Tag Archives: homebuyer

What Are Mortgage Borrowers Thinking?

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The Consumer Financial Protection Bureau (CFPB) and the Federal Housing Finance Agency (FHFA) have released A Profile of 2013 Mortgage Borrowers: Statistics from the National Survey of Mortgage Originations. While sounding dull and perhaps a bit dated, this document is actually an extraordinary overview of the much discussed but rarely seen mortgage borrower. And while the information is from 2013, it provides a good baseline for the post-financial crisis and post-Dodd Frank world we live in.

Historically, it has been difficult for government and academic researchers to get comprehensive data about mortgage borrowers. The impetus for this report was the Housing and Economic Recover Act of 2008 which requires the FHFA to conduct a monthly mortgage market survey. In the long term, this survey will help policymakers respond to the rapid changes that are so common in our dynamic mortgage market.

The National Survey of Mortgage Originations (NMSO) focuses on

mortgage shopping behavior, mortgage closing experiences, and other information that cannot be obtained from any other source, such as expectations regarding house price appreciation, critical household financial events, and life events such as unemployment, large medical expenses, or divorce. In general, borrowers are not asked to provide information about mortgage terms in the questionnaire since these fields are available [from other sources]. (1)

Here are some of the findings that I found interesting, albeit not always surprising:

  • Mortgage shopping behavior differed significantly by borrower characteristics and by whether the consumer was also shopping for a home at the same time as the mortgage. (14)
  • First-time home buyers differed significantly from repeat home buyers in their mortgage search behavior and repeat borrowers differed significantly in their mortgage search behavior depending on whether they were refinancing or purchasing a home. (14)
  • Slightly more than 40 percent of all respondents reported having a difficult time explaining the difference between a prime and a subprime loan. (16)
  • Overall about one- quarter of borrowers reported that they could not explain amortization or the difference between the interest rate and APR on a loan.(18)
  • Roughly one in five borrowers had to delay their closing date. (26)
  • In general, respondents believe that mortgage lenders treat borrowers well. (35)
  • Fifteen percent of respondents expected to have difficulties in making their mortgage payments in the next couple of years. (44)

There are a lot more interesting nuggets about the subjective views of borrowers in the report. I hope that later reports offer more analysis that ties this information into other objective sources of data about borrowers and their mortgages. How well do they know themselves and how good are they at predicting their ability to maintain their mortgages over the long-term?

Why Are There Real Estate Agents?

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Realtor.com (admittedly not a neutral source on this topic) quoted me in 6 Reasons Real Estate Agents Aren’t Extinct. It opens,

It’s 2016, and it seems our need for real live people is ever-diminishing. There’s self-checkout instead of cashiers, selfie sticks instead of photographers, self-driving cars, self-watering plants, self-administered colonoscopies … well, you get the idea. Given that technology has become so important to buying and selling homes, you’d also think real estate agents would be a dying breed — yet they aren’t showing any signs of slowing down, with approximately 2 million active real estate agents throughout the country.

So why did real estate agents make the technology transition fully intact as opposed to, say, travel agents? We asked some experts to weigh in.

Reason No. 1: Selling is complicated

For many people, “a real estate transaction is financially momentous and complex — the most complex transaction people do in their life,” explains David Reiss, a law professor and academic program director for the Center for Urban Business Entrepreneurship at Brooklyn Law School.

Comparatively, personal travel agents — the kind where you’d walk in their office and have them book you a hotel and a flight — have gone the way of the dodo, because now that’s all simple DIY stuff (to be fair, not all travel agents are out of a job — there’s still a healthy travel agency sector that thrives on corporate and luxury bookings).

“People like having an expert when dealing with large, complicated transactions,” says Jeff Tomasul, founder of Vespula Capital LLC, an investment management company based in Greenwich, CT. “Why do people still have financial advisers? They want someone who does it full-time to make sure they are not doing anything wrong.” Same with real estate agents.

And real estate transactions are often anything but straightforward. Some deals, like short sales, can be “much more intricate than a regular transaction,” Reiss says, with lenders who have requirements that “a regular person would have no idea about.”

