Some encouraging developments...

On the mortgage front, there were two items of note this week.  First, the Federal Housing Administration (FHA) managed to reinstate the maximum guaranteed loan level at $729,000, a level that had been in place through October but had been phased down to a maximum of $625,000 in high cost areas.   There had been significant Congressional pressure to allow the loan limit levels to decline under the theory that the government should not be subsidizing mortgage rates at the high end of the market.  As the theory goes: home prices need to adjust within a free market mechanism and the government shouldn’t be tampering with the market.

And so while all the focus was on Fannie Mae and Freddie Mac, the FHA (no doubt with the assistance of various real estate lobbies), to the great disapproval of the Wall Street Journal editorial page, was able to sneak in the higher loan limit.  To the less initiated, FHA guaranteed mortgages will typically wind up in Ginnie Mae mortgage securities,  securities that carry an explicit full faith and credit government guarantee.  The irony here is that the FHA mortgage program was designed for lower income borrowers and typically requires a lower down payment  than its GSE cousins —as low as 3.5% of the purchase price—and is now supporting the higher end of the government sponsored mortgage market.

Followers of this blog may want to know where their favorite mortgage crisis blogger comes down on this issue.  While I think it’s a wonderful idea to have transparent and efficient markets, the reality is that as a country, we have been subsidizing mortgages and housing for decades.  Some of our more ideological politicians think now is the time to wheel out the free market gospel and let the chips fall where they may.  I would argue that home prices and more specifically, home equity, are too important to the health of the US economy to abruptly withdraw the morphine drip to the housing market,

This week's other newsworthy item was the Mortgage Bankers’ Association release of its Q3 National Mortgage Delinquency Survey.  On balance, the news was positive.  Serious delinquencies, i.e. mortgages that are delinquent 60 days or more inclusive of foreclosures declined to 9.23%, down from 9.41% in Q2.  Bank of America estimates that the actual loan count of seriously delinquent mortgages declined to 4.57 million from 4.69 million in Q2 and from 5.08 million in Q3 2010.  The overall picture shows a decline in early stage delinquencies while the foreclosure pipeline is increasing slightly.  This is to be expected as bad loans work themselves through the delinquency pipeline.

Ultimately, we will need to see improvement in the national employment picture to support these positive trends.  Perhaps our friends in Washington are listening.