Discount on Your Mortgage

Discount on Your Mortgage. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Lending giants Bank of America Corp. and Citigroup reportedly will offer mortgages at discounted rates to stir more lending among low-income borrowers and those with subprime credit histories. The loans will be originated through a program by the Neighborhood Assistance Corp. of America, a national nonprofit group that primarily assists low- to moderate-income borrowers.

Under the new program, the discounts, which will be offered on fixed-rate mortgages, will be greater than what banks usually reserve for borrowers with high credit scores, significant assets, and large down payments. To get the discount in the new loan program, the borrowers will have to pay mortgage points, which are upfront fees that lower the interest rate on a mortgage.

For example, if borrowers pay a mortgage point — which is equal to 1 percent of the total loan amount taken — they typically receive a discount of 0.25 percent on the mortgage interest rate. However, under the new loan assistance program, the banks will offer a 0.5 percent discount for a single mortgage point.

NACA, the originator of loans under the program, doesn’t require borrowers to have down payments or to pay closing costs. It also approves borrowers for mortgages as soon as 12 months after a default on a loan. NACA conducts in-depth reviews of applicants’ payment histories and requires income and asset documentation, according to CEO Bruce Marks.

The banks’ move to work with NACA follows on the heels of a $16.65 billion settlement reached by Bank of America with government regulators in August, as well as a $7 billion settlement Citigroup reached in July. The settlements were reached following accusations that the banks sold risky mortgage securities during the run-up to the housing crisis. Neither bank admits to wrongdoing. But the settlements do require that the banks assist struggling home owners, such as lending to low-income borrowers.

The banks, however, say that their decision to issue NACA loans isn’t related to the settlements.

Source: “Citigroup and Bank of America Offer Mortgages with Discounted Rates,” The Wall Street Journal (Sept. 16, 2014)

What’s Necessary to Bring Back First-Time Buyers…

What’s Necessary to Bring Back First-Time Buyers… Image courtesy of imagerymajestic / FreeDigitalPhotos.net

The Federal Housing Administration’s rise in its mortgage insurance fees in recent years is pricing many “creditworthy Americans out of the market” and causing the number of first-time home buyers to reach new lows, housing analysts argue.

First-time home purchases have fallen to historic lows. They account for about 28 percent of existing-home sales year-to-date – well below the long-term benchmark of 40 percent, according to the National Association of REALTORS®.

The 24- to 35-year-old cohort – which usually makes up the largest share of first-time buyers – has been faced with high levels of student debt and stricter underwriting standards that have made it more difficult for them to apply for a mortgage. But in an op-ed piece in American Banker, Richard A. Smith, CEO and president of Realogy Holdings Corp., also notes that the “biggest and most surprising challenge faced by today’s aspiring home owners come from the FHA, the very agency created to help them.”

The agency has more than doubled its mortgage insurance fees since 2010, as it tries to cover a wealth of defaults that the agency faced in the aftermath of the financial crisis.

“This was a necessary step,” notes Smith, who also serves on the housing commission of the Bipartisan Policy Center and the policy advisory board of the Harvard Joint Center for Housing Studies. “However, premiums are still at crisis levels years later. For many would-be home owners, it’s just too much.”

Monthly premiums for FHA-insured mortgage totaled 0.55 percent of the loan amount in 2010. But today, it has bloomed to 1.35 percent – a 145 percent increase, amounting to an additional $120 on a monthly mortgage payment for a $180,000 loan. The up-front fee that borrowers are required to pay the FHA also has risen, increasing from 1 percent of the loan amount to 1.75 percent.

The FHA’s higher mortgage premiums have pushed 1.5 million renters over a sustainable debt-to-income level to qualify for a home loan in 2013, according to National Association of REALTORS®’ research.

As such, the FHA’s lending has fallen sharply too. This year, the FHA will likely assist about 450,000 first-time home buyers, down about 33 percent from its historical averages. From 2009 to 2013, the FHA assisted about 690,000 first-time buyers annually. What’s more, the FHA traditionally supported the purchase of nearly 100,000 condos annually. However, in the past 12 months, the agency has supported only 17,000 condo purchases.

In the op-ed piece, Smith urges the FHA to adjust its policies and reduce its monthly premiums to pre-crisis levels. He also says the FHA should consider enabling borrowers to finance their mortgage insurance over the life of the loan, which would allow the FHA to “improve affordability for consumers without eliminating revenue.” He also notes the alternative that the FHA could eliminate the requirement that buyers pay for mortgage insurance over the entire life of their loan and allow borrowers to drop it when they reach 20 percent equity, as is done in the conforming loan market.

“A new approach to lending policy will be necessary if the U.S. economy is to benefit from a resurgence in first-time home purchases,” Smith says.

Source: “FHA Fees Are Holding Back First-Time Homebuyers,” American Banker (Sept. 16, 2014)

Renters Account for Growth in Household Formation

Renters Account for Growth in Household Formation. Image courtesy of hywards / FreeDigitalPhotos.net

Construction on buildings with at least five apartments reached the highest monthly pace since the beginning of 2006, Freddie Mac reports in its Economic and Housing Market Outlook for September. But one big difference compared to 2006, Freddie economists note, is that there is less development of condominium complexes, and most of the multifamily offerings are rentals.

“Over the past four quarters, all the growth in net household formations has been among renters,” Freddie Mac’s report notes. “The decline in home ownership rates has been primarily concentrated among younger households.” Over the past decade, the home ownership rate among those 35 years old and younger has fallen from 43.6 percent to 35.9 percent.

The rising number of tenant households has prompted vacancy rates to drop to the lowest level since 2000.

