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Jack Conway, New Penn Financial Launch Joint Venture Conway Financial Services

Jack Conway & Company and New Penn Financial announced today the formation of a joint-venture mortgage company, Conway Financial Services.

Conway is the largest privately owned residential real estate brokerage based in Massachusetts, with 30 offices and nearly 700 sales associates in Eastern Massachusetts. Based in Philadelphia, New Penn is one of the fastest growing lenders in the U.S.

Janet Bradshaw, who began her career in the real estate industry with Jack Conway & Company in 1998 and worked for the company’s previous mortgage affiliate, will manage New Penn’s Massachusetts presence.

“I expect us to have a longstanding partnership with Jack Conway & Company,” Bradshaw said. “Our ability to strengthen homebuyers with prequalification and an array of tailored loan programs, along with Jack Conway’s deep roots and local expertise, will benefit our customers.”

Conway Financial’s loan officers will work with each real estate sales center to provide one-on-one consultations with borrowers who are purchasing or refinancing their homes.

In addition to the new entity, New Penn Financial operates multiple subsidiaries and joint ventures across the U.S., including Shelter Mortgage Company. “At New Penn Financial and Shelter Mortgage, we have consistently demonstrated that we can produce customer-centric loan programs and recruit highly respected loan officers,” said Shelter Senior Vice President Corey Caster. “As a result, we’re able to create joint ventures with highly regarded companies. This partnership will make Conway Financial Services the premier one-stop shopping experience for thousands of homebuyers in Massachusetts.”

Interest Rate Forecast for 2017

We’ve been saying since December that 4%-plus on the 30-year loan would likely be the new norm going forward. With the Federal Reserve hinting that it would like to raise the federal funds rate (the base rate) up to three more times this year, it’s unlikely we’ll see a pullback in mortgage rates heading into summer as we did last year. 

That said, we don’t see much of an impetus for the 30-year loan to meander higher than 4.5%. We’ve already seen the Fed hedge on the idea that three rate increases could be forthcoming in 2017. In February, we’ve seen the yield on the 10-year U.S. Treasury note drift lower. Over the same time, we’ve seen gold prices drift higher. (The gold price will frequently move inversely to interest rates because the opportunity costs of holding gold drops with lower interest rates.) 

As we write, traders in fed funds rate futures contracts give 50/50 odds for a rate increase in May.  These same traders give the greatest odds to a 25-basis-point (0.25%) increase. 

Should that occur (and we wouldn’t be surprised if it didn’t) that doesn’t mean materially higher mortgage rates reside in the future. The fed funds rate is one variable in the interest-rate equation. The Fed’s balance sheet is the other variable. 

The Fed’s balance sheet holds $4.5 trillion of Treasury securities (mostly long term) and mortgage-backed securities (MBS) on the asset side. Before the 2008 financial crisis, the Fed’s balance sheet held $800 billion of Treasury securities (mostly short-term bills). Money supply is the corollary to the Fed’s assets. The more securities it holds, the more money the Fed has created. (The Fed pays for its securities with newly issued money.)  The Fed has stopped buying additional Treasury securities and MBS, but it has continually reinvested the proceeds as they mature. This has kept the money supply high, which has helped keep interest rates low. 

Fed officials have said they have no intention of reducing the balance sheet until the fed funds rate has been raised higher than its current level (no specifics have been given). When that occurs, then the Fed would consider reducing its assets, which, in turn, would reduce the money supply. (A dollar is a liability on the Fed’s balance sheet that’s offset by the securities it holds on the asset side.) 

We don’t think that we’ll see mortgage rates rise significantly higher (by a percentage point or more) until the Fed begins to reduce its assets, which would also reduce the money supply. When this happens, and it might not happen until next year or beyond, then we would expect to see a significant increase in market-interest rates and in mortgage-lending rates. 

How an FHA loan can help millennials become homeowners in 2017

Current market conditions, from rising interest rates to tightening housing inventories, in addition to existing financial obligations may make millennials feel like they can't become homeowners. But millennials shouldn't simply give up on their ambitions to eventually buy a home.

To become a homeowner, millennials should consider a loan backed by the Federal Housing Authority.

Why take out an FHA loan?

Millennials should consider taking out a mortgage backed by the Federal Housing Authority because the lending requirements are less strict than conventional mortgages.

