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Crisis

Apache is functioning normally

June 2, 2023 by Brett Tams

The housing market is cooling. There’s really no debate. Things are slowing down. You can mostly thank a doubling in mortgage rates and high home prices for that.

However, talks of a more severe housing bubble might be overstated.

Sure, it’s easy to compare today to 2007 or 2008, if you don’t take time to dig down into the details.

After all, home prices are lofty, the stock market is shaky, and the economy is looking as uncertain as ever.

But let’s talk about why things aren’t the same as they were 15 years ago.

Yes, Home Prices Are Too High

First things first, home prices are too high. Similar to pretty much every other asset, whether it’s a tech stock or bitcoin, home prices overshot the mark.

This was arguably driven by the easy money days of the past decade, exacerbated by a pandemic and a frenzy to own real estate, especially in the suburbs and exurbs.

For example, everyone wanted lots of space all of a sudden, far from urban centers.

This ran counter to the trend of moving into cities and ditching cars for pedestrian-friendly, urban hubs.

The reason was COVID-19, which has now mostly abated, making those who purchased in far out places question the decision.

Certain cities saw massive inflows, like Boise, Idaho, which are now expected to see the biggest declines.

We’ve also had a massive supply/demand imbalance, with far too few homes available to satisfy the appetite of prospective home buyers.

Together, this led to record home price appreciation, with property values rising 125 straight months on a year-over-year basis.

In fact, home prices were up 18.3% in June 2022 from a year earlier, per CoreLogic. However, home price gains slowed from the prior month for the second consecutive month.

Home Price Gains Are Slowing, Cooling the Housing Market

cooling housing market

There’s been a lot of confusion regarding home prices lately. Some folks seem to be jumbling slowing appreciation with falling prices, as if they’re the same thing.

But as noted, home price GAINS are dropping. In other words, if your home was appreciating 10% year-over-year, it might only rise 5% next year.

The takeaway is that it’s still rising in price, which might be the best way to look at today’s housing market.

CoreLogic still expects home prices to rise 4.3% from June 2022 to June 2023 on a year-over-year basis.

This differs from the stock market, which has actually fallen quite a bit to the point of being in a bear market.

Because we experienced the worst housing crisis in our lifetimes just over a decade ago, it’s natural to start having those same concerns.

There are probably also sharks waiting and hoping for home prices to plummet so they can scoop up homes on the cheap.

But as of now, it doesn’t appear that an outright housing bubble is in the cards, as expensive as real estate is these days.

A Housing Bubble Should Burst, Right?

The term “housing bubble” is a somewhat loose phrase that may be defined in numerous different ways.

But the general thinking is that a bubble should pop if it’s a truly a bubble.

That means it’s unsustainable, and a soft landing isn’t possible. The air isn’t slowly let out of the balloon. It pops, violently.

With regard to a housing market bubble, this would mean plummeting home prices and a deluge of distressed inventory, including short sales and foreclosures.

I think if you asked the average American if they foresaw a housing market like that, they’d probably say no.

Instead, they might say “home prices are too high, they need to come down.” They might also express that it’s a bad time to buy a home.

This could mean slowing appreciation, or zero appreciation in the hardest hit markets.

It could also mean lower listing prices, price reductions, more days on the market, and fewer bidding wars.

Does that equate to a “pop,” or is it more of a fizzle?

Economist Mark Zandi already called a housing market correction back in June, but merely referred to it as the end of the housing boom.

The end of a boom isn’t synonymous with a bubble burst. It might simply mean that the housing market has peaked and is now expected to cool.

Why No Housing Bubble Burst This Time Around?

A housing market bubble is typically accompanied by rampant speculation, a huge run up in prices, and lots of questionable home loan financing.

It’s generally also driven by a supply glut, that is, too many homes for sale and not enough demand.

If you consider all of the above, the only thing that seems to stand out is a “huge run up in prices.”

There hasn’t been crazy speculation, there isn’t shoddy financing, and there certainly hasn’t been an oversupply of homes.

On the contrary, there’s been too few homes for sale and a mortgage market dominated by 30-year fixed mortgages priced at all-time lows.

To that end, how many existing homeowners with 2-3% 30-year fixed mortgages and tons of home equity are going to lose their homes if the housing market cools?

In 2007/2008, the typical homeowner had no equity, an option ARM for a mortgage, and wasn’t qualified to be in the property to begin with.

There was also a huge oversupply of homes on the market and more actively being built, which led to the worst housing bubble burst in recent memory.

This doesn’t mean home builders today won’t have to lower prices, or that prospective buyers will walk away from purchases.

That likely will happen as home price appreciation comes to a halt. And you’ll see all the negative headlines regarding the housing market along the way.

But unless something significant takes place, a housing bubble burst doesn’t appear likely at this juncture.

Source: thetruthaboutmortgage.com

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Apache is functioning normally

June 2, 2023 by Brett Tams

Once left for dead, the mortgage broker is alive and well. And in fact, thriving.

There are now more than 100,000 mortgage brokers in business, per the latest jobs report from the U.S. Bureau of Labor Statistics, an increase of 20% from a year ago.

And it only appears to be getting better for the mortgage broker, as large shops continue to embrace them as either a complement or alternative to retail.

That’s a stark contrast to the trend seen less than a decade ago, after the prior housing boom quickly turned mortgage bust, with brokers the first to be blamed.

Mortgage Broker Redux

mortgage broker share

  • The mortgage broker share hit nearly 35% back in 2008
  • It then fell sharply to around 7% in 2011 as the housing crisis worsened
  • They have since regained market share with it climbing back to around 16% in 2019
  • Brokers may see market share rise to/above 20% in 2020 and beyond if the trend continues

Back in the early 2000s, mortgage brokers were all the rage, accounting for a large chunk of the overall mortgage market.

Pretty much every major depository bank and large mortgage banker had a wholesale lending division. And if they didn’t, they quickly created one.

