Because the FHA reverse mortgages (HECM) have loan limits, are expensive, and got harder to obtain, the private reverse-mortgage market is growing. These can be used to buy a home too, and have no payments! Maybe the realtor disrupters will get into the reverse-mortgage business instead?
Borrowers of proprietary reverse mortgages are increasingly becoming more closely aligned with the typical profile of a Home Equity Conversion Mortgage (HECM) borrower, through two very identifiable attributes: loan amounts that are in-line with those of a more traditional HECM, and the use of a loan’s proceeds to consolidate and pay off existing debt of other types. This is according to data about borrowers of proprietary products from Reverse Mortgage Funding (RMF) in a webinar hosted last week by RMD.
“We’re getting a lot of borrowers who are not necessarily the ‘jumbo’ market over that max claim limit of a HECM,” said Craig Barnes, head of training and education at RMF in discussing the company’s Equity Elite proprietary reverse mortgage. “We’re doing a lot of loans for much less than that.”
While most proprietary reverse mortgages have maximum loan amounts of up to $4 million – including RMF’s Equity Elite – Barnes shared that some of the greater flexibility granted by proprietary products are attracting more borrowers that would previously have only been served by a traditional HECM.
“[Our typical borrower is] age 77, they have a home valued at $1.5 million. So, as I said, it’s not a super jumbo product,” Barnes describes. “With the change in max claims last year, really you have to get well above $1 million or so depending on a borrower’s age in order to maximize the HECM anyway. We just had one yesterday that was for $400,000.”
Hat tip to Matthew for a great piece on mortgage rates:
Mortgage rates have risen rather abruptly from their long term lows 2 weeks ago and are now at the highest levels in more than a month. Fortunately, the average lender is still easily able to quote rates in the high 3% range, which is still a significant savings for anyone who bought or refi’d in 2018 and even the first part of 2019.
That’s great and all, but what have rates done for us lately?
More importantly, what are rates going to do in the future?
Unlike forecasting the weather, the more of an expert someone is in the mortgage world, their ability to predict the direction of rates doesn’t meaningfully diverge from the layperson’s best guess. What we do know is that tomorrow’s Fed announcement is a big potential source of volatility, but NOT for the reasons most laypersons may assume!
I’m often asked if the Fed rate cut/hike will have an effect on mortgage rates. I’m also often asked to reiterate the correct answer to that question which is almost always “NO!”
The Fed only meets to potentially change rates 8 times a year. The bond market that underlies mortgage rates, however, can change 8 times in less than a second. Markets have LONG since priced in the Fed’s likely course of action (which is currently a high probability for a rate cut). If the Fed surprises markets and doesn’t cut rates, it will definitely cause some movement in financial markets, but there’s no telling where mortgage rates would be at the end of the day.
Part of the reason for that is the market’s bigger focus on the Fed’s updated forecasts. In other words, the (probable) rate cut is old news and has already been accounted for in today’s mortgage rate landscape. But if the Fed’s forecasts show deceleration in the pace of expected rate cuts versus the June forecasts, rates could rise.
A lot has happened since June, however, so it’s possible the forecasts will call for even lower rates over the next 3 years. Even if that happens, there’s still no telling what the reaction would be in longer-term rates like mortgages. After all, more rate cuts in 2019/2020 could act to keep the economic expansion going, and that’s bad for rates, all other things being equal.
The bottom line is that the Fed announcement is a multifaceted event that can move markets in different ways for different reasons, expected or otherwise. Investors burn the midnight oil trying to get ahead of the market reaction and surprises are still the rule. The safest bet is to be prepared for a reaction in either direction as opposed to crossing fingers for rates to move lower.
Loan Originator Perspective
Bonds continued to regain some of last week’s brutal losses today, and my pricing improved slightly. We’ll take whatever gains we can get prior to tomorrow’s FOMC statement. I don’t see us regaining our recent multi-year low rates anytime soon, so folks yearning for rates in low 3’s need to temper their expectations. Nothing wrong with locking here. – Ted Rood, Senior Originator
Aisling Swindell was paying so much for rent last year—$2,100 per month to live in a studio in Downtown LA—she figured she might as well buy a place.
“The house I ended up buying was $440,000, which is insane, right?” says Swindell, who works for an online fashion company.
That price tag, which is $178,000 below the median in LA County, sounds unbelievable, especially for what she bought: 870 square feet in the city, plus a little yard, lots of natural light, some stylish updates, and charming, 1930s-era details, like wainscoting and solid wood doors.
But while she’s no longer a renter, she still doesn’t, technically, own a house.
Her $440,000 bought her a share of a larger property: a triplex on an 8,344-square-foot lot in Jefferson Park. Her right to occupy the unit, and her responsibility for maintaining it, are spelled out in a contract with her neighbors, who live in the triplex and, with her, are its joint owners.