Reason No. 2: Buying ain’t easy, either

Buying a home, even if you come in with all cash, is not a cookie-cutter task, and you can find yourself drowning in paperwork and stressed out juggling things like meeting buyers, and dealing with the seller’s agent, lender, and title companies. Agents ease the whole transaction, and it’s something that has kept their profession alive.

“They can hold your hand through the process,” Reiss explains. “They might say, ‘This lender takes a long time, so put in your contract immediately and sign this and that paper and get all this stuff ready before you’re walking over hot coals with the lender for money.”

Reason No. 3: It’s their top priority

Your own interests and priorities will very likely always be split — because of those pesky little things like, say, job and family — but a Realtor can be laser-focused on getting the deal done. “A Realtor has a singular aim: to sell houses,” Reiss says.

Simply put, having a real estate agent can make your life easier. Tomasul found himself in a frustrating position when he tried to sell his apartment in Manhattan without an agent. “Showing it was so tough with my schedule, and it was hard having a full-time job and keeping up in a timely matter with potential buyers,” he recalls.

That means the less you make time for buyers, the longer your place will stay on the market — and that’s not good for your bottom line.

Reason No. 4: They know the market, and the players, better than you

“The agent knows the market intimately, even more than a pretty informed resident,” Reiss says. And all that knowledge saves time. “Tracking sales, knowing listings, spending a lot of shoe leather on houses already for sale — right off the bat, they know more than the ordinary Joe and Jane. They understand condo boards and title companies. As a player in the game, they know what the other players are looking for and how to deliver.”

Reason No. 5: They’re objective

Without an agent showing your house for you, you have no shield from criticisms that can — and will — be made about your house from prospective buyers. Your favorite room in the home might be described as “tacky,” “needing a renovation,” or much worse. Sometimes such comments are negotiating tactics. Sometimes they are heartfelt, off-the-cuff opinions. But either way, they can lead to problems.

“It impacts objectivity for a seller to hear negative things about their own place,” Reiss explains. ” Realtors aren’t emotionally invested. They don’t take comments personally. It’s not ‘Oh, you don’t like my chandelier? Then get out of my house.’”

The Single-Family Rental Revolution Continues

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The Kroll Bond Rating Agency has released its Single-Borrower SFR: Comprehensive Surveillance Report:

Kroll Bond Rating Agency (KBRA) recently completed a comprehensive surveillance review of its rated universe of 23 single-borrower, single-family rental (SFR) securitizations. In connection with these transactions, 132 ratings are outstanding, all of which have been affirmed. The transactions have an aggregate outstanding principal balance of $13.0 billion, of which $12.6 billion is rated. These transactions have been issued by six sponsors, which own approximately 159,700 properties, 90,649 of which are included in the securitizations that are covered in this report. (3)

This business model took off during the depths of the Great Recession when capital-rich companies were able to buy up single-family homes on the cheap and in bulk. While the Kroll report is geared toward the interests of investors, it contains much of interest for those interested in housing policy more generally. I found two highlights to be particularly interesting:

  • The 90,649 properties underlying the subject transactions have, on average, appreciated in value by 10.2% since the issuance dates of the respective transactions . . . (4)
  • The underlying collateral has exhibited positive operating performance with the exception of expenses. Contractual rental rates have continued to increase, vacancy rates declined (but remain above issuance levels), tenant retention rates have remained relatively stable, and delinquency rates have remained low. (Id.)

KBRA’s overall sector outlook for deal performance is

positive given current rental rates, which have risen since institutional investors entered the SFR space, although the rate of increase has slowed. Future demand for single-family rental housing will be driven by the affordability of rents relative to home ownership costs as well as the availability of mortgage financing. In addition, homeownership rates are expected to continue to decline due to changing demographics. Recent data released by the Urban Institute shows the percentage of renters as a share of all households growing from 35% as of the 2010 US Decennial Census to 37% in 2020 and increasing to 39% by 2030. Furthermore, 59% of new household formations are expected to be renters. Against this backdrop, KBRA believes single-borrower SFR securitizations have limited term default risk. However, there has been limited seasoning across the sector, and no refinancing has occurred to date. As such, these transactions remain more exposed to refinance risk. (9)

Kroll concludes that things look good for players in this sector. It does seem that large companies have figured out how to make money notwithstanding the higher operating costs for single-family rentals compared to geographically concentrated multifamily units.