Current trends indicate FHA loans are growing in popularity among millennials. National Mortgage News stated 41 percent of millennial women homebuyers borrowed through an FHA mortgage, as did 38 percent of millennial men.

One reason millennials are gravitating toward FHA loans? They don't need to save as much money for a down payment. Bankrate​ stated some buyers are able to buy a home with a 3.5 percent down payment with an FHA mortgage. However, a lower down payment comes with a trade off as buyers have to pay an upfront mortgage insurance premium.

The second reason millennials are borrowing FHA mortgages: a lower credit score requirement. A study from TransUnion revealed nearly 43 percent of millennials have a subprime credit score (below 600). Even with a less-than-ideal credit score, a millennial may still be able to buy a home with an FHA mortgage. Millennials with above average credit scores, typically in the 750 range, can also take advantage of FHA mortgage benefits.

Millennials struggling to get approved for a conventional mortgage should consider an FHA loan. With greater flexibility and less stringent requirements, FHA loans are an appealing mortgage option for young prospective homebuyers.

How To Interpret Something From Nothing

Federal Reserve Chair Janet Yellen garnered a lot of attention this week for her Humphrey-Hawkings testimony before Congress. It appears Fed watchers and financial-market participants were bowled over by the following commentary: Yellen said that if employment and inflation are “continuing to evolve in line with [the FOMC committee’s] expectations” that “a further adjustment of the federal funds rate would likely be appropriate.”

Soon after Yellen’s utterance of these seemingly noncommittal and innocuous words, the odds of an impending Fed hike in the federal funds rate spiked higher. One notable Goldman Sachs economist even ventured to opine that Yellen’s words offer “relatively strong support for near-term policy action." Near term means that Fed officials could raise the fed funds rate at its next meeting in March.  

Goldman’s economists might be jumping the gun. The odds for a March rate increase did spike, but the odds still favor inaction. Traders in federal funds rate futures contracts are betting only a 22% chance the fed funds rate will be raised next month (though this is five percentage points higher than the odds given last week). The odds don’t rise to 50% that an increase will occur until May. The week before, June was the closest month giving 50% odds.  

It’s unlikely the Fed will raise the fed funds rate next month.  As for May, we’ll believe it when we see it.  We still think June is the closest month for a rate increase to occur (and when it does occur, it will be only 25 basis points). 

So, where does this leave us?  

We still think three rate increases, which were proffered by many prognosticators at the beginning of the year, is too optimistic. Indeed, CNBC noted last week that JPMorgan’s economists now see no more than two rate increases this year. We surmised last month that only one increase could be in the cards. (But if we see two, we won’t be surprised.)  

At this point, market participants just seem antsy for an interest-rate increase, and for interest rates to move higher. This sentiment should settle down once Yellen’s recent testimony is forgotten. But with the strong jobs report for January and consumer price inflation inching higher, we don’t see interest rates easing in the near future.

What to consider as a first-time homebuyer

Buying a home for the first time can be intimidating. 

Whether you're fresh out of college or buying for the first time later in life, there are several things potential homeowners need to consider before making a purchase. Making a wrong decision when it comes to buying a home will not only be disappointing, it will be costly.

Here are a few things consumers should keep in mind before signing on the dotted line:

What type of mortgage is best?

Deciding what type of mortgage to pursue is one of the biggest decisions homeowners make before buying their home. Fixed-rate and adjustable-rate mortgages each have their own advantages, but they can be costly for individuals who choose the wrong one. To ensure that doesn't happen, consumers should consider three things: how long they plan to stay in a home, how much they can afford as a monthly payment and how high interest rates are at the time they want to purchase.

Fixed mortgages tend to be better for homeowners who plan to stay in their homes for many years. Adjustable-rate mortgages go up over time, which means homeowners in it for the long haul might find themselves making higher monthly payments several years later than when they first started. Individuals who don't have room in their budget for an increasing payment might consider shying away from this option.

However, adjustable-rate mortgages can be great for homeowners who think they might move in a few years. If an individual purchases a home when interest rates are low, they will likely reap the reward of lower rates on the monthly payments and leave before rates increase. Adjustable-rate mortgages can also be a savvy choice if interest rates are high when a homebuyers move into their home. In this case, as interest rates fall over time, homeowners will also see their monthly payments drop.

