Mortgage Report Bob Mortgage New

Interest rates are the lowest they’ve been in a month says BobMortgage in our latest edition of The Mortgage Report. But how much change can we expect in 2017?

You may know him as Bob Johnson, the senior mortgage advisor at Wallick & Volk, the nation’s oldest privately-held mortgage company. Bob Johnson has helped more than 25,000 families get into the homes of their dreams, in 20 plus years of lending service.

Now with five offices across the DFW metroplex, the nation’s oldest mortgage firm is helping thousands of consumers get into homes with the most up-to-date financial information possible. Wallick & Volk brings experience and integrity into every single loan, but they also deliver a highly personalized touch that conforms to each client’s need. Is it speed of delivery, unique products, total transaction transparency, or great pricing you need? Wallick & Volk has it all in a broker-friendly banking platform that can do the impossible when it comes to home financing.

THIS WEEK: Interest rates have hit a valley. Should you lock or float?

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More often, home is where the degree is

More often, home is where the degree is.

Long ago I was told that it’s more lucrative to be paid to think than to do. Turns out that piece of advice is true on many levels that intersect with homeownership.

Several years ago, the Federal Reserve Bank of New York released data that seemed to say that student loan debt was dragging down homeownership rates among younger buyers. It’s a belief that persists.

At first blush, it makes sense.  If you have more debt, you have less to spend on housing because your debt-to-earnings ratio was weakened.  However, new research is blowing a hole in that homily. It seems that when corrected for education, it’s not debt that’s holding back homeownership rates, it’s education itself.

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Bernanke Fed

Interesting times for the Dallas real estate market as several neighborhoods are seeing homes sell fast for thousands more than they would have just 18 months ago. But with the Federal Reserve toying with interest rate changes, will next month’s forecast be far less optimistic than the June breakdown from Local Market Monitor?

“Low Risk” is how Local Market Monitor is characterizing our market when it comes to real estate investment. Home prices in the Dallas-Irving-Plano area are forecast to grow 4 percent in the next 12 months.

But could interest rate volatility put a damper on that growth? According to this piece by HousingWire, interest rates are on a dramatic upswing:

Mortgage rates are skyrocketing with one real estate firm reporting a 50-basis point hike for the 30-year, fixed-rate mortgage in just the past week.

That honor goes to Zillow, which released data showing that on Tuesday the 30-year, FRM hit 4.38%, up 50 basis points from seven days ago.

A week ago, the same mortgage rate came in at 3.88%, according to data from Zillow.

And Zillow ($56.30 0%) isn’t the only one reporting high rates. Last week’s Freddie Mac 30-year, FRM came in at 3.93%, while Bankrate data showed mortgage rates at 4.12%.

Yikes! I guess if you’ve sat around waiting to refinance or buy as interest rates bottomed out, you missed your window. Still, job growth and the expanding population of the Dallas area are keeping Realtors busy.

Making it Rain

Interesting story in the Los Angeles Times. According to their business desk, banks are easing lending restrictions and lending more freely, using “creative financing,” which could bring more risk to the market.

The story, which talks about “piggyback financing” and other risky mortgage loans, says that with higher prices comes more risk in housing finance. This all sounds familiar, doesn’t it?

With home prices rising, risk is creeping back into mortgage lending. In addition to creative down-payment arrangements, mortgages on high-end properties — so-called jumbo loans — have also gotten plentiful and cheap. Meanwhile, banks are accepting borrowers with lower credit scores and allowing them to take on more debt relative to their incomes, experts and industry professionals say.

“We are definitely not seeing the looseness we saw during the boom years, but it seems to me that the pendulum is swinging back,” said Erin Lantz, director of real estate website Zillow.com’s mortgage market.

The relaxing of standards comes as banks rely more heavily on new home loans to replace big profits from the recent boom in refinancing, driven by historically low rates. As demand for refinancing declines — and interest rates start to rise — some analysts say an improving economic outlook will cause banks to lower standards further.

But while banks may be lowering standards, and while the Fed is poised to increase interest rates, mortgage restrictions under Dodd-Frank will be coming to bear soon, making lending a series of hoops homebuyers must jump through.

And while some banks are lending more, I hope that we’ve all learned our lesson from the sub-prime mortgage crisis. We have, right?

