“With the refinance boom gone, fierce competition for the purchase business is causing significant margin compression,” Al Miller, national director of strategic relationship at NAF, said in the announcement.
For a standalone model, NAF and the partner company will form a mortgage banking company that can support funding loans of at least $150 million annually. The two lenders will each own 50% stake in the JV.
In a consortium model, currently popular in the title business, NAF will create a standalone mortgage banking company that will sell shares equal to 50% of the company. With this model, shares are intended to be for individual companies that have the scale for loan funding a minimum of $50 million annually and aggregate fundings for the combined owners of $300 million annually.
NAF will consider a mortgage brokerage model if it is done based on using it for speed to market and as a strategy to evolve into the full mortgage banking model in the near future, the company said. The third model has a low barrier to entry, in which capitalization and licensing complexities are much less than the standalone model.
With various services plus capital in place, a joint venture ramps up faster than a traditional mortgage company. At a mortgage brokerage joint venture, loan officers generally get paid a lower base salary than counterparts at traditional lenders and may get a smaller commission because the LO is doing less work finding customers since there are greater real estate agent referrals.
While a mortgage brokerage JV model was popular during the pandemic years, a new federal regulatory regime could put the model at risk of expenses from the lack of regulatory enforcement information as well as lesser margins, as the industry’s volume is tied to housing cycle shifts.
The partial acquisition model would be used when a company that owns and operates an independent mortgage business is looking to reduce its current capital investment and risk by selling a 50% portion of that business to NAF. After the sale, the partner would enter a standalone JV.
This fourth model could also be used if the partner is already in a JV with a lender and that lender is willing to sell NAF their ownership.
Founded in 2003 by Rick Arvielo and his wife, Patty Arvielo, New American Funding offers a variety of conventional, government, adjustable-rate and non-qualified mortgages. The California lender originated $15.12 billion in volume in 2022, down about half from the previous year’s $30.44 billion, data from Modex showed.
Licensed in 50 states and Washington, D.C., the lender has 168 active branches nationwide with 1,615 sponsored MLOs, according to the NMLS.
Wells Fargo announced today that it expects to report record first quarter earnings of $3 billion thanks in part to the current mortgage bonanza.
“Business momentum in the quarter reflected strength in our traditional banking businesses, strong capital markets activities, and exceptionally strong mortgage banking results,” said Chief Financial Officer Howard Atkins, in a release.
“$100 billion in mortgage originations, with a 41 percent increase in the unclosed application pipeline to $100 billion at quarter end, an indication of strong second quarter mortgage originations.”
The San Francisco-based bank and mortgage lender said it realized roughly $175 billion in loan commitments, mortgage originations, and mortgage securities purchases during the quarter.
The company processed $190 billion in mortgage applications for more than 800,000 customers, a 64 percent increase from the fourth quarter, aided by a record $83 billion month in March.
Additionally, Wells funded more than $100 billion in mortgage loans, serving over 450,000 borrowers via purchase mortgage or refinance transactions.
I wonder what kind of mortgage market share Wells Fargo and Bank of America will end up with this year.
The bank also provided 150,000 “mortgage solutions,” such as loan modifications and repayment plans, to help homeowners stay put during the quarter.
Wachovia has also been a welcome addition to the bank, contributing about 40 percent of combined revenue.
“With the acquisition of Wachovia, we’re now serving almost one of every three U.S. households. Revenue synergies from cross-sell are a huge opportunity much like the Wells Fargo-Norwest merger ten years ago,” Atkins added.
But what about all those billions in option-arms? At some point they will be a big, big problem, whenever they decide to charge them off. Moratoriums don’t last forever.
Shares of Wells Fargo were up nearly three dollars, or about 20 percent, to $17.71 in midday trading on Wall Street.
The weather is finally beginning to cool off and Halloween is just around the corner. Oh, and The Walking Dead is back on TV. It must be fall.
Surely that means homes sales are going to slow down after the traditionally busier spring and summer sessions have now come to a close.
But aside from fewer transactions, there’s now talk (fear) about lower home prices as well, and even mention of a “triple dip” in home prices.
Will Home Prices Dip for a Third Time?
Lately, the stock market has been taking a beating thanks to weak global growth prospects and a number of geopolitical issues. In fact, the Dow recently turned negative for the year.
Does that mean home prices are going to follow a similar path? Are all those months of massive appreciation going to catch up to us?
I think everyone remembers home prices peaking around 2006 before taking a major dive. What followed was the worst housing crisis in recent memory. Foreclosures, short sales, loan mods, etc.
Then policymakers worked to buoy the housing market through a variety of efforts, including the popular first-time home buyer tax credit.
That pushed home prices higher in 2009 and 2010, but once the credit expired home prices turned negative yet again.
So now that home prices are hitting new record highs in many states (10 in August per CoreLogic) and the Fed is planning to halt its purchases of mortgage-backed securities, are we slated for a third decline?
After all, if home prices are no longer cheap and mortgage rates aren’t that low (they still are for now), the incentive to buy might not be very strong.
The latest release from the S&P/Case-Shiller Home Price Indices revealed that home price appreciation had declined markedly in July.
Nationally, home prices were up just 0.5% from June to July, compared to 0.9% from May to June. And none of the cities in the 20-City Composite saw home price gains improve on a year-over-year basis.
In San Francisco, home prices fell 0.4% from June to July, the largest decline since February 2012. Many suspect it could be in bubble territory right now, though others refer to it as an affordability crisis.
Meanwhile, only three cities (Las Vegas, Miami, SF) in the 20-City Composite posted double-digit gains year-over-year in July, though all 20 remain positive.
So the issue at the moment is decelerating home price gains, not falling home prices. The trend is expected to continue and some fear the housing market could weaken to the point where prices eventually go negative again.