How can I impress my lender?

For those who have never applied for a mortgage before, it can be confusing to know what lenders will use to determine a consumer's eligibility. Simply having a lot of money in the bank won't guarantee a lender's approval. An individual's credit score will hold the most sway over lenders when they are determining whether to approve someone for a loan. Banks will typically look at that score, any unpaid collections, or previous bankruptcies or foreclosures.

To maximize the likelihood of getting approved for a loan, individuals should seek to reduce their debt-to-income ratio and pay down any outstanding debts. This can give a quick boost to a person's credit score in the month before a lender makes a decision about a loan. If it's within their budget, individuals who make a larger down payment also increase their chances of approval and getting a lower interest rate from lenders, according to Nerd Wallet.

Is a USDA Mortgage Right for You?

Here's one government agency you might not associate with mortgage lending: the U.S. Department of Agriculture.

The USDA can provide another mortgage option for potential rural homeowners who might be having trouble with other lenders. These loans are backed by the government, which means that homebuyers don't need to make a down payment to get approved for a loan.  

The government offers a 90 percent reimbursement guarantee to lenders who offer these loans, which reduces their risk for losses if someone defaults. This results in lower interest rates for those approved for USDA loans, making them attractive to eligible buyers, according to The Mortgage Reports. But not everyone can qualify for these loans.

While a large swath of U.S. land is eligible for USDA housing, 3 percent of the country's land mass is not. Homebuyers can check if they live in an area that's approved for USDA loans by going to its website and plugging their address into the agency's database to determine whether they qualify. Potential buyers must also fit into a particular income range in order to qualify for a USDA loan, but the specific range will vary from state to state.[can you give an example of one or two states?]

These loans are a viable option for many rural homeowners at a time when there is a shortage of affordable housing in rural communities, according to Realty Biz News.

The average income in USDA housing is $12,729, and the USDA estimates that more than $5.5 billion in funding is needed over the next decade to maintain its current housing options. Those looking low-income housing can check how many USDA properties are available in their state by visiting the agency's website.

 

 

 

 

 

 

 

 

Expect Volatility, but Don't Fear Volatility

Markets rarely progress on a purely linear path, whether it be up or down. This includes the home-sales market. 

Both new- and existing-home sales have meandered more than usual lately. Last week, new-home sales fell considerably short of the consensus mark, dropping 10.4% in December compared with November. A few days before that, the data on existing-homes sales showed that their sales also came in short for the month (though not to the degree of new-home sales) 

We see no reason for alarm. Year over year, new home sales are up, as is home builder sentiment. In fact, sentiment continues to hover near a multi-year high. Home builders continue to build, and build more than what they’ve built in previous years. No doubt, they expect to sell more homes this year. 

As for existing-home sales, they’re at a 10-year high. Looking at the recent pending home sales index, sales should build on recent momentum to hit more multi-year highs. The index rose a strong 1.6% in December. This portends higher existing-home sales for January and February.  

We remain enthusiastic, though a recent NAR survey would appear to dampen our enthusiasm. The NAR surveyed a range of adults, from homeowners to those who lived with a family member. The good news is that 80% of the respondents still consider homeownership to be part of the American dream. The bad news is that only 55% consider NOW the ideal time to buy a home. This was down from 63% in the third quarter. 

The spike in mortgage rates no doubt contributed to the drop in the immediate attractiveness of a home. Higher mortgage rates obviously impact affordability. But as people get used to the new normal (4%-plus on a 30-year loan), the attractiveness of owning a home should rise. 

The Census Bureau’s latest Residential Vacancies and Homeownership report offers other reasons to remain enthusiastic. The homeownership rate hit a 51-year low in the second quarter of 2016. But the report shows an uptick in the homeownership rate in both the third and fourth quarters, with the rate posting at 63.5% and 63.7%, respectively. The report also shows that the rental vacancy rate increased to 6.9% in the fourth quarter.

We might be twisting ourselves into a knot to reach a conclusion, but hear us out: If vacancy rates and homeownership rates are trending higher, this suggests that more people are cycling out of the rental market and into the owner-occupied market. Our logic isn’t unreasonable when you consider both vacancies and ownership rates are at a level unseen in decades. Trends don’t rise to the sky, nor do they fall to the earth.  Both directions eventually reverse course. We think both trends are close to reversing, if they haven’t already.

