Monday Morning Cup of Coffee takes a quick look at the news coming across the HousingWire weekend desk, with more coverage to come on bigger issues.

Ever since the housing crash, the recovery in housing can be described, at its most charitable, as “lackluster.” 

Bankers, regulators, policymakers, the Federal Reserve – everyone has been going out of their way to figure out how to kickstart housing – the $8,000 first-time home buyer tax credit, QE, near zero interest rate policies, and the GSEs revising lending policies to make it easier for home buyers to obtain financing even as bank lending dried up.

And yet, goose egg. Motley Fool now says that a report out from the New York Fed says that the real problem is the down payment.

When it comes to home sales, the conversation usually starts with mortgages. The vast majority of Americans need a loan to buy a house. Obtaining that loan can be the most difficult hurdle to overcome in the home buying process.

The interest rate that banks charge for the loan (plus any fees) is the cost of that loan. Therefore supply and demand tells us that lower mortgage rates will boost home sales by making home ownership more affordable -- and the Fed's new research report confirms this. Using a complex survey technique, Fed researchers conclude that a 2% drop in mortgage rates will increase a potential home buyer's "willingness to pay" by 5%. "Willingness to pay" is used as a proxy for housing demand in this research.

What mattered even more, though, was the required down payment, particularly for lower-income borrowers. In the study, consumers' "willingness to pay" increased by about 15% when the required down payment decreased from 20% to 5%. For buyers who are currently renting, "willingness to pay" spiked 40% with the decreased down-payment requirement.

This suggests that the best tool to increase home ownership, particularly among individuals and families who don't currently own a home, is to reduce the down payment requirements on mortgage loans.

As HousingWire reported, the Federal Housing Finance Agency announced new loan limits for 2015. Why is this so important? As prices rise with the improving market limits must keep up, otherwise credit-worthy borrowers will have no outlet for financing and be unable to purchase a home.

Each year, the FHFA determines the maximum loan size that the GSEs and the Federal Home Loan Banks can finance. Jumbos are available that can be financed by banks or in private label securities, and some areas with higher median homes prices are granted limits that go above this, but not higher than $625,500. Financing is generally cheaper by the jumbos, but in the current market access is highly restricted to pristine borrowers with high minimum down payments, high credits scores, low debt-to-income ratios and large amounts of reserve funds. 

Speaking of lending, the National Association of Realtors says that lender activity tightened modestly in the third quarter.

Respondents indicated a production-weighted share of 5% for non-QM loans in the 3rdquarter, nearly double the 2.6% share from the 2nd quarter. However, the rebuttable presumption share fell sharply from 12.8% to just 3.5%. Interest rates fell to their lowest levels in nearly 12 months by the end of the 3rd quarter. Interest rate changes have a larger impact on the higher-priced portion of the market which also prefers interest-only (non-QM) products.

Other findings include:

  • The non-QM share of originations nearly double in the 3rd quarter to 2.6%. However, the rebuttable presumption share tumbled from 12.8% to 3.5% over this same time frame.
  • Respondents’ confidence in their preparations for the QM/ATR rules eroded again in the 3rd quarter, with just 58.3% indicating that they had fully adapted compared to 61.9% in the 2nd quarter.
  • The net share of lenders offering rebuttable presumption and non-QM products increased from the 2nd to the 3rd quarter. Willingness to originate non-QM mortgages fell dramatically from the 2nd quarter, but the decline was less dramatic for rebuttable presumption mortgages. Lenders were more willing to originate prime mortgages with the exception of those with lower FICOs.

We don’t usually get involved in individual homeowner beefs, but this open letter to Ocwen Financial (OCN) from a homeowner is quite compelling, and if the allegations are in fact true, it’s quite troubling. We forwarded the link to this letter to Ocwen and are seeking a response.

After Ocwen was called out by the New York Department of Financial Services for backdating letters to homeowners, we published their open letter to homeowners. So, fair is fair, and just this one time we’re publishing a homeowner’s letter to Ocwen.

[UPDATE - Ocwen offers response]

Ocwen offered its response to the homeowner's open letter.

“Ocwen's goal is to keep borrowers in their homes whenever possible, and we are an industry leader in helping borrowers avoid foreclosure. Since the onset of the financial crisis we have saved the homes of over 400,000 struggling families through loan modifications. We made several attempts to modify Mr. Cooper’s loan, which has been delinquent with no payments since 2007. Unfortunately, Mr. Cooper does not qualify for a HAMP modification and he refused to accept the non-HAMP alternative we offered him." 

No banks were reported failed for the week ending Dec. 5, according to the Federal Deposit Insurance Corp.