Mortgage financing changes on tap as Spring market gets underway

The Treasury's program to buy Mortgage-backed securities comes to an end in March with an uncertain forecast of the resulting impact. Most predictions suggest mortgage rates are likely to rise somewhere between 1/2% to 1% by the end of the year, putting some pressure on the nascent housing recovery. Additionally, the homebuyer tax credit ends in April with virtually no chance (or expectation) of it being extended again.

These are just a couple of the significant factors at play as lenders, homeowners, and real estate practitioners look for increased signs of stabilization and a return to "normalcy." Other current and upcoming finance changes include:

• FHA will increase the mortgage insurance premium from 1.75% to 2.25% of the loan amount as of April 5th. Other actions are expected later this year, including increasing the down payment requirement for those with credit scores less than 580 and reducing the allowable seller concessions (e.g., closing costs) from 6% to 3%.
  
• Also on April 5th, a new program referred to as HAFA will begin that aims to ease the short sale process. Shifting rules and incentives to promote short sales and reduce foreclosures will likely continue for several more months. Many banks (and struggling homeowners) have been confused by the available options and oft-changing guidelines causing delays in closings and disrupting sales with potential buyers.
• Banks will write down loan balances. Bank of America was the first to come out and state that they will begin modifying the principal on its loans. This is a controversial move to be sure, but may enable some to keep their home that might otherwise end up in foreclosure. (Click to see the Wall Street Journal article.)
  
• Jumbo loans are getting a little easier. When the market for securities backed by jumbo loans broke down, the interest rate on these mortgages jumped, severely impacting the high end market. The door is beginning to open a little which should help sales and perk up pricing. In early March, jumbo rates fell to a 5-year low of 5.79%.
  

Expect the landscape to continue shifting for the foreseeable future. Until the housing market begins to grow without help, regulators and banks are likely to continue trying different tactics to keep things stabilized and minimize any losses.