There was such a strong appetite for mortgage backed securities on Wall Street that it was a virtual no-brainer for a mortgage firm to rapidly boost loan volume by enlisting third-party brokers.

This led to a near-35% mortgage broker share back in 2008, at least with regard to conventional conforming mortgages, per data from CoreLogic.

It could have been even higher if you factor in jumbo home loans and non-conforming loans, both of which were also popular with both homeowners and brokers at the time.

But before long, they were the first to be blamed for the crisis, despite acting as middlemen and women who resold product for larger banks and lenders.

As quickly as banks launched wholesale divisions, they were closing them in record numbers, and it was wholesale that often the first to go.

Many of the very first closed mortgage lenders on my expansive list were wholesale lenders.

After all, it was easier (and made more sense) to shut off operations that didn’t take place under your own roof.

Since banks felt like they had less oversight, and some of the broker-originated mortgages may have performed worse, they turned off the spigot.

Simply put, without wholesale lenders, there are no mortgage brokers. And that led to their decline, with a market share of just seven percent in 2011.

Not long after, Chase Bank CEO Jamie Dimon, J.D. Power, Federal Home Loan Bank of New York President Alfred Dellibovi, and Consumer Reports all made less-than-cordial remarks about mortgage brokers.

The final nail in the coffin came when former number one mortgage lender Wells Fargo exited the wholesale mortgage channel entirely in July 2012.

The Nation’s Soon-to-Be 2nd Largest Mortgage Lender Only Works with Mortgage Brokers

broker delinquency rate

A lot has changed over the past eight years. Today, two of the largest mortgage lenders have robust wholesale lending divisions.

In fact, the second largest mortgage lender in the country, assuming they dethrone Wells Fargo, is a wholesale-only mortgage lender.

I’m referring to United Wholesale Mortgage (UWM), which has come out aggressively in recent months with its Conquest program, offering mortgage rates as low as 1.99% on the 30-year fixed.

Their impressive growth over the past few years has gotten the attention of crosstown rival Quicken Loans, which has also been expanding its wholesale unit recently.

In fact, they just changed their name from Quicken Loans Mortgage Services to Rocket Pro TPO, which stands for third-party originator.

Quicken’s parent company Rocket Companies Inc. recently went public, and UWM is also going public, if that’s any indication of how well they’re doing at the moment.

Mortgage brokers have also enjoyed more public advocacy lately, thanks to groups like the Association of Independent Mortgage Experts (AIME) and their simple slogan, “Brokers Are Better.”

The question now is how much market share will mortgage brokers grab this time around. Will they be even bigger than they were in the early 2000s?

The answer will likely be driven by loan quality, which doomed them a decade ago.

If mortgages continue to be mostly vanilla, backed by concrete guidelines set in place by Fannie Mae, Freddie Mac, and Ginnie Mae (FHA/USDA/VA), they should flourish.

This is especially true if their wholesale lender partners continue to provide them with better technology, helpful tools, and perhaps most importantly, access to low wholesale interest rates.

But if lenders make the same mistakes they did a decade ago, bringing back questionable underwriting practices and high-risk loan types, it could be the broker that feels the brunt of it once again.

Fortunately, that doesn’t appear likely with the regulations in place these days, and with what seems like a more level playing field, today’s mortgage brokers are in a much better position to succeed long term.

Source: thetruthaboutmortgage.com

Posted in: Mortgage News, Renting Tagged: 30-year, About, Alfred, All, Bank, banks, before, Broker, brokers, Bureau of Labor Statistics, business, CEO, chase, closing, companies, company, Conforming Mortgages, country, Crisis, data, experts, Fannie Mae, FHA, Financial Wize, FinancialWize, fixed, Freddie Mac, Ginnie Mae, growth, helpful, home, home loan, home loans, homeowners, Housing, housing boom, housing crisis, in, interest, interest rates, Jamie Dimon, jobs, jobs report, lenders, lending, list, loan, Loans, low, Make, market, Mistakes, More, Mortgage, mortgage backed securities, Mortgage Broker, mortgage lender, mortgage lenders, mortgage market, Mortgage News, Mortgage Rates, Mortgages, new, new york, Operations, or, party, percent, place, Popular, president, pretty, PRIOR, quality, Rates, rise, risk, second, securities, simple, statistics, Technology, time, tools, TPO, trend, under, Underwriting, united, United Wholesale Mortgage, USDA, UWM, VA, virtual, volume, wall, Wall Street, wells fargo, Wholesale Lending, will, women

Apache is functioning normally

June 1, 2023 by Brett Tams

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The Great Financial Crisis of the late 2000s was the worst economic calamity since the Great Depression. Most agree that lax regulation of banks and other financial institutions set the stage for the risky lending and trading practices that caused it. 

Congress responded to the crisis — and attempted to prevent anything similar from happening again — by passing the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. Named for then-Sen. Chris Dodd and then-Rep. Barney Frank, Dodd-Frank was a sweeping piece of legislation that imposed new restrictions on how financial institutions operate and enshrined new protections for individual borrowers, bank account users, and investors.

Not everyone was happy with the outcome. Right away, banks and their Congressional allies worked to weaken it. They claimed partial victory in 2018 with the passage of the Economic Growth, Regulatory Relief & Consumer Protection Act, which eliminated or softened key parts of Dodd-Frank. 

Some argue that this set the stage for the failure of Silicon Valley Bank and a handful of other big regional banks in 2023. The truth is more complicated — and more interesting.

What Is the Dodd-Frank Act of 2010?

The Dodd-Frank Act of 2010 is a financial regulation and consumer protection law that significantly changed how banks and investment firms operated. 

For most consumers, Dodd-Frank’s most visible provisions were a slew of new protections for borrowers and the creation of the Consumer Financial Protection Bureau (CFPB), which among other things helped track and enforce those new regulations.