Just to show you how crucial housing and home building remains to the nation’s economic recovery, Fed Chairman Ben Bernake rubbed shoulders (and used hand gestures) with Bob the Builders last week in Orlando. His talk was the hottest ticket in town at the 2012 National Association of Home Builders International Builders Show in Orlando. Dallas photographer Suzanne Felber for Lisa Stewart Photography played reporter for me and, hopefully, got a little sunshine! Here’s how Bernake “soothed” the builders: the Fed, he basically said, is analyzing housing 24/7.

“The Federal Reserve has a keen interest in the state of housing and has been actively engaged in analyzing the housing and mortgage markets,” says Bernake. “Issues related to the housing market and housing finance are important factors in the Federal Reserve’s various roles in formulating monetary policy, regulating banks, and protecting consumers of financial services.”

No kidding: in Dallas, close to one-quarter of the builders have been wiped out by the housing crisis. Here’s Suzanne’s report:

With an estimated 1 ¾ million homes unoccupied and for sale in the U.S., the U.S. housing market continues to be a drag on the economy despote record low interest rates. In the last few years roughly 2 million homes have entered foreclosure, and many of these have come on the market, tamping down the need for new building. These homes are often neglected and need repairs, hurting the value of the surrounding homes and community. The Federal Reserve estimates that ¼ of these vacant homes were owned by creditors in the second quarter of 2011. They also estimated that bank owned properties (real estate owned or REO) sold as short sales, and non-auction sales are now accounting for 30 percent of home sales across the U.S.

Bernanke stated that one of the reasons the recovery in housing has been so slow is due to restraints on mortgage credit. In past recoveries, mortgage credit had begun to grow four years after the business cycle peak, but that hasn’t happened this time. One group that has been affected even more than others is first-time homebuyers.

In contrast to this, rental markets seem to be strengthening and are at some of the lowest vacancy rentals of the last 8 years. With home prices falling and rents rising, he stated that property owners renting out these foreclosed homes might make sense. The REO-to-rental program was shared as a way to maintain property values and minimize the amount of time a house sits vacant.

Bernacke said that as of early November 2011, about 60 metropolitan areas each had at least 250 REO properties for sale by government- sponsored enterprises (GSEs) and the FHA – a scale that could be large enough to realize efficiency gains. Atlanta has the largest number of REO properties for sale by these institutions, with about 5,000 units. The next largest inventories are in the metropolitan areas of Chicago; Detroit; Phoenix; Riverside, California and Las Vegas, each which have between 2,000 and 3,000 units.

Note: Dallas is NOT on that list!

Land banks were also discussed as an option to help with these foreclosed homes. These are governmental agencies that have the ability to buy and sell real estate. As promising as these sound as a solution, only a few states have passed legislation to establish land banks, and most lack the resources to keep up with the demand.

In summary, Bernanke stated that “the economic recovery has been disappointing in part because U.S. housing markets remain out of balance. Many local markets have an overhand of empty and foreclosed homes, and many potentially creditworthy homebuyers cannot obtain mortgages. The weak housing market also impairs homeowners’ financial health and diminishes the quality and stability of neighborhoods and communities. For these reasons, and because the troubled housing market depresses construction activity and employment, we need to continue to develop and implement policies that will help the housing sector get back on its feet. No single solution will be sufficient. But sustained efforts to address the many interlocking factors holding back the housing market will pay dividends in the long run”.

Just a LEETLE longer!

His speech comes days after five large US banks that were accused of abusive mortgage practices agreed to pay $25 billion in a settlement that the government expects to help roughly one million borrowers. The deal covers three years and requires the banks to cut mortgage debt amounts as well as extend payments of $2,000 to borrowers who lost their homes in foreclosure.

We see it even in Texas: price declines, low mortgage rates and rising rents have made owning more affordable now than renting. But despite agents’ most positive view of the Dallas real estate market, housing is still kind of stuck in the mud, even here. Many markets report continued price declines, while Dallas is struck by another problem: lack of inventory. Our funky, fun Austin is now the most expensive place to live in Texas because of rising rents. Hardest of all is qualifying for a mortgage, which brings in cash buyers a.k.a. bottom feeders, and gives them even more power to drive down prices in hard ball negotiations. With this scenario, the market for the average American home is shrinking as fewer Americans than ever own homes. And it doesn’t take a rocket scientist to figure out that rising rents will beat the average American even more.

