Millennials and Homeownership

photo by flickr@tonywebster.com

TheStreet.com quoted me in Millennials Are Accruing Less Debt, Bypassing Homeownership. It reads, in part,

Millennials are accruing less debt than their counterparts did back in 2003 — despite being saddled with large amounts of student loans — because they are putting off buying homes.

The research conducted by Torsten Sløk, a Deutsche Bank international economist, shows that Millennials, ages 25 to 35, attained less debt in 2015 than their counterparts did in 2003. The data demonstrates a 29-year old in 2003 had an average debt amount of $41,761 compared to $36,810 in 2015 or a 33-year old owed $56,859 in 2003 and $52,640 in 2015.

“It is an urban myth that the young generation today is more indebted, it is the older generations that have higher debt levels,” said Sløk in a research note. “The reason is that since 2009, it has been difficult for Millennials to get a loan. As a result, 25 to 35 year olds today have less debt than in 2003.”

Debt has been “harder to obtain” for Gen Y-ers whether they are credit cards or mortgages, said Jim Triggs, a senior vice president of counseling and support of Money Management International, a Sugar Land, Texas-based non-profit debt counseling organization.

“Millennials have not been inundated with easy to obtain credit cards like in past years,” he said. “Creditors are not on college campuses offering credit cards to college students any longer.”

While Millennials are saddled with record levels of student loans because of the skyrocketing costs of college tuition and the ease of obtaining these loans, Millennials “continue to have less credit card and mortgage debt than their parents and grandparents,” Triggs said.

The level of student loan debt is hindering borrowers ages 18 to 35 from paying for necessities such as rent, utilities and even food as 43% expressed this sentiment, according to the National Foundation for Credit Counseling’s 2016 consumer financial literacy survey, said Bruce McClary, a spokesman for the Washington, D.C.-based national non-profit organization.

“There is a staggering amount of student loan debt and it is a burden for many,” he said.

Homeownership Delays

Although Millennials have expressed the desire the own a home in the future, they are keen to keep renting in part because many of them switch jobs frequently, have not amassed a down payment or do not want the financial commitment. The zeal to pursue the “American dream” of owning a home has waned.

*     *     *

The assumption that home values would rise faster than other investments has been challenged since the Great Recession, said David Reiss, a law professor at Brooklyn Law School.

“One big issue is the role that home ownership plays in wealth creation,” he said. “The bottom line is that homeownership can help build a nest egg for retirement, but long-term trends and individual decisions about homeownership will have a big impact as well.”

Reiss on Mortgage Lingo

MainStreet.com quoted me in 10 Terms of Mortgage Industry Lingo for Potential Homeowners to Learn. It reads, in part,

The mortgage industry is no different from the rest of the financial or tech world and is fraught with odd terminology, tons of acronyms and other confusing jargon.

While it appears to be a great deal of inaccessible blather, learning what these terms really mean can save homeowners thousands of dollars as they are negotiating the terms of their mortgage.

Unpacking the lingo is the first step as you sink your hard-earned money into a house for the next 30 years. Pretty soon you can banter about points and closings just like the rest of the experts.

Here are ten terms that we demystify as you prepare you as you embark on one of the largest commitments in your lifetime.

Freddie Mac, Fannie Mae and Ginnie Mae – Is There a Family Connection?

Just who exactly are Freddie Mac and Fannie Mae? What about Ginnie Mae? This trio was created by the federal government to support a national market for mortgage credit, said David Reiss, a law professor at Brooklyn Law School in New York. None of these entities interacts directly with homebuyers. Instead, all have the goal to make it easier for mortgage lenders to sell mortgages to investors by promising “those in mortgage-backed securities that they will receive their payments of interest and principal in a timely manner in case borrowers default on their payments,” he said.

After a wave of foreclosures following the Great Depression, Ginnie Mae was created by the government to support affordable housing in the U.S. Now it provides funding for all government-insured or government-guaranteed mortgage loans.

*     *     *

Points

Real estate brokers and mortgage lenders discuss points quite often, especially as you get closer to finalizing the terms of your mortgage, since they are negotiable. This refers to the percentage points of the loan amount that a lender charges to a borrower for a loan, Reiss said. For instance, if a lender charges 1 point on a $200,000 loan, the borrower will owe an additional $2,000 to the lender at the time the loan is closed.

Reiss on Buying a Home

Mainstreet.com quoted me in Potential Homeowners Should Seek Counseling Before Making First Purchase. It reads, in part,

Many consumers have made buying their first home less of a daunting task by seeking housing counseling from a non-profit organization.

