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Monthly Archives: October 2015

Can I use a VA loan after a foreclosure?

For homeowners who have defaulted on a mortgage, rebuilding credit and financial security is important. Luckily for military veterans, they have a mortgage tool that can allow them to more quickly rejoin the ranks of homeownership, even after default—a VA-backed loan.

A Veterans Affairs (VA) loan is available to servicemembers, veterans, and eligible surviving spouses and differs from FHA loan or conventional mortgages by offering more flexible qualification requirements. For many lenders, a 620 FICO score is an acceptable minimum score—a useful requirement since defaulting on a mortgage can result in the loss of up to as 120 points from your score. Also the mandated delay between a default and reapplying is shorter than most loans: even an FHA loan requires three years after a short sale, versus the two years typically required for the VA, allowing the borrower sufficient time to monitor and rebuild their credit profile. Some lenders may have even shorter waiting periods, or none at all following a short sale. 

Market Preview 10.28


Home builders are on a roll. The latest Wells Fargo/NAHB Sentiment Index posted at 64 for October. This is the highest posting since 2005. (A posting above 50 tilts sentiment toward optimism.)

The longer-term outlook is bright too. The permits component was up seven points to 75. This means home builders are expecting strong starts and sales for the next six months.

Now, add rising construction activity and rising sales volumes with rising stock prices. The S&P Home builders ETF (NYSE: XHB) is up 134% compared to 73% for the S&P 500 Index over the past five years. And don’t forget refinances. Freddie Mac’s latest survey shows borrowers across the country are getting sub-3.9% on a 30-year fixed-rate loan. The 15-year fixed-rate loan is hovering around 3%.

Anyone considering a loan should act sooner than later. Application volume has been volatile lately due to the new lending disclosure rules under TILA-RESPA. Last week, purchase activity spiked 16%, while refinance activity was up 9%. Given the expected rise in new and existing home sales, we expect lending activity to rise too.

A guide to foreign national loans

With the U.S. dollar strong and home values on the rise, foreign buyers have a real incentive to purchase property as an investment or as residence. And the U.S. economy has an incentive too: according to the National Association of REALTORS®, international buyers purchased more than $99.2 billion in U.S. residential real estate in the twelve months ending March 2014—and this is expected to increase over time. 

For international buyers looking to invest in U.S. property while continuing to live abroad, the options can be limited: without a domestic social security number, credit score, U.S. employment history or proof of residence, foreigners may be ineligible for many of the traditional mortgage and financing options. Paying cash is a possibility, but with low rates nationwide, the ability to finance a property is much preferred by any buyers. This is where a foreign national loan can help.

Fifth Third Bank pays over $85 million over faulty FHA loans

As part of a settlement with the federal government Fifth Third Bancorp has agreed to pay $85 million to avoid prosecution for failing to to self-report FHA-backed mortgages it knew to be defective, resulting millions of dollars in losses to the Department of Housing and Urban Development (HUD).

Tipped off by a whistleblower complaint, Fifth Third was accused of intentionally misreporting a number of mortgages between 2003 and 2013 were certified eligible for Federal Housing Administration insurance before being deemed "materially defective." Upon realization of the faulty mortgages—1,439 in all—Firth Third did not report the defects to the FHA.

"When banks discover that some of the loans are lemons and that their promises of quality were false, as Fifth Third Bank did," wrote Christy Goldsmith Romero, Special Inspector General for the Troubled Asset Relief Program in a press release regarding the settlement, "they must come forward and report it promptly, so that taxpayers don't get stuck with the bill."

How much should you pay for a rental property?

For real estate investors looking to build their equity and have a steady stream of income, a rental property can be a great choice. The trick to ensuring your investment is a savvy one is to have the right formula that factors in the mortgage for rental property so that you can know the right rent to charge your tenants. 

According to Brooklyn Law School professor David Reiss, one calculation to consider is the capitalization ("cap") rate—ratio of net rental income to the purchase price. Use current rental prices, take one year's projected gross rental income, and subtract roughly 5 percent or so to account for occasional vacancies. From there, add up operating expenses like property taxes, insurance, utilities (if not paid by the tenants), and at least 5 percent of gross income for maintenance/repairs. Subtract this amount from the annual income, then divide the number you come up with (the net operating income) by the purchase rate.