I am not sure what this all means for households themselves. Given long-term homeownership trends, it may very well be good for households to have another rental option out there, one that makes new housing stock available to them. Or it might mean that households will face more competition when shopping for a home. Both things are probably true, although not necessarily both for any particular household.

Co-signing: Smart or Stupid?

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Realtor.com quoted me in Co-signing a Mortgage: Smart or Stupid? It opens,

There’s no doubt about it: Buying a home these days is hard. Even if you’re lucky enough to be a homeowner yourself, that doesn’t mean your kids or assorted loved ones can easily follow in your footsteps—at least, not without help.

One way that “help” can occur for home buyers who don’t qualify for a mortgage? Getting someone else—like you, dear reader—to co-sign. In a nutshell, that means that if they can’t pay their monthly dues, the lender will expect you to cough up the cash instead.

 It’s a noble idea, helping someone buy a home. But also, of course, a scary one. It’s no surprise that many co-signers are parents doing what parents do: putting their own financial well-being aside to help their children move into a home.

But let’s be clear here: The risks are huge. Some of them are obvious, but there are plenty more that you may not have even considered. So if you’re considering co-signing, it’s best you know exactly what you’re getting into, and how to protect your finances in case things don’t go well. Here are the main caveats and considerations to keep in mind.

Identify if your borrowers (and you) are good candidates

We’re not saying co-signing is a terrible idea across the board. There are plenty of legit reasons why those near and dear to you may have trouble getting the loan on their own—say, because they’re self-employed, which makes banks leery. But if your kid can’t get a loan because he just can’t seem to pay his AmEx card on time, well, that’s a different story. Judge your own risk accordingly.

Co-signers should also consider whether they’re good candidates to be taking on more financial commitments. Generally, you should consider co-signing only if you meet a few requirements. For example, “You own your home free and clear and don’t require much credit or have a need for it,” says Mary Anne Daly, senior mortgage adviser with San Francisco–based Sindeo.

Consider the pitfalls

If your borrower has a less-than-stellar history of paying back creditors or holding down a job, proceed with caution. Extreme caution.

“Unfortunately, I’ve seen parents dig further into their savings to pay the mortgage when their child can’t make the payment,” says Ryan Halset, a Realtor® with Seattle-based Boardwalk Real Estate. And if you can’t pay, it will tarnish your credit history and future odds of borrowing money.

“Your chance of getting a loan yourself in the future could be in jeopardy,” says Janine Acquafredda, an associate broker with Brooklyn-based House N Key Realty. “Not to mention the risk of ruining relationships if things go sour.” But maybe that last part’s a given.

Think like a lender

Hard as it might be, try to keep your personal relationship with the home buyer from coloring your decision. Even if it’s your child or a longtime pal, it shouldn’t (entirely) trump the warning signs.

“Before you commit, think like a lender and look at the borrower’s income, work history, and existing debt to determine if the borrower is worthy and not a potential liability to your good credit,” says Frank Tarala, owner of Sterling Heights, MI–based Principal Brokers Network.

Saying no may be tough, but it could save you tons of heartache down the road. David Reiss, professor of law and academic program director for the Center for Urban Business Entrepreneurship, recounts a situation where parents stepped in as co-signers just before the financial crisis hit. The home’s value plunged by more than half. The borrower then left the area—and his home—in search of a new gig and couldn’t make both the mortgage payments and the rent on his new apartment.

“The parents, retirees living on a modest pension in their own home, found themselves dealing with the default of their son’s mortgage with no financial resources available as a buffer,” Reiss says. “This situation has devolved into a nightmare of defaults and attempted short sales with no end in sight.”

All The Single Ladies . . . Buy Houses

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Realtor.com quote me in More Single Women Hunt for Homes, Not Husbands. It reads, in part,

Alayna Tagariello Francis had always assumed she’d marry first, then buy a home. But when she found herself footloose, free, and definably single in her early 30s, she decided to make a clean break from tradition: She started home shopping for one.

