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Category Archive: ‘Mortgage News’

National Housing Policy

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I saw these questions from Ed DeMarco on Twitter. My answers:

1. Have the M.I.D. apply towards primary residence only (not second homes), and lower from $1,000,000 to $500,000.  Those buying in hopes of a bigger write off will still buy a house, and take the partial benefit – and be in it for the appreciation and to raise a family (make wifey happy).

2.  Have the mortgage interest deduction be in effect for the first ten years of ownership only.  It would encourage borrowers to pay off mortgages in the ten years, and not refinance every year.

3.  Require that only the buyers can pay for mortgage insurance (sellers can pay in full now).

4.  Redirect the disadvantaged folks to subsidized rentals until they aren’t disadvantaged. Only stable, secure, affluent people should buy a house – it’s too late for the rest, unless they drive to the suburbs/outer edge of town.

5.  There are several loan programs available to help the disadvantaged already.  NACA is still around, helping buyers purchase with no down payment and no closing costs (H/T daytrip):

https://www.naca.com/naca/purchase/purchase.aspx

6.  Lower the capital-gains tax for 1-2 years to incentivize those reluctant-but-motivated possible sellers to unload a rental property or two.  Cut federal rate to 10% for the first year (currently 20%), and then back to 15% in the second year.  The crotchety old guys still won’t sell, so there won’t be a flood.  But more inventory = more sales while stabilizing prices.

7.  Keep Fannie/Freddie the way they are for now. If they can keep operating in the black, let’s allow the mortgage industry to enjoy the fluidity. I attended a seminar today on the new loan disclosures coming on October 3rd, and it is clear that Fannie/Freddie will be extremely strict on compliance. It doesn’t mean tougher credit, it means the mortgage industry needs to submit the cleanest loan packages ever – which is good for the taxpayers.

8.  The new compliance crunch will virtually eliminate mortgage brokers – wholesale lenders won’t want to take a chance on them. Yes, we still have room for you over here to be a realtor – there’s only 11,000 of us chasing 3,500 sales each month.

9.  Encourage a private jumbo-MBS market without subsidizing it.  Eventually, a private MBS marketplace could help shift the burden from Fannie/Freddie.

10. Run a tight ship.  We can handle it.

The powers-that-be have made some great moves to get us this far, now bow out gracefully and let free enterprise take care of the rest.

Posted by on Aug 20, 2015 in Bailout, Housing Tax Credit, Interest Rates/Loan Limits, Loan Mods, Local Government, Mortgage News, Mortgage Qualifying | 0 comments

Off to the Races!

yippee

Fannie Mae announced that they have eliminated the Anti-Buy-and-Bail rule, the underwriting guideline that has held back so many move-up buyers.

The previous rule meant that buyers who already owned a property had to have at least 30% equity in it; other wise they would have to qualify using both their existing payment and new proposed payment in the equation.

MND details the change here, along with a few others:

http://www.mortgagenewsdaily.com/07012015_fannie_mae_selling_guide.asp

Now a buyer can produce a rental agreement for their existing house, and not have that mortgage payment count in their qualifying equation!

This is the key element that spurred the last few years of the previous boom, as buyers would finance most (if not all) of their non-contingent purchase, and then go back and sell their old house later.

Now they might keep it as a rental, or sell it at some point after they move.

The Anti-Buy-and-Bail rule forced them to sell first, and was probably one of the main reasons we’ve had so many potential sellers be reluctant lately – they couldn’t qualify for both, which forces them to consider selling first and risk the double move!

In an unrelated event, I just re-upped my domain, www.doublebubbleinfo.com!

Posted by on Jul 6, 2015 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 2 comments

Cause of Financial Crisis

subprime vs prime

Hat tip to Wendy for sending in this article on subprime vs. prime mortgages causing the crisis.  The authors probably didn’t catch the fact that prime borrowers were getting neg-am loans based on FICO scores only, and those weren’t considered subprime loans:

https://fortune.com/2015/06/17/subprime-mortgage-recession/?

An excerpt:

We can draw two conclusions from this data. One is that your chances of being foreclosed upon in the past decade was more a matter of timing than anything else. If you were a subprime borrower in, for instance 2002, who bought a bigger house than a more prudent and creditworthy borrower would have bought, chances are you would have been fine. But a prime borrower who did everything right—bought a house he could easily afford, with a large downpayment—but did so in 2006 would have had a higher chance of defaulting than the subprime borrower with better timing.

Since whether you were hurt by the crisis had more to do with luck than anything else, Ferreira argues we should rethink whether doing more to help underwater homeowners would have been a good idea.

https://fortune.com/2015/06/17/subprime-mortgage-recession/?

Posted by on Jun 18, 2015 in Foreclosures/REOs, Jim's Take on the Market, Mortgage News, Neg-Am | 1 comment

Debt is Down

mortgage debt

For those who are concerned about another bubble, here is evidence that indicates we’re in a position to handle it better.  Leverage is down, which should mean less government intervention next time (?):

http://www.businessinsider.com/the-housing-market-is-less-leveraged-than-during-the-bubble-2015-6#ixzz3d96G4k29

An excerpt:

Bank of America Merrill Lynch economist Michelle Meyer offered some color on this in a recent note to clients.