Real Estate Not a ‘Screaming Bargain’
A commentary released last week by Wells Fargo addressed the potential of a triple dip in housing, and the good news is that the economists are confident we can avoid one.
They noted that despite recent deceleration, home price gains remain solidly in positive territory on a year-over-year basis.
In other words, it would take something really significant to push us into negative territory again after the recent stellar gains we’ve already realized.
The economists attributed the slowing of home price gains to a shift in the composition of the market, with single-family investors exiting faster than traditional and first-time home buyers are arriving.
However, they point to a “lean” inventory of homes for sale, coupled with fewer delinquencies and improved credit availability (even if Bernanke can’t get a mortgage), so demand doesn’t necessarily need to be very strong to stay the course.
At the same time, they did add that the strong run of pricing power has come to an end, forcing builders to turn to incentives to sell new homes with affordability now under threat.
And they expect “much more modest” home price gains in 2015 and 2016, arguing that homes are no longer a “screaming bargain” today. By the way, the investors that have since left the market were the ones who drove prices up.
So be careful when buying a home today. Sure, the downside risk might not be what it was in 2006 or 2010, but the upside is also much more limited.
With many states already enjoying new record highs, you have to wonder if we haven’t reached a near-term peak in home prices.
Read more: Home Prices to Peak in 2016, Then Do Nothing Through 2022
On December 20th, Bank of America downgraded shares of Re/Max (NYSE:RMAX) to a sell rating with a $56.00 price target on the financial services provider’s stock. Analysts from Zacks also downgraded RMAX to a “sell” rating in a later report. Other analysts have rated the stock as a buy or hold on an earlier earnings report from RMAX.
As of this writing, RMAX shares are down to $30.92 from a six-month high of $56.25 per share. Despite the negative trend, there is good news for those vested in the stock. A recent Zacks Equity Research report the day before Christmas spotlighted RMAX in a crisp comparison with Jones Lang LaSalle (JLL) which revealed a lot about the short and long-term potential of both stocks. As I type this, Jones Lang LaSalle retains a Zacks Rank of #2 (Buy), while RE/MAX is lagging with a Zacks Rank of #4 (Sell). But, the Zacks report goes on to reveal why JLL is rated so much higher than RMAX.
Key among the other variables Zacks is the fact JLL has a P/B ratio of 1.59, while RMAX has a P/B of 7.17. As a reminder, the P/B ratio is what Zacks and other analysts use to compare a stock’s market value against its book value. The basic equation is the result of subtracting total assets minus total liabilities. The corresponding value is the reason JLL holds a Value grade of A, against RMAX with a Value grade of C. Other variables in the report explain why so many analysts have devalued RMAX recently. JLL currently has a forward P/E ratio of 11.45, against RMAX forward P/E of 12.94. Other metrics paint a clearer picture for the struggling stock.
Another kind of predictor called the Altman Z score was developed a few decades ago by an. Published by Edward I. Altman back in 1968, the Altman Z can predict a company going bankrupt within 2 years with 90% accuracy. Currently, RMAX Altman Z score of 3.734334, which indicates the company is unlikely to default in the next couple of years. RMAX stock stands nearly -52.83% off versus a 52-week high and 3.81% off from the 52-week low, with the current shares currently owned by investors at 18.14 million. Mixed as these signals seems to be, it’s good advice for investors interested in quality ratios of RMAX to into consideration the Gross Profitability of the stock, which is currently 0.498758. Another factor of confidence for RMAX is the moderately low Montier C-Score of 2.0, which indicates the company is unlikely to be cooking the books. A million mixed signals, so what’s the bottom line on RMAX?
Even the most profitable and stable stocks face setbacks from time to time. The mixed or even negative signals in media make the trading decision a tricky job at best. It’s a certainty that making these decisions based on one piece of data is a perilous strategy, but deciphering myriad equations and functions are no less hazardous. Negative information about a company usually prompts investors to sell quickly without delving into the deeper metrics. The same is true where positive intelligence is concerned. As for RMAX value now, my recommendation in a mixed bag of appraisals is to follow the big money. Having said that, BlackRock Inc. increased its position in Re/Max by 6.5% during the 2nd quarter of 2018, and now owns 2,432,754 shares of the financial services provider’s stock worth $127,598,000. BlackRock, for anyone who is not aware, is not in the business of losing investments. So, the “sell” rating put on RMAX means “buy” at the right price in my book. The next quarter of trading will tell, but my money is on holding the shares.
Phil Butler is a former engineer, contractor, and telecommunications professional who is editor of several influential online media outlets including part owner of Pamil Visions with wife Mihaela. Phil began his digital ramblings via several of the world’s most noted tech blogs, at the advent of blogging as a form of journalistic license. Phil is currently top interviewer, and journalist at Realty Biz News.
Eager to know how to retire rich? It might be surprising that Dave Ramsey‘s site has one of the best money hacks I’ve seen recently. Drive Free, Retire Rich explores the impact of carrying a car payment, and offers ideas on how your money can be used more wisely. Though the sentiment is familiar, I find Ramsey’s approach novel.
You want a brand-new sports car that would normally cost you $475 a month. The car you’re driving now is worth around $1,500. If you take that $475 and pay yourself instead of paying the dealer, you’ll have $4,750 in just ten months. Add that to the $1,500 you can get for your current car, and you can pay cash for a used $6,250 car. That’s a major upgrade in car in just 10 months — without owing the bank a dime!
But let’s keep going. If you kept saving at that rate, you’d have another $4,750 in another 10 months. Chances are, less than a year later, you could sell your $6,250 car for about what you paid for it. This means that you can step up again — with cash — into an excellent $11,000 used car just twenty months from today. Not bad!
Not bad, indeed. Ramsey goes on to explain how you could actually get “free” cars by investing your $475/month and using the returns to purchase your vehicles. (The assumed 12% return is a stretch, though the overall point is valid.)