“The apartment market has been vibrant, reflecting the desire of many Millennials to live in an urban setting and retain locational flexibility,” says Frank Nothaft, Freddie Mac’s chief economist. “Unfortunately, if they’re looking to live in the larger cities, that’s where rents are rising the fastest, especially in the West or Northeast regions of the United States — places like Los Angeles and New York City. In the South region, areas like Miami and the Washington-Baltimore metro have seen real rents exceed the U.S. average. But in the Midwest, only the Chicago metro area has outstripped the U.S. average.”

Source: Freddie Mac

Fear Is Holding Many Buyers Back

Fear Is Holding Many Buyers Back. Image courtesy of pakorn / FreeDigitalPhotos.net

Nearly two-thirds of Americans recently surveyed say they believed a stellar credit score was necessary to purchase a home, and more than 40 percent said they needed a down payment equal to or at least 20 percent of the purchase price to buy a home today, according to a new survey released by Wells Fargo.

However, the nation’s largest mortgage lender says many customers believe it’s much more difficult to get a mortgage than it really is.

Franklin Codel, Wells Fargo’s head of mortgage production, notes that the bank has lowered minimum credit scores for loans backed by the government in an effort to expand its eligible borrower pool.

“When we expanded FICO ranges, we saw not only an increase in applications but we also saw an increase in approval rates,” Codel says.

The lender acknowledges that mortgage credit has tightened since the financial crisis. But buyers’ fear of being turned down by a bank are needlessly keeping some of them out of the housing market, analysts note.

For example, in 2013, 19 percent of families said they did not apply for a consumer loan due to fear of rejection – which is above the 16.4 percent rate of families who actually are turned down for credit, according to a recent Federal Reserve survey.

Source: “Wells Fargo Finds Mortgage Myths Hamper Home Purchases,” Reuters (Sept. 15, 2014)

School Districts Lift Home Prices

School Districts Lift Home Prices. Image courtesy of africa / FreeDigitalPhotos.net

Homes within highly rated school districts tend to have a higher median sales price, sell for a greater percentage over the list price, and sell faster, according to a new study by the real estate brokerage Redfin.

Highly rated public schools were found to have homes with a median sales price of $474,900 compared to $290,000 in an average-rated school zone. Redfin researchers also found that homes in top school districts are more likely to sell for 30 percent above the list price versus 23 percent. They tend to sell faster too: A median of 25 days on the market versus 21 days.

Homes in top-level school districts can be more difficult to come by, the study shows. For every 100 homes in a neighborhood, on average, only 5.8 were on the market in the past year compared with 6.5 for the greater metro area.

Redfin analyzed test score data from GreatSchools ratings, provided by Onboard Infomatics, in 22 major metro areas to determine the neighborhoods that have the most highly rated public schools. Redfin also included data on median sales price, and the percentage of homes that sold above the asking price.

The following metros have some of the top rating averages from GreatSchools, and listed below them are the top three neighborhoods containing the most highly rated schools within each metro. (For the full list of 22 metros and the top schools identified, visit Redfin’s research blog.)

• Orange County, Calif. metro area

Turtle Rock, El Camino Real, Northwood

• Austin, Texas metro area

Steiner Ranch, Circle C Ranch, East Oak Hill

• Long Island, N.Y. metro area

South Wantagh, North Syosset, North Baldwin

• Seattle, Wash. metro area

Queen Anne, Ballard, Factoria

• Phoenix, Ariz. metro area

Desert Ridge, Hillcrest Ranch, Ahwtukee

• San Jose, Calif. metro area

Monta Vista, Blossom Hill, North Los Altos

• Houston, Texas metro area

Shadow Creek Ranch, Kingwood, Sugar Creek

Source: Redfin

Analysts Are Still Bullish on Housing

Analysts Are Still Bullish on Housing. Image courtesy of ddpavumba / FreeDigitalPhotos.net

A slowdown in price growth and in the housing market hasn’t prompted Capital Economics analysts to change their housing forecast. They still see growth ahead for the sector.

Paul Diggle, property economist at Capital Economics, says he remains bullish on the housing market and mortgage growth in the coming months, and that the declines in home-price growth and the sluggish employment picture are not reason for concern that the housing recovery is headed for derailment.

Diggle says that economic growth is running at more than 3 percent on an annualized basis and that several indicators are pointing to a labor market on the mend.

On the housing market, Diggle points to mortgage affordability: The decrease in home prices has helped the value of homes to improve for many home buyers. Mortgage rates continue to hover at yearly lows, with the 30-year fixed-rate mortgage averaging 4.25 percent in the most recent week.

Still, Diggle says that the average mortgage payment in August accounts for 16.3 percent of median incomes, so mortgage rates aren’t significantly altering mortgage affordability. But he notes that the rise in existing home sales back to historical norms is important. Existing-home sales account for about 90 percent of all sales.

“They increased by 2.4 percent month-over-month to 5.15 million annualized in July, the fourth consecutive rise,” Diggle notes. “Existing home sales per capita are now in line with long-run norms.”

However, new-home sales and mortgage lending remain flat, hampering the housing recovery. Mortgage applications for home purchases dropped for the third consecutive month in August, reaching the lowest level since 1995.

“Yet these data don’t sit comfortably with the net balance of 45 percent of respondents to the Fed’s Senior Loan Officer Survey who saw mortgage demand strengthen in the third quarter,” says Diggle. “The same survey showed that a net balance of 18 percent of lenders loosened mortgage credit conditions.”

He believes the latest loosening in lending should help home sales, particularly new-homes sales, to strengthen in the coming months.

“Indeed, we believe that the majority of the increase in the housing market over the next few years will come from the new-homes sector,” Diggle says.

Source: “Capital Economics Remain Bullish on Housing,” HousingWire (Sept. 10, 2014)