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Category Archive: ‘Mortgage News’

Vampire Squid Offers Flip Financing

Add house-flippers to Goldman Sachs’ ever-expanding roster of potential clients as the Wall Street firm hunts for new ways to make money.

Lending has taken an increasingly higher profile at Goldman, where once-prominent trading desks have had their wings clipped by automation and regulation. The bank started out last year with small loans up to $30,000 for regular people with good credit through an online business it calls Marcus.

This summer it opened its doors to investors by giving financial advisors a way to arrange loans of up to $25 million for clients backed by their investment portfolios.

Goldman is even trying to find a way to occupy its traders’ time, exploring possibilities in the realm of bitcoin and other digital currencies after picking up on client interest in the area.

In September, the bank’s president, Harvey Schwartz, said lending activities are projected to shake out $2 billion in additional revenue.  Now Goldman is getting into lending for real estate pros through its acquisition of Genesis Capital.

The deal, for undisclosed terms, gives Goldman a business that makes loans of $100,000 to $10 million at rates of 7 percent to 12 percent. It won’t lend to occupants, so that leaves real estate professionals who are renovating and looking to sell fairly quickly. Genesis made $1 billion of loans last year.

https://www.cnbc.com/2017/10/12/goldman-wants-to-help-flip-that-house.html

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Posted by on Oct 14, 2017 in Flips, Jim's Take on the Market, Mortgage News | 0 comments

Crowndfunding Your Down Payment

If Fannie/Freddie is willing to allow this, how much longer will they require a down payment?  From cnbc.com:

https://www.cnbc.com/2017/10/05/a-new-way-to-buy-a-home-crowdfunding-the-down-payment.html

An excerpt:

Most business crowdfunding platforms offer returns on the investment, but this has none — it is simply a gift. George said the individual gifts will be small, in the $50 to $250 range. The platform can be linked to wedding and baby registries.

“You’re going to spend $250 on a coffee making machine? If that $250 goes to a down payment of your home, at the very least, I improve your quality of life and the second thing I do is I give you some, today, some tax deductibility,” George added.

As an incentive for encouraging prospective homeowners to attend credit education courses and counseling, borrowers can also receive grants of up to $2,500 once they’ve completed the free classes. After that, the platform will match donations at $2 for every $1 raised, up to $2,500.

“Folks that go to counseling tend to be more informed, and they also tend to be better borrowers,” George said. “We’ve looked at this as advertising dollars and have said, listen we think this promotes homeownership, we think it’s something that we would otherwise spend either through the internet or through social media. We’ve put our money here where we think it has its best use.”

On the other side, contributors are also assured that the money will in fact go to fund the home purchase and can make their gift conditional on that.

The idea is not just to raise money for the down payment but to add to the borrower’s existing funds. This can help eliminate the need for mortgage insurance, which is required on very low down payment loans. Fannie Mae is calling it a “pilot project,” and will be watching the results closely.

“What we’re doing today is we’re trying to test and learn a variety of solutions because the preferences for today’s homebuyers have changed significantly, and there is no silver bullet to solving a problem that’s as hard as how do you find a down payment,” said Jonathan Lawless at Fannie Mae. “What we prefer to do is source ideas from all sorts of different places. Our customers are a major one, lenders who are dealing every day with people trying to buy homes, and instead of trying to take those ideas and spend three years trying to roll out a major change, we’d rather test and learn.”

Crowdfunding your way into home ownership. Here’s how from CNBC.

Posted by on Oct 5, 2017 in Down Payments, Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 2 comments

Housing Crisis Due to Flippers

We saw this happen in Bressi Ranch when Jenae and Company went on their 100% financing spree. Her victims weren’t deadbeats – instead, they had good credit scores and other assets, and they were just duped into the get-rich-quick scheme.  When it didn’t pan out, they dumped everything.

Hat tip Richard!

LINK

The grim tale of America’s “subprime mortgage crisis” delivers one of those stinging moral slaps that Americans seem to favor in their histories. Poor people were reckless and stupid, banks got greedy. Layer in some Wall Street dark arts, and there you have it: a global financial crisis.

