Here is what was at the top of the headlines for the mortgage industry this past week:
1. FHA Lowers Loan Limit Amount for 650 High Cost Areas
The Department of Housing and Urban Development (HUD) announced late Friday that the maximum loan eligible for a Federal Housing Administration (FHA) guarantee will be reduced from 2013 levels in a number of areas of the country starting January 1. While the standard FHA loan limit for areas considered to have low housing costs will remain at the current $271,050 level, 650 of the areas deemed higher cost will have their maximum loan sizes reduced.
FHA loan limits are calculated according to a formula prescribed by the Housing and Economic Recovery Act (HERA) based on median home prices. Most of the limits apply on a county by county basis. The new maximum loan limit for high-cost areas will drop on January 1from $729,750 to $625,500. Loan limits that fall between the standard limit and the high-cost limit will also be affected.
2. The Rental Housing Affordability Crisis
A new study from the Harvard Joint Center on Housing Studies in conjunction with the McArthur Foundation looks at the growing importance of rental housing in the U.S. as households reverse their long upward trend in homeownership and increasingly turn to renting. The renter share of households climbed from 31 percent in 2003 to 35 percent in 2013 or 43 million households.
While renting is more common among young adults, more than a third of renters are aged 35 to 54, about the same as their population share. Even at stages when homeownership is greatest people still move in and out of the rental market. Against stereotype, families with children account for as many renters as single persons. Renters’ incomes are disproportionately low. Nearly a quarter have annual incomes under $15,000 while only 13 percent of all households fall into that category.
3. Worst Year in History for Bond Funds
Investors have pulled out $72 billion from bond mutual funds this year through the first week of December, according to data from TrimTabs.
This is the first time in nearly a decade that investors have taken more money out bond funds than they’ve put in — and it tops the previous record from 1994 when investors withdrew almost $63 billion. That year, the 10-year Treasury yield rose from just under 6% to over 8%. (Bond yields rise when investors are selling bonds and pushing prices lower.)
Rising interest rates have also been the catalyst for the rush out of bonds this year.
“The ‘taper talk’ that started in May proved to be a huge inflection point for the credit markets,” said CEO of TrimTabs David Santschi, referring to Federal Reserve chief Ben Bernanke’s hints that the central bank could begin to scale back, or taper, its $85 billion a month in bond purchases.