Less visibly but perhaps even more consequentially, Dodd-Frank fundamentally changed federal oversight and regulation of the financial industry. Along these lines, its key elements included:

  • Creating new financial oversight agencies. Dodd-Frank authorized two new financial regulatory agencies: the Financial Stability Oversight Council and the Office of Financial Research. It tasked these agencies with monitoring banks’ financial health and risk-taking behavior in the hopes of spotting trouble before it threatens the wider financial system. 
  • Giving the Federal Reserve new powers to regulate big banks. Dodd-Frank gave the Federal Reserve new powers to monitor systemically important (“too big to fail”) banks. It set the threshold to qualify as a systemically important bank at $50 billion in assets.
  • Prohibiting banks from making certain speculative investments (Volcker Rule). Named for former Federal Reserve Chair Paul Volcker, this provision banned banks from trading financial assets with their own money for the purpose of turning a profit. It also prevented banks from owning hedge funds, private equity funds, or venture capital funds.
  • Establishing a new process for winding down failed companies. Dodd-Frank created the Orderly Liquidation Authority and tasked it with winding down major corporate failures in a way that minimized economic fallout.
  • More aggressively regulating the financial instruments that caused the Great Financial Crisis. Dodd-Frank tightened regulations on credit-default swaps, the complex financial instruments that sparked the Great Financial Crisis. It didn’t ban them outright but did require that they be sold through clearinghouses or stock exchanges, similar to many other market-traded securities.

Partial Dodd-Frank Act Repeal in 2018 — Economic Growth, Regulatory Relief & Consumer Protection Act

In 2018, Congress passed the Economic Growth, Regulatory Relief & Consumer Protection Act. 

The law was specifically intended to repeal parts of the Dodd-Frank Act that were unpopular with the financial industry and other business interests. However, it left large swathes of Dodd-Frank intact, including the CFPB and some other important consumer protections.

Changes Affecting Smaller Community Banks

Most Economic Growth Act provisions applied to community banks with less than $10 billion in assets. The biggest change was exempting these banks from the Volcker Rule, but there were a lot more technical tweaks that combined to significantly reduce their regulatory burden. If you’re interested in the details, Indiana Sen. Todd Young’s office put out a comprehensive, easy-to-understand fact sheet at the time.

Notably, the Economic Growth Act didn’t exempt banks as big as Silicon Valley Bank, First Republic Bank, or Signature Bank from the Volcker Rule. However, an important Federal Reserve policy change did relax the Volcker Rule in 2020, allowing bigger banks to invest their own money in venture capital funds and other risky assets.

Change Affecting Larger Regional Banks

The act’s most consequential change applied to much larger banks. This raised the too-big-to-fail threshold from $50 billion to $250 billion in assets. Dozens of banks that previously counted as too big to fail were exempted overnight, including several banks that failed in 2023: Signature Bank, Silicon Valley Bank, and First Republic Bank. 

They were no longer subject to direct supervision by the Federal Reserve and could reduce the amount of capital they held in reserve. Silicon Valley Bank, in particular, deployed some of its now-excess capital in investments that eventually lost significant value.

Only the biggest banks in the United States — fewer than 20 at the time — remained subject to the stricter scrutiny that came with too big to fail status. Importantly, Silicon Valley Bank aggressively lobbied Congress to raise the too-big-to-fail threshold high enough to exempt it. It had a clear motive to do so, as it primarily served tech entrepreneurs and venture capitalists awash in risky investment opportunities the Volcker Rule prevented it from pursuing. 

This was the Economic Growth Act change that may have contributed to the 2023 banking crisis. Combined with the Federal Reserve’s relaxation of the Volcker Rule, it set the stage for banks to take greater risk with less supervision, which many believe contributed directly to the failures of 2023.

Did the Economic Growth, Regulatory Relief & Consumer Protection Act Contribute to the 2023 Banking Crisis

To understand the 2023 banking crisis, it’s crucial to understand the economic and regulatory environment leading up to it.

  • Looser regulatory oversight. The increase in the too-big-to-fail threshold excluded all three of the banks that failed in 2023. This meant that they were no longer subject to direct supervision by the Federal Reserve and the requisite frequent stress tests, which measure banks’ capacity to endure various hypothetical-but-realistic economic scenarios. 
  • Lower liquidity requirements. They also weren’t required to maintain as much liquidity, or capital in reserve. Essentially, they could shrink their rainy-day funds and use more of their cash to make loans or buy interest-paying bonds.
  • More freedom to take risks. With less oversight and liquidity, they were free to operate with more discretion than before. But with less cash on hand, they had less margin for error and faced graver consequences if things went wrong. For example, Silicon Valley Bank continued to hold low-interest bonds on its balance sheet even after the Federal Reserve began raising interest rates in 2022. As the value of those bonds plummeted, the bank had no choice but to declare a multibillion-dollar loss on them — just as the tech economy hit the skids, drying up a vital source of new deposits and investment income. 
  • Lots of uninsured deposits. This had nothing to do with Dodd-Frank or the Economic Growth Act, but it did mean that these banks’ financial troubles spooked investors and the banks’ own customers more than they otherwise would have. All three of the banks that failed in 2023 catered disproportionately to high-net-worth individuals and businesses with far more than the $250,000 FDIC insurance limit in their accounts. For example, many of Silicon Valley Bank’s clients were rich venture capitalists and tech entrepreneurs.
  • Vulnerability to bank runs. Lots of uninsured deposits and disproportionate exposure to specific industries increased these banks’ vulnerability to bank runs, where customers all try to withdraw their cash at once. This happened most dramatically at Silicon Valley Bank, which saw more than $40 billion in attempted withdrawals just before it failed. But many First Republic and Signature Bank customers took flight before those banks failed as well. 
  • Regulatory failures. Had these banks still qualified as too big to fail, they would have faced stricter scrutiny from regulators that may well have prevented their collapse. But it’s not like they faced none at all after 2018. In fact, reports following Silicon Valley Bank’s collapse suggest that regulators were concerned about what was going on inside the bank in 2022. They just didn’t take action early enough or decisively enough to make a difference. 

