May 19, 2015
Tuesday’s Regulatory & Legislative Round-Up
- Federal Housing Finance Agency issues update on the structure of a single mortgage backed security which will be sold by Fannie Mae and Freddie Mac to finance fixed rate mortgages backed by 1-4 unit properties.
- Minimum Housing Credit Rate Legislation has been introduced in the both the House and Senate, this legislation would permanently extend the 9% minimum tax credit for low income housing development in order to promote certainty and make the development of affordable housing ecomonically feasible.
May 19, 2015 | Permalink | No Comments
May 18, 2015
Gen X & Millennial Renters
Jason Michael
MainStreet quoted me in Generation X and Millennials Are Choosing to Remain Renters. It opens,
Although James Crosby is getting married later this year to his college sweetheart, the financial analyst said they do not have plans to buy a home in Atlanta in the next few years.
While Crosby, who is 25, said he loathes paying rent and not building up equity in a home, renting has its benefits. Right now, it’s easy for him to budget for rent in an apartment, because the amount he pays each month is static and he will not be faced with any costly surprises such as repairing an air conditioner.
Like Crosby, fewer Americans are drawn to owning a home and plan to keep renting as wages remain stagnant and home prices have risen. A recent Gallup poll found that many people are content to be renters with 41% of non-homeowners who said they do not plan to purchase a home in “the foreseeable future.” The gap is widening since only one of three people agreed with this sentiment two years ago. The percentage of people who own homes has dropped to 61%, which is the lowest figure in almost 15 years, the poll revealed.
Tepid Economy Plays a Factor
Both the desire and ability to buy a house is waning among some individuals, because “the economy has kept young people from forming their own households as quickly as they had before the financial crisis,” said David Reiss, a law professor at Brooklyn Law School.
Some Gen X-ers and Millennials are also living at home longer than previous generations and wind up deferring homeownership. The weak and soft job markets have impacted Millennials who are also faced with carrying a heavy debt load from having to finance their undergraduate degrees.
“I would predict that if the economy warms up for a reasonable time, expectations about homeownership are likely to change quickly,” Reiss said.
May 18, 2015 | Permalink | No Comments
Monday’s Adjudication Roundup
- The Financial Industry Regulatory Authority (FINRA) has ordered Goldman Sachs to pay National Australia Bank $100 million over $80 million in collateralized debt obligations.
- US Bank escapes liability under the False Claims Acts for filing FHA insurance claims without complying with HUD requirements.
- California federal judge grants summary judgment in suit against Bank of America for allegedly targeting minority neighborhoods with predatory loans in discriminatory lending suit.
May 18, 2015 | Permalink | No Comments
May 15, 2015
Savings from a 15 Year Mortgage
MainStreet quoted me in Choosing a 15-year Mortgage Can Save You Thousands of Dollars. It opens,
Matt DeMargel and his wife, Misti, never considered obtaining a 30-year mortgage, because the amount of interest they would pay would equate to 60% of the cost of their house.
Instead, the public relations executive opted for a 15-year mortgage when he bought a 2,542-square foot home in Kingwood, Texas, a suburb of Houston.
“I hate debt, even the so-called ‘good kind’ of secured debt,” he said. “We are working to pay off our mortgage in five years. Even if we pull that off, we will have paid more than $30,000 in interest over that five year period.”
Dave Ramsey, a personal finance expert who is host of a radio show, said he always advocates choosing a 15-year fixed rate mortgage when buying a home.
“When you have a 15-year mortgage, it costs just a few dollars a month more,” he said. “It’s only 20% to 25% more per month than the traditional 30-year mortgage, but it saves you 15 years of your life in debt.”
The amount of money homeowners can save from paying less interest can easily help fund a large portion of their retirement, but determining whether a 15-year mortgage is right for your household can be more complicated.
Benefits of a Shorter Duration
Depending on your goals and lifestyle, a 15-year fixed rate mortgage is the quickest way to owning your home. If one of your plans is to receive a much lower interest rate, then choosing a shorter interval will meet your objective, said Brook Benton, a vice president at Atlanta-based PrivatePlus Mortgage.
“A 15-year loan is typically the lowest fixed rate you can obtain,” he said. “If you like the security of a fixed rate and the payment fits into your budget, this product is a home run.”
Paying off a mortgage quickly is a priority for some homeowners who detest shelling out more money for interest. If a consumer borrows $200,000 over 30 years at 4.17%, he or she will pay just over $150,000 of interest, said Craig Lemoine, an associate professor of financial planning at The American College of Financial Services in Bryn Mawr, Pa. A homeowner who opted for a 15-year note would pay a slightly lower interest rate of 3.29% and his total interest payment drops to around $53,600. (Even a 15-year note at the same rate of that 30-year loan would generate just under $70,000 in interest.)
“A reduction of lifetime interest paid can be quite attractive,” Lemoine said. “The lure of a shorter note is the vision of a paid-off home in 180 months. The emotional satisfaction is tantalizing.”
While you receive the benefit of a lower interest rate, a 15-year mortgage commits consumers to higher payments. If it fits within your overall budget, then paying more each month should not be a concern.
