More Housing Support

The White House issued a press release today that outlines more money to bolster prop up the FHA loans:

For millions of Americans homeownership is a foundation for so many parts of their lives, and for many it is also their primary source of wealth. The Biden-Harris Administration is committed to expanding access to homeownership, ensuring homeowners can afford to stay in their homes and make the repairs they need, and that the wealth building potential of homeownership works equally for everyone.

Todaythe Biden-Harris Administration is releasing new data showing major federal investment in homeownership, and announcing key new actions to accelerate progress. These actions make important strides, but given the lack of homes on the market and current interest rates, to truly ensure homeownership is accessible to all households, we need Congress to act. That is why President Biden proposed $16 billion for the Neighborhood Homes Tax Credit, which would result in more than 400,000 homes built or rehabilitated, creating a pathway for more families to buy a home and start building wealth.  The President has also proposed a $10 billion down payment assistance program that would ensure first-time homebuyers whose parents do not own a home can access homeownership alongside a $100 million down payment assistance pilot to expand homeownership opportunities for first-generation and/or low wealth first-time homebuyers.

I love this new way to qualify – they will count the prospective income you might get from an ADU:

Mozilo is Dead

The Orange Man pioneered the distribution of neg-am mortgages to the masses, and then hoodwinked Wall Street into thinking the loans were worthy of buying in tranches – yet he didn’t want to take the blame and instead enjoyed his retirement as a member at all the private golf clubs around Brentwood.

Some of his best quotes:

In 2006, when Mozilo was the chief of the mortgage lender Countrywide Financial, the firm originated $461 billion worth of loans — close to $41 billion of which were subprime. Subprime loans were responsible for the global financial crisis.

Mozilo was also charged by securities regulators of insider trading and securities fraud. Once named as one of the best chief executives in the United States, the disgraced CEO was subsequently named as the second worst US chief executive of all time by Conde Nast Portfolio.

“I’m fairly confident that we’re not going to do anything stupid,” he told The Wall Street Journal in 2004 when asked about the risks of a housing bubble. “We have a history of not doing anything stupid.”

Yet Countrywide, like many other lenders, embraced riskier types of loans. By August 2007, Wall Street worried that Countrywide might go bankrupt.

In January 2008, Bank of America agreed to buy Countrywide for what seemed like a bargain-basement price, $2.5 billion, which was less than 10% of what it was worth in 2007.

It was no bargain. The acquisition ended up costing Bank of America tens of billions of dollars in real-estate losses, legal expenses and settlements with regulators.

Mozilo retired from Countrywide, at age 69, a few months after the sale to BofA. Later, the Securities and Exchange Commission accused him of fraud, saying he had offered rosy assessments of Countrywide while dumping nearly $140 million of Countrywide stock.

In 2010, he agreed to settle the SEC’s charges without admitting or denying wrongdoing. He also agreed to pay $67.5 million in penalties; the bulk of that was covered by indemnities from Bank of America.

In interviews in 2018 and 2020, Mozilo told the Journal he had been unfairly singled out for blame in the aftermath of the housing bust. “I was very visible,” he said. “Anytime I was asked to go on TV, I did it.” As a result, he said, “When the s— hit the fan, everybody looked at me.”

Mozilo had defended himself several times against accusations that he was a key architect of the 2007-2009 financial crisis.

“Somehow, for some unknown reason, I got blamed for it,” he earlier said.

Mozilo had reason to cheer as well. In 2006, he was paid $48 million, beating JPMorgan Chase & Co. Chairman and CEO Jamie Dimon by $10 million and Bank of America CEO Kenneth Lewis by $20 million. From 2000 until 2008, Mozilo received total compensation of $521.5 million, according to Equilar, a compensation-research firm.

Looking back on those boom years, Mozilo said Countrywide had been swept up in a “gold rush” mentality that had overtaken the US. “Housing prices were rising so rapidly — at a rate that I’d never seen in my 55 years in the business — that people, regular people, average people got caught up in the mania of buying a house, and flipping it, making money,” he said in a 2010 interview with the US Congress-appointed Financial Crisis Inquiry Commission.

“Housing suddenly went from being part of the American dream to house my family to settle down — it became a commodity,” he said. “That was a change in the culture.”

Loan Level Price Adjustments

Hat tip to the readers who sent in this article found in the tabloid newspaper NY Post. It mentions the Fannie/Freddie fee increase for those with higher credit scores, and fee discount for those with lower credit scores. All the revised policy does is reduce the gap – those with lower credit scores are still paying more.

An excerpt:

LLPAs are upfront fees based on factors such as a borrower’s credit score and the size of their down payment. The fees are typically converted into percentage points that alter the buyer’s mortgage rate.

