Menu
TwitterRssFacebook
More Links

Are you looking for an experienced agent to help you buy or sell a home? Contact Jim the Realtor!

Carlsbad
(760) 434-5000

Carmel Valley
(858) 560-7700
jim@jimklinge.com


Category Archive: ‘Mortgage News’

Mortgage Interest Deduction Isn’t Much

MID

We’re coming off tax season – how was your mortgage-interest deduction?  It only benefits those in high-cost areas.  Should we initiate a real tax-reform package, and start with eliminating the MID when it’s impact is low?

http://www.realestateeconomywatch.com/2016/04/the-mortgage-interest-deduction-is-the-sacred-cow-worthless/

Chronically low interest rates may have accomplished something that the housing lobby has spent millions of campaign contributions and decades of political pressure to prevent.

Did the mortgage interest deduction, long the holy grail of homeownership, become worthless eight years ago when low rates and falling prices so reduced the value of the interest that owners can deduct that the MID has minimal impact?

Even when the MID is combined with the dedication owners receive for property taxes, would many middle class homeowners do just as well tax-wise by renting?

“We believe we have found one of the primary reasons why entry-level home buying has not recovered—and why homeownership has been plunging,” wrote real estate consultant John Burns in an eye-opening blog post circulated April 13, two days before income tax deadline day.

The standard marital deduction has risen from $1,300 in 1972 to $12,600 today, meaning that the first $12,600 of itemized deductions has no benefit to consumers.  Today, a typical first-time home buyer financing 95% or less of a median-priced US home pays less than $12,000 in mortgage interest and property taxes, which is not enough to warrant itemizing. Even with other deductions that bring the taxpayer over the $12,600 limit, the tax savings are minimal, argues Burns.

“In the graph, we show the change over time for a typical homeowner couple with an 80% loan-to-value mortgage and a 1.5% property tax rate on the median-priced US home. That owner paid mortgage interest and property taxes in excess of the standard deduction every year from 1972 to 2008. Today, that homeowner’s deductions fall nearly $2,500 short of the standard deduction,” Burns wrote.

Posted by on Apr 20, 2016 in Jim's Take on the Market, Mortgage News | 6 comments

FHA to the Rescue

herewegoagain

Do you buy anything that’s cheap(er), figuring that the demand will become unglued and prices continue racing towards the sky – or sit this one out? P.S. Three offers are in on Cherokee, and more expected.

https://www.washingtonpost.com/business/economy/obama-administration-pushes-banks-to-make-home-loans-to-people-with-weaker-credit/2013/04/02/a8b4370c-9aef-11e2-a941-a19bce7af755_story.html

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps.

Obama pledged in his State of the Union address to do more to make sure more Americans can enjoy the benefits of the housing recovery, but critics say encouraging banks to lend as broadly as the administration hopes will sow the seeds of another housing disaster and endanger taxpayer dollars.

“If that were to come to pass, that would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from,” said Ed Pinto, a resident fellow at the American Enterprise Institute and former top executive at mortgage giant Fannie Mae.

Posted by on Apr 4, 2016 in Frenzy, Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 3 comments

Wrongful Foreclosure Lawsuits in CA

freecheese

Those who were wrongly foreclosed won’t get their house back, but the courts might make the banks throw around some more free money.

http://www.latimes.com/business/la-fi-foreclosure-ruling-20160302-story.html

Excerpts:

During the bust that followed last decade’s housing boom, hundreds of thousands of Californians lost their homes to foreclosure. It was a process later found to be rife with problems, such as overwhelmed bank employees who sometimes didn’t even read the foreclosure documents in front of them.

But challenging foreclosures on the basis of paperwork problems proved to be mostly futile, given California courts had ruled that borrowers who weren’t paying their mortgages didn’t suffer financial harm.

Now, a recent decision by the California Supreme Court will allow some of those former homeowners to pursue lawsuits and possibly win damages for wrongful foreclosure even if they were in default.

“They opened the courthouse doors,” said Katherine Porter, a law professor at UC Irvine and a former monitor for a national settlement over foreclosure abuses.

A statute of limitations of four years might mean that the decision won’t help most of the nearly 1 million California homeowners who were foreclosed upon from 2007 to 2012, according to real estate data provider CoreLogic.

Still, Porter estimated there may be tens of thousands of Californians who could conceivably argue for damages given inconsistencies in documents that transferred their loans.

Others are more skeptical.

George Lefcoe, a professor at the USC Gould School of Law, said it will be very difficult for borrowers to prove that the ownership of their loans was so muddled that the foreclosure process was fatally flawed.