The underlying cause of these banks’ troubles — particularly Silicon Valley Bank’s — was more akin to a basic management failure than the sort of wild speculation that caused the Great Financial Crisis. In Silicon Valley Bank’s case, everyone knew interest rates were going up, so it’s not clear why Silicon Valley Bank held onto those bonds for so long. That said, Dodd-Frank existed in part to prevent such questionable decision-making, and regulators could have done more to enforce what remained of it.

All this is to say that the Economic Growth Act may have sparked  the 2023 banking crisis by weakening the too-big-to-fail standard. But its role was a supporting one at best. Rising interest rates, jumbo-sized accounts, bad management, and lax regulatory action were all more important.

FAQs About Dodd-Frank & the Economic Growth Act

We’ve seen how partial Dodd-Frank repeal may have sparked a new banking crisis, but that’s not the law’s only legacy. Conversations about Dodd-Frank and partial repeal also touch on questions like these.

Did the Dodd-Frank Act Hurt the Economy?

It depends who you ask. The Dodd-Frank Act authorized some important new consumer protections and created a new agency (the CFPB) focused solely on protecting everyday folks’ finances. 

Consumer advocates would say that’s a good thing, but many business owners and trade groups — not to mention financial institutions — argue that it increased the cost and complexity of doing business to the economy’s detriment.

Likewise, Dodd-Frank restricted or prohibited banks from engaging in certain risky financial behaviors, like proprietary trading. Those rules made markets calmer and more predictable while reducing the risk of bank failures.

But they also cut into banks’ profits and may have discouraged legitimate investment activity. Even former Congressman Barney Frank soured on his own bill over time — though, in his new career as Signature Bank director, he was hardly a neutral party.

Is the Dodd-Frank Act Still in Effect?

Yes, the Dodd-Frank Act is still in effect. However, the Economic Growth Act significantly weakened key aspects of it. By encouraging larger banks to take more risks, this may have contributed to a spate of bank failures in early 2023.

Is the Volcker Rule Still in Effect?

The Volcker Rule is technically still in effect. However, the Economic Growth Act exempted banks with less than $10 billion in assets. Unrelated rule changes adopted by the Federal Reserve in 2020 loosened some of its provisions for all financial institutions. 

Today, the Volcker Rule restrictions on proprietary trading are no longer quite so strict. Banks now also have more leeway to invest in venture capital funds and securitized loans (the sorts of instruments that contributed to the Great Financial Crisis).

Does the Consumer Financial Protection Bureau Still Exist?

Yes, the CFPB still exists. The Economic Growth Act had little direct effect on its operations. 

The Trump Administration significantly weakened the CFPB through a combination of neglect and administrative rule changes that favored financial institutions. But the Biden Administration reversed many of these changes. 

The agency remains a political football, with Republicans generally opposed and Democrats generally in favor.

What Happened to Barney Frank?

Barney Frank retired from Congress in 2013. He published a memoir in 2015, the same year he joined the board of Signature Bank. He told The Financial Times that he took the job because he needed to make money and didn’t want to become a political lobbyist. According to SEC filings, Signature Bank paid Frank about $2 million between 2015 and 2023.

What Happened to Chris Dodd?

No one knows.

Just kidding. Dodd retired from the Senate in 2011 and became chairman of the Motion Picture Association of America. He held that job until 2017, then went into private legal practice with the law firm Arnold & Porter. More recently, he advised President Joe Biden’s 2020 campaign and served on his vice presidential selection committee.

Final Word

The 2023 banking crisis was a far cry from the Great Financial Crisis 15 years earlier. Though it saw two of the biggest bank failures in history — Silicon Valley Bank and First Republic Bank — it didn’t crash financial markets or spark an economic calamity. 

The damage was minimal because the causes were different. Whereas the Great Financial Crisis was the culmination of years of irresponsible risk-taking by banks big and small, greased by the effective repeal of a longstanding law that prevented such risk-taking, the 2023 banking crisis was the regrettable result of more basic management failures at a handful of regional banks. And though the partial repeal of another law — Dodd-Frank — may have played a supporting role, the correlation is far less clear.

Add it to the pile of evidence that history often rhymes but rarely repeats.

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Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

Source: moneycrashers.com

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Apache is functioning normally

June 1, 2023 by Brett Tams

As unemployment numbers continue to rise, many employees are stressed about whether they’ll have a job next week or not.  Some have already, some have already lost their jobs and are scrambling to find new employment.   In this time financial planning is crucial.  This is a time when people are feeling and are desperately in need of guidance.  If you think that you are about to encounter a layoff,  you need to be focusing your attention on what can be controlled:  cutting expenditures, figuring out emergency funds, evaluating how to replace lost benefits, and making a game plan for the job search.

1. Save Emergency Cash

For those that are still employed but the future of their job is uncertain, I would encourage them to have at least 12 months of savings in cash.  Unfortunately many will not have enough.  But if they’re still employed and the emergency funds are not there, tapping into their 401(k) might be a viable option.  I know what you’re thinking.  Tapping into your 401k usually goes against all that I stand for.  And with this dismal market,  it might be a dangerous move, but;  if they become unemployed that option might now be available to them.

Typically if you’re still employed you’re allowed borrow up to half of your 401(k) balance, up to a maximum of $50,000.  Running these numbers you can guesstimate the period of how long you think it will take you to find a new job and then how much you would need to borrow to get you by until the new job is made.  If you borrow from your 401k while you are still employed then you avoid the 10% withdrawal penalty.  Sure there is some speculation in this move, but if you’re in a high demand field you may be able to use this move to your advantage.