Under the revised LLPA pricing structure, a home buyer with a 740 FICO credit score and a 15% to 20% down payment will face a 1% surcharge – an increase of 0.750% compared to the old fee of just 0.250%.

When absorbed into a long-term mortgage rate, the increase is the equivalent of slightly less than a quarter percentage point in mortgage rate. On a $400,000 loan with a 6% mortgage rate, that buyer could expect their monthly payment to rise by about $40, according to calculations by Stevens.

Meanwhile, buyers with credit scores of 679 or lower will have their fees slashed, resulting in more favorable mortgage rates. For example, a buyer with a 620 FICO credit score with a down payment of 5% or less gets a 1.75% fee discount – a decrease from the old fee rate of 3.50% for that bracket.

When absorbed into the long-term mortgage rate, that equates to a 0.4% to 0.5% discount.

Dream For Some

People thought that this program’s $300 million would last a few months.

How about two weeks!

I doubt the homebuyers all found homes already. Doesn’t it have to be that the $300 million in loan preapprovals all happened quickly, and now those buyers are searching for homes at a higher price point than they previously expected?

It probably feels like free money!

It should mean a surge of home sales in the $500,000 – $1,000,000 range throughtout the state.

Thank you California taxpayers!

Added later – it looks like you did need to have an accepted offer:

Dream For All

The CalHFA Dream For All Shared Appreciation Loan Program is out.

It’s a way for buyers to purchase a home with no money down. The State of California has thrown $300 million towards the program, and they will provide a 20% down payment and share the future appreciation.

It’s not a dream for all – it’s only for those who meet the criteria:

  • San Diego County income under $211,000.
  • 680+ credit score.
  • Debt-to-income ratio under 45%.
  • Haven’t owned a home in the last three years.
  • 8-hour online seminar.
  • Seller can pay the buyer’s closing costs.

Here are the FAQs:

It will be a useful program for homebuyers who don’t strive to buy a quality property – because those are being snapped up by the affluent. I had two different cases this week where my buyers got into bidding wars – 14 offers on a Escondido house under a million, and 8 offers on a mid-$2,000,000 house in La Jolla. Both offered 5% over the list price and lost.

Those who pre-qualify for the Dream For All program and submit an offer on a quality home will likely be shown the back of the line by the listing agent, who will have the more-traditional buyers to choose from.

To paraphrase what George said, the Dream For All may sound good, but you have to be asleep to believe it.

Higher Rates = Less Volume

The mortgage rates are heading for 7% again, which is shocking, given it was 5.99% on Feb. 2nd.

Higher rates will discourage both buyers and sellers, and make them want to wait for a “better market” some day in the future.  Whether that day will come isn’t considered – all they know is that it isn’t today.

It should mean that the market will be cleared of any casualness, and only the highly motivated buyers and sellers will be engaging. Buyers will be more picky, and sellers will need to be sharp on price.

How sharp?

It will be different in each neighborhood, but I’ll give you one example.

After I set the market on fire in Encinitas Ranch at the end of 2021, this one-story house went for sale. It got bid up a million over the list price (which was deliberately set low by the seller), and the buyer paid cash:

I think the buyer passed away, unfortunately, and the house is coming back on the market.

Today’s list price, just a year after purchase? $2,900,000.

It is possible that 2023 is going to be as good as it gets for sellers – at least for the next few years. The Fed is adamant about crushing the economy, and we could see mortgage rates well into the 7s and, dare I say, we might be pushing 8% mortgages by summer.

The number of sales will be lower than ever, which means more volatility.  It will be wild and crazy for some, and that might be entertaining for the casual participants but it won’t draw them off the sidelines.

The higher the mortgage rates go, the less volume there will be and some markets could freeze up.

And this could be as good as it gets for a while – yippee!

Been Here Before

Thanks to JBREC for the chart, and article!

An excerpt:

In the mid-1990s when 30-year fixed mortgage rates climbed over 9%, ARM usage jumped to 35% of all mortgages. In 1999-2000 as 30-year fixed mortgage rates shot above 8%, ARM usage raged once again to 34% of all mortgages. For comparison, the percentage of homebuyers using ARMs today is just 9%, even as housing affordability resides near its all-time worst and 30-year fixed-rate mortgages have more than doubled in the span of 19 months. As noted by the CEO of KB Home during its Q3-2022 earnings call September 21st: “We have some great and compelling interest rates on adjustable mortgages, where it’s a 10-year fixed. And if I were a buyer, I would take that in a minute. Those [rates] are couple of hundred basis points lower than the 30-year fixed, and nobody is taking it so far.”

