September 7, 2016
Wednesday’s Academic Roundup
- The nature of housing supply is critical for the functioning of the housing market, macroeconomic forecasting and policy setting. This study addresses a gap in the cross-country comparative literature by providing novel insights into the nature of new housing supply in 14 countries observed quarterly between 1970 and 2015.
- This paper analyses how borrower liquidity constraints and home equity relate to the realized loss given default (LGD) using the quarterly U.S. residential mortgage loan-level data observed from Q2 2005 to Q1 2015. We define defaulted loans with zero-LGD as cure loans and those with non-zero LGD as non-cure loans. We find robust evidence that the borrower liquidity constraints and positive equity are explaining cure, while negative equity explains non-zero loss.
September 7, 2016 | Permalink | No Comments
September 6, 2016
Tuesday’s Regulatory & Legislative Roundup
- An article on Dealbook, discusses the whistle-blowing program, which the SEC chairwoman has called “a game changer for the agency.”
- The federal Consumer Financial Protection Bureau unveiled proposed rules in June that take aim at short-term payday loans charging triple-digit annual percentage rates. This article discusses how the payday lending industry is bracing for a regulatory crackdown.
September 6, 2016 | Permalink | No Comments
Mortgages for Borderline Borrowers
BiggerPockets.com quoted me in 7 Mortgage Qualification Tips for Borderline Borrowers. It opens,
It’s super easy to qualify for a mortgage when you have an 800 credit score, a six-figure salary, no debt, and 20% to put down. But that isn’t everyone’s story.
It’s far more difficult to be approved with a 620 credit score, a low five-figure salary, some outstanding debt, a car loan, and 3% for the down payment. You can still qualify, but it’s a LOT more difficult. And you’re not going to be getting the lowest rate around.
I asked some experts for their mortgage qualifying tips for borrowers who run the highest risk of being turned down. Here’s what they had to say:
7 Mortgage Qualification Tips for Borderline Borrowers
Go FHA
“Applicants with a low credit scores should be sure to look for lenders who offer FHA-insured mortgages. The FHA will insure mortgages with lower credit scores than most others will accept. Borrowers with small savings should look for lenders with low-down-payment requirements. Again, an FHA-insured lender may be the right match, but Fannie Mae and Freddie Mac also have programs with low down payment requirements, so applicants should ask their lenders about those as well,” says David Reiss, a Law Professor at Brooklyn Law School who also writes at REFinBlog.com.
J.D. Crowe, President of Southeast Mortgage of Georgia agrees. “Those with less-than-ideal credit scores sometimes have home loan options through the Federal Housing Administration. The FHA works with approved lenders to help applicants who have lower credit scores and small down payments, and can offer as much as 96.5% financing.”
You can find the other six tips here.
September 6, 2016 | Permalink | No Comments
September 5, 2016
The Capital/Labor Split
Thomas Piketty
To commemorate Labor Day, a quote from Thomas Piketty’s Capital in the 21st Century:
On August 16, 2012, the South African police intervened in a labor conflict between workers at the Marikana platinum mine near Johannesburg and the mine’s owners: the stockholders of Lonmin, Inc., based in London. Police fired on the strikers with live ammunition. Thirty-four miners were killed. As often in such strikes, the conflict primarily concerned wages: the miners had asked for a doubling of their wage from 500 to 1,000 euros a month. After the tragic loss of life, the company finally proposed a monthly raise of 75 euros.
This episode reminds us, if we needed reminding, that the question of what share of output should go to wages and what share to profits— in other words, how should the income from production be divided between labor and capital?— has always been at the heart of distributional conflict. In traditional societies, the basis of social inequality and most common cause of rebellion was the conflict of interest between landlord and peasant, between those who owned land and those who cultivated it with their labor, those who received land rents and those who paid them. The Industrial Revolution exacerbated the conflict between capital and labor, perhaps because production became more capital intensive than in the past (making use of machinery and exploiting natural resources more than ever before) and perhaps, too, because hopes for a more equitable distribution of income and a more democratic social order were dashed. I will come back to this point.
The Marikana tragedy calls to mind earlier instances of violence. At Haymarket Square in Chicago on May 1, 1886, and then at Fourmies, in northern France, on May 1, 1891, police fired on workers striking for higher wages. Does this kind of violent clash between labor and capital belong to the past, or will it be an integral part of twenty- first- century history? (39, footnotes omitted)
September 5, 2016 | Permalink | No Comments
September 2, 2016
Friday’s Government Report Roundup
- Housing prices are rising across the U.S. In 49 states housing prices rose in throughout the U.S. The U.S. Housing Price index report also analyzes specific metropolitan cities where housing prices fell.