Warning: If you do this, be sure to double check with your employer when you are due to pay it back.  It tends to vary from employer, but it could be due back immediately, within 60 days or some period greater.

2. Don’t Pay Off Debt

Another common misconception of after being laid-off is that most people want to take their savings or take their retirement savings and pay off debt, such as credit cards or even the 401(k) debt.  But in this type of market, paying off debt should not be the priority especially if you are unemployed.  The priority is to keep get your savings intact and making sure that you have plenty of cash on hand.  Sure credit card debt is bad, but just focus on making the minimum payment until you get your job situation in check.

3. Focus On Crisis Budgeting

If you’re used to going to shopping every weekend or eating out every other night at fancy restaurants, then most likely those changes are just around the corner. You need to sit down and seriously hammer out a budget of things that you need and things that you don’t need.

You may even consider working out two budgets, one for while you’re working and one for when you’re not working, so that way you can truly see how much you’re spending per month. And then, you can contemplate whether you can go on a cheaper cell phone plan, or cut your cable bill services. Sometimes adding that extra payment per month might not seem like a big deal, but $50 here and $50 there will surely add up, especially on a limited budget. Also, too, knowing which expenses you absolutely must be covered will help you realistically search for your future job.

4. Replace Lost Benefits

In the aftermath of a job loss, people should take stock of what benefits have been lost, which ones you are entitled to by law, and which ones may be portable.  how to continue health care coverage, especially if there are dependents.

Typically, employees are eligible to keep the same coverage through COBRA for at least 18 months. But, they may have to pay 102% of the cost of their insurance premium. If there premium have been subsidized by their employer, then that cost will be a rude shock.  COBRA can often be a good bridge choice, but it ends up being a health benefit. Families paying $200 a month for insurance under COBRA, it could be $1,000.  Luckily, the government just passed new law concerning COBRA benefits that qualifying period will be only responsible to pay for 35% of the benefit.  This comes at a time that should be very helpful to many that are facing layoffs ahead.

Many employers offer life insurance, long-term care insurance, disability policies and they may be portable as well. For another person or one who is not in good health, ability to take over the payments on existing $100,000 life insurance policy may save the worry of having to find another carrier. It’s better to keep it for a few months, although make sure they don’t need it, and drop it later.

5. Consider a Career Transition

Many people will be forced by an unforeseen job layoff to reassess what they want in their lives and what is meaningful to them. They may have to craft resumes, cover letters for the first time in years, and feel at a loss especially if they are switching to a new career path, which is an unfamiliar field.

If you haven’t jumped on the social media bandwagon, it’s time.  Consider Facebook, LinkedIn, Twitter and other social media sites to reconnect with old networks and also create new ones.  The more people that know your situation the better.   Also, consider starting a blog to showcase your talents. Need a good blog for inspiration?  Guess what, you’re already here.

by Steve Rhodes

Source: goodfinancialcents.com

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Apache is functioning normally

June 1, 2023 by Brett Tams

Interested in a 40-Year Fixed Mortgage?

  • If you need even more time to pay off your mortgage
  • Or need to get the monthly payment down to boost affordability
  • A 40-year fixed mortgage could be one alternative to consider
  • But they’re harder to come by these days and aren’t well-suited for everyone

Every now and then, I take a look at a specific mortgage product to determine if it could be a good fit for a prospective (or existing) homeowner.

Today, we’ll discuss a formerly popular home loan option, the “40-year mortgage.” It was all the rage during the prior housing boom in the early 2000s.

But also partially to blame for the housing crisis that took place shortly after.

Still, with mortgage rates now double what they were to start the year, they could make a resurgence.

What Is a 40-Year Mortgage?

40 year mortgage

A 40-year mortgage is a home loan with a loan term that lasts for 40 years. This is 10 years longer than the typical 30-year loan term attached to most mortgages.

You may already be thinking, “40 years? I thought mortgages had terms of 30 years?” Is this a mistake?

Well, you’d be mostly right. The majority of mortgages issued today do have terms of 30 years. It’s certainly the most common loan term out there.

In fact, aside from 30-year fixed mortgages, which clearly last for 30 years, as the name implies, most adjustable-rate mortgages also have terms of 30 years, despite lacking any reference to 30 years in their title.

So that 5/1 ARM or 7/1 ARM you’ve got your eye on still has a 30-year term, meaning it’s fixed for the first five or seven years.

It then becomes adjustable for the remaining 25 or 23 years, respectively. This is one reason why consumers have a great amount of difficulty understanding mortgages.

Only the 15-year mortgage and 10-year fixed come with different loan terms, 15 and 10 years respectively.

Why Go With a 40-Year Mortgage Term?

  • It’s an extra 10 years over the typical 30-year loan term
  • Offered as a means to lower monthly mortgage payments
  • This can make the home loan more affordable or allow money to allocated elsewhere
  • But it will also lead to a lot more interest paid over the longer term (and a slower payoff)

Okay, so we know the 40-year mortgage bucks the trend, and adds 10 years on to the standard mortgage term. But why?

What’s the point of paying a mortgage for an extra decade? That sounds like a literal lifetime commitment. Especially since 30 years is already way too long.

Well, the longer a mortgage amortizes (is paid off), the lower the monthly mortgage payment.

Essentially, payments are stretched out over a longer period of time. Instead of 360 months, you’re looking at 480 months.

Let’s look at an example of a 40-year fixed mortgage:

Loan amount: $300,000
30-year fixed: $1,703.37 @5.5%
40-year fixed: $1,598.66 @5.75%

As you can see, the monthly mortgage payment on the 40-year mortgage is roughly $105 less each month thanks to that longer period of time to pay it off.

That extra cash could be used to pay off student loans, credit cards, personal loans, and other higher-APR debt you may have.

Or it could be allocated toward a different investment or retirement account. It could also make a real estate purchase slightly more affordable.

