June 26, 2017
FHFA’s Asks from Congress
The Federal Housing Finance Agency released its 2016 report to Congress. Of particular note are its legislative recommendations. The first is one that I and every other housing policy analyst has been saying for years. The second two are very technical, but also very important to the long term health of the mortgage market.
Housing Finance Reform
The Enterprises have been in conservatorships since September 2008. These conservatorships are unprecedented in duration and scope. While a number of important reforms have been made to the Enterprises during conservatorship, FHFA continues to believe that conservatorship is not sustainable and that Congress needs to undertake the important work of housing finance reform.
Barriers to Investor Participation in Credit Risk Transfer Transactions
Under FHFA’s annual conservatorship scorecards, the Enterprises are working to transfer to the private sector a substantial amount of the credit risk they assume in targeted loan acquisitions. This credit risk transfer market is relatively new and evolving and relies on ongoing investor interest and ability to purchase the credit risk. FHFA has previously identified several statutory impediments which, if addressed, could avoid unintended consequences for some types of investors and thus help to expand investor participation in Enterprise credit risk transfer transactions. FHFA continues to believe that these statutory impediments should be removed.
Examination of Regulated Entity
Counterparties FHFA’s regulated entities contract with third parties to provide critical services supporting the secondary mortgage market, including nonbank mortgage servicers for the Enterprises. While oversight of these counterparties is important to safety and soundness of FHFA’s regulated entities, it is currently exercised only through contractual provisions where possible. In contrast, other federal safety and soundness regulators have statutory authority to examine companies that provide services to depository institutions through the Bank Service Company Act. The Government Accountability Office has recommended granting FHFA the authority to examine third parties that do business with the Enterprises.37 The Financial Stability Oversight Council also made a similar recommendation in its 2016 Annual Report. FHFA concurs with these recommendations. (63)
June 26, 2017 | Permalink | No Comments
Monday’s Adjudication Roundup
- The United States Supreme Court recently clarified a rule within the issue of eminent domain. In a 5-3 decision, the court determined two adjacent properties were considered one in order to properly calculate loss cost. States are using the decision as strong guidance.
- Genworth Financial Inc. agreed to pay a 20 million dollar settlement in a suit for their alleged misguided advice during a public offering of a company. The class of plaintiffs include investors whom believed the Austrian financial market to be sound; however, the state of the market was poor at the time of Genworth Austrian subsidiary’s IPO.
- A California judge decertified a class of residents in Los Angeles. The class alleges they received unwanted, faxed solicitation ads from SoCal Better Homes. This decision makes further litigation unlikely, as the case will have disproportionate costs and needs for a person filing suit on their own.
June 26, 2017 | Permalink | No Comments
June 23, 2017
Mortgage Pre-Qualification vs. Pre-Approval
Realtor.com quoted me in Mortgage Pre-Qualification vs. Pre-Approval: What’s the Difference? It opens,
When buying a home, cash is king, but most folks don’t have hundreds of thousands of dollars lying in the bank. Of course, that’s why obtaining a mortgage is such a crucial part of the process. And securing mortgage pre-qualification and pre-approval are important steps, assuring lenders that you’ll be able to afford payments.
However, pre-qualification and pre-approval are vastly different. How different? Some mortgage professionals believe one is virtually useless.
“I tell most people they can take that pre-qualification letter and throw it in the trash,” says Patty Arvielo, a mortgage banker and president and founder of New American Funding, in Tustin, CA. “It doesn’t mean much.”
What is mortgage pre-qualification?
Pre-qualification means that a lender has evaluated your creditworthiness and has decided that you probably will be eligible for a loan up to a certain amount.
But here’s the rub: Most often, the pre-qualification letter is an approximation—not a promise—based solely on the information you give the lender and its evaluation of your financial prospects.
“The analysis is based on the information that you have provided,” says David Reiss, a professor at the Brooklyn Law School and a real estate law expert. “It may not take into account your current credit report, and it does not look past the statements you have made about your income, assets, and liabilities.”
