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Monthly Archives: March 2016

FHA keeping mortgage insurance life-of-the-loan premium for foreseeable future

In spite of recent calls to eliminate the controversial mortgage insurance life-of-the-loan policy on loans backed by The Federal Housing Administration, head of the FHA Ed Golding testified before a House Financial Services subcommittee stating that the FHA would be standing behind the policy. 

"I am actually not considering changes to the life-of-loan policy," Golding said. This is the first major statement by the FHA on the life-of-loan premiums since a 2013 statement by the FHA announced it would require most borrowers to continue paying annual premiums for the life of their mortgage loan.

"The FHA has gone back and forth on the topic of mortgage insurance premiums."

Starting in 2001, the FHA has gone back and forth on the topic of mortgage insurance premiums. Initially, the FHA canceled required MIP on loans when the outstanding principal balance reached 78 percent of the original principal balance — while remaining responsible for insuring 100 percent of the outstanding loan balance throughout the entire life of the loan. After the Obama Administration directed the FHA to reduce annual mortgage insurance premiums by 50 basis points, from 1.35 percent to 0.85 percent, the FHA seem anxious to make up for the lost MIP revenue.

Why Non-Bank Lenders are the Future of Mortgages

Where is the US economy going? Who will win March Madness? Will it rain next week? There are hardly any topics on which we all collectively agree—which makes it exciting to report that we all seem to agree that non-bank lenders are the future of mortgages.

In 2013, Bloomberg Business reported that record mortgage profits at major banks such as Wells Fargo and JPMorgan Chase were fading fast. Today, only six of the top twenty mortgage originators from 2006 are still servicing residential mortgages, according to Fannie Mae. Kroll Bond Rating Agency predicts that over the next few years, the top four commercial banks will downsize or exit entirely from the business of originating and servicing residential mortgages.

Market Preview: Basic Economics Don't Hold in February

A MIXED BAG

Basic economics didn’t hold in February. Sales of existing homes were down a surprising 7.1% to 5.08 million units on an annualized basis. At the same time, the median price of an existing home dropped 1.4% to $210,000 for February, while supply, the lack of which has been an issue for the past two years, was up 3.3% to 1.88 million units.

So, for last month, we had more supply and lower prices, yet sales tanked.

As for new homes, we saw a different dynamic at play. Sales of new homes rose 2% to 512,000 units on an annualized basis. Sales were up, but so too were prices. The median price of a new home was up a strong 6.2% to $301,400 for February. Supply is also on the rise. There’s a 5.6 months’ worth of supply at the current sales pace. This is the highest sales-to-supply multiple since December 2008.

Other factors, like weather, played a part in the anomalous February sales data. Now that spring is here, we expect to see less variation in monthly sales numbers. We also still expect to see good things for sales and housing activity through 2016.

The importance of an appraisal in the homebuying process

No matter what side of the homebuying process you are coming from — buyer or seller — the home appraisal is an essential step. Even if a buyer has been pre-approved for the full value of a home that they love, getting it inspected can have an impact on the deal in many serious ways.

A home appraisal is primarily important in establishing the true value of a home. Just because a seller is looking for $300,000 doesn't mean a home isn't actually worth $200,000. An unfavorable appraisal can stop a sale dead in its tracks.

"A home appraisal is primarily important in establishing the true value of a home."

To determine the true value, an independent appraiser will come in and inspect the home thoroughly. This includes investigating the condition, the square footage, location and any additions or renovations. These appraisers are not interested in ensuring the home comes in at a high valuation — they just want the valuation to be accurate.

Emergency preparedness tips for a blackout

Making sure your home is safe in the event of a blackout is very important. Storms of all kinds can cause your home to lose power, leaving you without any immediate information about when it will return. 

Here are a few simple tips to ensure that if your home experiences a blackout, you can keep safe before power while restored.

