April 9, 2015
Thursday’s Advocacy & Think Tank Round-Up
- American Enterprise Institute’s International Center on Housing Risk releases Data and Briefing on National Mortgage Risk Index and Other Risk Measures notes the growth of non-banks are holding a growing share of FHA backed home loans
- National Alliance to End Homelessness’ The State of Homelessness in America Report notes a 2% decrease in homelessness from 2013 -2014
- Urban Land Institute’s Real Estate Consensus Forecast 2015 predicts strong growth over the next three years.
April 9, 2015 | Permalink | No Comments
April 8, 2015
A Call to ARMs
MainStreet.com quoted me in A Call to ARMs As Homeowners Opt for Lower Interest Rates. It opens,
Some homeowners are choosing adjustable rate mortgages instead of the traditional 30-year mortgages to take advantage of lower interest rates for several years.
The biggest benefit of an ARM is that they have lower interest rates than the more common 30-year fixed rate mortgage. Many ARMs are called a 5/1 or 7/1, which means that they are fixed at the introductory interest rate for five or seven years and then readjust every year after that, said David Reiss, a law professor at Brooklyn Law School. The new rate is based on an index, perhaps LIBOR, as well as a margin on top of that index.
The main disadvantage is that the rate is not fixed for as long as the interest rate of a 30-year fixed rate mortgage, but younger homeowners may not consider that a negative factor.
Younger Owners Should Consider ARMs
While many homeowners gravitate toward a 30-year mortgage, younger owners “should seriously consider getting an ARM if they think that they might move sooner rather than later,” he said. If you are single and buying a one-bedroom condo, it is likely you could enter into a long-term relationship and have kids.
The 30-year fixed mortgage rate is 3.50% as of April 7 while a 5/1 ARM is 2.83% as of April 7, according to Bankrate’s national survey of large lenders.
While ARMs expose the borrower to rising interest rates, they typically come with some protection. Interest rates often cannot rise more than a certain amount from year to year, and there is also typically a cap in the increase of interest rates over the life of the loan, said Reiss. During the height of the housing boom, lenders were originating 1/1 ARMs that reset after the first year, but now they reset frequently after the fifth and seventh year.
An ARM might have a two-point cap for one-year increases; that means, an introductory rate of 4% could only increase to 6% tops in the sixth year of a 5/1 ARM, Reiss said. That ARM might have a six-point cap over the life of the loan, which means a 4% introductory rate can go to no higher than 10% over the life of the loan.
April 8, 2015 | Permalink | No Comments
Wednesday’s Academic Roundup
- The Role of Prepayment Penalties in Mortgage Loans, by Andrea Beltratti, Matteo Benetton & Alessandro Gavazza, CEPR Discussion Paper No. DP10504.
- Inclusion by Design, Thinking Beyond a Civil Rights Paradigm, by Robin Paul Malloy, Land Use Law and Disability: Planning and Zoning for Accessible Communities, Cambridge University Press, 2015.
- Cancer Diagnoses and Household Debt Overhang, by Arpit Gupta, Edward R. Morrison, Catherine Fedorenko & Scott D. Ramsey, Columbia Law and Economics Working Paper No. 514.
- Zoning and Land Use Planning: How Real is Gentrification, by Michael Lewyn, 43 Real Est. L.J. 344 (Winter 2014).
- Maximizing Inclusionary Zoning’s Contributions to Both Affordable Housing and Residential Integration, by Tim Iglesias, Washburn Law Journal, Vol. 54, No. 4, 2015.
- Securitization and Mortgage Default, by Ronel Elul, FRB of Philadelphia Working Paper No. 15-15.
- The Effect of Large Investors on Asset Quality: Evidence from Subprime Mortgage Securities, by Manuel Adelino, W. Scott Frame, & Kristopher Gerardi, FRB Atlanta Working Paper No. 2014-4.
