or two.

The Treasury will hold a 10-year Note sale Wednesday and a 30-year Bond sale Thursday. Results of the auctions will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sale, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons. After Friday’s selling, it is difficult to portray a scenario that gives us high hope for these auctions. At best, I believe we will be fortunate if they are a non-factor towards mortgage rates.

The week closes with a speaking engagement from Fed Chairman Bernanke mid-morning Friday. He will be speaking at a Fed banking conference in Chicago. Since this is the first time he will be public since last Friday’s employment news and the reaction the markets had, look for his words to cause a little volatility in the broader markets, and possibly mortgage rates.

Due to the lack of factual economic data to drive the markets this week, we should see bond trading and mortgage pricing to be heavily influenced by stock market direction. If the major stock indexes move higher, mortgage rates will probably follow suit. Ideally, mortgage shoppers should hope for stock market weakness as it would be the best scenario for mortgage rates to take back some of Friday’s increases.

Overall, I think we will see Monday to be a fairly active day as Friday’s stock and bond market sentiment will probably carry into today’s trading. That will likely mean we start off the week with an increase in mortgage rates, but to a much smaller scale as last Friday’s move. Wednesday’s 10-year Treasury Note auction could also cause movement in rates during afternoon hours.