The bad news is you’ll pay much more interest over the life of the loan, and it’ll take a very long time to build a meaningful amount of home equity.

If you use a mortgage calculator, make sure it’s set at 480 months. And pay close attention to how much interest is paid versus a loan with a term of 360 months. It’ll be an eye-opener.

In the example above, it’s about $150,000 more in interest for the 40-year mortgage, assuming it’s held until maturity.

40-Year Mortgage Rates Are Slightly Higher

  • Expect 40-year mortgage rates to be slightly higher than interest rates on 30-year fixed mortgages
  • How much higher will depend on the lender in question and your unique loan scenario
  • You essentially pay a premium to lock in an interest rate for an additional 10 years
  • And the slower payoff means you must pay a higher rate of interest to the bank/lender

You may have also noticed that the mortgage rate on the 40-year mortgage in my example is 0.25% higher than the interest rate on the 30-year fixed. There’s a reason for that.

Simply put, you pay a premium for a longer amortization period. This is the opposite of a 15-year fixed, where you receive a discount for paying your mortgage off faster.

After all, a bank or lender is willing to give you a fixed rate for four decades, so they’re going to want a slight premium in exchange for all that uncertainty.

In other words, expect 40-year mortgage rates to be slightly more expensive. It might only be .125% higher than the 30-year, but could definitely range from bank to bank. The bigger problem is finding a lender that offers the product to begin with.

That being said, the short-term savings can increase how much house a buyer can afford, and also make qualifying easier (or even feasible) if a borrower’s debt-to-income ratio is too high for a 30-year mortgage. That’s assuming the lender qualifies the borrower at the 40-year loan payment…

This is essentially why a borrower would go with the 40-year fixed – to buy more house or make their home loan more “affordable.”

More aggressive borrowers could even invest that $105 each month in a high-yielding retirement account and essentially try to beat the relatively low interest rate on their mortgage.

Nowadays, a 40-year mortgage term may even be part of a loan modification program to make payments more affordable for a struggling borrower.

When combined with an interest rate cut on their current mortgage, the combo can help a borrower stay put in their home for the long haul.

The Downsides of a 40-Year Mortgage

  • Loan is paid much back slower (harder to build equity)
  • Most of the mortgage payment consists of interest
  • May not be much cheaper than a 30-year fixed when all is said and done
  • And they’re not easy to find these days but that could change if rates remain elevated

While the benefits of a 40-year mortgage sound good, a borrower who chooses to go with a such a loan is paying a premium to do so.

As mentioned, they are higher-rate home loans, so that cuts into the payment “discount” afforded by a 40-year mortgage.

And while the monthly mortgage payment might be lower, the total interest paid over the full loan term will be much higher, which makes one question whether $100 or so in monthly savings is worth it.

On smaller mortgages, the payment different will be even more negligible. It may also be difficult to find a 40-year mortgage, since not all lenders offer them.

In fact, the Qualified Mortgage rule outlawed loan terms longer than 30 years, so 40-year mortgages aren’t even QM-compliant.

That means you’ll probably need to go with a specialty mortgage lender or portfolio lender if you want one.

Additionally, a longer amortization period means you’ll build home equity a lot slower, which could prove to be an issue if you need to sell your home or refinance in the future and your loan-to-value ratio is still sky-high. This could be the case if you come in with a low down payment.

Some Benefits to a 40-Year Mortgage

  • Could be a good short-term solution if you need monthly payment relief
  • Or if you don’t plan on staying in the property for very long
  • Those who wish to use their money elsewhere might be attracted to the program
  • But keep in mind that you pay for the privilege of a longer term via a higher interest rate

One could argue that most homeowners don’t stick with their mortgage full term anyway, let alone for 10 years, so why pay more each month? Or worry that it’ll take forever to pay it off?

A 40-year mortgage could also serve as a good alternative to an interest-only home loan, the latter of which won’t build any equity, and could eventually land a homeowner in an underwater position.

These mortgage types are also safer than an ARM (assuming it’s a 40-year fixed rate), which can adjust higher once the fixed period comes to an end.

So you won’t have to contend with any interest rate adjustments, which could make it easier to sleep at night, especially if you’re a first-time home buyer.

As always, do plenty of homework (and math using a mortgage calculator) and consult with a loan officer or mortgage broker to determine what’s best for you and your unique situation.

Tip: You may come across a “40 due in 30” as well, which is essentially a 30-year balloon mortgage that amortizes like it has a 40-year term.

That keeps monthly payments low, but the balance due at 30-year mark. Again, most of these probably aren’t kept full term, so it might be moot.

Is a 40-Year Mortgage a Good Idea?

Some say you should only buy a house if you can afford a 15-year mortgage. So if we’re talking a 40-year mortgage, which is 10 years beyond the standard 30-year fixed, it might be a red flag.

It may reveal that you aren’t qualified for the mortgage in question, at least from a traditional, more conservative standpoint.

Of course, there are exceptions to every rule, and it depends why a homeowner would seek out this type of financing.

They might want to deploy their cash in other places where its yield is higher than the rate on a 40-year mortgage.

At the same time, for the typical home buyer, a 40-year loan probably isn’t the best idea because so much more interest is paid throughout the loan term.

And it takes a significant amount of time to pay off the loan. But every situation is unique.

Are 40-Year Mortgages Available?

One last thing. As noted above, you might have difficulty finding a 40-year mortgage because not many lenders offer them.

So they might not even be available to begin with, which stops the debate in its tracks. Before you spend too much time thinking about getting one, maybe see if anyone offers them.

The reason they’re scarce is mostly because the Consumer Financial Protection Bureau (CFPB) outlawed loan terms beyond 30 years on most residential home loans.

You can still get one, but it won’t be considered a Qualified Mortgage (QM). And only big banks and niche non-QM lenders offer such products, typically at a premium.