Of course, any new trend won’t be a linear progression, but we’ll take a nonlinear progression if it means more people embracing homeownership.

When Should You Buy and When Should You Rent?

In 2015, only 32 percent of homebuyers were first-time purchasers, according to NPR. 

After the housing crisis in 2008, many people became skeptical of buying homes, but now that the mortgage industry appears to be making a comeback, prospective owners are beginning to wonder whether purchasing a home is an option again. But before consumers make a decision they need to know whether they're better off renting or if they would benefit more from purchasing real estate.

Here are some things to consider before taking out a loan or signing a lease on a new residence:

That Darn Supply

Whenever talk turns to home sales, you can be sure it will also turn to home supply, and for good reason. 

Existing home sales dropped 2.8% to a lower-than-expected 5.49 million on an annualized rate. Most market watchers were expecting better (including us). One positive in the sales data was November sales, which were revised up to 5.65 million on an annualized rate. 

December sales had trouble gaining traction for the same reason they’ve had trouble gaining traction in most down months -- supply.  The NAR reports the number of homes for sales fell 11% for the month to 1.65 million. At the current sales pace, supply, at 3.6 months, is at the lowest level since 1999. If you don’t have a lot to sell, it’s hard to sell a lot. 

Interestingly, many sellers were unable to exploit their advantage. The median price of an existing home was down 0.9% to $232,200 in December. If demand holds steady and supply drops, prices should rise. (It’s possible demand also dropped on higher interest rates, though purchase-mortgage activity suggests otherwise.) Of course, we all know that housing markets are local markets, and what holds for the national market won’t necessarily (and likely won’t) hold for any particular local market.

Investment is another variable impacting home supply. Over the past five years, a record number of homes, most notably single-family homes, have been converted to rentals. We’ve seen this conversion occur on an unprecedented institutionalized scale, with large investment firms buying hundreds of thousands of homes. What’s more, most of these conversions have occurred at the lower end of the market, thus driving up prices for what would be starter homes for first-time buyers. 

Increased construction activity helps, but it’s not helping enough. Housing starts were up 11.3% to 1.226 million on an annualized rate last month. But the surge was confined to multi-family starts, which jumped 57%. The more important single-family category actually declined 4%.

Though home constitution has trended higher in recent years, it hasn’t trended high enough. The historical annual average for starts is around 1.5 million. NAR economist Lawrence Yun has mentioned that excess regulation -- concerning land use in particular -- has held construction in check. 

Love him or hate him (because there is no middle ground), but President Trump has vowed to reduce  business regulation across the board. Should Trump follow through, we should see a pick-up in new-home construction. 

January Could Be a Great Month to Refinance

Homeowners thinking about refinancing might want to pull the trigger. 

January might be a perfect time for homeowners to get the most for their dollar for a home refinance for a variety of factors. For one, experts project that home values will continue to rise throughout 2017. Higher home values impact refinancing in a number of ways. Owners whose homes have appreciated in value can perform what is called a cash-out refinance, which allows homeowners to use some of their home's value to make improvements and additions to a house, according to The Christian Science Monitor. This will help add value to a home in the long run, the source noted.

Individuals with a Federal Housing Administration-backed loan might also be able to remove their mortgage insurance as the value of their home continues to rise. Borrowers who have 20 percent home equity or more typically don't need to pay for mortgage insurance, The Christian Science Monitor reported. Mortgage insurance adds anywhere between 0.85 percent and 1.35 percent to a borrower's monthly payment, so individuals who can get rid of insurance will likely see their monthly mortgage payments drop as well.

There are other options to refinance as well. Until September, homeowners also have the opportunity to take advantage of the Home Affordable Refinance Program, which allows people with high loan-to-value ratios to refinance without paying for mortgage insurance.

To qualify for HARP, homeowners must have a mortgage backed by Fannie Mae or Freddie Mac, and they must also have a loan-to-value ratio greater than 80 percent. Borrowers cannot have had a late payment within the last six months, and they may only have one delinquency within the past year when applying for HARP. Lastly, applicants must have a mortgage that originated before May 31, 2009, to be eligible for the program.

Borrowers should carefully consider their options and determine the best way for them to refinance in the coming months.