A bank in Denmark is offering borrowers mortgages at a negative interest rate, effectively paying its customers to borrow money for a house purchase.
Jyske Bank, Denmark’s third-largest bank, said this week that customers would now be able to take out a 10-year fixed-rate mortgage with an interest rate of -0.5%, meaning customers will pay back less than the amount they borrowed.
To put the -0.5% rate in simple terms: If you bought a house for $1 million and paid off your mortgage in full in 10 years, you would pay the bank back only $995,000.
It should be noted that even with a negative interest rate, banks often charge fees linked to the borrowing, which means homeowners could still pay back more.
According to The Local, Nordea Bank, Scandinavia’s biggest lender, said it would offer a 20-year fixed-rate mortgage with 0% interest. Bloomberg reported that some Danish lenders were offering 30-year mortgages at a 0.5% rate.
“It’s never been cheaper to borrow,” said Lise Nytoft Bergmann, the chief analyst at Nordea’s home finance unit in Denmark. It may seem counterintuitive for banks to lend out their money at such low rates – but there is a rationale behind it.
Financial markets are in a volatile, uncertain spot right now. Factors include the US-China trade war, Brexit, and a generalized economic slowdown across the world – and particularly in Europe.
Many investors fear a substantial crash in the near future. As such, some banks are willing to lend money at negative rates, accepting a small loss rather than risking a bigger loss by lending money at higher rates that customers cannot meet.
“It’s an uncomfortable thought that there are investors who are willing to lend money for 30 years and get just 0.5% in return,” Bergmann said.
“It shows how scared investors are of the current situation in the financial markets, and that they expect it to take a very long time before things improve.”
Maybe having a mortgage is going out of fashion now that the affluent have taken over real estate? Or do we just need to Get Good Help with filing taxes? (30%-40% of Americans prepare their own taxes)
The mortgage-interest deduction, a beloved tax break bound tightly to the American dream of homeownership, once seemed politically invincible. Then it nearly vanished in middle-class neighborhoods across the country, and it appears that hardly anyone noticed.
In places like Plainfield, a southwestern outpost in the area known locally as Chicagoland, the housing market is humming. The people selling and buying homes do not seem to care much that President Trump’s signature tax overhaul effectively, although indirectly, vaporized a longtime source of government support for homeowners and housing prices.
The 2017 law nearly doubled the standard deduction — to $24,000 for a couple filing jointly — on federal income taxes, giving millions of households an incentive to stop claiming itemized deductions.
As a result, far fewer families — and, in particular, far fewer middle-class families — are claiming the itemized deduction for mortgage interest. In 2018, about one in five taxpayers claimed the deduction, Internal Revenue Service statistics show. This year, that number fell to less than one in 10. For families earning less than $100,000, the decline was even more stark.
The benefit, as it remains, is largely for high earners, and more limited than it once was: The 2017 law capped the maximum value of new mortgage debt eligible for the deduction at $750,000, down from $1 million. There has been no audible public outcry, prompting some people in Washington to propose scrapping the tax break entirely.
For decades, the mortgage-interest deduction has been alternately hailed as a linchpin of support for homeownership (by the real estate industry) and reviled as a symbol of tax policy gone awry (by economists). What pretty much everyone agreed on, though, was that it was politically untouchable.
Nearly 30 million tax filers wrote off a collective $273 billion in mortgage interest in 2018. Repealing the deduction, the conventional wisdom presumed, would effectively mean raising taxes on millions of middle-class families spread across every congressional district. And if anyone were tempted to try, an army of real estate brokers, home builders and developers — and their lobbyists — were ready to rush to the deduction’s defense.
Now, critics of the deduction feel emboldened.
“The rejoinder was always, ‘Oh, but you’d never be able to get rid of the mortgage-interest deduction,’ but I certainly wouldn’t say never now,” said William G. Gale, an economist at the Brookings Institution and a former adviser to President George H.W. Bush. “It used to be that this was a middle-class birthright or something like that, but it’s kind of hard to argue that when only 8 percent of households are taking the deduction.”
The history of housing discrimination is getting a lot of attention these days, and rightfully so. If you, or someone you know, wants to contribute, KPBS is looking for stories:
KPBS is doing an investigation into the legacy of “redlining” in San Diego.
This is the historic practice of excluding minorities from certain neighborhoods through regulations on mortgages, leases and home purchases. We’re looking into the impact this practice has had on the economic prosperity of different neighborhoods in San Diego.
Some families in San Diego may have benefitted from this history, through no fault of their own. Others may have been hurt by it.
If you or your family has any connection to this history, or if you know someone who does, please reply to this email or send an email to email@example.com “Redlining” in the subject line.
Thank you for sharing your knowledge and becoming a trusted KPBS source!
There was actually a red zone in La Jolla around the Taco Stand on Pearl!