Car Values and Financial Freedom
How might I make this idea work for me?
Instead of buying a new car from a dealer, I could set aside the amount I’m willing to spend on a monthly payment. The presentation uses $475/month as an example. I could never pay this much for a car. I’d be willing to go as high as $250/month.
After a year, I’d have saved $3,000 for a car. According to kbb.com, the trade-in value on my current car is $3,700. Using these two sources, I could buy a better used car for $6,700.
Here’s where it gets interesting. If I kept making $250 payments to myself, I’d have another $3,000 saved at the end of the second year. Let’s say the $6,700 car lost another $1,000 in value and was now worth $5,700. I could trade it in and use my saved money to upgrade to an $8,700 used car.
I can continue this cycle until I reach the level of car with which I’m comfortable. After that, the amount I need to save each year would decline sharply. I wouldn’t have to save to upgrade my car, simply to maintain the level of quality.
I’ll certainly remember this for the future. As soon as I’ve repaid my home equity loan, I plan to begin saving for a car!
Americans take today’s selection of mortgages for granted, but financing a home is a much different experience than it was a century ago
By
Matthew Wells
The furniture industry was booming in Greensboro, N.C., 100 years ago. A furniture craftsman making a solid, steady income might have wanted to buy a home and build up some equity. But the homebuying process then looked very little like it does today. To finance that purchase, the furniture maker first would need to scrape together as much as 40 percent for a down payment, even with good credit. He might then head to a local building and loan association (B&L), where he would hope to get a loan that he would be able to pay off in no more than a dozen years.
Today’s mortgage market, by contrast, would offer that furniture maker a wide range of more attractive options. Instead of going to the local B&L, the furniture maker could walk into a bank or connect with a mortgage broker who could be in town or on the other side of the country. No longer would such a large down payment be necessary; 20 percent would suffice, and it could be less with mortgage insurance — even zero dollars down if the furniture maker were also a veteran. Further, the repayment period would be set at either 15 or 30 years, and, depending on what worked best for the furniture maker, the interest rate could be fixed or fluctuate through the duration of the loan.
The modern mortgage in all its variations is the product of a complicated history. Local, state, national, and even international actors all competing for profits have existed alongside an increasingly active federal government that for almost a century has sought to make the benefits of homeownership accessible to more Americans, even through economic collapse and crises. Both despite and because of this history, over 65 percent of Americans — most of whom carry or carried a mortgage previously — now own the home where they live.
The Early Era of Private Financing
Prior to 1930, the government was not involved in the mortgage market, leaving only a few private options for aspiring homeowners looking for financing. While loans between individuals for homes were common, building and loan associations would become the dominant institutional mortgage financiers during this period.
B&Ls commonly used what was known as a “share accumulation” contract. Under this complicated mortgage structure, if a borrower needed a loan for $1,000, he would subscribe to the association for five shares at $200 maturity value each, and he would accumulate those shares by paying weekly or monthly installments into an account held at the association. These payments would pay for the shares along with the interest on the loan, and the B&L would also pay out dividends kept in the share account. The dividends determined the duration of the loan, but in good economic times, a borrower would expect it to take about 12 years to accumulate enough money through the dividends and deposits to repay the entire $1,000 loan all at once; he would then own the property outright.
An import from a rapidly industrializing Great Britain in the 1830s, B&Ls had been operating mainly in the Northeast and Midwest until the 1880s, when, coupled with a lack of competition and rapid urbanization around the country, their presence increased significantly. In 1893, for example, 5,600 B&Ls were in operation in every state and in more than 1,000 counties and 2,000 cities. Some 1.4 million Americans were members of B&Ls and about one in eight nonfarm owner-occupied homes was financed through them. These numbers would peak in 1927, with 11.3 million members (out of a total population of 119 million) belonging to 12,804 associations that held a total of $7.2 billion in assets.
Despite their popularity, B&Ls had a notable drawback: Their borrowers were exposed to significant credit risk. If a B&L’s loan portfolio suffered, dividend accrual could slow, extending the amount of time it would take for members to pay off their loans. In extreme cases, retained dividends could be taken away or the value of outstanding shares could be written down, taking borrowers further away from final repayment.
“Imagine you are in year 11 of what should be a 12-year repayment period and you’ve borrowed $2,000 and you’ve got $1,800 of it in your account,” says Kenneth Snowden, an economist at the University of North Carolina, Greensboro, “but then the B&L goes belly up. That would be a disaster.”
The industry downplayed the issue. While acknowledging that “It is possible in the event of failure under the regular [share accumulation] plan that … the borrower would still be liable for the total amount of his loan,” the authors of a 1925 industry publication still maintained, “It makes very little practical difference because of the small likelihood of failure.”
Aside from the B&Ls, there were few other institutional lending options for individuals looking for mortgage financing. The National Bank Act of 1864 barred commercial banks from writing mortgages, but life insurance companies and mutual savings banks were active lenders. They were, however, heavily regulated and often barred from lending across state lines or beyond certain distances from their location.
But the money to finance the building boom of the second half of the 19th century had to come from somewhere. Unconstrained by geographic boundaries or the law, mortgage companies and trusts sprouted up in the 1870s, filling this need through another innovation from Europe: the mortgage-backed security (MBS). One of the first such firms, the United States Mortgage Company, was founded in 1871. Boasting a New York board of directors that included the likes of J. Pierpont Morgan, the company wrote its own mortgages, and then issued bonds or securities that equaled the value of all the mortgages it held. It made money by charging interest on loans at a greater rate than what it paid out on its bonds. The company was vast: It established local lending boards throughout the country to handle loan origination, pricing, and credit quality, but it also had a European-based board comprised of counts and barons to manage the sale of those bonds on the continent.
