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Category Archive: ‘Mortgage News’

Selling Equity

selleq

What could go wrong? From realtor.com:

A Silicon Valley startup is hoping that homeowners seeking fast cash will forgo begging for loans from banks (and dear old Mom and Dad), skip refinancing their abodes, avoid traditional home equity loans and credit loans—and sell off some of the equity in their residences instead.

Point, the Palo Alto–based company, has a simple but novel proposition: Homeowners can sell small fractions of their equity to investors for a lump sum, with no interest rates or monthly payments.

This gives folks who can’t afford the monthly bills on a second mortgage, home equity loan, or credit line the chance to get cash on their residences while providing wealthy individuals, companies, and hedge funds (accredited investors only) something new to sink their money into.

“It’s a really good option for homeowners who are looking for alternatives,” says Point co-founder and Chief Business Officer Eoin Matthews. “The homeowner gets to tap into their home equity, and they don’t have a monthly payment. There’s no interest rates associated with the product.”

But new investments are inherently risky as they have no track record. And folks could be losing money over the long run by signing away much of their future home appreciation.

So should homeowners sign up?

Here’s how it works: The homeowner applies online for a pre-approval. If all goes well, an appraiser comes to assess the property. If it’s approved, official documents detailing the partial ownership arrangement are signed and filed in the homeowner’s county recorder’s office. Once everything is finalized, a check is deposited into the homeowner’s bank account.

Typically, the maximum amount an owner can receive from Point for any one property is the lesser of:

a) $100,000

b) 15% of the property’s value

c) 30% of the equity

Homeowners’ remaining equity can’t dip below 20%.

The deals are typically good for about 10 years, with the expectation that Point will turn a profit when the property is sold. Alternatively, homeowners can buy back their equity at any time during the term.

If the home value increases, everyone wins. Point gets back what it invested, plus a percentage of the appreciation—12.5% to 45%, depending on the investment. If the home value falls, Point also loses money, getting back only the value of its fraction of equity.

Homeowners are responsible for maintaining their properties, keeping insurance, and staying current on all property taxes. But they can make whatever changes, renovations, or modifications they’d like to their residences without any interference from Point or its investors.

Most folks use the money to pay off credit card debt and other loans, make home renovations, and invest in their small businesses, Matthews says.

“There are lots of homeowners in the U.S. right now who are not able to access the equity in their home,” Matthews says. “There’s a whole segment of homeowners who don’t want to take on significant debt … or don’t qualify.”

(Point, which formally launched last year, announced this month that it had raised $15.4 million in funding.)

Currently, the service is available only in California and Washington. The company plans to expand into Massachusetts, Virginia, and Oregon by the end of the year, and its founders hope to eventually go nationwide.

And although homeowners do not have monthly payments, there are still fees involved. Applicants are charged for the appraiser’s visit, which Point estimates is usually about $400 to $800. That’s on top of a 3% processing fee on the investment amount and the escrow costs, typically an additional $450.

Most folks won’t make it that far. Only 1% of the roughly 4,000 to 5,000 applications the company has received has been approved, resulting in only about 60 investments so far. But Matthews was quick to point out that many of those homeowners choose to opt out of the process.

“For some homeowners, this might be more expensive than debt,” Matthews says.

It’s also not for everyone, says certified financial planner Jenna Rogers of Mission Wealth in Santa Barbara, CA.

“It could end up being a lot more expensive than you think,” she says, particularly for those in very pricey areas like San Francisco, “where real estate appreciates very quickly.”

She recommends those considering selling their home equity use a calculator and run the numbers first. With interest rates low, it may make more financial sense for folks to secure a home equity loan or line of credit instead—instead of forking over a percentage of the hoped-for future appreciation of their abodes.

But it could be a lifesaver for some, particularly those trying to pay off high-interest credit cards.