This route is also advantageous for homeowners who are refinancing their mortgage or contemplating downsizing to a less expensive or smaller home, said David Reiss, a law professor at Brooklyn Law School.
Homeowners who have lived in their house for a few years and want to refinance their mortgage should consider a 15-year note, because they have likely “paid down a significant amount of principal,” Reiss said. A combination of a lower interest rate and the possibility that the homeowner is now earning a higher salary means the monthly payments could be manageable, he said.
May 15, 2015 | Permalink | No Comments
Friday’s Government Reports
- Consumer Financial Protection Bureau report Credit Invisibles estimates that 19.4 million Americans will have difficulty accessing credit for lack of credit history. This trend is most pronounced in the young and in poor black and latin populations.
- The Department of Housing and Urban Development report Examination of Alternative FHA Mortgage Insurance Programs for Financing Single Family Rental and Small Multifamily Rental Properties considers, among other things, whether FHA should play a greater role in financing for small multifamily properties. Possible benefits include: a greater supply of affordable rental housing, a more diverse stock of rental housing and neighborhood stabilization benefits if better financing options spur investment in distressed properties.
May 15, 2015 | Permalink | No Comments
May 14, 2015
Costly Mortgage Mistakes
Consumer Reports Money Adviser quoted me in Don’t Make This Costly Mortgage Mistake; How to Weigh Your Options Before Your Settle on a Deal (only available in Spanish without a subscription!) (UPDATE: NOW IN ENGLISH TOO). It reads, in part (and in English),
As with anything you buy, scoring the best deal on a mortgage or refinancing involves shopping around. Yet 77 percent of borrowers applied for a loan with a single lender instead of checking out several to compare costs, according to a recent study by the Consumer Financial Protection Bureau. “People may well put more time and effort into shopping for smaller products such as appliances and televisions than they do in shopping for the right mortgage,” the bureau’s director, Richard Cordray, said in a statement. But the potential savings from doing your homework are significant. If you get a $250,000 30-year fixed-rate mortgage at 4 percent interest from a lender instead of paying 4.5 to another, you’ll save $26,345 over the life of the loan.
We know it can be difficult to find the right mortgage; the process can be intimidating. Following these steps will help you navigate better:
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Before you shop, determine how much you want to borrow, which type of mortgage you want, and how long a term you need so that you can compare lenders’ products.
Most borrowers go with a fixed-rate mortgage, usually for a 30-year term, to spread out the cost of a home purchase over time while making predictable payments each month, says David Reiss, a professor who teaches real-estate finance law at Brooklyn Law School. Those loans make sense especially when rates are low and for buyers who intend to own their house for a long time.
But also consider an adjustable-rate mortgage (ARM), also called a variable-rate or floating-rate mortgage), Reiss says. It has an interest rate that’s fixed for an introductory period of time, then changes periodically, usually in relation to an index. The introductory rate is often lower than the rate on fixed-rate mortgages. For example, the average 30-year fixed-rate mortgage recently had an annual percentage rate (APR) of 3.5 percent, according to Bankrate.com; the average 5/1 ARM (which adjusts annually after five years) was 2.67 percent.
When the rate adjusts, it can sometimes result in a sizable increase in monthly mortgage payments. “ARMs are appropriate for people who anticipate relocating or paying off the loan before it adjusts,” Reiss says, “or for empty nesters who don’t plan to stay in a home for many years.”
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After you have found the best offer, try to negotiate even better terms. Ask the lender whether he will waive or reduce any of the fees he is charging or offer you an even lower interest rate (or fewer points). You are unlikely to get fees waived from third parties, like those for a title search, government processing fees, and appraiser fees, Reiss says. “But you may be able to cut the lender’s fees, like its underwriting, document processing, and document preparation costs,” he says.
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May 14, 2015 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Round-Up
- City lab’s analyzes why Billionaires Don’t Pay Taxes in New York, concludes that recent housing boom has been in the “ultralux” market and that the owners pay a fraction of their share due to a tax code that shifts the burden from owners to renters and from the wealthy to the poor.
- The Center on Budget and Policy Priorities released an analysis of federal housing subsidy programs and their effectiveness
- Corelogic’s National Foreclosure Report for March 2015 finds that while delinquency rates are down to 3.9% the percentage of mortgagees struggling to make their payments is still above pre-recession levels.
- National Association of Realtors released data showing decreased homeownership rates across regional metro areas of the U.S., analysis of this data lead to the conclusion that continued decline in homeownership means the gains are going to fewer people and likely leading to worsening inequality in the U.S.
- The Roosevelt Institute’s Rewriting the Rules of the American Economy: An Agenda for Growth and Prosperity by Joseph Stieglitz, seeks to completely revamp the rules and regulations that shape our economy, corporate behavior and the financial sector – with a view toward creating shared prosperity. Proposals related to real estate finance include, providing §11 bankruptcy protection for homeowners and creating a public option for the supply of mortgages.
- The Urban Institute released Welding a Heavy Enforcement Hammer has Unintended Consequences for FHA Mortgage Market concludes that the significant, easily triggered liability of both the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act have had a chilling effect, causing some lenders to do less origination to reduce their litigation risk.
May 14, 2015 | Permalink | No Comments