Dark arts notwithstanding, that’s not what really happened, though.

Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.

Analyzing a huge dataset of anonymous credit scores from Equifax, a credit reporting bureau, the economistsStefania Albanesi of the University of Pittsburgh, the University of Geneva’s Giacomo De Giorgi, and Jaromir Nosal of Boston College—found that the biggest growth of mortgage debt during the housing boom came from those with credit scores in the middle and top of the credit score distribution—and that these borrowers accounted for a disproportionate share of defaults.

As for those with low credit scores—the “subprime” borrowers who supposedly caused the crisis—their borrowing stayed virtually constant throughout the boom. And while it’s true that these types of borrowers usually default at relatively higher rates, they didn’t after the 2007 housing collapse. The lowest quartile in the credit score distribution accounted for 70% of foreclosures during the boom years, falling to just 35% during the crisis.

So why were relatively wealthier folks borrowing so much?

Recall that back then the mantra was that housing prices would keep rising forever. Since owning a home is one of the best ways to build wealth in America, most of those with sterling credit already did. Low rates encouraged some of them to parlay their credit pedigree and growing existing home value into mortgages for additional homes. Some of these were long-term purchases (e.g. vacation homes, homes held for rental income). But as a Federal Reserve Bank of New York report from 2011 reveals (pdf, p.26), an increasing share bought with the aim to “flip” the home a few months or years later for a tidy profit.

Read full article here:

LINK

Posted by on Aug 29, 2017 in Flips, Frenzy, Jim's Take on the Market, Market Buzz, Mortgage News | 9 comments

Reverse Mortgages Backfiring

As she was getting on in years and her resources dwindled, Virginia Rayford took out a special kind of mortgage in 2008 that she hoped would help her stay in her three-bedroom Washington rowhouse for the rest of her life.

Rayford, 92, took advantage of a federally insured loan called a reverse mortgage that allows cash-strapped seniors to borrow against the equity in their houses that has built up over decades.

But the risks of the financial arrangement are stark — and today the frail widow finds herself facing foreclosure.

Under the terms of the loan, Rayford can defer paying back her mortgage debt that totals about $416,000 until she dies, sells or moves out. She is, however, responsible for keeping up with other charges — namely, the taxes and insurance on the property.

The loan servicer, Nationstar Mortgage, says Rayford owes $6,004 in unpaid taxes and insurance. If she cannot come up with it, she stands to lose her home in Washington’s Petworth neighborhood.

“I’ve cried a million nights wondering about where I am going to be,’’ Rayford said.

Read full article here:

LINK

Posted by on Aug 27, 2017 in Jim's Take on the Market, Mortgage News | 4 comments

Fixed COFI Mortgages

In what has to be one of the most bizarre developments in real estate this year, the ivory-tower folks at the Fed, of all people, dreamed up a creative new loan that would not require a down payment.  Then they used the dreaded COFI term from neg-am mortgage days! No word on when these might be available, if ever:

https://www.federalreserve.gov/econres/feds/2017.htm#2017090

Abstract: The 30-year fixed-rate fully amortizing mortgage (or “traditional fixed-rate mortgage”) was a substantial innovation when first developed during the Great Depression. However, it has three major flaws. First, because homeowner equity accumulates slowly during the first decade, homeowners are essentially renting their homes from lenders. With so little equity accumulation, many lenders require large down payments. Second, in each monthly mortgage payment, homeowners substantially compensate capital markets investors for the ability to prepay. The homeowner might have better uses for this money. Third, refinancing mortgages is often very costly.

We propose a new fixed-rate mortgage, called the Fixed-Payment-COFI mortgage (or “Fixed-COFI mortgage”), that resolves these three flaws.

This mortgage has fixed monthly payments equal to payments for traditional fixed-rate mortgages and no down payment. Also, unlike traditional fixed-rate mortgages, Fixed-COFI mortgages do not bundle mortgage financing with compensation paid to capital markets investors for bearing prepayment risks; instead, this money is directed toward purchasing the home. The Fixed-COFI mortgage exploits the often-present prepayment-risk wedge between the fixed-rate mortgage rate and the estimated cost of funds index (COFI) mortgage rate.