A pre-qualification is merely a financial snapshot that gives you an idea of the mortgage you might qualify for.
“It can be helpful if you are completely unaware what your current financial position will support regarding a mortgage amount,” says Kyle Winkfield, managing partner of O’Dell, Winkfield, Roseman, and Shipp, in Washington, DC. “It certainly helps if you are just beginning the process of looking to buy a house.”
June 23, 2017 | Permalink | No Comments
Friday’s Government Reports Roundup
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Orrin Hatch, the Committee Chairman of the U.S. Senate Finance Committee, asked the nation for its input regarding tax reforms. It seems as if Hatch would like for tax stakeholders to share innovative thoughts, suggestions and feedback. Both Democrats and Republicans agree that the current tax system, as is, has many drawbacks. Furthermore, it lacks methods to alleviate burdens on taxpayers and grow the economy. If one is interested in providing their thoughts, they may do so at taxreform207@finance.senate.gov.
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The Federal Housing Finance Agency (FHFA) released a report detailing the increase in housing prices over the past year and month. The report explains how prices increased .07% in April which marked a 6.8% increase for the year. Since 2012, the prices of homes are in a steady upward trend.
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The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency recently determined which banks were eligible for the Community Reinvestment Act for designated activities. Banks in “distressed or underserved non-metropolitan areas” were chosen based upon factors including economic conditions, employment status, socio-economic status, and shifts within the population.
June 23, 2017 | Permalink | No Comments
June 22, 2017
State of the Nation’s Housing 2017
Harvard’s Joint Center for Housing Studies has released its excellent State of the Nation’s Housing for 2017, with many important insights. The executive summary reads, in part,
A decade after the onset of the Great Recession, the national housing market is finally returning to normal. With incomes rising and household growth strengthening, the housing sector is poised to become an important engine of economic growth. But not all households and not all markets are thriving, and affordability pressures remain near record levels. Addressing the scale and complexity of need requires a renewed national commitment to expand the range of housing options available for an increasingly diverse society.
National Home Prices Regain Previous Peak
US house prices rose 5.6 percent in 2016, finally surpassing the high reached nearly a decade earlier. Achieving this milestone reduced the number of homeowners underwater on their mortgages to 3.2 million by year’s end, a remarkable drop from the 12.1 million peak in 2011. In inflation-adjusted terms, however, national home prices remained nearly 15 percent below their previous high. As a result, the typical homeowner has yet to fully regain the housing wealth lost during the downturn.
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Pickup In Household Growth
The sluggish rebound in construction also reflects the striking slowdown in household growth after the housing bust. Depending on the government survey, household formations averaged just 540,000 to 720,000 annually in 2007–2012 before reviving to 960,000 to 1.2 million in 2013–2015.
Much of the falloff in household growth can be explained by low household formation rates among the millennial generation (born between 1985 and 2004). Indeed, the share of adults aged 18–34 still living with parents or grandparents was at an all-time high of 35.6 percent in 2015. But through the simple fact of aging, the oldest members of this generation have now reached their early 30s, when most adults live independently. As a result, members of the millennial generation formed 7.6 million new households between 2010 and 2015.
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Homeownership Declines Moderating, While Rental Demand Still Strong
After 12 years of decline, there are signs that the national homeownership rate may be nearing bottom. As of the first quarter of 2017, the homeownership rate stood at 63.6 percent—little changed from the first quarter two years earlier. In addition, the number of homeowner households grew by 280,000 in 2016, the strongest showing since 2006. Early indications in 2017 suggest that the upturn is continuing. Still, growth in renters continued to outpace that in owners, with their numbers up by 600,000 last year.
