Tag Archives: David Reiss

The Advantages of ARMs

Posted on by

photo by Kathleen Zarubin

The Wall Street Journal quoted me in Why Home Buyers Should Consider Adjustable-Rate Mortgages (behind paywall). It opens,

With interest rates on the rise, it may be time for home buyers to take a fresh look at some alternatives to the 30-year, fixed-rate mortgage, which has dominated the mortgage market since the financial crisis.

While many out-of-the-mainstream loans got a black eye in the subprime debacle, today’s versions have been shorn of the toxic features—such as negative amortization and prepayment penalties—that tripped up many borrowers during the housing bubble a decade ago.

Plan to move

Experts say today’s adjustable-rate mortgages, or ARMs, as well as interest-only loans, are especially suitable for borrowers who expect to move before any rate increases can wipe out the savings in the early years. They’re also useful for sophisticated borrowers wrestling with uneven income, borrowers who expect their income to rise, or borrowers who are willing to bet they can invest their mortgage savings for a greater return elsewhere.

“Many of the mortgage products that some may have thought slipped into extinction, such as interest-only loans, do still exist today, but in far less volume” than in the heyday of the subprime era, says Bill Handel, vice president of research and product development at Raddon Financial Group, consultant to the financial-services industry.

Adds David Reiss, a law professor and academic program director at the Center for Urban Business Entrepreneurship at Brooklyn Law School: “The benefits of non-30-year, fixed-rate mortgages are legion.”

A sweet spot

Many borrowers can find a sweet spot, for example, in the so-called 7/1 adjustable-rate mortgage, which carries a fixed rate for seven years before starting annual adjustments. With a typical rate of 3.75%, the monthly payment on a $300,000 loan would be $1,389, compared with $1,449 for a 30-year, fixed-rate loan at 4.1%, saving the borrower $5,040 over seven years.

Even if the loan rate then went up, it could take two or three years for higher payments to offset the initial savings, making the mortgage a good choice for a borrower likely to move within 10 years. Once annual adjustments begin, they are generally calculated by adding a fixed margin to a floating rate, such as the London interbank offered rate.

“ARMs are very underutilized,” says Mat Ishbia, president of United Wholesale Mortgage, a lender in Troy, Mich. He expects the 7/1 ARM to account for 15% of new mortgages within the next few years, up from less than 5% today. Historically, ARMs become more popular as interest rates rise, making savings from the loan’s low initial “teaser rate” more attractive, he notes.

Mortgage Moves in 2017

Posted on by

MortgageLoan.com quoted me in Three Mortgage Moves o Consider in 2017. It opens,

How much do you think about your mortgage? Probably not much at all.

But financial professionals say that homeowners can save money, lower the amount of interest they pay each year and maybe free up some extra cash, all by tweaking their mortgages, whether they are paying off a conventional loan, FHA mortgage or VA loan.

If you’ve gotten into the habit of ignoring your mortgage, it’s time to take a look at what is probably your biggest financial obligation. Here are three suggestions from mortgage lenders and financial pros to use your mortgage to better your finances in 2017.

Going Short-Term

Are you paying off a 30-year, fixed-rate mortgage? It might be time to refinance that loan, not for the benefit of lower interest rates but to turn your mortgage into one with a shorter term.

Turning your loan from a 30-year version to a 15-year one will result in a higher monthly mortgage payment. But you’ll also dramatically reduce the amount of interest you’ll have to pay over the life of your loan. Mortgage rates with 15-year, fixed-rate loans are lower than the ones attached to longer-term loans, too.

“Going shorter term is a big financial benefit,” said Jason Zimmer, president of Lockport, Illinois-based Parlay Mortgage. “The 15-year loan is where you want to go. You can save so much money.”

Look at the financial difference: Say you are paying off a 30-year, fixed-rate mortgage of $250,000 at an interest rate of 4.09 percent. Your monthly payment, not including property taxes or insurance, will be about $1,200. But you’ll pay a total of $184,000 in interest if you take the entire 30 years to pay off your loan.

But say you now owe $225,000 on that same loan. If you refinance that amount to a 15-year, fixed-rate mortgage with an interest rate of 3.33 percent, your monthly payment, not including taxes and insurance, will jump to just under $1,600. But if you take the full 15 years to pay off this loan, you’ll only pay about $61,000 in interest, a huge savings from that 30-year loan.

“Lots of people don’t consider a 15-year, fixed-rate mortgage for a refinance because they knew they could not afford one when they bought their house in the first place,” said David Reiss, professor of law at Brooklyn Law School in New York City. “But if you have had your house for more than a couple of years, and your income has increased in the interim, refinancing into a 15-year, fixed-rate mortgage can be a great way to get a lower interest rate and pay a lot less interest in the long run.”