So even if you find one, the pricing might not be great given the lack of competition. At the end of the day, you might be better off with a more traditional loan program instead.

(photo: Derek Swanson)

Source: thetruthaboutmortgage.com

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Apache is functioning normally

June 1, 2023 by Brett Tams

Last year the zipper on my winter coat broke. Not before time, mind you; I’d had it so long that I couldn’t remember exactly when I bought it. My best guess is 25 years.

Gut reaction: Oh no! I can’t afford a new coat. But of course I could. I have a regular writing gig. Yet I actually thought about getting a seamstress to put in a new zipper.

Folks, this coat wasn’t classy even when it was new way back in the mid-1980s. It was a navy blue, butt-length cloth coat with a hood, bought from the clearance rack for about $40. After a couple of dozen years of wear it was fraying badly, especially around the cuffs and pockets.

Paying for a new zipper would have been like putting a new door on a condemned property. Why not apply that money toward a new garment?

  • Because I was used to doing without.
  • Because I was afraid I couldn’t afford it.
  • Because I was afraid, period.

Call it a scarcity mentality, call it cheapskatery, call Dr. Phil and have him work me over. The fact is, I had trouble spending money because I remembered the time when I had nothing.

Still Stuck in the Pain

Like someone who’d gone through the Great Depression, I was afraid to loosen the purse strings. Sometimes I still am. And I’m not alone.

Mind Over MoneyPlenty of the folks body-slammed by the current recession are also fearful, according to Dr. Ted Klontz, co-author of Mind Over Money: Overcoming the Money Disorders That Threaten Our Financial Health. Even after their finances improve, he says, it’s likely that some “are going to have a lot of difficulty (taking) care of themselves and their families in reasonable ways.”

Spending after a financial crisis is like dating after a divorce, Klontz says. “It’s a natural process to restrict it, because you don’t want to go through the pain again. What that would tell me is that you’re still stuck in the pain associated with that time.”

He’s right. To me, hitting the mall would have been as unnatural as signing up for one of those online dating sites. (Even though I do enjoy foreign films, taking long walks on the beach at sunset and reading to orphans.)

After a day or two I came to my senses and got a replacement coat. (More on that later.) It was a good sign that my personal improvement program — aka “Get a grip, Freedman!” — was taking hold.

Before you judge me too harshly, know this: If you’ve never done without, you have no idea how hard it can be to believe — to really BELIEVE — that the wolf is nowhere near your door.

Instead, you remain in frugal lockdown. You pay the bills, allow for a bare minimum of necessities, and hoard the rest in case something bad happens.

Knowing You Have Enough

These days I think in terms of living mindfully, which some people call living intentionally — i.e., thinking hard about wants and needs and then meeting them in a low-cost, preferably low-impact way.

In other words, I’m not hoarding every dime because something bad might happen. I’m saving so that something good will happen, such as buying a home of my own. In the short term, I’m using a portion of saved funds to do some of the things I want, such as traveling — or buying a coat. (We’ll get to that soon. Honest.)

What helped me, and what might help you, was creating a “spending intention statement.” Financial adviser Spencer Sherman suggests making a list of all the basics (including an emergency fund and a retirement fund), plus categories for long-term savings and charity. Pay those bills/honor those commitments each month. Congratulations — you’re solvent!

“If you’re saving money and you’re giving some money away, that’s telling you you’ve got enough — the rest of the money, you can spend,” says Sherman, author of The Cure for Money Madness: Break Your Bad Money Habits, Live Without Financial Stress — and Make More Money!.

So once I’ve paid my monthly bills, filled the larder with frugal vittles, mailed a check to an elderly relative, set aside money for quarterly taxes, and seen automated monthly savings siphoned off into an online bank, I know that whatever’s left over is mine to enjoy.

Sort of.

Where Your Money Goes — and Where it Stays

Should I really want to use up every dime? Should anyone, especially if you’re in debt, recently out of debt, or the kind of person who, before layoff, always spent like a sailor on shore leave?

Nope. And nope. That’s where the big, bad B-word comes in. Two B-words, actually: budget and balance.

A “spending intention statement” is just a highfalutin synonym for “budget.” As noted earlier, an SIS eases panic and anxiety because it gives you a clear picture of where your money goes — and where it stays. It’s control. It’s choice.

Suppose you make your bills, continue to fund for the future and enjoy the occasional package of Sweet Tarts. If there’s any left over you can choose to put some or most of it into additional categories: new car fund, college savings plan, replacement winter coat. (Nearly there. I promise.)

Don’t forget a “fun” category. Fun is a major component of the “balance” side of the ledger. Do without entertainment for too long and you’re likely to bust loose and blow the budget. You’ll hate yourself in the morning. (The company that holds your credit card will probably send you flowers, though.)

Whether your idea of a good time is a monster truck rally or the New York Philharmonic, that part of the budget is yours to use as you see fit. Don’t deny yourself fun — but don’t try to run through every possible permutation in the same weekend, either. When coming off a long, dry, fun-less spell, it’s best to start small.

Oh, and to pay cash. Choose something you find both wonderful and affordable and treat yourself, using fresh green tender from your wallet. Leave the plastic home. You’re less likely to overdo it that way.

Savor and Appreciate

This is especially true if overindulgence was the reason you wound up in trouble in the first place. Learn why that was a problem, lest you repeat this particular history. Did you:

  • Try to cover up pain or loneliness by accumulating Stuff?
  • Strive to keep up with free-spending peers?
  • Have an entitlement mentality?
  • Fall into the trap of eating every meal out? (My friend knows a couple who routinely spends $700 to $800 a week in restaurants.)

Googols of self-help and personal-finance books exist to help you get to the bottom of your overspending. (You will, of course, get them from the library. Right?) Or you might want to seek help from a therapist, a reputable credit counseling agency or a group such as Debtors Anonymous.

