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Fannie Mae Guideline Change Can Reduce Amount of Cash the Buyer Needs at Closing

By Taff Weinstein at

Fannie Mae Guideline Change Can Reduce Amount of Cash the Buyer Needs at Closing

The mortgage industry behemoth Fannie Mae has issued a letter to lenders with a revised set of guidelines stating that mortgage lenders could now provide assistance to borrowers as a gift that is not subject to repayment. This could cover some or all of the closing costs associated with the purchase of a home.

Many times, it is negotiated in the purchase contract that the seller covers some or all of the closing costs that are normally the buyer's responsibility. But in this red-hot housing market which has seen the lowest levels of available housing inventory on record, it is becoming more common for the seller to not have to pay the closing costs of the buyer as an incentive to purchase the home.

The money cannot go toward the down payment or surpass the closing costs, but otherwise there is no cap on the amount.

“We’re making it easier for borrowers to purchase a home by allowing lenders to fund closing costs and prepaid fees,” Fannie Mae Chief Credit Officer for Single-Family Carlos Perez said in a letter to lenders.

“While there is no limit to the amount of the lender-sourced contributions, the funds cannot be used toward a down payment, cannot exceed the total closing costs, and should not be subject to any form of repayment agreement,” Perez added.

Source: Fannie Mae

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) lost just -4 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move basically move sideways for the week.

Overview: Opposing forces. Overall, the economic data was very strong last week (ISM and Jobs) which is generally negative for MBS trades and therefore negative for rates. But, global uncertainty over a potential trade war between the U.S. and China provided support for MBS. The two opposing forces "squeezed" MBS into a very narrow and tight range.
Jobs, Jobs, Jobs: We got a lot of labor/wage related data on Friday. Here is the Tale of the Tape:
Jobs:
March Non-Farm Payrolls (NFP) was much lighter than expected 103K vs est. of 193K.
February NFP was revised upward from 313K to 326K.
January NFP was revised downward from 239K to 176K.
The rolling three month moving average is now 202K, so its still above the important 200K mark.
Wages:
Average Hourly Earnings increased by 0.3% vs est. of a 0.2% gain on a MOM basis. Average Hourly earnings are now $26.82.
The more closely watched YOY number increased by 2.7% which matched market expectations and was a small improvement in the yearly pace of increases than the Feb pace of 2.6%.
Unemployment Rate:
The March Unemployment Rate remained at 4.1%. The market was expecting a small decrease, down to 4.0%.
The Participation Rate (which drives the Unemployment Rate) moved from 63.0% in Feb, down to 62.9% in March.

Overall, this was a solid report. Yes, NFP was a miss, but the Fed (and the markets) focus on the rolling three month average which is still above 200K which is very strong. Wages were up 2.7% YOY which is also strong but matched market expectations.

The Talking Fed: Fed Chair Jerome Powell did not say anything to shock the markets. He indicated that the Federal Reserve would likely need to keep raising U.S. interest rates to keep inflation under control and that it was too soon to know if rising trade tensions would hurt the U.S. economy.
ISM Non-Manufacturing: The March reading for the Services sector hit 58.8 vs est of 59.0 which is a very robust reading. The services sector accounts for more than 2/3 of our economy, so this reading gets more weight than the ISM Manufacturing data.

What to Watch Out For This Week:

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