“After dating for a long time in New York City, I really didn’t know if I was going to meet anyone,” she says. “I didn’t want to keep throwing away money on rent or fail to have an investment because I was waiting to get married.”

So in 2006, Francis bought a one-bedroom in Manhattan for $400,000—and was surprised by how good it felt to accomplish this milestone without help.

“To buy a home without a husband or boyfriend wasn’t my plan,” she says, “but it gave me an immense sense of pride.”

It’s no secret that both men and women are tying the knot later in life. A generation ago, statistics from the Census Bureau showed that men and women rushed to the altar in their early 20s; now, the median age for a first-time marriage has crept into the late 20s—and that’s if they marry at all.

The surprise is that even though today’s women still make 21% less than men, more single women than men are now choosing to charge ahead and invest in a home of their own. It’s changing the face of homeownership in America.

And while that decision to buy can help build wealth and ensure financial stability, plenty of women are finding the road from renter to owner is filled with unforeseen obstacles—and plenty of soul-searching.

*     *     *

Why women shouldn’t wait

But then again, few of us have fully operational Ouija boards we can pull out of storage to pinpoint exactly when our ideal significant other will arrive on the scene. So putting house hunting on pause is something fewer women are willing to do.

“Women today don’t sit around and wait for Prince Charming,” says Wendy Flynn, a Realtor® in College Station, TX, who has helped numerous single women buy homes. After all, Flynn points out, “The time frame for meeting your dream man, getting married, and having kids—well, that’s a pretty long timeline.” So even if you do meet The One a day after closing on your home, “you could sell your home in a few years and still make a profit—or at the worst, probably break even.” If you buy right, that is.

That said, women who do want to marry and have kids as soon as possible will want to eye their potential home purchase with that in mind. Is the new place big enough for a family? Or, if you think you’ll sell and move into a larger place once you’re hitched, how easy will it be to sell your original home—or are you allowed to rent it out?

And if you marry or a partner moves in, make sure to consult a lawyer if you want your partner to share homeownership along with you.

“You definitely should not assume that your spouse’s home is transferred automatically to you once you get married,” says David Reiss, an urban law professor at Brooklyn Law School.

Creative Credit Union Mortgages

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Credit Union

DepositAccounts.com quoted me in Types of Institutions in the U.S. Banking System – Credit Unions. It reads, in part,

What You Need to Know About Credit Unions

For more than 100 years, credit unions have been providing financial services to their members. Forget about what you thought you knew about credit unions. Long gone are the days when credit unions were seemingly only a “bank” for government employees. Today some 100 million Americans are member-owners of 6,900 credit unions and credit unions have more than $1 trillion in assets.

The Credit Union National Association (CUNA) defines a credit union as a non-for-profit, member-owned financial cooperative, democratically managed by its members, and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members.

Simply put — credits unions are about their members, not profits.

 *     *     *

How are credit unions different from banks?

“They are structured very differently. Credit unions don’t issue stock or pay dividends to outside shareholders, so they are not beholden to outside third party interests,” says Steve Rick, chief economist of CUNA Mutual Group, an insurer and maker of financial productions within credit unions.

Each person who holds an account is a member, and each member has one vote, “rather than the voices of only the powerful few stockholders heard at for-profit banks. And all earnings go straight back to members in the form of favorable interest rates and lower fees that other for-profit institutions can’t beat,” he adds.

Banks are governed by paid shareholders and voting rights depend on the number of shares owned. Earnings go to outside bond and stockholders in the form of dividends.

As cooperatives, credit unions are part of a broader cooperative community that shares philosophies around benefiting their member owners. One of the core missions of the credit union system is to educate its members on financial issues to ensure their financial health.

“It’s worth noting that credit unions can offer creative types of mortgages that should be explored by first-time and experienced homebuyers alike. The PenFed Credit Union, along with some other credit unions, has a 5/5 ARM that adjusts every five years. A product like this combines aspects of a fixed rate mortgage (fewer, but not the fewest) surprises about payment sizes, with aspects of an ARM (lower, but not the lowest) interest rates,” says David Reiss, a Brooklyn Law School professor specializing in real estate.