And even if borrowers do win the argument, it’s unclear what damages they may receive, if any.

Read the full article here:

http://www.latimes.com/business/la-fi-foreclosure-ruling-20160302-story.html

Posted by on Mar 3, 2016 in Foreclosures, Jim's Take on the Market, Mortgage Lawsuits, Mortgage News | 0 comments

Australia Real Estate

aussie auctions

Our cruise around the world looking for similar real estate markets has to include a stop Down Under, where the auction format to sell homes and the lack of capital-gains tax on seller proceeds from the sale of their primary residence has to add extra juice.  Add in some mortgage funny business….and well, these guys think there’s a bubble:

LINK to article.

An excerpt:

Bronte Capital’s chief investment officer John Hempton and economist Jonathan Tepper (founder of research house Variant Perception) toured suburbs across north-west and south-west Sydney to view housing developments and met with 20 mortgage brokers three weeks ago.

They discovered that mortgage brokers were advising them to lie on loan application documents about the deposit for a house and about income, the Australian Financial Review (AFR) reported.

Mr Tepper has also used charts to support his housing bubble theory.

When the pair asked banks to call their employer, ‘both reputable and disreputable brokers said banks rarely verified payslips,’ Mr Tepper wrote in a report.

They also encountered developers lying about units and houses being sold in the west, the ‘epicentre’ of the housing bubble.

To Mr Tepper’s surprise, some of Sydney’s poorest suburbs, such as Blacktown, Rooty Hill and Mount Druitt in Sydney’s west had properties selling from $500,000 to $700,000 – prices at least eight times the income of local workers.

‘The further west I went, the more irrational it felt. Lots and lots of supply and prices that bore no resemblance to construction cost and income of people around there,’ Mr Hempton told AFR.

There were more advertisements for deposit guarantees, where rather than putting a deposit down on a house you can take out an insurance contract that will pay the deposit if you default.

Another shocking revelation was that the verification of documents was sometimes done by Indian call centres, according to Mr Hempton.

On loan applications low-income earners were often offered discounts on the advertised mortgage rate of up to a one percentage point, increasing the vulnerability of the banks if there were a correction.

Mr Hempton claims they were ‘coached on how to get things through banks’ as opposed to banks having high quality underwritings.

In Mr Tepper’s report, he warns of sharp fall in Australian bank stocks and predicts falls in the Australian housing market of up to 50 per cent in Sydney and Melbourne and of about 80 per cent in mining towns.

 

Posted by on Feb 26, 2016 in Jim's Take on the Market, Market Conditions, Mortgage News, Mortgage Qualifying | 1 comment

Non-Profit 3% Mortgages

bofa

We saw how crowdfunding could be a new (and bubblicious) way to finance home purchases.  Here’s one of the old ways – non-profits getting involved that are well-funded today, but…..Hat tip to Susie for sending in this story:

http://www.nasdaq.com/article/bank-of-americas-newest-mortgage-low-down-payment-no-fha-20160222-00020

An excerpt:

Bank of America Corp. is rolling out a new-mortgage product that would allow borrowers to make down payments of as little as 3%, in a move that would represent an end run around a government agency that punished the bank for making errors on similar loans.

The new mortgage program, which the Charlotte, N.C.-based lender plans to unveil on Monday, will let borrowers avoid private mortgage insurance, a product to protect mortgage lenders and investors that is usually required for low- down-payment loans.

Bank of America’s new mortgage cuts the FHA out of the process. Instead, the new loans are backed in a partnership with mortgage-finance giant Freddie Mac and the Self-Help Ventures Fund, a Durham, N.C.-based nonprofit.

Bank of America agreed to pay $800 million to settle claims of making errors on FHA-backed loans in 2014. This month, Wells Fargo & Co. said it would pay $1.2 billion to settle similar claims, joining J.P. Morgan Chase & Co., which settled in 2014, and other big lenders which have settled over the past few years. Nonbank lender Quicken Loans Inc. is currently fighting such claims.

Many big banks have pulled back sharply from FHA-insured lending in the past few years, citing the risk of being hit with penalties for minor errors. A raft of nonbank lenders have rushed in, but the banks’ retreat from the program has made it more difficult for low-income borrowers to get home loans.

“We need an alternative in the marketplace that helps creditworthy borrowers with a track record of paying debts on time,” said Bank of America managing director D. Steve Boland, who noted that “We think there are still a lot of uncertainties out there in working with FHA.”