In 2014, more than 73,000 people received housing counseling from the National Foundation for Credit Counseling’s member agencies, making it the highest volume experienced during the past five years. The renewed interest in housing counseling could be an indicator that many people are considering home ownership as an affordable option.

*     *     *

Homeowners should look at a range of mortgages before committing to one since the typical American homeowner moves every seven years, said David Reiss, professor of law at the Brooklyn Law School in N.Y. For example, obtaining a “relatively expensive 30-year fixed rate mortgage may not make sense,” he said, if you can save a lot in monthly payments with an adjustable rate mortgage (ARM).

ARMs have a certain period of time where the interest rate remains the same, such as 84 months for a 7/1 ARM or 120 months for a 10/1 ARM and then it adjusts each year for the remainder of the mortgage.

“This might be particularly true for very young households or for empty nesters, both of whom may have different needs in five or ten years,” Reiss said. “It is hard to predict where interest rates and prices are going, so holding off on buying when it seems like the right time to do so for your personal situation is risky.”

Reiss on Refinancing

MainStreet quoted me in Fed’s End to Quantitative Easing Will Affect How You Invest and Buy a House. It reads in part,

The Federal Reserve’s decision to end its bond buying program after six years to help boost the economy is a sign that more recovery and growth will occur. So what does the typical American on Main Street need to know?

While the Fed did not indicate a timeline for when interest rates will rise, consumers should be prepared and “see the writing on the wall” since variable rates such as credit cards, adjustable rate mortgages and home equity loans will start to rise slowly and gradually, said Bankrate.com chief financial analyst Greg McBride, CFA.

“The low interest rates will come to an end,” he said. “Consumers should pay down debt while the rates are low rather than contend with it once rates move up.”

Mortgage rates will remain low but will fluctuate according to global risks, not because of any actions taken by the Fed, said Ernie Goss, a professor of economics at Creighton University in Omaha. Consumers should expect rates for short term rates such as auto loans to rise “ever so slightly” between now and July 2015, he said.

The good news about rising interest rates is that savers will begin earning more on their nest eggs, but the increase could be offset by a higher cost of borrowing and could discourage people from getting loans and spending, said Gail Cunningham, a spokesperson for the National Foundation for Credit Counseling, a Washington, D.C. non-profit organization.

“If mortgage rates rise, consumers with variable rate mortgages will see their monthly payments go up, putting a dent in the amount they have available for disposable spending,” she said.

Even if mortgage rates do increase, consumers need to consider the costs of refinancing before they embark on the process, said David Reiss, a law professor at the Brooklyn Law School in New York. Homeowners need to determine how long they plan to live in their home and if the cost of refinancing outweighs the lower monthly payments.

“If you are not sure that you will be there for a few years at least, the cost of refinancing may be more than the amount you save in decreased interest payments,” he said. “How many years will it take you to recoup that cost in reduced interest rate payments?”

Reiss on Saving Thousands on Your Mortgage!

MainStreet.com quoted me in You Can Save Thousands on Your Mortgage By Taking This Tiny Step.  It reads in part,

Homeowners can save thousands of dollars when they work with counselor to get their mortgages modified and decrease their odds of defaulting again.

A new study for NeighborWorks America by the Urban Institute determined that homeowners were able to avoid spending millions of dollars annually because of the National Foreclosure Mitigation Counseling (NFMC) program. Homeowners working with NFMC program counselors are nearly three times more likely to obtain a mortgage modification and are nearly twice as likely to get their mortgage back on track without a modification.

After working with counselors, homeowners are 60% less likely to re-default after curing a serious delinquency and able to complete short sales faster than homeowners who don’t work with counselors.

The research is based on analysis of nearly 240,000 homeowners with outcomes observed through June 2013. More than 1.8 million homeowners have been helped by the NFMC program, administered by NeighborWorks America since it began in March 2008.

  *     *     *

Since buying a home is something that most people only do once or twice in their lives, there is no question that homeowners whose mortgages are in default or at risk of default should look for assistance as soon as possible, said David Reiss, professor of law at Brooklyn Law School in New York.

“Losing their home is something that most never do at all, so to think that going it alone is the best strategy is a mistake,” he said. “Foreclosure counselors know the range of options available to borrowers and may have access to more direct lines of communication with lenders. They also will have a better sense of when to complain to regulators about bad behavior by lenders.”