“It sort of is a last-resort option when all your money is tied up in your home and you can’t afford a monthly payment on a second mortgage or a home equity line,” Rogers says. “It could make sense for someone who needs the cash and will use the money in a smart way.”

http://www.realtor.com/news/trends/sell-shares-home-equity/

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Posted by on Sep 22, 2016 in Jim's Take on the Market, Mortgage News | 5 comments

PACE and FHA

hero

We covered the PACE financing of energy-efficient upgrades – LINK HERE.

It makes sense the buyers should assume the cost of the benefits – they are the ones who will enjoy the lower costs.  But it depends on the purchase price – if you are paying a premium for those energy-efficient upgrades, it makes sense that the sellers should pay off the lien, which HERO will do.

From the people in the video, Renovate America:

FHA announced new guidance on PACE endorsing it, recognizing it as a tax assessment and its senior lien status to a mortgage.  It is a major development in the market and an indicator of trends around energy efficiency programs and incentives.

They will now purchase mortgages with PACE liens which means any remaining balance will easily transfer to a new owner without the owner having to get approved.  Solar leases transfer only after the buyer qualifies.

This accounts for about 25% of the mortgage market.  Pressure is now on the FHFA who oversee Freddie and Fannie to follow suit.  Obviously, this is a big issue with the Mortgage Banker’s Association and CAR among other industry groups who have been pushing the other way.

So, PACE financing is alive and well – and we may see some considerable market expansion from this announcement.  There are other regulatory hurdles but this shift is a big one for an emerging industry and new financial asset class.

The HUD press release:

http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2016/HUDNo_16-110

The HERO program is PACE financing provided by Renovate America, a private company.

Posted by on Aug 4, 2016 in Jim's Take on the Market, Mortgage News | 0 comments

Mortgage Rates Drop

todays rate

Home sellers – if you aren’t getting offers this week, you are missing out on what will be the closest thing we will see to frenzy conditions the rest of the year!  Lower your price a little to get in the game!

California 30-year fixed mortgage rates go down to 3.22%

Saturday, July 30, 2016

The current average 30-year fixed mortgage rate in California decreased 1 basis point from 3.23% to 3.22%. State mortgage rates today ranged from the lowest rate of 3.20% (VT) to the highest rate of 3.34% (AK, NE). California mortgage rates today are 3 basis points lower than the national average rate of 3.25%.

The California mortgage interest rate on July 30, 2016 is down 11 basis points from last week’s average California rate of 3.33%.

The current average 15-year fixed mortgage rate in California remained stable at 2.54% and the current average 5/1 ARM rate is equal to 2.62%.

https://www.zillow.com/mortgage-rates/ca/

Posted by on Jul 30, 2016 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 0 comments

Republican Platform – Housing

trump

If the Republicans sweep in November, Fannie/Freddie will be under siege – but it’s very unlikely that they would go away.  If they did, it would cause the big banks to dominate mortgage lending, leading to that Too Big To Fail thingy.

From HW:

Lost amid the uproar over Melania Trump’s supposed plagiarism of Michelle Obama on Monday night, the Republican Party actually conducted some official party business during the first night of its convention, when it approved its 2016 party platform.

And if the Republican Party sweeps November’s elections, the world of housing finance could be in for some significant changes, as the 2016 Republican Party platform calls for seriously cutting the government’s role in housing, potentially abolishing the Consumer Financial Protection Bureau and ending the use of disparate impact to enforce fair lending laws.

According to the Republican Party platform, which can be read in full here, one of the GOP’s goals for 2016 and beyond is to “advance responsible homeownership while guarding against the abuses that led to the housing collapse.”

The GOP platform states that the party believes in the importance of homeownership and wants to do more to help more people achieve it.

“Homeownership expands personal liberty, builds communities, and helps Americans create wealth. ‘The American Dream’ is not a stale slogan. It is the lived reality that expresses the aspirations of all our people,” the Republican Party platform states. “It means a decent place to live, a safe place to raise kids, a welcoming place to retire. It bespeaks the quiet pride of those who work hard to shelter their family and, in the process, create caring neighborhoods.”