After making a mortgage under the new program, Bank of America will sell it to Self-Help, which then sells it to Freddie Mac. If a mortgage defaults, and Self-Help isn’t able to recover the full amount owed, Self-Help takes a big chunk of the losses before Freddie Mac starts to take a loss, which lets borrowers avoid paying mortgage insurance.

Self-Help also gives counseling to borrowers who struggle to pay, which it believes will help more people avoid foreclosure.

“We believe the mortgage-lending sector is underserving families of modest means,” said Self-Help CEO Martin Eakes. Mr. Eakes said that his fund also is in talks with other large and small lenders to roll out similar programs.

Mr. Eakes said Self-Help didn’t need new funding for the Bank of America program, but in the past the organization has received funding for other loan programs from foundations, the government and companies.

Mr. Eakes is also CEO of the Center for Responsible Lending, a nonprofit advocacy group for borrowers that in the past has also asked the FHA to limit lenders’ damages for some errors.

To get the loans under Bank of America’s new program, borrowers must have a credit score of at least 660, which is higher than FHA’s requirement, and an income that is less than the area’s median.

Bank of America said that for now it is capping loan production at $500 million annually under the program and that it expects that three out of four mortgages in the new program would have otherwise been backed by the FHA.

Last year, Bank of America made $1.36 billion in FHA-backed loans, according to trade publication Inside Mortgage Finance, making it the 22nd biggest FHA lender. The bank used to be in the top 10.

Freddie and competitor Fannie Mae in 2014 said they would roll out mortgages with down payments of as low as 3% to improve mortgage availability for low-income borrowers. But because the mortgages often cost more than FHA-backed loans, the programs had little volume last year.

As lenders become more wary of the FHA program, lenders and Fannie and Freddie executives said that their programs’ volume could rise.

Read full article here:

http://www.nasdaq.com/article/bank-of-americas-newest-mortgage-low-down-payment-no-fha-20160222-00020

Posted by on Feb 22, 2016 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 0 comments

Communal House Flipping

flippers

The building of the next bubble won’t look the same as the last one, but a common thread will be lenders who are hands-off. Hat tip to daytrip for sending in this story about crowdfunding for flippers:

http://www.latimes.com/business/la-fi-crowdfunding-house-flippers-20160214-story.html

An excerpt:

Although data providers don’t track the number or dollar-volume of loans going to house flippers as opposed to developers of larger projects, more than a dozen real-estate-focused platforms offer loans to them. And a handful of Southern California start-ups specialize in the market.

Patch of Land in West Los Angeles made about $61 million in loans last year, mostly to house flippers, and PeerStreet in Manhattan Beach made $40 million, almost entirely to them.

“There’s a crowdfunder popping up once a month now, and the low-hanging fruit is the fix and flips,” said Jonathan Lee, a principal at George Smith Partners, a Century City real-estate-financing firm.

Like hard-money lenders, crowdfunding platforms guard against risk by securing the loans to the property and lending for less than its full value.

If a borrower goes bust, the lender takes title to the property, which, in theory, can be sold for more than the loan principal. PeerStreet, for instance, typically will lend only about 75% of a home’s value.

“They don’t look at income or tax returns. They’re looking at the property and the project. Is there profit to be made?” said Christian Fuentes, a Pomona real estate agent and house flipper.

Patch of Land can issue a check in just a couple of weeks, assuming that a loan meets its underwriting standards. The loan is then offered up to the 17,000 investors signed up on its site.

Golden Bee in November bought a two-bedroom house on Greenfield Avenue in West L.A., not far from the Westside Pavilion. The company paid about $1.2 million, with $1 million coming from Patch of Land at an annual interest rate of 12%.

Berneman is planning a $750,000 renovation that will add more than 1,500 square feet of space, along with new plumbing and wiring. He estimates that the house, built in the 1930s, hasn’t been renovated in 50 years.

“We’ll be knocking some of it down to the studs,” he said.

Berneman hopes to sell the house for as much as $2.5 million once it’s back on the market this fall. Golden Bee would stand to make $575,000, not including the cost of financing.

Posted by on Feb 13, 2016 in Jim's Take on the Market, Mortgage News, Real Estate Investing, Remodel Projects | 1 comment

‘Non-Prime’

notprime

The old First-Franklin way of qualifying – and a better gauge of actual income and expenses. From HW:

http://www.housingwire.com/articles/36188-is-subprime-lending-ready-for-a-comeback?

An excerpt:

In fact, CSC does not use the term subprime. According to Will Fisher, SVP of sales and marketing, at CSC “Subprime is offensive.” CSC has coined a more apt descriptive word for of this part of the mortgage world, “non-prime.”

