Bank of Mom and Dad for Housing Purchases

Bank of Mom and Dad for Home Purchases. Image courtesy of Ambro / FreeDigitalPhotos.net

First-time buyers are increasingly turning to their parents to help fund their home purchases.

Twenty-seven percent of first-time home buyers last year received a cash gift from relatives or friends for a down payment, according to the National Association of REALTORS®. That’s up from 24 percent in 2014, and it also marks the highest share since NAR began tracking such data in 2009.

Young professionals are facing high student-loan debt, a constrained job market, and stricter mortgage lending rules that are requiring higher down payments. Meanwhile, baby boomer parents are seeing rising stock and property values that may make them more inclined to help their children break into home ownership, particularly while mortgage rates are hovering near record lows, The Boston Globe reports.

“Without them, the [housing] recovery’s not sustainable,” says Anika Khan, a senior economist at Wells Fargo Securities. Parents’ financial assistance will help “move the housing recovery along.”

Deborah Baisden, a real estate professional with Prudential Towne Realty in Virginia Beach, Va., says she’s finding that more and more parents are gifting money.

“Because of student debt and because of kids having a tough time finding jobs, it’s becoming increasingly difficult for them to be able to buy homes,” Baisden told The Boston Globe. “We’re turning into a country of renters.”

Indeed, the struggle to come up with a down payment has been the top reason young professionals cite for why they’re renting rather than buying, according to a Federal Reserve report on the economic well-being of households.

Parental purse strings are opening at the right time, housing analysts say, with mortgage rates still low and investors retreating from the market, which may provide a greater opening to first-time buyers. Investors tend to snatch up lower-priced properties with all-cash offers.

“With the investors stepping away, for some first-time buyers and Millennial buyers, they have less competition,” says Lawrence Yun, NAR’s chief economist. “So it would be an opportune time to enter the market.”

Source: “Without Parents Help, Many Could Not Buy Their First Home,” BostonGlobe.com (Sept. 22, 2014)

Lending Giants Shy Away From FHA Loans

Lending Giants Shy Away From FHA Loans. Image courtesy of cuteimage / FreeDigitalPhotos.net

The nation’s largest home lenders are curtailing their involvement in Federal Housing Administration loans, known for their small down payment requirements and help to first-time buyers and lower-income Americans. Lenders say they are concerned that they will be penalized if underwriting errors occur and the loans default. Therefore, they’re backing away from issuing the loans.

FHA loans have plummeted 19 percent in the nine months ending June 30 compared to a year earlier. Wells Fargo, the nation’s largest home lender, saw FHA originations drop 82 percent in the first six months of this year compared to the same time period in 2013, according to Inside Mortgage Finance data. Bank of America saw a 72 percent drop in that time, followed by JPMorgan with a 55 percent drop.

In a earnings call with investors in July, JPMorgan CEO Jamie Dimon said: “The real question to me is, should we be in the FHA business at all? And we’re still struggling with that.”

Lenders’ attitudes toward FHA loans have turned sour after facing steep settlements recently from the Department of Justice and federal regulators. JPMorgan Chase & Co., Bank of America Corp., and others have already paid more than $3 billion in fines for originating faulty FHA loans during the housing bubble.

“A big issue is the DOJ settlements and their impact on the lending attitudes of the banks, which is clearly the elephant in the room,” says Brian Chappelle, a former FHA official and partner at Potomac Partners LLC, a consulting firm for lenders in Washington. “The government is worried about access to credit. They’re looking at volume numbers and they know it’s a serious problem.”

HUD and Treasury officials recently met with bank executives at the White House to talk about improving FHA processes. Julian Castro, secretary of the Department of Housing and Urban Development, which oversees FHA, says the agency does seek to ease credit by rewriting clearly when lenders will be forced to pay the cost from loans that go bad.

“With all our efforts, I want to send a simple message to lenders: Let’s work together,” Castro said in a prepared statement at the Bipartisan Policy Center Housing Summit on Sept. 16. “Many have been reluctant to lend because they fear unanticipated consequences. They need to be able to manage their risk better—and so does FHA.”

Anthony Hsieh, CEO of LoanDepot.com, the third largest FHA lender, urges government regulators to do something fast. “Access to credit is tightening across the board and the number of people who can get a home is shrinking to the point of code red,” Hsieh says.

Source: “FHA Loans Plunge 19% as Lenders Haggle with Officials,” Bloomberg (Sept. 19, 2014)

Mortgage Rates Make Biggest Jump of the Year

Mortgage Rates Make Biggest Jump of the Year. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Mortgage rates were on the rise this week, with fixed-rates making the biggest one-week leap so far this year, Freddie Mac reports in its weekly mortgage market survey. Fixed-rate mortgages are now at the highest level since the week ending May 1.

Freddie Mac reports the following national averages with mortgage rates for the week ending Sept. 18:

• 30-year fixed-rate mortgages: averaged 4.23 percent, with an average 0.5 point, rising from last week’s 4.12 percent average. Last year at this time, 30-year rates averaged 4.50 percent.
• 15-year fixed-rate mortgages: averaged 3.37 percent, with an average 0.5 point, rising from last week’s 3.26 percent average. A year ago, 15-year rates averaged 3.54 percent.
• 5-year hybrid adjustable-rate mortgages: averaged 3.06 percent, with an average 0.5 point, increasing from last week’s 2.99 percent average. Last year at this time, 5-year ARMs averaged 3.11 percent.
• 1-year ARMs: averaged 2.43 percent, with an average 0.4 point, dropping from last week’s 2.45 percent average. A year ago, 1-year ARMs averaged 2.65 percent.

Source: Freddie Mac

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