Market Preview 10.21


Here’s another reason why we don’t foresee a 2015 rate hike: Inflation, and not enough if it.

The Fed uses rate hikes to combat unhealthy inflation. This is what happened in the 1980’s, when the Fed raised rates, and inflation fell from 19% to 4%.

2015 on the other hand, has been a year of deflation. A small dose of deflation can be healthy, but too much makes things sluggish, kind of like dark chocolate. Producer prices dropped 0.5% month over month in September. Year over year, producer prices are down a modest 1.1%. However, a rate increase could add momentum to deflation, which could threaten to paralyze the economy like it did in 2008, when lower prices forced companies to lay off workers.

Because of this, we’re seeing sub-4% on the 30-year fixed-rate mortgage through the remainder of the year, and possibly the first quarter of 2016. But we again remind you, things can and do change in a hurry. If we go back to May 2013, the 30-year loan was priced with a 3.5% rate. Within a month, the rate was above 4%.

New studies show student loan debt isn't stopping millennial homebuyers

Data released as part of Freddie Mac's latest Insight & Outlook report points to an unexpected conclusion that seems to buck conventional wisdom: student loan debt isn't preventing millennials from becoming homeowners. 

As homeownership rates continue to struggle, people under 35 appear to be shifting away from homeownership. For years, this has been attributed to the high rates of student loan debt amongst this group making them both reluctant to take on additional debt in the form of a home loan. But recent studies show that the answer may be more complicated.

"Student loan debt alone can't explain the low homeownership rate among Millennials," the report states. "After all, the homeownership rate in this cohort has dropped 5 to 6 percentage points for student loan borrowers and non- borrowers alike."

3 things to plan for in your home improvement budget

When you're budgeting for a major home improvement project, it's important to leave some room in the budget for dealing with certain common unforeseen circumstances. Renovations can often end up involving more steps than you might have anticipated, and they can also turn up problems in your home that need to be repaired. 

Remember to leave some room in your budget for problems like these:

  • The project becomes more structurally detailed than you anticipated. If your project involves tearing down walls to open up spaces, you might be up for a bigger project than you expected if any of the walls you want to remove are load-bearing. To make sure the changes you want to make won't cause structural problems, you may have to hire an architect or a structural engineer, which can run up the cost of the project significantly.

Market Preview 10.14


Two-hundred thousand has been the magic number. If the economy could continually create 200,000 or-more new jobs per month, then it could withstand higher interest rates. September’ saw only 142,000 jobs created, the second-consecutive month of sub-200,000 job growth.

Now, everyone is pointing to December. Fed Chair Janet Yellen has said a rate increase is still on the table this year. Traders are pricing fed funds rate futures contracts for a 36% chance of a rate increase in December.

The recent drop in mortgage rates, combined with the TILA-RESPA regulatory change from October 3rd, have sent mortgage activity skyrocketing. Refinances were up 24%, and purchases were up 27%. Mortgage lending activity points to higher home sales for September when the numbers are released later this month. We doubt these numbers will hold for October.

Lenders report easing credit standards

Lenders reported loosening credit standards across all loan types in Q3, according to Fannie Mae's latest Mortgage Lender Sentiment Survey. The quarterly survey asks senior mortgage executives whether their lending organization's credit standards have eased, tightened, or remained essentially unchanged during the prior three months.

While roughly three quarters of surveyed lenders reported their lending standards remained the same, the percentage of lenders reporting easing credit requirements saw a significant jump between last quarter and Q2. On the other hand, the number of lenders that experienced credit tightening fell during the same period.

The Q3 report also found that the difference between the amount of lenders reporting easing as opposed to tightening has grown, marking the largest "net easing" since Fannie Mae began surveying lenders. The gap between the two groups is now 20 percentage points for GSE eligible loans and 18 percentage points for non-GSE eligible loans. This pattern of easing shows no signs of slowing, either, as the survey found that even more lenders expect their organizations to ease credit standards over the next three months.