Image : Library of Congress, Prints & Photographs Division, FSA/OWI collection [LC-DIG-FSA-8A02884]
A couple moves into a new home in Aberdeen Gardens in Newport News, Va., in 1937. Aberdeen Gardens was built as part of a New Deal housing program during the Great Depression.
New Competition From Depression-Era Reforms
When the Great Depression hit, the mortgage system ground to a halt, as the collapse of home prices and massive unemployment led to widespread foreclosures. This, in turn, led to a decline in homeownership and exposed the weaknesses in the existing mortgage finance system. In response, the Roosevelt administration pursued several strategies to restore the home mortgage market and encourage lending and borrowing. These efforts created a system of uneasy coexistence between a reformed private mortgage market and a new player — the federal government.
The Home Owners’ Loan Corporation (HOLC) was created in 1933 to assist people who could no longer afford to make payments on their homes from foreclosure. To do so, the HOLC took the drastic step of issuing bonds and then using the funds to purchase mortgages of homes, and then refinancing those loans. It could only purchase mortgages on homes under $20,000 in value, but between 1933 and 1936, the HOLC would write and hold approximately 1 million loans, representing around 10 percent of all nonfarm owner-occupied homes in the country. Around 200,000 borrowers would still ultimately end up in foreclosure, but over 800,000 people were able to successfully stay in their homes and repay their HOLC loans. (The HOLC is also widely associated with the practice of redlining, although scholars debate its lasting influence on lending.) At the same time, the HOLC standardized the 15-year fully amortized loan still in use today. In contrast to the complicated share accumulation loans used by the B&Ls, these loans were repaid on a fixed schedule in which monthly payments spread across a set time period went directly toward reducing the principal on the loan as well as the interest.
While the HOLC was responsible for keeping people in their homes, the Federal Housing Administration (FHA) was created as part of the National Housing Act of 1934 to give lenders, who had become risk averse since the Depression hit, the confidence to lend again. It did so through several innovations which, while intended to “prime the pump” in the short term, resulted in lasting reforms to the mortgage market. In particular, all FHA-backed mortgages were long term (that is, 20 to 30 years) fully amortized loans and required as little as a 10 percent down payment. Relative to the loans with short repayment periods, these terms were undoubtedly attractive to would-be borrowers, leading the other private institutional lenders to adopt similar mortgage structures to remain competitive.
During the 1930s, the building and loan associations began to evolve into savings and loan associations (S&L) and were granted federal charters. As a result, these associations had to adhere to certain regulatory requirements, including a mandate to make only fully amortized loans and caps on the amount of interest they could pay on deposits. They were also required to participate in the Federal Savings and Loan Insurance Corporation (FSLIC), which, in theory, meant that their members’ deposits were guaranteed and would no longer be subject to the risk that characterized the pre-Depression era.
The B&Ls and S&Ls vehemently opposed the creation of the FHA, as it both opened competition in the market and created a new bureaucracy that they argued was unnecessary. Their first concern was competition. If the FHA provided insurance to all institutional lenders, the associations believed they would no longer dominate the long-term mortgage loan market, as they had for almost a century. Despite intense lobbying in opposition to the creation of the FHA, the S&Ls lost that battle, and commercial banks, which had been able to make mortgage loans since 1913, ended up making by far the biggest share of FHA-insured loans, accounting for 70 percent of all FHA loans in 1935. The associations also were loath to follow all the regulations and bureaucracy that were required for the FHA to guarantee loans.
“The associations had been underwriting loans successfully for 60 years. FHA created a whole new bureaucracy of how to underwrite loans because they had a manual that was 500 pages long,” notes Snowden. “They don’t want all that red tape. They don’t want someone telling them how many inches apart their studs have to be. They had their own appraisers and underwriting program. So there really were competing networks.”
As a result of these two sources of opposition, only 789 out of almost 7,000 associations were using FHA insurance in 1940.
In 1938, the housing market was still lagging in its recovery relative to other sectors of the economy. To further open the flow of capital to homebuyers, the government chartered the Federal National Mortgage Association, or Fannie Mae. Known as a government sponsored-enterprise, or GSE, Fannie Mae purchased FHA-guaranteed loans from mortgage lenders and kept them in its own portfolio. (Much later, starting in the 1980s, it would sell them as MBS on the secondary market.)
The Postwar Homeownership Boom
In 1940, about 44 percent of Americans owned their home. Two decades later, that number had risen to 62 percent. Daniel Fetter, an economist at Stanford University, argued in a 2014 paper that this increase was driven by rising real incomes, favorable tax treatment of owner-occupied housing, and perhaps most importantly, the widespread adoption of the long-term, fully amortized, low-down-payment mortgage. In fact, he estimated that changes in home financing might explain about 40 percent of the overall increase in homeownership during this period.
One of the primary pathways for the expansion of homeownership during the postwar period was the veterans’ home loan program created under the 1944 Servicemen’s Readjustment Act. While the Veterans Administration (VA) did not make loans, if a veteran defaulted, it would pay up to 50 percent of the loan or up to $2,000. At a time when the average home price was about $8,600, the repayment window was 20 years. Also, interest rates for VA loans could not exceed 4 percent and often did not require a down payment. These loans were widely used: Between 1949 and 1953, they averaged 24 percent of the market and according to Fetter, accounted for roughly 7.4 percent of the overall increase in homeownership between 1940 and 1960. (See chart below.)
Demand for housing continued as baby boomers grew into adults in the 1970s and pursued homeownership just as their parents did. Congress realized, however, that the secondary market where MBS were traded lacked sufficient capital to finance the younger generation’s purchases. In response, Congress chartered a second GSE, the Federal Home Loan Mortgage Corporation, also known as Freddie Mac. Up until this point, Fannie had only been authorized to purchase FHA-backed loans, but with the hope of turning Fannie and Freddie into competitors on the secondary mortgage market, Congress privatized Fannie in 1968. In 1970, they were both also allowed to purchase conventional loans (that is, loans not backed by either the FHA or VA).