Hidden Mortgage Fees

Posted on by

photo by Tania Liu

TheStreet.com quoted me in Hidden Fees Cost Consumers Billions: Which Ones Are the Worst? It opens,

Consumers are notoriously combative over high product and sales fees, and who can blame them?

Fees for common items like mortgages, credit cards, bank accounts and online deliverables, among many others, can really add up, and do hit consumers hard in the pocketbook.

That goes double for so-called “hidden fees” – shadowy charges on goods and services that buyers usually don’t know about.

A new study by the Washington, D.C.-based National Economic Council shows that Americans lose “billions of dollars” from such hidden fees. Another study of communications firms like AT&T, Verizon and Comcast by the Consumer Federation of America pegs hidden fee costs at $60 billion annually.

Few hidden fees are favored by consumer advocates, but some are worse than others.

“My household bills look very much like those of a typical consumer – two cell phones, cable, broadband and landline telephone,” says Dr. Mark Cooper, the CFA’s Director of Research and author of the communications industry report. “Hidden fees – excluding the price of the service, taxes, and governmental fees – added about 25% to my total bill.”

The CFA’s “Hidden Fees” report documents a pervasive pattern of abuse across many industries, adds Cooper, “but hidden fees on communications services are particularly troubling because these digital services have become absolute necessities in the American household.”
Besides cable and internet service costs, which routinely stand atop the list of industry offenders, what other hidden fees continue to haunt American consumers?

Here’s a quick list:

*     *     *

Mortgage fees – Outside of the cable/telecom arena, the mortgage sector may well boast the most hidden fees. “When applying for a mortgage, a borrower can be hit with all kinds of obscure fees like processing fees, notary fees, courier fees, even fees for sending emails,” says David Reiss, a professor of law at Brooklyn Law School. ” Before paying the mortgage application fee, the borrower should ask whether any of the fees are waivable. If they are charged by the lender, as opposed to a third party like a government agency, they may very well be waivable.”

Consumers should be on the lookout for hidden fees, across the board. Some solid due diligence can keep a few more bucks in your pocket and strike a blow against companies with fee programs that operate in the shadows, time and time again.

But as of right now, those hidden fees are paying off for companies, and at U.S. consumers’ expense.

Why Houses Don’t Sell

Posted on by

photo by BriYYZ

I was quoted on Trulia in 8 Reasons Your House Isn’t Selling. It opens,

It’s a seller’s market in many cities across the U.S. If your home is in one of those cities, say Charleston, SC, or Colorado Springs, CO, and isn’t getting offers, something could be wrong. The good news? Knowing there’s a problem is the first step toward resolving it. However, there could be many reasons your house isn’t selling. We’ve asked real estate professionals and agents from all over the country what those top reasons might be — and they’ve provided some sound advice on how to remedy each situation.

1. You’re overconfident

Being in a seller’s market might mean that your home will get snapped up for premium price, no matter its condition. But that isn’t always the best strategy to count on. “Sometimes homeowners and agents get overconfident in a seller’s market and get lazy about ‘Home Selling 101,’” says Sep Niakan, broker and owner of HB Roswell Realty in Miami, FL.

Solution: Be realistic from day one. Although you may love your house, brace yourself for it to potentially sit on the market for quite some time. And no matter the market, it’s still important to “position your home to sell well,” says Niakan. “What does that mean? Staging, staging, and more staging.

2. The house is priced too high

Classic supply and demand conditions come into play in a seller’s market: There’s high demand, yet low supply. Therefore, you can usually expect to get more money for your home. But that doesn’t mean the sky’s the limit when it comes to your listing price. “In a seller’s market, a seller may feel comfortable pushing the asking price a bit higher, and this can be a huge mistake,” says Chase Michels of Brush Hill Realtors in Downers Grove, IL. “Determining the best asking price for a home is one of the most important aspects of selling a home. If your home is listed at a price that is above market value, you will miss out on prospective buyers.”

Solution: Make sure that you and your agent are certain of the value of your home in your market and price it right. “Get an analysis of the local market with a professional agent, solid comparables, and specific market trend data,” says Jill Olivarez, a Miramar Beach, FL, real estate agent.

3. The home needs some TLC

It can be a bitter pill to swallow to pay for home improvements that you may not enjoy for long. But if you want to sell for full asking price, you might need to get your house in a condition that warrants it — and not base this number only on price per square foot. “Retail buyers understandably still want the most house for their money,” says Barbara Grassey, author of How to Sell Your House Fast in a Slow Market and founder of the West Florida Real Estate Investors Association.

Solution: “The seller should have amenities comparable to other properties for sale in that price range and should really upgrade certain amenities,” says Grassey. Some upgrade examples, she says, include a pull-down gooseneck faucet, an upgraded ceiling fan, a double-bar towel rack, or upgraded door handles. They sound simple, but a few small changes can make a big impact.