Committing to a savings program based on the difference between fixed-rate mortgage payments and payments based on COFI plus a margin, the homeowner uses this wedge to accumulate home equity quickly. In addition, the Fixed-COFI mortgage is a highly profitable asset for many mortgage lenders. Fixed-COFI mortgages may help some renters gain access to homeownership. These renters may be, for example, paying rents as high as comparable mortgage payments in high-cost metropolitan areas but do not have enough savings for a down payment. The Fixed-COFI mortgage may help such renters, among others, purchase homes.

Keywords: COFI, Cost of funds, Financial institutions, Fixed-rate mortgage, Homeownership, Interest rates, Mortgages and credit

DOI: https://doi.org/10.17016/FEDS.2017.090

JtR: This sounds like the reverse of a neg-am mortgage, or a positive-amortizing loan where borrowers have a fixed payment as a ceiling, and then when rates float down, the difference is applied to the principal.  But how much potential is there for your rate to drop when we’re at all-time lows?  Maybe they are preparing a loan option for the day that rates rise substantially?

Posted by on Aug 27, 2017 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying, Neg-Am | 1 comment

Shiller on MID Impact

The impact of losing the mortgage-interest deduction has been blown out of proportion by NAR lobbyists.  Let’s tinker with it now when rates are low and see if lower taxes could spur additional demand.

There may be rumblings about lowering the cap on mortgage interest rate deductions, but it would have a “rather small effect” on the housing market, Nobel Prize-winning economist Robert Shiller told CNBC on Wednesday.

The popular deduction is “limited to a small percent of taxpayers. It’s just not that big an effect compared to the big things,” the Yale economics professor said in an interview with “Power Lunch.”

“What’s really driving the real estate market is our sense of where we’re going and the uncertainty at the time with the new administration in Washington and all this talk.”

For example, things like the deadly white supremacist rally in Charlottesville, Virginia, slows down people’s willingness to make a big financial transaction, noted Shiller, who co-founded the Case-Shiller index.

The mortgage interest deduction enables homeowners to deduct the interest paid on their home loans from their income taxes. It is currently capped at loans up to $1 million for married couples filing jointly. The cap is $500,000 for those filing separately.

Industry sources have told CNBC that reducing the deduction is on the negotiating table as Republicans work to hammer out a tax reform package.

However, most homeowners don’t claim the deduction and instead use the standard deduction, Shiller said.  Therefore, he believes lowering the cap would have more of a psychological effect on home prices than a calculated one.

“This is part of American culture. It goes back to the American dream,” he said. “It stands for something. It stands for ‘the government is behind the homeowner.’ It’s a political thing.”

On Tuesday, Toll Brothers CEO Doug Yearley told CNBC that changing the deduction would be “very bad policy” and would discourage homeownership.

Mortgage interest deduction would affect small amount of taxpayers: Yale University’s Robert Shiller from CNBC.

Posted by on Aug 24, 2017 in Jim's Take on the Market, Mortgage News | 4 comments

Robo-Appraisals

‘Warranty relief’ means that taxpayers will be on the hook.

LINK

Freddie Mac announced Friday it is making buying a home a better experience for lender and homebuyers – by cutting the appraiser out of the process.

The company is now offering a new product which will cut the appraisal process out of qualified home purchases and refinances. This could save borrowers an estimated $500 in fees and could reduce closing times by as much as 10 days.

The new Automated Collateral Evaluation assesses the need for a traditional appraisal by using proprietary models and utilizing data from multiple listing services and public records as well as the historical home values in order to determine collateral risks.

“By leveraging big data and advanced analytics, as well as 40+ years of historical data, we’re cutting costs and speeding up the closing process for borrowers,” said David Lowman, Freddie Mac executive vice president of single-family business.

“At the same time, we’re providing immediate collateral representation and warranty relief to lenders,” Lowman said. “This is just one example of how we are reimagining the mortgage process to create a better experience for consumers and lenders.”

