$300 billion FHA expansion clears Senate hurdle
A plan to expand FHA loan guarantee programs by $300 billion to help troubled borrowers refinance into more affordable loans cleared a procedural hurdle Tuesday, as the Senate voted 83-9 to move forward on a debate. The "Housing and Economic Recovery Act of 2008" would also create a new regulator for mortgage financers Fannie Mae and Freddie Mac and assess them more than $700 million a year to cover the cost of expanding Federal Housing Administration loan guarantee programs.

The Congressional Budget Office has estimated the program would help 400,000 borrowers at a cost of $680 million over 10 years.

Nine Republicans voted against moving forward on the bill Tuesday, and presidential candidates John McCain, R-Ariz., and Barack Obama, D-Ill., were among eight who did not cast votes. The bill could be approved by the Senate today, but faces a veto threat by President Bush.

The House and Senate also differ on where to set the conforming loan limit. The House bill would keep the current, temporary limit of $729,750 set to expire at the end of the year in place, while the Senate bill would not allow Fannie and Freddie to purchase or guarantee single-family mortgages larger than $625,000.

Fed keeps key short-term rate at 2 percent
A Federal Reserve committee that sets the target for the interest rate banks charge each other for overnight loans has decided to keep it at 2 percent, as expected, but signaled the possibility of future increases. After cutting the federal funds rate from 5.25 percent at seven successive meetings since September, the Federal Open Market committee today took a wait-and-see attitude.

Reducing the federal funds rate to the lowest level since 2004 was intended to stimulate the economy by encouraging borrowing, to counter the impact of the housing downturn and credit crunch. But critics say those and other actions by the Fed have has also devalued the dollar, sending oil prices skyrocketing and fueling inflation. Although members of the committee noted in a statement that "the upside risks to inflation and inflation expectations have increased," only one member — Richard Fisher, president of the Federal Reserve Bank of Dallas — voted to increase the target for the federal funds rate today.

The committee said that it expects inflation to moderate later this year and next, and that the "substantial easing of monetary policy" to date, combined with other steps intended to provide liquidity to financial markets, "should promote moderate growth over time." Short-term interest rates do not directly impact rates on long term, fixed-rate mortgages, but can affect rates on adjustable-rate mortgages.

Countrywide-BofA merger OK’d as state AGs sue
Shareholders of Countrywide Financial Corp. today approved a merger with Bank of America Corp., even as attorneys general in Illinois and California filed lawsuits against Countrywide for alleged unfair and deceptive lending practices. Countrywide announced that holders of more than 69 percent of the outstanding shares of the troubled lender approved the merger in an all-stock transaction currently valued at about $2.8 billion. The merger is expected to close July 1.

Illinois Attorney General Lisa Madigan today announced a lawsuit against Countrywide and former Chief Executive Officer Angelo Mozilo. The lawsuit alleges Countrywide sold risky and costly loan products to borrowers who could not afford them, intensifying its originations as failure rates escalated in order to satisfy obligations to Wall Street investors. California Attorney General Jerry Brown also announced a lawsuit against Countrywide, alleging deceptive advertising and unfair competition. Brown’s sister, former California Treasurer Kathleen Brown, served on Countrywide’s board of directors when some of the illegal practices allegedly occurred. She was named to the board in 2005 and resigned last year.

Henry Cisneros, Secretary of Housing during the Clinton administration, is also a former Countrywide board member, and other prominent Democrats who allegedly received loans on favorable terms from the company include U.S. Sens. Chris Dodd, D-Conn., and Kent Conrad, D-N.D.; former UN Ambassador Richard Holbrooke; former Secretary of Health and Human Services Donna Shalala; and former Barack Obama advisor and ex-Fannie Mae CEO James Johnson.

New-home sales down 40 percent from a year ago
Sales of new one-family houses in May 2008 were at a seasonally adjusted annual rate of 512,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.5 percent below the revised April rate of 525,000 and 40.3 percent below the May 2007 estimate of 857,000. The median sales price of new houses sold in May 2008 was $231,000, and the average sales price was $311,300.

The seasonally adjusted estimate of new houses for sale at the end of May was 453,000. This represents a supply of 10.9 months at the current sales rate. Six months of inventory is considered to represent equilibrium between supply and demand.

New-home sales fell 11.6 percent in the West and 7.9 percent in the Northeast, but were up 5.1 percent in the Midwest and 0.4 percent in the South.

Mortgage applications fall 9 percent from previous week
Mortgage loan application volume last week fell 9.3 percent from the previous week and 25.3 percent from the same week a year ago, the Mortgage Bankers Association said in its Weekly Mortgage Applications Survey. Applications for refinance loans fell more sharply — 12.1 percent — than purchase loans, which were down 7.4 percent from the previous week. Applications for conventional purchase loans fell 6 percent, and the government purchase index — largely FHA loans — was down 11.1 percent.

The refinance share of mortgage applications fell to 36.3 percent, down from 37.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 8.5 percent from 9.7 percent.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.39 percent from 6.57 percent, with points increasing to 1.12 from 1.1 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.95 percent from 6.14 percent, with points increasing to 1.16 from 1.1 (including the origination fee) for 80 percent LTV loans. The average contract interest rate for one-year ARMs decreased to 7.09 percent from 7.22 percent, with points increasing to 1.59 from 1.56 (including the origination fee) for 80 percent LTV loans.

Freddie issues reprieve for MGIC, PMI, Radian
Freddie Mac says it will continue to do business with three companies that provide the majority of private mortgage insurance despite downgrades by the major rating agencies, but will no longer buy loans insured by a fourth company, Triad Guaranty Inc., after July 15.

The three insurers Freddie Mac will continue to work with after the companies lost their AA financial strength ratings are Mortgage Guaranty Insurance Corp., PMI Mortgage Insurance Co. and Radian Guaranty Inc. The government-chartered financer of mortgages said it had reviewed business and financial remediation plans the companies have implemented to regain their AA ratings.

Standard and Poor’s analysts downgraded the three companies’ financial strength ratings in April because of fears of greater-than-anticipated home-price declines. The companies were adequately capitalized to meet claims on existing coverage, Standard & Poor’s said, but might have to boost reserves in order to insure additional mortgages (see story).

Triad Guaranty Inc. this month became the first mortgage insurer to stop selling new policies after it was unable to raise additional capital, and Freddie Mac said it would no longer buy loans insured by the company, Bloomberg reported.

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