4. There’s a problem with the title

“Title” in this case doesn’t mean the cute name you might have given your place (“The Laurels,” “The Conners’ Corner Cottage,” etc.). Rather, it’s the document that shows ownership. “One reason a house won’t sell is because there is a problem with the title to the house that spooks buyers,” says David Reiss, law professor at Brooklyn Law School in Brooklyn, NY. Here are some examples he gives of title problems:

  • Conveyance without a recorded deed (can sometimes happen in transfers between family members).
  • A paid-off mortgage that is still showing up as a valid lien on the house.
  • A mechanic’s lien that was filed for work done on the house by a subcontractor.

Solution: “Some [title] problems just require a little time to resolve,” says Reiss. Contact the title company to find out what you need to do to prepare for selling — then do it.

The Fed’s Effect on Mortgage Rates

Posted on by
Federal Open Market Committee Meeting

Federal Open Market Committee Meeting

DepositAccounts.com quoted me in Types of Institutions in the U.S. Banking System – Investment Banks and Central Banks. It reads, in part,

Central Banks

Think of the central bank as the Grand Poobah of a country’s monetary system. In the U.S. that honor is bestowed upon the Federal Reserve. While there are other important central banks, like the European Central Bank, the Bank of England and the People’s Bank of China. For now, focus stateside.

Think of the central bank as the Grand Poobah of a country’s monetary system. In the U.S. that honor is bestowed upon the Federal Reserve.

The Federal Reserve was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law. To keep it simple, think of the Fed as having responsibility in these four areas:

  1. conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices;
  2. supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers;
  3. maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
  4. providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation’s payments systems.

You need look no further than the Federal Reserve FAQs to learn more about how it is structured.

The Federal Reserve may not take your money, but be clear it has much financial impact on your life. Brooklyn Law Professor David Reiss gives one example, “The Federal Reserve can have an impact on the interest rate you pay on your mortgage. Since the financial crisis, the Fed has fostered accommodative financial conditions which kept interest rates low. It has done this a number of ways, including through its monetary policy actions. The Federal Reserve’s Open Market Committee sets targets for the federal funds rate. The federal funds rate, in turn, influences interest rates for purchases, refinances and home equity loans.”

Millennials and Homeownership

Posted on by

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.”

Tax Refunds Into Mortgage Payments

Posted on by

photo by 401(K) 2012

TheStreet.com quoted me in Investing Your Tax Refund Instead of Spending It Boosts Retirement Savings. It opens,

Ramping up your emergency cash fund or IRA with your tax refund is a better option than spending it on a new smartphone or vacation.

Three out of four taxpayers received a refund of $3,000 in 2015. Although many consumers look forward to this windfall each year, it is not a “cause for celebration,” said Joe Jennings, a wealth director for PNC, a Pittsburgh-based financial institution.

“If you are receiving a large refund check, it actually means that you have loaned money to the government throughout the year and the next year the government is paying you back without interest,” he said.

Adjusting your withholdings is a good strategy if your refund exceeds $1,000. Changing the number of exemptions on your W-4 means you will net more income from each paycheck.

Bankrate.com, a North Palm Beach, Fla.-based financial content company, found that 31% of Americans who receive a tax refund this year plan to save or invest it. The survey revealed that 28% will use the funds to pay down debt, 27% will spend it on necessities like food/utility bills and 6% will splurge with a shopping spree or vacation.

Some consumers view the refund as a method of forcing them to save money each year or a way to pay down existing debt such as credit card balances with high interest.

Pay Off Existing Debt

Use your refund check to pay off as much as your credit card or student loan debt as possible since the amount of interest you are paying each month adds up quickly, said Jonathan Bochese, director of resolution services for Tax Defense Network, LLC, a Jacksonville, Fla.-based tax resolution company.

“The best use for any tax refund is to use it to pay off high interest revolving debts,” he said.

With the current low interest rate environment in money market funds and CDs, paying down debt is a no-brainer.

“If you can only make 3% on your investment and your debt is at a higher rate, pay off the debt,” said Carl Sera, a portfolio manager with Covestor, the online investing marketplace and managing principal of Sera Capital Management, a registered investment advisor in Annapolis, Md. “Don’t make it a habit to receive a tax refund, because it is money you have lent the taxing authority at a zero interest rate.”

Homeowners who do not have any other debt should pay down their mortgage by making an extra payment or two instead of stashing the refund in a savings account that is only receiving minimal interest, said David Reiss, a law professor at Brooklyn Law School.

“By doing so, you are making the equivalent of a pre-tax return of the interest rate on your mortgage,” he said. “If your mortgage has a 5% interest rate and your savings account has a 0.1% interest rate that is like getting a 4.9% higher rate of interest without taking any risk at all.”