A Series of Crises
A decade later, the S&L industry that had existed for half a century would collapse. As interest rates rose in the late 1970s and early 1980s, the S&Ls, also known as “thrifts,” found themselves at a disadvantage, as the government-imposed limits on their interest rates meant depositors could find greater returns elsewhere. With inflation also increasing, the S&Ls’ portfolios, which were filled with fixed-rate mortgages, lost significant value as well. As a result, many S&Ls became insolvent.
Normally, this would have meant shutting the weak S&Ls down. But there was a further problem: In 1983, the cost of paying off what these firms owed depositors was estimated at about $25 billion, but FSLIC, the government entity that ensured those deposits, had only $6 billion in reserves. In the face of this shortfall, regulators decided to allow these insolvent thrifts, known as “zombies,” to remain open rather than figure out how to shut them down and repay what they owed. At the same time, legislators and regulators relaxed capital standards, allowing these firms to pay higher rates to attract funds and engage in ever-riskier projects with the hope that they would pay off in higher returns. Ultimately, when these high-risk ventures failed in the late 1980s, the cost to taxpayers, who had to cover these guaranteed deposits, was about $124 billion. But the S&Ls would not be the only actors in the mortgage industry to need a taxpayer bailout.
By the turn of the century, both Fannie and Freddie had converted to shareholder-owned, for-profit corporations, but regulations put in place by the Federal Housing Finance Agency authorized them to purchase from lenders only so-called conforming mortgages, that is, ones that satisfied certain standards with respect to the borrower’s debt-to-income ratio, the amount of the loan, and the size of the down payment. During the 1980s and 1990s, their status as GSEs fueled the perception that the government — the taxpayers — would bail them out if they ever ran into financial trouble.
Developments in the mortgage marketplace soon set the stage for exactly that trouble. The secondary mortgage market in the early 2000s saw increasing growth in private-label securities — meaning they were not issued by one of the GSEs. These securities were backed by mortgages that did not necessarily have to adhere to the same standards as those purchased by the GSEs.
Freddie and Fannie, as profit-seeking corporations, were then under pressure to increase returns for their shareholders, and while they were restricted in the securitizations that they could issue, they were not prevented from adding these riskier private-label MBS to their own investment portfolios.
At the same time, a series of technological innovations lowered the costs to the GSEs, as well as many of the lenders and secondary market participants, of assessing and pricing risk. Beginning back in 1992, Freddie had begun accessing computerized credit scores, but more extensive systems in subsequent years captured additional data on the borrowers and properties and fed that data into statistical models to produce underwriting recommendations. By early 2006, more than 90 percent of lenders were participating in an automated underwriting system, typically either Fannie’s Desktop Underwriter or Freddie’s Loan Prospector (now known as Loan Product Advisor).
Borys Grochulski of the Richmond Fed observes that these systems made a difference, as they allowed lenders to be creative in constructing mortgages for would-be homeowners who would otherwise be unable to qualify. “Many potential mortgage borrowers who didn’t have the right credit quality and were out of the mortgage market now could be brought on by these financial-information processing innovations,” he says.
Indeed, speaking in May 2007, before the full extent of the impending mortgage crisis — and Great Recession — was apparent, then-Fed Chair Ben Bernanke noted that the expansion of what was known as the subprime mortgage market was spurred mostly by these technological innovations. Subprime is just one of several categories of loan quality and risk; lenders used data to separate borrowers into risk categories, with riskier loans charged higher rates.
But Marc Gott, a former director of Fannie’s Loan Servicing Department said in a 2008 New York Times interview, “We didn’t really know what we were buying. This system was designed for plain vanilla loans, and we were trying to push chocolate sundaes through the gears.”
Nonetheless, some investors still wanted to diversify their portfolios with MBS with higher yields. And the government’s implicit backing of the GSEs gave market participants the confidence to continue securitizing, buying, and selling mortgages until the bubble finally popped in 2008. (The incentive for such risk taking in response to the expectation of insurance coverage or a bailout is known as “moral hazard.”)
According to research by the Treasury Department, 8 million homes were foreclosed, 8.8 million workers lost their jobs, and $7.4 trillion in stock market wealth and $19.2 trillion in household wealth was wiped away during the Great Recession that followed the mortgage crisis. As it became clear that the GSEs had purchased loans they knew were risky, they were placed under government conservatorship that is still in place, and they ultimately cost taxpayers $190 billion. In addition, to inject liquidity into the struggling mortgage market, the Fed began purchasing the GSEs’ MBS in late 2008 and would ultimately purchase over $1 trillion in those bonds up through late 2014.
The 2008 housing crisis and the Great Recession have made it harder for some aspiring homeowners to purchase a home, as no-money-down mortgages are no longer available for most borrowers, and banks are also less willing to lend to those with less-than-ideal credit. Also, traditional commercial banks, which also suffered tremendous losses, have stepped back from their involvement in mortgage origination and servicing. Filling the gap has been increased competition among smaller mortgage companies, many of whom, according to Grochulski, sell their mortgages to the GSEs, who still package them and sell them off to the private markets.
While the market seems to be functioning well now under this structure, stresses have been a persistent presence throughout its history. And while these crises have been painful and disruptive, they have fueled innovations that have given a wide range of Americans the chance to enjoy the benefits — and burdens — of homeownership.
READINGS
Brewer, H. Peers. “Eastern Money and Western Mortgages in the 1870s.” Business History Review, Autumn 1976, vol. 50, no. 3, pp. 356-380.
Fetter, Daniel K. “The Twentieth-Century Increase in U.S. Home Ownership: Facts and Hypotheses.” In Eugene N. White, Kenneth Snowden, and Price Fishback (eds.), Housing and Mortgage Markets in Historical Perspective. Chicago: University of Chicago Press, July 2014, pp. 329-350.