She discussed the ratio of the total level of mortgage debt to the overall market value of real estate. This adjusts the amount of leverage and debt in the housing market by the total size of the market. Meyer observes that there’s been a huge drop in this measure since the Great Recession:

“[The ratio] shows that 44% of real estate wealth is made up of mortgage debt. This is nearly back to the pre-bubble crisis and compares to a peak of 63% in 2Q09 (Chart 7). A lower aggregate loan-to-value ratio suggests the real estate market should be more susceptible to shocks in the future.”

Meyer then considers some of the causes of the drop in mortgage debt. Debt dropped as a result of the unwinding of the housing bubble:

“Much of the decline in mortgage debt owes to foreclosures which resulted in the liquidation of delinquent debt. However, it also is a function of lower loan sizes given larger down payments and the drop in home prices.”

Liquidation of delinquent debt sounds bad, and it’s certainly unpleasant for people losing their homes.  Nevertheless, it’s reflective of a system clearing out an ugly past.

Posted by on Jun 15, 2015 in Jim's Take on the Market, Mortgage News | 0 comments

HELOC vs. Equity Sharing

We’ve been talking about the re-emergence of creative financing – the first was crowdfunding, now this from the latimes.com – an excerpt:

One company based in San Diego, EquityKey, says it has completed or has in process appreciation-sharing agreements on homes with an aggregate value of $200 million already this year, and expects to hit $1 billion by the end of the year. Another, FirstREX in San Francisco, says it has completed hundreds of “equity financing” deals tied to future appreciation.

Though the contractual details and payout amounts differ from company to company, here’s the basic concept: Say you have a house that’s valued at $500,000. If you agree to share 45% of future appreciation on the property and you otherwise qualify in terms of your financial ability to handle property taxes and upkeep, EquityKey might give you $51,750 today to help pay for kids’ tuitions. If you wanted to share 40%, it would give you $47,500. When you end the agreement, you’d have to give EquityKey its portion of the appreciation on the house plus its initial investment.

EquityKey ties its appreciation calculations to the Standard & Poor’s Case-Shiller Home Price Index, which measures home prices in markets across the country. FirstREX uses appraisals upfront and at the end.

Say the house appreciated over the next 10 years by $120,000 and you needed to sell. You’d owe EquityKey the original payout amount — $47,500 or $51,750 — plus its appreciation share at 40% ($48,000) or 45% ($54,000). EquityKey’s cut after 10 years: $95,500 or $105,750 depending on the share you agreed on.

Read full article here:

http://www.latimes.com/business/realestate/la-fi-harney-20150405-story.html

Posted by on Apr 12, 2015 in Mortgage News | 10 comments

Free Cheese for Principal Reductions

ed

Remember when principal reductions were resisted by banks and DeMarco? Now they are throwing money at people:

http://keepyourhomecalifornia.org/press-releases/keep-your-home-california-expands-criteria-of-programs-to-help-homeowners-attain-affordable-mortgage-payments/

SACRAMENTO – Keep Your Home California announced today changes to help more low and moderate income homeowners, who are struggling with their monthly mortgage payments, remain in their homes as part of the free mortgage-assistance program.

The changes will assist homeowners who have suffered a financial hardship attain an affordable monthly mortgage payment and provide them with an opportunity to solve their mortgage troubles, before they fall behind on their payments.

For homeowners who have already fallen behind on their monthly payments, Keep Your Home California more than doubled the amount of funding that is available to help homeowners catch-up on past due mortgages. The state program, which is overseen by the California Housing Finance Agency (CalHFA), can provide up to $100,000 in assistance to eligible homeowners.

“Despite an improving economy and job market, there are still many homeowners who are struggling every month or just need a little help to get back on track with their payments,” said Tia Boatman Patterson, Executive Director of CalHFA. “Our goal is to help California homeowners prevent avoidable foreclosures, and the changes to the program are the latest in that effort.”

The program criteria changes affect the Principal Reduction Program, which allows homeowners with unaffordable monthly mortgage payments to apply for as much as $100,000 in assistance to reduce the principal balance. Principal reductions often lead to savings of hundreds of dollars each month on homeowners’ mortgage payments.

Posted by on Apr 9, 2015 in Jim's Take on the Market, Mortgage News, Principal Reductions | 6 comments

Fannie’s 20-Day First Look

fannie

Fannie Mae has been over-pricing their REOs by at least 10% since 2012, and have been getting away with it because buyers think that because it’s a foreclosure, they are getting a deal, and because Fannie provided ‘HomePath’ financing where no appraisal was required.

They instituted a seven-day First Look Program, where only the owner-occupying buyers were allowed to purchase, which helped to whip up the excitement in unsuspecting buyers, many of whom were purchasing their first home.

But in October, 2014, the HomePath financing was terminated, and apparently the REO portfolio needs to be goosed again.