And to return to healthier levels of homeownership, instead of the current near-record lows, more needs to be done, but not by the government, the Republican Party argues.

According to the Republicans, the government has already done more than enough.

“The Great Recession devastated the housing market. U.S. taxpayers paid billions to rescue Freddie Mac and Fannie Mae, the latter managed and controlled by senior officials from the Carter and Clinton Administrations, and to cover the losses of the poorly-managed Federal Housing Administration,” the Republican platform states. “Millions lost their homes, millions more lost value in their homes.”

To remedy this problem, the Republican Party believes the government should play far less of a role in housing than it does currently.

“We must scale back the federal role in the housing market, promote responsibility on the part of borrowers and lenders and avoid future taxpayer bailouts,” the Republican platform states.

“Reforms should provide clear and prudent underwriting standards and guidelines on predatory lending and acceptable lending practices,” the platform continues. “Compliance with regulatory standards should constitute a legal safe harbor to guard against opportunistic litigation by trial lawyers.”

The Republicans also call for a “comprehensive” review of federal regulations, “especially those dealing with the environment,” that make it “harder and more costly for Americans to rent, buy, or sell homes.”

But much of the Republican animus towards the government’s (and the Democrats’) role in housing is centered on the ongoing conservatorship of Fannie Mae and Freddie Mac.

And the Republicans’ message on Fannie and Freddie’s ownership structure should give pause to the Fannie and Freddie shareholders fighting for the recapitalization and release of Fannie and Freddie.

“For nine years, Fannie Mae and Freddie Mac have been in conservatorship and the current Administration and Democrats have prevented any effort to reform them,” the platform states.

“Their corrupt business model lets shareholders and executives reap huge profits while the taxpayers cover all losses,” the Republicans continue. “The utility of both agencies should be reconsidered as a Republican administration clears away the jumble of subsidies and controls that complicate and distort home buying.”

The Republicans also call for the FHA to end its “support” of “high-income individuals,” and state that the public “should not be financially exposed by risks taken by FHA officials.”

The Republicans also state that they will “end the government mandates that required Fannie Mae, Freddie Mac, and federally insured banks to satisfy lending quotas to specific groups,” adding that “discrimination should have no place in the mortgage industry.”

The Republicans also state their opposition to the Obama Administration’s Affirmatively Furthering Fair Housing program, which the administration heavily touted last year as a way to ensure that all children are given a “fair shot.”

The Republicans argue that the Affirmatively Furthering Fair Housing program is an attempt by the government to “seize control” of the zoning process away from local governments.

(“The Affirmatively Furthering Fair Housing program) threatens to undermine zoning laws in order to socially engineer every community in the country,” the Republicans state. “While the federal government has a legitimate role in enforcing non-discrimination laws, this regulation has nothing to do with proven or alleged discrimination and everything to do with hostility to the self-government of citizens.”

The Republican platform also echoes several points of the recently released Republican-crafted plan to repeal and replace the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Part of that plan involves changing the structure of the Consumer Financial Protection Bureau to replace the agency’s director, a position currently filled by Richard Cordray, with a bipartisan commission and changing the CFPB’s funding mechanism to bring the agency’s budget under Congressional oversight.

Posted by on Jul 20, 2016 in Jim's Take on the Market, Mortgage News | 5 comments

Refinancing Your Mortgage

cash out

Mortgage rates dropped some more today, now around 3.25%:

http://www.mortgagenewsdaily.com/consumer_rates/633676.aspx

Over the weekend, I spoke with a client who purchased his home five years ago, and has a 4.0% mortgage rate now on a loan amount of $315,000.  If he were to refinance, his savings would be roughly $200 per month.

Is it worth it?

It might be worth it if he took out some extra money to buy another house!

Is it worth it to refinance just to lower your payment?  If you found a $200 bill on the ground, you’d pick it up, right?  If the extra $200 per month would change your lifestyle, then do it.

But I pointed out that he only has 25 years left on his existing loan, and that getting a new 30-year mortgage would add five years of payments if you kept the home for the duration.

