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September 6, 1989
Jobs data this morning were weaker than predicted, and mortgage discounts are down most of a full point since early Thursday.
The Unemployment rate nudged up.1% to 5.3%, but it was the payroll numbers that brought excitement. September NonFarm jobs grew by 209,000, but nearly half were Baby Bell strikers returning to work. Meanwhile, manufacturing jobs fell by 103,000, a performance which will concern the Fed if only because it will concern the Congress.
Factory orders rose 2.9% in August, but the automobile clearance sale provided artificial strength. There is a limit nearby to how long car makers will puff production at no profit before opting for cutbacks and layoffs.
The Purchasing Manager's Index rose from 45.2% to 46%, still closer to recession levels than to renewed expansion. Single Family home sales fell .4% in August after a strong July, and August Construction Spending rose 1.8%.
FHA Underwriting Bulletin: It's time to tear up your tax charts and whacko FHA math. The rumored change has finally hit. Effective with underwritings (not applications) on October 20, FHA loans at Universal will be underwritten on a basis similar to conventional:
Housing (inside) ratio 29%: piti + HOA + monthly mip
divided by gross pretax
Total (outside) ratio 41%: housing plus debt service
divided by gross pretax
No more FICA and tax adjustments, nor utility and maintenance factors. Yes, for debtfree borrowers we can stretch the housing ratio some.
Please be aware that every big change from the FHA has been followed by modification, and sometimes by suspension. We are not yet clear how residuals will work, nor are we clear on nonowner changes. Watch out for surprises!
The change has some negative impact on lower income borrowers who had only a small tax bite taken from their purchasing power under the old system. The $34,000 per month FHA borrower seems helped by the new rules because their tax hit used to be proportionately much bigger.
This change will simplify everyone's work in the long run, as for the first time VA, conventional, and FHA all have the same philosophical underwriting base.
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