According to the FHA’s report for its fiscal second quarter (which covers Jan. 1 to March 31, 2019), the average credit score for an FHA borrower fell to 665 in the second quarter. That’s the lowest level since 2008, and is “well below” the FHA lending peak credit score of 703, which happened in 2011.
According to the FHA report, the share of 680–850 credit scores continues to decline among FHA borrowers, while lending to borrowers with credit scores below 640 continues to rise.
The FHA report shows that in 2011, nearly 60% of borrowers had credit scores above 680. Now, only 34% of FHA borrowers have credit scores above 680. Meanwhile, the share of FHA lending to borrowers with credit scores below 640 has increased to nearly 30%.
“This increase shows a much riskier population of mortgages being endorsed by FHA,” the report states. “Performance of these mortgages will be closely monitored to determine when policy changes should be implemented.”
Beyond that, FHA loans have also seen a sharp increase among loans with high debt-to-income ratios, meaning borrowers are taking on more debt compared to their income level.
According to the FHA report, in 2018, nearly 25% of all FHA purchase mortgages had a DTI ratio above 50%. And that number has been rising for several years, a trend that FHA noted as concerning last year.
But despite noting that concern, the percentage of borrowers with DTIs above 50% continued increasing in the second quarter, climbing to 28% of all FHA purchase loans. According to the FHA, that’s the highest percentage of high-DTI loans in a single quarter since “at least the year 2000.”
The FHA notes in its report that this increase shows that its loans are getting riskier.
“This is a risk to the MMIF that the FHA is attempting to manage and mitigate through various policy levers,” the FHA said.
If you are thinking about selling your house this year, call me tonight!
Rates are idyllic, and so is the weather which makes for a great combo!
Mortgage rates fell again today, just barely inching to the lowest levels since early 2018. Keep in mind, that factoid is based on an average of multiple lenders. Some of them aren’t quite back to the low rates seen at the end of March. Others had crossed that line several days ago. Either way, the actual NOTE RATE at the top of the average rate quote would be the same then and now. The EFFECTIVE RATE would be just slightly lower due to a small advantage in upfront lender costs.
Relative to market sentiment at the beginning of May, the last 3 weeks have been unexpected. In other words, there was no obvious reason to expect or fear the sort of slide in stocks and yields that we’ve seen since then. But of course, that’s just the sort of thing financial markets like to do! If there’s one overarching reason for the move, it’s the trade war between the US and China. Just when it seems the issue is put to bed, more drama unfolds. In general, trade war drama damages the economic outlook and a weaker economy is generally good for rates.
Those who pay their bills on time will cringe at how people can work the system successfully. Hat tip to SM who sent in this story told by a mortgage rep in Orange County:
My client had both a first and second mortgage on his Southern California home. He fell on hard times back around the Great Recession days. He filed for Chapter 7 bankruptcy in 2011.
Meanwhile, he got back on his feet income wise and credit wise. He made timely payments on the first trust deed, but never paid one penny of his remaining $250,000 second trust deed balance in eight years.
He contacted me about refinancing both his first and second loans into a single new loan. He also had negotiated a $140,000 reduction of the second. So, $250,000 owed turned into a $110,000 second mortgage payoff.
A very sharp underwriter looked more closely at the circumstances of this file. She was able to approve my client on a new Fannie Mae fixed-rate loan with a whopping $545 lower house payment because Fannie’s loan had an interest rate that was 1.875 percent lower than the non-prime loan we were seeking. Hallelujah!
It used to be that mortgage underwriting guidelines were absolutely against any borrower who was perceived as somehow stiffing the lender. In this instance, non-payment and a reduced payoff.
“I’m pleased to see a lightening of the guidelines,” said Susan Ashton, sales manager at Plaza Home Mortgage. “It’s really a positive thing.”
So, let’s dig a little deeper.
While bankruptcy discharge protects borrowers from having to reimburse lenders for missed house payments, it doesn’t protect them from foreclosure, according to Newport Beach bankruptcy attorney Michael Nicastro. Hence, borrowers typically continue to make their required house payments.
Mortgage lenders cannot demand payment on unpaid debts. So, post-bankruptcy, lenders do not report borrower late payments or delinquencies to credit bureaus.
Often the second mortgages are underwater — meaning the value of the house is less than the sum of the first, second, and accrued interest, etc. So, there is no point in foreclosing.
Those lenders typically sell the non-performing seconds for pennies on the dollar to what is known as “scratch-and-dent” investors. These scratch-and-dent investors hope to collect when the property value comes back.
Nicastro points out that the lender can send to the borrower a 1099-C (Cancellation of Debt), reporting the unpaid balance as income to the IRS.
“Check with your CPA,” Nicastro said. “If debt is canceled in bankruptcy, it’s possible that there is no taxable impact.”
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by Ann Romanello
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