What to do? I don’t want this to give anyone a heart attack, but the Wall Street Journal says economists, including some at the Federal Reserve, are urging President Barack Obama to do more than he has done in four years. Clearly, in four years Obama has been the most impotent president in history when it comes to housing. It is almost as if he wants us all to rent. He promises to be taking a newfangled “aggressive on housing” stance in tomorrow’s State of the Union address, or so his housing secretary told the WSJ. What he will likely outline: a refinancing initiative and programs to convert some foreclosed properties into rentals. That will likely make the mortgage holding neighbors of these properties upset, but it may be better than having a vacant home sprouting weeds.

I have said some of this before, but now it’s coming out the mouth of top experts. We need three things to happen to get this market out of the junk: stimulate lending, which everyone is afraid to do because they got burned and federal regulators have the banks shackled; enact more intelligent regulation if any, and something the banks don’t like: write down the debt on some of those underwater mortgages.

Here’s a link to the full article, but you must subscribe to the WSJ.

1. Be nice to the Mom and Pop investors trying to buy up foreclosures.  WSJ says banks owned around 440,000 homes at the end of October, but an additional 1.9 million loans were in some stage of foreclosure, according to Barclays Capital. It’s the REFINANCING, STUPID!  

“While there’s no shortage of investor demand in many markets, financing remains an obstacle. In 2008, Fannie Mae and Freddie Mac, the main funders of mortgages, faced soaring losses from speculators (and a stupid CEO) and reduced to four from 10 the number of loans they would guarantee to any one owner. Fannie now backs as many as 10 loans, but some banks have kept lower limits.”

Why those lower limits? When I ask, I’m told it’s the feds at work.

“If that number were raised…to 25, you would very quickly start whittling down this very big backlog,” said Lewis Ranieri, the mortgage-bond pioneer, in a speech last fall. He said loans should be made on conservative terms that include 30% or 35% down payments.”

Great point to sink through the Fed’s head: Today’s investors are not the speculators who  bought on the prospect of ever-rising values, which inflated the real-estate bubble. Look at the market fundamentals. Today’s cash-rich investors buy to lease properties. But because they cannot get financing, those with cash are king in the bargaining process and are keeping home prices down. I mean, who else is buying?

“The mortgage-finance companies and their regulator “are ignoring the market fundamentals of who the buyers are and where the money is,” said Tim Rood, a partner at the Collingwood Group, a housing-finance consultancy. “Right now, investors are treated like pariahs. You want to clear some inventory? Finance them.”

I’ve talked about CoreLogic: strip out foreclosures and other “distressed” sales, U.S. “normal” prices were down just 0.6%.

Here’s an idea that would likely make the current administration cringe: eliminate capital-gains taxes on properties bought as a longer-term investment and converted to rentals, or allow them to accelerate the depreciation of those properties. How about first-time investor tax credits?

2. It’s the topic of cocktail party chatter: the banks are stingy with credit. If you are self-employed, get ready to see the Proctologist. Here’s a good one the WSJ pointed out vis a vie the NY Federal Reserve:

“Fannie and Freddie are pushing banks to repurchase any defaulted loans that they can prove ran afoul of underwriting standards, even if the loan went bad for another reason, such as job loss. The “blanket repurchase regime” has led banks “to focus only on the lowest-risk customers,” said William Dudley, president of the New York Federal Reserve, in a speech this month.”

 3. Write down that debt. Sure, this is about as controversial as granting amnesty to illegal aliens living and working in the USA (which I think we should just do) but if we don’t get give some borrowers a breath of fresh air, they will never get ahead. Mortgage investors and banks should consider reducing debt for more troubled homeowners. After all, they made some of these bad loans and made millions off the process. Look at places like Las Vegas and Phoenix, where more than six in 10 borrowers owe more than their homes are worth. Think outside the box:

“Prof. Wheaton said investors in the loans should be given equity stakes in homes in order to deter all but the most desperate borrowers from seeking relief, and that relief should be limited to borrowers who are deeply underwater.”