McDonald, Oonagh. Fannie Mae and Freddie Mac: Turning the American Dream into a Nightmare. New York, N.Y.: Bloomsbury Publishing, 2012.
Price, David A., and John R. Walter. “It’s a Wonderful Loan: A Short History of Building and Loan Associations,” Economic Brief No. 19-01, January 2019.
Romero, Jessie. “The House Is in the Mail.” Econ Focus, Federal Reserve Bank of Richmond, Second/Third Quarter 2019.
Rose, Jonathan D., and Kenneth A. Snowden. “The New Deal and the Origins of the Modern American Real Estate Contract.” Explorations in Economic History, October 2013, vol. 50, no. 4, pp. 548-566.
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Take action on your real estate career and start making progress toward your goals! On today’s podcast with 30 Under 30 Honoree Dhaval Patel, we discuss why you shouldn’t wait to start working on your real estate career. We also share how to get over the fear of rejection when prospecting, offer our real estate predictions, and cover the benefits of joining a real estate team as a new agent.
Listen to today’s show and learn:
Dhaval Patel’s start in real estate [2:35]
Why Dhaval wanted to become a real estate agent [4:49]
What prospecting looks like for a first-year real estate agent [6:44]
Getting over the fear of rejection [8:23]
Dhaval’s favorite real estate script [9:19]
Dhaval’s favorite real estate CRM [10:54]
How to get the results you want in real estate [12:45]
Aaron’s best office experience [14:44]
Dhaval’s first real estate deal [15:40]
The key to succeeding in real estate as a new agent [16:38]
Dhaval’s real estate goals for 2024 [19:17]
NAR’s 30 Under 30 Application process [21:40]
Finding balance between growth and action [23:40]
The value of mentorship and training [26:44]
The benefits of joining an experienced team [29:30]
How to beat turnover with company culture [31:03]
The No.1 real estate market in the nation [33:10]
Why buyer consultations are so important right now [35:42]
Real estate market analytics [36:42]
Real estate market predictions [39:13]
Dhaval’s advice on analyzing opportunities [42:08]
The best predictor of a real estate bubble [44:05]
The best way to connect with Dhaval Patel [46:10]
Dhaval Patel
Dhaval has lived in MA/CT for the past 10 years and has helped nearly forty families buy/sell their homes in the past 18 months. He looks forward to helping guide you on your real estate journey!
Their team @ ROVI Homes has over 100 years of combined real estate experience, and they are proud to be the #1 Real Estate Team in Massachusetts, in both Sales & Volume for 2021!
Dhaval’s mission is to relentlessly serve your best interest and add tremendous value, leveraging their key partnerships to give you a world-class real estate experience!
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On Instagram last month, reality television personality Tarek El Moussa posted a video of himself strolling a street in North Hollywood to tell his 1.3 million followers about his new big plans.
El Moussa co-hosts a real estate show on HGTV called “The Flipping El Moussas” with his wife, Heather, who is also a cast member on Netflix’s “Selling Sunset.” El Moussa shared that he had just finished walking the nearby property where the couple is developing a “super cool, super modern” 138-unit apartment complex with a rooftop pool.
“We got so lucky to find this land,” El Moussa said. “Because finding land like this in North Hollywood, it’s literally impossible.”
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El Moussa left out of the video why a lot like this was available in the first place. Just a week before, the current property owner was convicted in federal court of hiring someone to set fire to vacant units on the site, an arson that tenants say was part of a years-long illegal harassment campaign to force them to leave.
Now the El Moussas are evicting the five remaining tenants, who all are in rent-controlled units. The residents worry about their future in L.A.’s sky-high rental market and believe they should be compensated for the turmoil they’ve gone through.
“It’s been my home for 40 years,” said Cathy Livas, 77, who pays $824 a month to live in a dingbat unit with her 56-year-old son with special needs. “Why would I want to live anywhere else? Do you know the price of rents?”
Livas and other tenants said they’d be willing to negotiate a buyout but believe it should be far in excess of the up to $25,000 required under the law given that their outgoing landlord, ArthurAslanian, tried to burn them out of their homes and otherwise illegally force them to go.
In a presentation to investors, the El Moussas project that after five years they’ll be able to sell the apartment complex for $26 million more than what it costs to acquire the property and build the development.
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“Pay us to leave,” said Clare Letmon, 32, who lives in a bungalow with her husband, Jonpaul Rodriguez, 35. “But pay us an amount of money that’s dignified and recognizes the profit they’re set to make off of everything that was done to us.”
Neither Tarek nor Heather El Moussa could be reached for comment. In an emailed statement, Eda Kalkay, the El Moussas’ public relations representative, said that the El Moussas recognize the property owner is involved in “several serious legal matters” but that the couple and other development partners will have no affiliation with them once the sale of the property is finished.
“The goal is to work closely and respectfully with the current tenants by providing proper move-out compensation and constructing a safe and pristine new apartment complex that will also include 14 low-income units,” the statement said.
The property, made up of multiple lots, currently houses 10 bungalows, five dingbat apartments, a single-family home and 6-foot-tall weeds growing next to the burned-out structures.
The horrors of living there began years ago when tenants said Aslanian started ripping out the walls of their units, exposing them to asbestos, mold and vermin and retaliated against them when they complained or pushed for repairs.
In February 2022, Aslanian promised to pay someone $2,000 to set fire to the property, federal prosecutors said. Using a borrowed gas canister and a hotplate, only the outside of a building was scorched. The next month, a second fire, prosecutors said, was started by another co-conspirator, burning two of the vacant bungalow units.
Prosecutors said Aslanian’s arson campaign was designed to force the tenants out, and most of the residents have left the property. Aslanian secured approval for the new 138-unit project within months of the fires.
“Those permits exist because of everything Arthur did,” Letmon said. “The building was almost vacant because of everything Arthur did.”