Emergency kit

Putting together an emergency kit means that you can sit tight and not worry about lacking provisions. Here are few things worth including in your kit:

  • Candles and flashlights, along with matches and extra batteries.
  • At least one gallon of water per person per day. Plan for at least three days.
  • Nonperishable food for at least three days. Avoid foods that will make you thirsty, as that will cause you to use more of your water provisions.
  • A battery-powered or hand-cranked radio, or a NOAA Weather Radio with tone alert. 
  • A first-aid kit.
  • Food, water and medications for pets.
  • Extra cash.
  • Copies of emergency contact information, including doctors, police and other officials.

Other inclusions might be sleeping bags, extra blankets, extra clothing, infant formula and diapers, as well as books, games, puzzles or other activities to keep kids occupied. 

"Storms of all kinds can cause your home to lose power."

Where Do Mortgage Rates Come From?

Where Do Mortgage Rates Come From? Mortgage rates are life-changing numbers. If the rate on a thirty year $290,000 loan were to drop from just four to three percent, it would save the customer $170 per month, and $61,200 throughout the life of the loan. To the first-time homebuyer, it may feel like understanding these crucial numbers is for the Las Vegas oddsmakers. It really isn’t that complicated though.  

 A jumble of factors go into determining an interest rate, but just a handful rise above the rest in importance.

  1. The Economy The easiest way to anticipate mortgage rates is to simply observe the economy. Rates are meant to be custom designed for what borrowers can afford on that day, which makes rates a catch-22. The higher mortgage rates go, the more bullish the economy is. When mortgage rates are low, it means times are tough. Rates have been rising over the past two weeks (although they remain historically low), primarily due to a rebounding stock market and a low unemployment rate.
  2. The 10-Year Treasury The movement of the 10-year Treasury bond yield is said to be the best indicator to determine whether mortgage rates will rise or fall. But why?Though most mortgages are packaged as thirty-year products, the average mortgage is paid off or refinanced within ten years. So the ten-year bond is a great bellwether to measure interest-rate change. Treasuries are also backed by the “full faith and credit” of the United States, making them the benchmark for many other bonds as well.Additionally, 10-year Treasury bonds, also known as intermediate-term bonds, and long-term fixed mortgages, which are packaged into mortgage-backed securities (MBS), compete for the same investors because they are fairly similar financial instruments.However, treasuries are 100 percent guaranteed to be paid back, while mortgage-backed securities are not, for reasons such as payment default and early repayment, and thus carry more risk and must be priced higher to compensate.
  3. Investors Another great hint to determine where mortgage rates are going is to follow the investors. If times are good, people invest in higher-risk, higher-yield stocks. When the economy is sluggish, investors typically favor real estate, which is less risky and can even be immune to certain economic downtimes. Remember, a bullish stock market means higher mortgage rates.
  4. Property Type Homes are either bought to live in, or to rent out. In the case of a purchase, if you are buying an investment property the rate is typically higher to account for the additional layer of risk. Why? Most people rely on rental income to cover the cost of a mortgage. If a renter fails to pay, or disrespects the property, the owner’s ability to afford the property may change. When buying a home that the buyer intends to live in, there is almost no difference in rate. The same goes for vacation homes.
  5.  You Every borrower carries risk. Risky borrowers, at least in the eyes of prospective lenders, must pay higher rates. Things like a poor credit score and a small down payment could lead to a higher rate, whereas borrowers with stellar credit and plenty of assets will have access to the lowest rates available. One way for borrowers to decrease the risk they present is offer a larger down payment. Even a medium risk borrower (someone with a credit score from 600-660), can see a significant improvement in rate with just a slightly larger down payment. A borrower with average credit could drop their rate by as much as .375% just by putting an extra 5% down. That’s over $20,000 over the life of the loan in the scenario mentioned earlier.
Of course, there are a slew of other factors and variables that can alter a mortgage rate, from the Fed, to mortgage points, to timing. Even Fannie Mae, Freddie Mac, and the Mortgage Bankers Association have differing, though similar views of where mortgage rates will go for the rest of 2016. However, understanding the few major factors that go into mortgage rates can turn a first-time homebuyer into an educated homebuyer. 