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Affordability Pressures Remain Widespread
Based on the 30-percent-of-income affordability standard, the number of cost-burdened households fell from 39.8 million in 2014 to 38.9 million in 2015. As a result, the share of households with cost burdens fell 1.0 percentage point, to 32.9 percent. This was the fifth straight year of declines, led by a considerable drop in the owner share from 30.4 percent in 2010 to 23.9 percent in 2015. The renter share, however, only edged down from 50.2 percent to 48.3 percent over this period.
With such large shares of households exceeding the traditional affordability standard, policymakers have increasingly focused their attention on the severely burdened (paying more than 50 percent of their incomes for housing). Although the total number of households with severe burdens also fell somewhat from 19.3 million in 2014 to 18.8 million in 2015, the improvement was again on the owner side. Indeed, 11.1 million renter households were severely cost burdened in 2015, a 3.7 million increase from 2001. By comparison, 7.6 million owners were severely burdened in 2015, up 1.1 million from 2001.
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Segregation By Income on The Rise
A growing body of social science research has documented the long-term damage to the health and well-being of individuals living in high-poverty neighborhoods. Recent increases in segregation by income in the United States are therefore highly troubling. Between 2000 and 2015, the share of the poor population living in high-poverty neighborhoods rose from 43 percent to 54 percent. Meanwhile, the number of high-poverty neighborhoods rose from 13,400 to more than 21,300. Although most high-poverty neighborhoods are still concentrated in high-density urban cores, their recent growth has been fastest in low-density areas at the metropolitan fringe and in rural communities.
At the same time, the growing demand for urban living has led to an influx of high-income households into city neighborhoods. While this revival of urban areas creates the opportunity for more economically and racially diverse communities, it also drives up housing costs for low-income and minority residents. (1-6, references omitted)
One comment, a repetition from my past discussions of Joint Center reports. The State of the Nation’s Housing acknowledges sources of funding for the report but does not directly identify the members of its Policy Advisory Board, which provides “principal funding” for it, along with the Ford Foundation. (front matter) The Board includes companies such as Fannie Mae, Freddie Mac and Zillow which are directly discussed in the report. In the spirit of transparency, the Joint Center should identify all of its funders in the State of the Nation’s Housing report itself. Other academic centers and think tanks would undoubtedly do this. The Joint Center for Housing Studies should follow suit.
June 22, 2017 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Roundup
- Buyers are hungry for a home. Their hunger have caused sellers to control pricing and possess high demands on the buyers. In fact, the sale of existing homes increased in May. Despite seller control, buyers have not given up and have found ways to “cut a deal” given the low inventory of existing homes.
- This time last year the median price for an existing home was 5.8% lower than the price of a home now. On the surface, it seems like many more Americans are purchasing homes at a reasonable price. However, a closer look at the average shows that many homes were sold at a much higher price. When the lower priced homes sold and the higher price sold homes are averaged together, the median price of homes sold is $252,800. This seems great; however, it shows a lack of sell of reasonably price homes.
- Beginning July 1, 2017, the Big 3 Credit Reporting Agencies (CRAs) are changing their reporting practices. When the shift occurs, many consumers may experience an increase in their credit score. This increase will likely affect consumers with pending or current tax liens and/or civil judgments.
June 22, 2017 | Permalink | No Comments
June 21, 2017
Reverse Mortgage Drawbacks
US News and World Report quoted me in 6 Drawbacks of Reverse Mortgages. It opens,
For some seniors, reverse mortgages represent a financial lifeline. They are a way to tap into home equity and pay the bills when meager savings won’t do the job. Others view this financial product with suspicion and point to stories of seniors losing their homes because of the fine print in the paperwork.
Amy Ford, senior director of home equity initiatives and social accountability for the National Council on Aging, says regulatory changes were made in recent years to eliminate many of the horror stories associated with reverse mortgages gone wrong. Home equity conversion mortgages – as reverse mortgages through the Federal Housing Administration are known – now incorporate many consumer protections. These help seniors ensure they can afford the loan and are aware of its potential consequences.