Aslanian was convicted of three charges related to the fires last month in addition to multiple charges for conspiring with his employee to hire a hitman to kill two men — one who opposed him in litigation and the other who represented one of his companies in bankruptcy.
Letmon and Rodriguez’s rent is $1,650 a month, but they’ve stopped paying, saying they refuse to give money to a landlord who set their home on fire.
Some previous tenants sued Aslanian over conditions at the property and have received a settlement for an undisclosed amount. The current tenants have a pending lawsuit against him.
But conditions at the property remain dire. The burnt-out bungalows are boarded up, and tenants say they’re still unsafe. Vacant units in the dingbat have broken windows. A tree next to Livas’ unit is overgrown.
A new development group called NoHo 138, which includes the El Moussas, took over the project earlier this year. Representatives of the developers, though not the El Moussas, met with tenants in the winter. The El Moussas began to advertise the apartment plan to investors.
In a video posted to YouTube in May, Tarek El Moussa, whose first real estate reality show was called “Flip or Flop,” stood outside the property touting it as “my biggest flip ever.”
“I am more excited about this thing than anything I’ve ever done in my life,” El Moussa said.
The tenants received their eviction notices in late June. They have become even more alarmed as the El Moussas ramped up their investment campaign.
On Instagram, the El Moussas promoted the development opportunity using a fire emoji, something Letmon and Rodriguez said was insensitive given the arson. Tarek El Moussa said that they planned to break ground “in a few months.” Under the law, tenants 62 or older can remain in their apartments for a year before getting evicted.
“My year isn’t up until June next year, so I don’t know how they’re going to build with me here,” Livas said.
Kalkay, the El Moussas’ spokesperson, said Tarek filmed the video that promised an early groundbreaking before he knew the full context of the tenants’ situation with Aslanian, and the developers will follow all provisions of eviction law. She added that El Moussa meant no offense with the fire emoji.
“Anyone that follows Tarek would know that he is a fan of using emojis on social media,” Kalkay said in response to emailed questions from The Times. “By no means was he making any insinuation or mockery of the tenants’ past experience with the seller.”
Letmon and Rodriguez have tried to track the El Moussas’ promotion for the development. They said it’s been difficult to watch the couple talk about their expensive vacations and advertise that their investors will get invitations to exclusive yacht parties with them.
“It’s an insult when I know he’s spending his summer in the Hamptons and in Cabo and he can’t make time for tenants whose displacement is enabling ‘the biggest flip of his life,’” Letmon said.
Letmon and Rodriguez also have begun posting about their plight on social media, tagging El Moussa on Instagram and asking to meet with him in person.
“Real smart…Keep offending someone that is trying to help you,” El Moussa responded in a July 12 direct message Rodriguez shared with The Times.
Kalkay said that El Moussa is the one being harassed.
“Regardless of the alarming personal attacks sent to Tarek El Moussa and his family via social media DM, he continues to remain sensitive to the situation of the tenants,” she said.
Kalkay added that other development partners plan to continue contacting the tenants and have already reached out to the tenants’ attorney in the hopes of continuing negotiations over their departure.
“As just one of the partners that make up NoHo 138, Tarek’s role is to work on other areas of this deal, but the appropriate people managing this area intend to meet with all tenants,” Kalkay said.
Times staff writers Noah Goldberg and Salvador Hernandez contributed to this report.
If you’ve been paying attention to the housing market at all this year, you know that home prices have been heading up, up, up.
Take the latest report from the National Association of Realtors which showed that the median sales price of existing homes rose to $253,800 in May. That’s up 5.8% year-over-year and the highest reading since last June ($247,000).
Given the steady climb in home prices, it’s only natural to wonder what the underlying cause is.
What Causes Home Prices to Rise
Supply and Demand
When it comes to home prices and what causes them to rise or fall, it all comes back to the basic economic principle of supply and demand.
When we’re talking about the housing market, demand refers to the amount of homes desired by buyers, while supply refers to the amount of homes available on the market.
When demand rises and supply shrinks, that’s going to cause home prices to shoot up, as it breeds fierce competition among buyers.
As Debbie Drummond, a seasoned Las Vegas Realtor, points out:
“A recent Zillow report had Las Vegas’ median home price 10.2% higher than last year which beats the national average of a 7.4% increase. Our prices are being driven up by a lack of inventory. Current listings in the MLS are less than a two month supply of homes. Homes that are in good condition, in desirable neighborhoods, and priced right are selling quick.”
That’s a story that’s being repeated around many parts of the United States right now. In economics, the current situation is what is called “excess demand”.
Unfortunately for buyers, without an increase in the amount of homes for sale, home prices are destined to keep moving higher.
How high can they go, exactly?
Depending on what region you’re talking about, home prices could still have plenty of room to run. As Drummond told us:
“While our home values are appreciating we’re still 20-30% lower than our peak prices. Our economy is rebounding with unemployment at 4.8% in April. We have $15 Billion in major construction projects planned. This includes the new Football Stadium for the Raiders to occupy in 2020. With a vibrant economy and growing population, Las Vegas is likely to return to peak prices over the next 2-3 years.”
Las Vegas isn’t the only area with home prices that could see a sustained rise for many more months.
Take this recent article from the Orange County Register, which interviewed several economists and all of them stated that home prices haven another two or more years left to rise.
A quick google search reveals that this pattern repeats itself over and over again in Nevada, Nebraska, Texas, New Hampshire, and New York, just to name a few.
What Rising Prices Mean for Homeowners and Homebuyers
Find out what’s happening in your local housing market
It’s important to note that housing markets vary drastically from region to region. While home prices have been rising on average nationally, there are varying degrees of increases and even some places where home prices have fallen.
Figuring out what the situation is in your local housing market is a crucial first step in deciding what kind of action you should take.