Lenders can determine if a property is eligible for ACE by submitting the data through Freddie’s loan product advisor. This will then assess credit, capacity and collateral to determine the quality of the loan. Lenders will receive the risk assessment feedback in real time.

ACE will be available for home purchases beginning on September 1, 2017.

Earlier this summer, the company announced it began using this product on qualified refis beginning June 19, 2017.

“When we launched loan advisor suite in July 2016, we set out to give our customers certainty, usability, reliability and efficiency,” said Andy Higginbotham, senior vice president of strategic delivery and operations for Freddie Mac’s single-family business. “ACE is our most recent capability to deliver on that vision.”

Fannie Mae also updated its policy on appraisals this year, and clarified its “existing policy that allows an unlicensed or uncertified appraiser, or an appraiser trainee to complete the property inspection. When the unlicensed or uncertified appraiser or appraiser trainee completes the property inspection, the supervisory appraiser is not required to also inspect the property.”

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Posted by on Aug 19, 2017 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 1 comment

Lower Down Payments

It’s hard to lower the down payment on a jumbo loan so any effect on the coastal regions is probably minimal, but this suggests that the stronger buyers are giving way or running out:

Seen at CR and MND:

LINK

An excerpt:

This month, in light of much commentary and speculation on the re-emergence of purchase loans with loan-to-value (LTV) ratios of 97 percent or higher, Black Knight looked at low-down-payment purchase lending trends, gaining some early insight into the performance of these products. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, in general, low-down-payment purchases are on the rise, but this does not necessarily mean a return to the practices – and risks – of the past.

“Over the past 12 months, approximately 1.5 million borrowers have purchased homes using less-than-10-percent down payments,” said Graboske. “That is close to a seven-year high in low-down-payment purchase volumes. The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low-down-payment loans have ticked upwards in market share over the past 18 months as well. In fact, they now account for nearly 40 percent of all purchase lending.

The bulk of the growth has not been among the various three-percent-or-less down payment programs that have been reintroduced in the last few years, but rather in five-to-nine- percent down payment mortgages. This segment grew at twice the rate of the overall purchase market in late 2016, whereas lending with down payments of less than five percent grew at about the market average.

Read more at http://www.calculatedriskblog.com/2017/08/black-knight-mortgage-monitor-low-down.html

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This is good news:

Posted by on Aug 8, 2017 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 0 comments

Mortgage-Interest Deduction

The Wall Street Journal published this article about the mortgage-interest deduction having little – or no – impact on the decisions made by homebuyers:

LINK

Of course, the N.A.R., who is beholden to our lobbyists, refuses to consider any changes.  The N.A.R. spent $64,821,111 last year on lobbying – we should quit paying them and spend that money on a rocking real estate portal that benefits all realtors!

Instead, our beleaguered president shuffled up to the podium one more time to vomit the usual beliefs, whether true or not:

The mortgage interest deduction, backed by the influential nationwide lobbying of real-estate agents and home builders warning against precipitous price drops, has survived decades of attacks and is extremely unlikely to vanish this year.

William Brown, president of the National Association of Realtors, said that removing incentives for homeownership, including the mortgage interest deduction, would be a mistake.

“Studies comparing our housing market to that of a foreign country offer an apples-to-oranges scenario that often isn’t constructive,” Mr. Brown said in a statement. “What we know for sure is that home values would suffer if the mortgage interest deduction disappeared, potentially putting homeowners under water.”

Curbing the deduction would give cash buyers an advantage, said Robert Dietz, chief economist at the National Association of Home Builders.

President Donald Trump has promised to protect the mortgage interest deduction. But even under the plans from Mr. Trump and congressional Republicans, the deduction could lose some of its punch.

With mortgage rates so low, the actual benefit isn’t what it used to be. In addition, wouldn’t rising rents and getting rich quick be bigger motivators than the MID?  Have you noticed that you never hear banks arguing for the MID?

Posted by on Jul 24, 2017 in Jim's Take on the Market, Mortgage News, Mortgage Qualifying | 6 comments