The $200 per month savings times 25 years = $60,000 savings.  But adding the extra five years means an extra $120,000 in payments (the new payment is about $2,000 per month).

What if you take the new loan and save the $200 per month for 25 years, and then pay off the balance? We looked it up on an amortization schedule, and the balance on the new loan after 25 years was $77,000.

Bankers always win – you may save the $200 per month, but if you kept the home for the duration, it will cost you more in the end.

You need to do a cash-out refinance and spend the money on something worthwhile (like another house!!!), or have the savings be enough to improve your lifestyle.  The last survey showed that the average ownership is now 20 years, so don’t take for granted that you will ever sell this house – no matter how much I try to convince you! 😆

Posted by on Jul 5, 2016 in Jim's Take on the Market, Mortgage News | 14 comments

Mortgages 2016

Those in the business who know the mortgage underwriting guidelines might enjoy this video – here are my takeaways from today’s Caliber Home Loans talk:

  1. ‘Investors’ are banks, mutual funds, insurance cos., hedge funds, etc. who invest in steady streams of income. But they get more than the note rate – discount points and admin fees will bump up the annual returns to 5% – 8%.  They are motivated to find ways to fund mortgages!
  2. Income-qualifying the self-employed buyers according to their 24 months of bank statements is an idea that should have been implemented by now – it is a fantastic way to qualify the actual income.
  3.  Trended credit is a smart and gives benefit to those who pay off credit cards every month.
  4.  Alternative credit is here to stay, and anyone who can verify they are paying on 3 lines of credit on time every month – one being rent – can get a mortgage.
  5.  We accept that the government will want to subsidize the mortgage industry.  The FHA allows for sub-580 FICO scores on FHA loans (which already accept gift money for down payments and multiple co-borrowers).

Posted by on Jun 9, 2016 in Bubbleinfo TV, Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 2 comments

Mayor Gets Forgiven

mayor

Hat tip to daytrip for sending in this article on mortgage forgiveness:

http://www.clarionledger.com/story/news/local/2016/05/21/jackson-mayors-mortgage-vanishes-after-election/83615172/

A few weeks after being elected Jackson mayor in 2014, Tony Yarber stood in his pulpit at Relevant Empowerment Church and spoke of his blessings — the bank “washing away” his nearly $100,000 mortgage.

“Election is over. We trusted God. Y’all talked all that noise,” Yarber said in his sermon. “And while they was running their mouth, a letter came in the mail from Wells Fargo. The letter said, ‘Dear Mr. Yarber, concerning loan number whatever it was, at 1605 whatever street you stay on, we have no more interest in that property. Consider the $92,000 that you owe us washed away.’”

The audience cheered.

Two years later, and about a year out from the next mayoral election, that revelation is fodder for Yarber detractors, who believe his house was paid off.

Yet evidence suggests Wells Fargo forgave his mortgage.

Sure enough, records in Hinds Chancery Court show the release of his mortgage, which typically indicates the remaining lien has been satisfied. But at the time Yarber was in financial straits, having not paid his house note in several months.

Bank records show that Wells Fargo authorized the release of the remaining lien, $91,621.94, on April 22, 2014, the day of his election. Essentially, they wrote it off, Yarber said.

“Wells Fargo said don’t worry about sending no more money,” he told The Clarion-Ledger.

Read More

Posted by on Jun 1, 2016 in Bailout, Jim's Take on the Market, Mortgage News | 4 comments

Skimpy-Doc Gets Higher Rate

appr

Hat tip to eddieironmaiden89 for sending this in:

http://www.ocregister.com/articles/percent-714878-credit-mortgage.html

There was no such animal as a credit score for mortgages backed by Fannie Mae or Freddie Mac until about 1995. Well, it’s back to the future. Good going Fannie Mae.

On June 25, Fannie Mae will be rolling out the automation of a manual process for mortgage applicants without credit scores, according to Mindy Armstrong, senior product manager at Fannie Mae.