“It’s a magic credit line,” says Jane Bryant Quinn, AARP Bulletin personal finance expert, when asked why people would want a reverse mortgage. “It increases every year at the same rate as the interest you pay.” She recommends that seniors consider taking out a HECM line of credit and then borrowing against it sparingly. That way, retirees have protection against inflation and a source of income in the event of a down market.
Despite their appealing benefits, some financial experts urge caution. “I wouldn’t say there is no place for reverse mortgages,” says Ian Atkins, financial analyst for Fit Small Business. “But that doesn’t make a reverse mortgage a good option for everyone.”
Here are six drawbacks to reverse mortgage products.
1. Not every reverse mortgage has the protections of a HECM. While HECMs are the dominant player in the reverfederally insured
consumer proptection
se mortgage market, seniors could end up with a different product. Atkins says single purpose reverse mortgages are backed by a state or non-profit to allow seniors to tap home equity for a specific purpose, such as making home repairs or paying taxes. There are also proprietary reverse mortgages, sometimes called jumbo reverse mortgages, available to those who want a loan that exceeds the HECM limits.
These proprietary reverse mortgages make up a small portion of the market, but come with the most risk. They aren’t federally insured and don’t have the same consumer protections as a HECM.
A reverse mortgage can be a lifesaver for people with lots of home equity, but not much else.
“Another common issue with [proprietary] reverse mortgages is cross-selling,” Atkins says. “Even though it may not be legal, some companies will want to push investments, annuities, life insurance, home improvements and any other number of products on their borrowers.”
2. Other people in the house may lose their home if you move. HECMs are structured in such a way that once a borrower passes away or moves out, the balance on the loan becomes due. In the past, some reverse mortgages were taken out in one person’s name and the non-borrowing spouse’s name was removed from the title. When the borrowing spouse died or moved to a nursing home, the remaining husband or wife often needed to sell the house to pay off the loan.
“There are now some protections for those who were removed from titles,” Ford says. However, the protections extended to non-borrowing spouses do not apply to others who may be living in the house.
A disabled child, roommate or other relative could wind up without a place to live if you take out a reverse mortgage, can no longer remain in the home and don’t have cash to pay off the balance. “If it’s a tenant, you might not care,” says David Reiss, a professor at Brooklyn Law School and author at REFinBlog.com. “But if it’s your nephew, you may care.”
3. Your kids might be forced to sell the family home. If you’re hoping to pass your home on to your children, a reverse mortgage can make that difficult. Unless they have cash available to pay off the loan, families may find they have no choice but to sell once you’re gone.
That isn’t necessarily a reason to rule out a reverse mortgage, but Ford encourages parents to discuss their plans with family members. Everyone with a stake in the home – either emotional or financial – should understand what happens to the property once the borrower can no longer live there.
4. The mortgage balance might be due early if you have trouble paying your property taxes, insurance or homeowners association fees. Reiss says the marketing for some reverse mortgages can make seniors feel like the product is a cure-all for money problems. “There’s this promise that reverse mortgages will take care of your finances,” he says. “What they don’t mention is that your mortgage doesn’t cover your property taxes.”
If a borrower fails to pay taxes, maintain insurance or keep current with homeowners association dues, the lender can step in. Ford says many companies will try to work with a borrower to address the situation. However, repeated missed payments could result in the loan being revoked.
Financial counseling requirements for HECMs are designed to prevent these scenarios. Quinn says some companies will take additional precautions if warranted. “If the lender thinks there’s a risk you’ll run out of cash, it will set aside part of the loan for future taxes and insurance,” she says.
5. Fees can be high. The Consumer Financial Protection Bureau notes reverse mortgages are often more expensive than other home loans. “Don’t just assume that because it’s marketed to seniors without a lot of money, that it is the most cost-efficient way of solving your [financial] problem,” Reiss says. Depending on your needs, a traditional line of credit or other loan product may be a cheaper option.
June 21, 2017 | Permalink | No Comments