“People have been hesitant to make this kind of loan since 2008 and even wondered how we could even fund them,” said Fisher. “Even now people ask how we are making these loans. The truth is, subprime is not a four-letter word.  And non-prime is an even better description of what is occurring since 2011-12 in this loan type.”

CSC created a loan program four years ago that allows self-employed borrowers to document their income using bank statements instead of tax returns like 1040s or 1099s. The company requires two years of bank statements to validate cash flow and thus extrapolate income. This gives the company critical insight into a borrower’s ability-to-repay (ATR).

“We believe that 24 months of continuous bank statements are a very reliable look into what a person actually lives on per month when compared to tax returns or even a W-2s,” Fisher said. “Because these borrowers are self-employed, they want the benefits that come with the legal ability to write off expenses. That can make the use of tax returns as conventionally underwritten a poor barometer of ability to repay, but we’re able to document income in a different way. And we stay in the spirit of ATR and QM loans by requiring a two-year history.”

CSC offers up to 90% LTV for self-employed borrowers with a 700 credit score and up to 80% LTV for a credit score of 600 or higher (the typical threshold for subprime is 620). This program has huge potential for growth since many of the 14.6 million people who are self-employed may not qualify for a traditional QM loan, even with a high credit score and adequate income.

http://www.housingwire.com/articles/36188-is-subprime-lending-ready-for-a-comeback?

Posted by on Feb 3, 2016 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 5 comments

Big Data and Mortgages

credit

It’s different but improved this time? From the latimes.com:

http://www.latimes.com/business/la-fi-new-credit-score-20151220-story.html

An excerpt:

Alternative types of credit scoring have been around for years, taking into account factors not always captured by traditional scores, such as whether borrowers pay their cellphone bills promptly. They’ve been used to assess the creditworthiness of consumers with little or no traditional credit history, including those in developing countries.

Now, a new generation of start-ups has developed scoring models that look at such things as what a borrower studied in college and how a restaurant rates on Yelp — and they’re using them on a wider audience, from businesses to individual borrowers with middling or even good credit.

The abundance of digital information, and the rapidly growing storage and computing power able to comb through it all, is changing industries including agriculture and healthcare. It should come as no surprise, then, that it’s shaking up consumer finance.

Proponents say these new methods should help borrowers gain credit, just as it has helped farmers increase their yields.

“In banking, it’s inconceivable that in the future we’ll be making financial decisions in the way we do today. We’re making decisions about people based on less than 5% of the information about them,” said Asim Khwaja, a professor of international finance and development at the Harvard Kennedy School who has studied alternative credit scoring in the developing world. “There’s a lot of excitement in this field.”

But there’s also plenty of skepticism.

Read full article here:

http://www.latimes.com/business/la-fi-new-credit-score-20151220-story.html

Posted by on Dec 20, 2015 in Jim's Take on the Market, Mortgage News | 1 comment

TRID Delays

TRID

We went to the escrow holiday party on Friday, and I just had to sneak in some business talk.

Are the new disclosures causing delays in escrow closings, and messing up the buyers’ plans for moving in?

The answer from an escrow officer that does purchases only (not refinances):

Closing delays prior to TRID:  20% to 30%

Closing delays since TRID: 60% to 70%

Lenders had months to prepare for TRID, and it has been in effect since October 3rd.  Yet the majority of home sales are still being delayed due to disclosure problems.  Why?

It’s mostly because TRID has strict timelines for the sending and receiving of the disclosures.  The buyers cannot sign their loan documents until 3-10 days after the final disclosures are sent, and receipt acknowledged.

The disclosures are sent by loan-processing clerks who tend to be over-worked, and underpaid.  If they work for a lender who does their share of refinances, then timelines become hazy because all that matters is closing before the rate-lock expires (nobody is moving in or out of the house with a refinance).

We had a closing last week where we represented the seller. The buyer had made it clear that they wanted to move in this weekend, and get settled before the holidays, which is understandable.

Donna (wifey) monitors the lender’s progress regardless of who we represent.  It usually amounts to adult babysitting – some clerks don’t effectively manage their desk, they just respond to the requests of those who need them most.

It came down to the last day to send the disclosures in order to close on time, and the clerk rattled off the usual excuses – holidays, end-of-the-month, etc. – and wouldn’t make any promises about sending.  Donna tactfully persuaded her to find a way, and she did. We closed on time!

It’s not the disclosures that are causing the delays, it’s the people involved!

Get Good Help!

Posted by on Dec 6, 2015 in Jim's Take on the Market, Mortgage News | 4 comments