NPR recently published an article with an interactive map that lets users see how home prices have fared in different parts of the United States. Take a look at the map to easily get an idea of what has been happening in your neck of the woods.
In all likelihood, home prices in your housing market have gone up and are poised to go even higher. With prices rising and inventory down, we’re seeing that many homeowners think right now is a great time to sell.
In fact, just last week the Fannie Mae Home Purchase Sentiment index for June came in at 88.3, which matches the all-time high set in February. According to the report, 39% of Americans said that right now is a good time to sell a home (a new record high) and 30% said that right now is a good time to buy.
Selling your home
So if you’re planning on selling your home right now, it’s very likely that you will have no problem find a buyer. Just make sure to be on the hunt for a house to move to before you list because it’s possible you’ll be done with the sale sooner than you think.
Buying a home
For anyone planning on buying a home, it you will probably get a better deal if you act sooner rather than later. Not only are home prices continuing to move higher, but mortgage rates are also rising.
Comments from the European Central Bank President triggered a massive global bond selloff a couple weeks ago and we’ve seen rates move up over ten basis points (one basis point = 0.01).
While the upward momentum is definitely there, the good news is that mortgage rates are climbing off of 2017 lows and are still at the lower end of the spectrum this year.
If you want to find out what your custom rate would be, you can fill out our online form here, or you can always call one of our experienced loan officers who can walk you through the same process.
Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.
US economy added fewer new jobs than expected last month.
The US non-farm payroll rose by 187,000 in July, data just released shows, below forecasts of an increase of 200,000.
June’s NFP has been revised down too, from +209,000 to +185,000, while May’s has been cut by 25,000, from +306,000 to +281,000, meaning fewer jobs were created in the spring than we thought.
The U.S. Bureau of Labor Statistics has also reported that the unemployment rate fell to 3.5%, down from 3.6% in June.
They add:
Job gains occurred in health care, social assistance, financial activities, and wholesale trade.
Economists are hopeful that the US economy is on track for a soft landing, after US employers added 187,000 jobs in July, less than expected.
July’s jobs report is a sign that the labor market is cooling after a series of interest rate hikes by the Federal Reserve have driven rates to their highest level in 22 years.
July’s gains were just 2,000 more than the jobs added in June. The BLS revised June’s job gain down to 185,000, a cut of 24,000 jobs. It also cut May’s jobs number. Together, June and July represent the two weakest monthly gains in two and a half years.
Here’s the full story:
In the UK, there are fears the economy is caught in a ‘low growth trap’, after the Bank of England cut its GDP forecasts yesterday and hiked interest rates to a 15-year high.
UK car sales have risen for 12 months in a row….but rising interest rates have been blamed for another fall in housebuilding.
Shipping giant AP Møller-Maersk has warned of a longer and deeper contraction of global trade than previously expected.
Inflationary pressures in the food sector are on the rise, with the UN reporting that global food commodity prices rose in July.
Revolut is shutting down its crypto trading operations in the US amid a regulatory crackdown.
a crackdown on crypto exchanges, by the Securities and Exchange Commission (SEC), which has accused industry giant Binance of a range of securities violations, including mishandling customer funds and misleading investors and regulators, and alleged Coinbase of skirting SEC rules by letting users trade crypto tokens that were actually unregistered securities.
Revolut said users will be blocked from buying cryptocurrencies from 2 September, and that access would be fully disabled by 3 October, meaning customers will no longer be able to buy, sell, or hold any cryptocurrencies after that date.
Revolut said in a statement:
“This decision has not been taken lightly, and we understand the disappointment this may cause. This suspension does not affect Revolut users outside of the US in any way, and impacts less than 1% of Revolut’s crypto customers globally.”
A spokesperson stressed that the decision would not affect customers in any other markets, including the UK, where Revolut has been registered as a crypto asset provider since September 2022.
The company – which has been waiting more than two years for a decision on its UK banking licence – said it would not disclose how much of its revenues rely on crypto services, but said in 2021 that they made up around 15-20% of its revenues.
Economics, suggests the Fed shouldn’t be worried that US wage growth was steady last month, rather than slowing as expected:
The news that average hourly earnings growth increased by 0.4% m/m in July, and 4.4% over the past 12 months, might seem like a problem for the Fed. With productivity growth accelerating, however, it may not be.
A chart showing US jobs changes
today’s US jobs data.
US jobs report in July is still consistent with a strong labour market, despite lower-than-expected and the smallest monthly job gains since December 2020.
Job gains cooled with the Fed’s tightening campaign and a slower economy, but still decent at 187K in July. Weakness is contained in the manufacturing sector where payrolls dropped by 2K, reflective of the sector’s downturn and more cyclical nature.
Higher-than-expected wage growth of 4.4% YoY means compensation is outpacing inflation and a boost for workers.
August 4, 2023
Carson, has fired over some ineresting thoughts on today’s US jobs report:
The jobs numbers this morning were just slightly below the expectations for a 200,000 increase, coming in an 187,000. At some point, job growth had to slow down and though many people will read this as the start of a recession, this is more likely just normalization of the economy as opposed to “softening.”
Job growth recently has been driven by non-cyclical sectors, like health care, education, and government. These sectors had lagged in the original recovery but have accounted for more than 50% of job creation in 2023 as opposed to 25% in 2022. The cyclical sectors have been on the softer side this year, and this report points to more of the same.
The unemployment rate fell a tick to 3.5% indicating that the labor market remains strong.
Strong employment and strong wage growth means income growth is still strong, which is positive for consumption and the economy, as long as inflationary pressure remains muted.
the ecommerce giant beat Wall Street forecasts last night with sales up 11% to $134.4bn in the last quarter.
The company reported a quarterly profit of $6.7bn, nearly double what analysts expected.
$DXY The Dollar heading lower after NFP pic.twitter.com/XazkDNbevl