- The amount of loans approved throughout the U.S. has drastically decreased. In a report by the Urban Institute, they found that the decrease in loan distribution is negatively affecting the United States.
- The Federal Housing Finance Agency is continuing to study and alleviate foreclosures throughout the United States. They recently released a report detailing their efforts. In May of 2016, the agency prevented over 15,000 foreclosures throughout the U.S.
September 2, 2016 | Permalink | No Comments
September 1, 2016
Low, Low, Low Mortgage Rates
TheStreet.com quoted me in Top 5 Lowest 15-Year Mortgage Rates. It opens,
U.S. mortgage rates have continued to decline in the aftermath of the Brexit vote, low Treasury rates and the stagnant economy, giving potential homeowners an opportunity to save money because of the dip.
The current market conditions give homeowners in the U.S. an opportunity to take advantage of the continuation of low mortgage rates since the Federal Reserve has not increased interest rates.
But, how do you snag the absolute lowest rates?
How to Get a Low Rate
Low mortgage rates can play a large factor in homeowners’ ability to save tens of thousands of dollars in interest. Even a 1% difference in the mortgage rate can save a homeowner $40,000 over 30 years for a mortgage valued at $200,000. Having a top notch credit score plays a critical factor in determining what interest rate lenders will offer consumers, but other issues such as the amount of your down payment also impact it.
A high credit score is the key to ensuring that borrowers receive a low mortgage rate. Here’s a quick rundown of what the numbers mean – a score of anything below 620 ranks as poor, 620 to 699 is fair, 700 to 749 is good and anything over 750 is excellent. Think carefully before canceling a credit card with a long, positive history, but decrease your debt. One of the biggest factors which impact your credit score is your credit utilization rate.
Many potential homeowners focus only on the interest rate or the monthly payment. The APR or annual percentage rate gives you a better idea of the true cost of borrowing money, which includes all the fees and points for the loan.
The origination fee or points is charged by a lender to process a loan. This fee shows up on your good faith estimate (GFE) as one item called the origination charge. However, the origination fee can be made up of a few different fees such as: processing fees, underwriting fees and an origination charge.
Homeowners who are able to afford a 20% down payment do not have to pay private mortgage insurance (PMI), which costs another 0.5% to 1.0% and can tack on more money each month. Having at least 20% in equity shows lenders that there is a lower chance of the individual defaulting on the loan.
Choosing Between 15-year and 30-year Mortgages
Obtaining a 15-year fixed rate mortgage instead of a traditional 30-year mortgage means homeowners can save thousands of dollars in interest. One drawback of a 15-year mortgage is that consumers will be locked into higher monthly compared to a traditional 30-year mortgage or a 5-year or 7-year adjustable rate mortgage, “which could put the squeeze on homeowners when times are tight,” said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization.
Many households would not benefit from a 15-year mortgage because it “does more to limit their financial flexibility than to enhance it,” said Greg McBride, chief financial analyst of Bankrate, a North Palm Beach, Fla.-based financial content company.
“Locking into higher monthly payments makes the household budget tighter and for what?,” he said “So you can pay down a low, fixed rate loan? On an after tax, after-inflation basis you’re essentially borrowing for free.”
McBride suggests that this strategy does not bode well for homeowners, especially if they are not paying down their higher interest rate debts and maximizing their tax-advantaged retirement savings options such as IRAs and 401(k)s.
“Even then, you might be better off investing your money elsewhere than tying up more of your wealth in the most illiquid asset you have – your home,” he said. “Just 28% of American households have a sufficient emergency savings cushion, so why the hurry to pay off a low, fixed rate, tax deductible debt. Money in the bank will pay the bills, home equity will not.”
The current economic situation has pushed down rates with 15-year mortgages becoming “relatively more attractive” than even 5-year adjustable rate mortgages (ARMs) over the last year, said David Reiss, a law professor at the Brooklyn Law School in New York. Last week Freddie Mac announced the average 15-year mortgage rate was 2.74% and the average for the 5-year ARM was 2.75%.
“These rates are virtually the same,” he said. “A year ago, the 15-year was relatively more expensive than the 5-year by about 0.16%. If you can swing the higher principal payments for the 15-year mortgage you will be getting about as good an interest rate as you could hope for.”
September 1, 2016 | Permalink | No Comments
Thursday’s Advocacy & Think Tank
- The Center on Budget and Policy Priorities completed a study on years 1995-2005. They found that the average income for the children in low income families has decreased throughout those years.
- The Government Accountability Office generated a report about federal and state agencies relinquishing unneeded property.
September 1, 2016 | Permalink | No Comments