Back in the day, ARM usage around here was probably more like 2/3s of the loans, instead of 1/3 of mortgages nationally.  Rarely did anyone think they were buying their ‘forever’ home, and moving again within 2-5 years was the plan.  I used to just go back to my past clients every two years!

It when I coined my all-time favorite slogan, “Don’t unpack, I’ll be back!”

I predict that over the next 3-6 months, the mortgage industry will be heavily advertising alternative loans like the short-term (5-year and 7-year) fixed rate, or the 2/1 buydowns.  These were the products that kept the party going after the new 2-out-of-5-year law was passed in 1997, and serial movers could cash out tax-free every couple of years and buy a better home.

It was later, around 2004-2005, that Countrywide developed their toxic version of the neg-am loan, and then was offering 100% financing to anyone with a 700 credit score that the bubble started popping.

I think we are all convinced that the Fed is going to deliberately cause a recession in the next 1-2 years, and will have to lower rates again – and continue their biggest boondoggle in history.  Anyone who buys with an adjustable-rate mortgage can refinance to a lower 30-year fixed rate then.

Wouldn’t it be great if the mortgage industry brought back the convertible loan where you could change your ARM into a fixed rate without having to refinance!

The key to igniting the demand will be a 3-handle, and it’s already in some ads:

Some listing agents are offering a seller credit to buy down the mortgage rate, but it’s vague and uncertain. Will it be enough to make a real difference? Do I have to go through your lender to get it?

I think the mortgage industry needs to advertise the specific rates and terms to gain acceptance in the marketplace.  Buyers have only been thinking about getting a 30-year fixed, and will be slow to consider an ARM.  But it might be the best hope of a softer landing.

Trigger Lead

From a buyer who recently applied for a mortgage:

Buyer: I’ve had about 40 calls since 7am this morning for mortgages.

I didn’t take any of them and most of them are leaving VMs and texts saying they got notified by Experian that my credit was pulled for mortgage purposes and they want to help. Not sure why and how Experian is sharing my information. I am sure there is a fineprint somewhere.

Lender: It’s not uncommon these days unfortunately. It’s called a trigger lead. Very annoying thing the credit bureaus do.

Here is some info:

What is a trigger lead? When a borrower applies for a mortgage, the three credit bureaus take that information and sell it as a “mortgage lead” to any lender that is willing to pay for it. The “mortgage lead” has the borrower’s name, contact information and the date they applied for credit on it.

Why would someone buy a trigger lead? A trigger lead is a really good indicator that someone is in the process of refinancing or a purchasing a home. A lot of lenders feel this a great opportunity to try to steal the transaction for themselves.

Why is it so bad right now? With interest rates going up and refinance activity going down, most lender’s pipelines have begun to disappear. In response to that a lot of them are buying trigger leads right now.

Why doesn’t your bank do something about this? Unfortunately we do not have ability to block or restrict the credit bureaus from selling this information. This activity is not illegal, it’s legal for the credit bureaus to sell it as they are the owners of the data.

What can we do to help borrowers avoid this?  They can remove their information from being sold as a trigger lead. They can do this over the phone or through a website provided by the credit bureaus. Web link here:  or phone here: 888–567–8688. This must be done before they apply for credit and can take up to 5 business days to process so this may not work for everyone.

Purchase Applications

The Mortgage Bankers Association (MBA) released its latest mortgage application numbers this morning and the modest movement belies the drama unfolding in the world of mortgage rates. As usual, the MBA does a good job of capturing average rate movement week to week and they correctly identified last week’s big spike to the highest levels since the first half of 2019.

Despite the surge, mortgage applications didn’t respond in a major way. Refi applications only fell 3% from the previous week. Purchase applications actually managed a small uptick of 1% after last week’s more substantial 9% improvement. But context matters.

As seen in the following chart, refi applications have declined massively from Summertime highs and even more massively from the high levels at the beginning of 2021. MBA notes this week’s tally is 49% lower than the same week last year. The news is less dire on the purchase side. Applications are still lower than most of the past few months, but higher than most of the late summertime months from 2021:

Speaking of context mattering, a longer term chart of the same data really helps put the magnitude of this most recent rate spike into perspective. It’s not an exaggeration to say it’s now the sharpest move higher that any of us have seen in more than a decade (the overall size is about the same as 2016-2018, but this one has happened in roughly 6 short months… not only that, but 2016-2018 was really a 2-parter).

The other takeaways from the chart include the notion that the purchase market is still firing on all cylinders relative to most of the past decade (even then, we can responsibly conclude it would be even higher if not for the low inventory situation) and that refi demand doesn’t have much farther to fall before hitting the historical bottom. In fact, due to the immense equity build-up of the past 2 years, the doldrums of 2017-2018 may not be a relevant baseline this time around.

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