April 8, 2015 | Permalink | No Comments
April 7, 2015
Home Loan Toolkit
The Consumer Financial Protection Bureau has issued Your Home Loan Toolkit: A Step-by-Step Guide. The toolkit is designed to help potential homeowners navigate the process of buying a home. As the press release notes,
The toolkit provides a step-by-step guide to help consumers understand the nature and costs of real estate settlement services, define what affordable means to them, and find their best mortgage. The toolkit features interactive worksheets and checklists, conversation starters for discussions between consumers and lenders, and research tips to help consumers seek out and find important information.
* * *
Creditors must provide the toolkit to mortgage applicants as a part of the application process, and other industry participants, including real estate professionals, are encouraged to provide it to potential homebuyers.
The toolkit asks many of the important questions that homebuyers have:
- What does affordability mean for you?
- What kind of credit profile do you have?
- What kind of mortgage is right for you?
- How do points work?
- How do you comparison shop with lenders?
- How does a closing work?
- How do you read your Closing Disclosure?
- How do keep your mortgage in good standing?
That being said, it remains to be seen whether this toolkit will actually help potential homeowners. It is important for the CFPB to design an effectiveness study to see how the toolkit performs in practice.
April 7, 2015 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Round-Up
- The Department of Housing and Urban Development Recently Released an Evaluation of the Neighborhood Stabilization Program (NSP) which finds that NSP was too modestly funded to consistently arrest the declines in property values or achieve the impacts that were hoped for.
April 7, 2015 | Permalink | No Comments
April 6, 2015
Housing and Transportation Affordability Index
The Center for Neighborhood Technology has a Housing and Transportation Affordability Index which
provides a more comprehensive way of thinking about the true affordability of place. It presents housing and transportation data as maps, charts and statistics for 917 metropolitan and micropolitan areas—covering 94% of the US population. Costs can be seen from the regional down to the neighborhood level.
The recent focus on combined housing and transportation costs is very useful when planning affordable housing policies as total housing and transportation costs provide a better guide to housing cost burden than housing costs alone.
The Housing and Transportation Affordability Index
shows that transportation costs vary between and within regions depending on neighborhood characteristics:
- People who live in location-efficient neighborhoods—compact, mixed-use, and with convenient access to jobs, services, transit and amenities—tend to have lower transportation costs.
- People who live in location-inefficient places—less dense areas that require automobiles for most trips—are more likely to have higher transportation costs.
The traditional measure of affordability recommends that housing cost no more than 30% of household income. Under this view, a little over half (55%) of US neighborhoods are considered “affordable” for the typical household. However, that benchmark fails to take into account transportation costs, which are typically a household’s second-largest expenditure. The H+T Index offers an expanded view of affordability, one that combines housing and transportation costs and sets the benchmark at no more than 45% of household income.
When transportation costs are factored into the equation, the number of affordable neighborhoods drops to 26%, resulting in a net loss of 59,768 neighborhoods that Americans can truly afford. The key finding from the H+T Index is that household transportation costs are highly correlated with urban environment characteristics, when controlling for household characteristics.
A lot of housing policy rests on the definition of affordability, whether it is that housing cost should be no more than 30% of household income or that housing and transportation costs should be no more than 45% of household income. It would be useful for researchers to take a fresh look at those benchmarks to ensure that they make sense in today’s economy.
April 6, 2015 | Permalink | No Comments
Monday’s Adjudication Roundup
- HSBC facing suit for breaching its duties as trustee for 271 residential mortgage-backed securities trusts.
- The US Supreme Court considered whether debtors should have an absolute right to appeal denial of proposed bankruptcy plan after three circuit courts have found that debtors can automatically can appeal, while in other jurisdictions, the bankruptcy judge must permit the appeal.
- BNP Paribas Mortgage Corp. suit from 2009 regarding Bank of America’s mishandling of hundreds of millions of dollars of mortgage-backed notes issued by Taylor Bean & Whitaker Mortgage Corp. finally settles.
April 6, 2015 | Permalink | No Comments