Here’s how it will work: A loan officer takes your application and runs your credit, but the credit bureaus Equifax, Transunion and Experian have no credit scores for you. This usually happens because you don’t have any or don’t have enough traditional credit (credit cards or auto financing, for example).

In the past, that meant that we loan officers were unable to qualify you for a loan backed by Fannie Mae. But in seven weeks, you will qualify, opening up a vast new array of borrowing options.

You are eligible for purchase as well for a no cash-out refinance loan if the lender can gather at least two pieces of credit information that covers the last 12 months. One must be a verification of rent. The other can be anything from a utility bill to on-time payments to your local gym.

You must put a minimum of 10 percent down (or have 10 percent equity when refinancing), all of which can be a gift. It has to be a single unit primary residence and, for Orange County, your loan amount cannot exceed $417,000.

Call me cynical, but I think credit scoring is just a “gotcha” way for creditors in general to upcharge borrowers that don’t have the very best credit scores.

“Thirty percent of bureau data is inaccurate,” said Stan Baldwin, chief operating officer at Garden Grove-based credit report seller Informative Research.

Where Fannie’s no-score gets ugly is the pricing. Fannie Mae is going to assume that your credit score is in its lowest allowable FICO score bucket of 620. That adds 0.625 percent to your mortgage rate for well-qualified borrowers.

“We price for the risk,” said Andrew Wilson, Fannie Mae spokesman.

Out of all seven mortgage insurance companies, so far only Radian and Arch told me they are willing to insure these loans.

Radian’s pricing looks very competitive compared to other standard mortgage insurance rates, adding 1.10 percent to your base interest rate. They also assume a 620 middle FICO score. Arch pricing was not available.

Assume you buy a $450,000 home and get a $405,000, zero-point 30-year fixed-rate mortgage at 4 percent, with a homeowner’s association fee of $350 a month. Your total payment with impounds would be about $3,159.

None of my piggy-back lenders (avoiding mortgage insurance by providing a 10 percent second behind an 80 percent first mortgage) will go behind a no-score loan. At a minimum, a 680 middle score is required.

Fannie needs to rethink their one size fits all pricing. They assume all no-score borrowers are high risk, just like the “before score” olden days.

They should consider job stability, cash reserves, and payment shock (industry jargon for how much your house payment will go up from your current rent).

Better risk borrowers deserve better pricing, score or not.

Posted by on Jun 1, 2016 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 3 comments

Fraud or Mistake?

moz

The U.S. Court of Appeals threw out the $1.3 billion judgement against BofA – here is the story behind it:

http://www.latimes.com/business/hiltzik/la-fi-hiltzik-bofa-mortgage-billions-20160524-snap-story.html

If I’m ever dragged into court for a financial fraud, I want to throw myself on the mercy of Judge Richard C. Wesley.

Wesley is the U.S. appeals court judge in New York who, with his colleagues Reena Raggi and Christopher F. Droney, found a loophole in federal fraud law big enough for the nation’s second-largest bank to fit through without even scratching a fender.

In a ruling written by Wesley and issued Monday, the three judges tossed out a $1.3-billion judgment against Bank of America for stuffing thousands of lousy mortgages into the portfolios of Fannie Mae and Freddie Mac in 2007 and 2008 by pretending they were high-quality loans. Their ruling turned on the curious question: “When is a fraud not a fraud, but just, sort of, a lie?”

Anyone concerned about white-collar crime should find the appellate court’s logic appalling. One who does is Dennis Kelleher, a former corporate lawyer who is now CEO of the financial watchdog group Better Markets.

“You wonder why the American people are so cynical,” he told me after the decision came down. “It’s because there’s an endless reservoir of ways to figure out how to hold no one accountable for illegal conduct.”

Read the full article here:

http://www.latimes.com/business/hiltzik/la-fi-hiltzik-bofa-mortgage-billions-20160524-snap-story.html

Posted by on May 26, 2016 in Jim's Take on the Market, Mortgage Lawsuits, Mortgage News | 6 comments

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