Market Preview: Chances of a Rate Hike Go Higher

Housing starts came in strong for February, rising 5.2% month over month to 1.178 million units when annualized. Single-family starts were especially robust, rising 7.2%.

That said, at least a few commentators were down on permits, a useful gauge for estimating future activity. Overall, permits were down 3.1% in February. However, single-family starts were actually up 0.4%. Year over year, growth in single-family permits has been healthy, up 6.3%. This suggests that new-home activity should remain elevated heading into the spring season.

But the news on new-home activity isn’t all good. NAR data show that inventory for homes priced below $250,000 dropped 8.2% in January compared to a year earlier. When supply falls, prices usually rise. Trulia data show that starter-home buyers on average need to devote 38%, up from 32% four years ago, of income to housing costs.

While some in housing are saying a coming drop in home prices will stymie the market for a while, that same drop in housing prices will allow Millennials to enter the housing market in the long term.

Mortgage debt falls in fourth quarter

According to the Federal Reserve Bank of New York's Quarterly Report on Household Debt and Credit, mortgage and other debt fell as repayment in the fourth quarter of 2015 grew. Home equity lines of credit also continued a four year decline, falling $5 billion during the fourth quarter. Roughly 56 percent of all new mortgage balances went to borrowers with credit scores above 760.

"Mortgage and other debt fell as repayment in the fourth quarter of 2015 grew."

Debt delinquency rates also fell, driven by strong mortgage repayment. Only 2.2 percent of mortgage balances were considered "seriously delinquent" and over 90 days late. While that marks a slight increase from the third quarter's 2.3 percent, it also was the lowest level since 2008. This signals some safety from the economic turmoil of the housing crisis of recent memory. 

"The household sector looks much better positioned today than in 2008 to absorb shocks and continue to contribute to the economic expansion," said New York Fed President William Dudley.

Jumbo loans: higher earners, lower down payments

Jumbo loans have long offered a unique financing opportunity for homeowners. They provide mortgage financing for borrowers looking to purchase a home that exceeds the lending limits set by Fannie Mae and Freddie Mac, typically $417,000 in most areas. For years following the housing crisis, lenders have been insistent on most borrowers looking to finance their homes with a jumbo loan paying a minimum of 20 percent down payment. 

"Lending standards for jumbo loans have recently started to loosen."

Lending standards for jumbo loans have recently started to loosen, however, particularly for what is often referred to as "Henry" borrowers. Henry is an acronym, standing for "high earner, not rich yet." This describes many hard working Americans who might benefit from a jumbo loan, but may have savings tied up in employer-provided retirement accounts and not immediately accessible to make the significant down payment. 

Luckily for Henrys, many lenders are now offering jumbo loans with far lower down payments than 20 percent. More lenders will approve jumbo loans with down payments as low as 10 percent, with a few willing to go even lower. Even better, jumbo loans typically do not require private mortgage insurance, even if down payments are less than 20 percent.

The Boomerang Buyer: How Many are Coming Back?

It takes 7 seven years for a foreclosure to disappear from a credit score. Now do the math from when the Great Recession began, and 2016 could very well signal the era of the boomerang buyer.

A boomerang buyer is one of the 7 million people who lost their homes to foreclosure during the recession. There are varying degrees of optimism as to what they will do now. On the high end of optimism, Realty Trac, using foreclosure, affordability, and demographic data, believes almost 3.5 million Americans will become eligible to buy a home over the next 3 years. The highest potential will be seen in the areas hardest hit by the recession, specifically the Phoenix, Miami, Detroit, and Las Vegas areas.

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TransUnion, whose numbers have been cited by the Wall Street Journal, has much more modest predictions. Their report, which defines a boomerang buyer as anyone who had a foreclosure, short sale, loan modification, or 60 day deiliquency during the recession, predicts that under 1 million of boomerang buyers will be able to meet underwriting guidelines over the next 3 years.

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