Here the ‘new’ 20-day First Look Program is rolled out by our N.A.R. goons, and presented as a great new idea to help buyers and preserve neighborhoods.  But in reality, it’s extending the period that Fannie can take advantage of unsuspecting buyers:

Posted by on Apr 3, 2015 in Ethics, Jim's Take on the Market, Market Conditions, Mortgage News, No-Foreclosure as Banking Policy | 0 comments

Best Mortgage?

best loan

Hat tip to both daytrip and just some guy for sending in this article from the latimes.com:

http://www.latimes.com/business/realestate/la-fi-equity-building-mortgage-20150103-story.html#page=1

All with no down payment, no closing costs and no mortgage insurance. The Ongs’ real estate agent, Jill Medley, called it “the best loan in the history of real estate.”

The key feature of the so-called wealth-building home loan is a sharply reduced interest rate on a 15-year term. Instead of requiring a down payment, banks allow borrowers to use their money to pay interest upfront, often called “buying down” the rate.

For their $400,000 house, the Ongs used what would have been a 4% down payment — $16,000 — to instead buy down their rate to 0.5%. In little more than three years of monthly payments, the couple will have more than 20% equity in the home, assuming the property value stays the same.

That more than doubles the equity they would build with the same amount down on a 30-year Federal Housing Administration loan at the going rate of 3.25%.

The Ongs pay only about $150 more each month than they would have paid under the longer-term loan, which would include a hefty mortgage insurance payment.

These are NACA deals, which are capped at a $400,000 purchase price.  Down payments are required but they come from grants, which is how they get around having to pay the PMI.

Buyers also have to live where they can find a house for $400,000 or under, and select a house that nobody else wants – because if there are multiple offers, these 100% financed deals that rely on multiple grants for the down payment will be the last deal chosen by the listing agent.

Buying down the interest rate is a great idea for buyers who are confident they will be in the home for years.  But the benefits diminish quickly for those buying higher than $400,000.

Here is a comparison:

$800,000 purchase price

$160,000 down payment

$640,000 loan amount

15-year loan with 2.0% rate (buydown would probably cost $15,000?)

$4,118.46 per month for 180 months.

30-year loan at today’s 3.75% jumbo rate:

$2,963.94 per month for 360 months.

Paying the loan off in 15 years saves you around $300,000 in interest, which is good.  But if you can live with a monthly payment of $4,118 per month, have an extra $65,000 for additional down payment and opt for a 30-year loan, you can buy a house for $1,125,000 and have the same payment as the $800,000 house.

Unfortunately $800,000 doesn’t buy you much around here any more, and if buyers happen to wonder into a house listed for $1,125,000, they may decide to forget the imposed monthly discipline of a 15-year loan, and instead pay down the loan voluntarily as time goes on.

Posted by on Jan 4, 2015 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 3 comments

97% Down Payments

There’s been a lot of hullabaloo about the Fannie/Freddie decision to drop the minimum down payment from 5% to 3%.

But the 2% difference will have virtually nothing to do with the decision to default. If a homeowner is going to walk from a 3% down payment; they will walk from a 5% down payment too.

Shiller speaks in his usual ‘casual indifference’ here, but they didn’t cut his last point in the video – that historically the ‘slowing of appreciation has sometimes been the precursor to declines':

According to recent data from the National Association of Realtors, first-time homebuyers account for just 33 percent of all home purchases. That’s the lowest level in 27 years.

“Maybe there’s a cultural change. Our millennials spend more time on Facebook than standing over the backyard fence and talking to the neighbor,” Shiller said, attempting to explain the drop in new homebuyers.

  “Maybe neighborhoods are not as important. Or maybe there’s an urbanization trend going on.”

Posted by on Dec 15, 2014 in Down Payments, Mortgage News | 6 comments

Appraisal Issues

appraisal

Hat tip to Susie for sending in this article on appraisals:

http://www.usatoday.com/story/money/personalfinance/2014/12/06/appraisal-real-estate/19906355/

An excerpt:

This past July Janice Charlton of Thousand Oaks, Calif., says she was low-balled on a refinance appraisal with the value coming in at $745,000. “I was completely shocked. I follow the real estate market,” said Charlton.

She appealed the value through the lender with the AMC that hired the appraiser, to no avail. “It’s arbitrary. It’s a real conflict-of-interest,”  she added.

Charlton did not give up. She applied elsewhere. Less than a month later another appraiser through a different lender brought the value in at $860,000. Charlton’s perseverance paid off. She completed her refinance, saving $1,397 per month with her new, lower house payment.

Unfortunately for the loan rep, this borrower did the only thing she could to obtain her refinance – go to another bank.

Low appraisals are not as common on purchases because the appraiser is given the sales price and told to hit it.  But I never take it for granted – I meet every appraiser on time, and bring several comps to justify the price.  It’s a sales job – realtors who send one of their assistants or just tells the appraiser to use the lockbox are asking for trouble.  Get Good Help!

Posted by on Dec 7, 2014 in Mortgage News | 2 comments