One personal finance expert told me that it’s best to initiate or reinstate treats slowly. Maybe add one indulgence every couple of months, whether that’s a new video game, a perennial for your garden, brunch with your sister or a therapeutic massage. Just make sure that it doesn’t raise your total monthly budget by more than 5%.

Take the time to savor and appreciate each new treat, and to think about when — or whether — to add a new one. Having money once more doesn’t mean you can throw it around. (You could put someone’s eye out that way.) Even though I’m working to overcome my spending phobia, I’m still striving to meet needs and wants alike as reasonably as possible:

Ha! Told you we’d get there! I needed a coat but I wanted to save money, so I compromised: I went to Value Village in Seattle, where I found a barely-worn Eddie Bauer down coat for $14.99.

Keeping Money in Perspective

Being super-aware of spending isn’t a bad thing. It’s a reminder to send my bucks toward things that matter. That can be a small thing, incidentally — say, an ice-cream cone with my great-nephews. On a warm summer day while I’m on vacation, ice cream matters.

But I don’t need to have ice cream every day. If I do, it no longer matters. (It also plays hob with my cholesterol.) Thus skeptical spending keeps me from piddling away a ton of money on things that ultimately make no difference in my life.

Besides, remembering the tough times helps me keep money in perspective. It reminds me that I don’t really need much to live on. It also reminds me how blessed I am: After meeting basic needs I now have the luxury of selecting from among my wants.

So join me. Look for the place between paranoia and profligacy. Look for balance. And look in thrift stores on half-off days. I’m still mildly irritated that I spent $14.99. That coat better last another 25 years.

Source: getrichslowly.org

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Apache is functioning normally

May 31, 2023 by Brett Tams

On any given night in America, more than 600,000 people experience homelessness, according to USA Today.

A recent 5-part New York Times feature places a face on the horrors of homelessness.

With the holidays approaching, you may feel moved to help the homeless in your own community. If you’re looking for community service opportunities that help provide others with affordable housing, here’s a guide to help you get started.

Homelessness in America
Homelessness is defined as living on the street for more than one year or experiencing four or more short bouts of homelessness over a recent period of time. Of the 600,000 homeless people in America, roughly a third are families. 13 percent are military veterans. 16 percent are considered “chronically homeless,” those who have been homeless over a long period and typically have a disability.

According to the National Coalition for the Homeless, Americans become homeless for a number of reasons. Families often become homeless as the result of an unforeseen financial crisis like foreclosure, medical emergency, death in the family or a lack of good job opportunities. For individuals, homelessness is often the result of a disability, mental illness, domestic violence or a lack of affordable health care.

There are many reasons why a person may become unable to afford housing. Whatever the situation, homelessness is typically the result of complex circumstances that force people to make tough choices between food, housing and other basic needs.

Fight homelessness in your neighborhood
If you’d like to help make a positive impact on the homeless issue in your community, there are many ways that you can help, from making donations to volunteering your time.

Here are a few national volunteer organizations working to help fight homelessness and create affordable housing:

  • Move for Hunger. Working in partnership with professional moving companies in 47 states, Move for Hunger collects non-perishable food items from people who are moving to new apartments. Instead of throwing away your extra food when you move, you can call Move for Hunger and have them come to your apartment to pick up donations.
  • Dress for Success. Providing suits to women who have job interviews, Dress for Success aims to empower women to get back on their feet after hardships like homelessness. You can donate your new or nearly-new professional attire to the organization or give money, which is used for career assistance programs. Whenever you clean out your closet —whether you’re moving or not — you can donate to a local chapter of Dress for Success. They accept donations year-round.
  • National Alliance to End Homelessness. The National Alliance to End Homelessness suggests there are many ways you can work to end homelessness, ranging from writing your lawmakers about policy to participating in fundraising efforts or working for Housing First organizations that provide apartments for the homeless.
  • Mercy Housing. Helping to provide affordable apartments for everyone, Mercy Housing operates apartment communities for low-income tenants. You can volunteer by helping with maintenance around these communities, by tutoring or teaching job assistance or financial education classes, or by providing administrative support.

Looking for more ideas? Search online for opportunities in your neighborhood or surrounding areas. A good resource to consult is Volunteer Match, a website that allows you to search for non-profit organizations in your own backyard. From the main page, you can browse community service opportunities by issues you care about, including homelessness.

Photo credit: Shutterstock / wavebreakmedia

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Apache is functioning normally

May 31, 2023 by Brett Tams

National mortgage rates jumped for all types of loans compared to a week ago, according to data compiled by Bankrate. Rates for 30-year fixed, 15-year fixed, 5/1 ARMs and jumbo loans moved higher.

The Federal Reserve has raised rates 10 times in a row, most recently at its May 3 meeting. Rates now are at a 15-year high, but the consensus is that inflation is finally cooling and the central bank might halt raising rates.

”Mortgage rates have settled into a new normal of around 6.5 percent on a 30-year fixed-rate loan,” says Lisa Sturtevant, chief economist at Bright MLS, a large multiple listing service in the Middle Atlantic region. ”With growing recession risks, we could see mortgage rates dip lower, but we will not be returning to the 3 percent level seen during the height of the pandemic.”

Rates as of May 29, 2023.

These rates are marketplace averages based on the assumptions indicated here. Actual rates available on-site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Monday, May 29th, 2023 at 7:30 a.m.

You can save thousands of dollars over the life of your mortgage by getting multiple offers. Comparing mortgage offers from multiple lenders is always a smart move, but shopping around grew especially critical during the interest rate run-up of 2022, according to research by mortgage giant Freddie Mac. It found the payoff for bargain-huntng borrowers doubled last year.

“All too often, some homeowners take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”

Mortgage rates

30-year fixed-rate mortgage rises, +0.15%

The average rate for the benchmark 30-year fixed mortgage is 7.19 percent, up 15 basis points over the last seven days. Last month on the 29th, the average rate on a 30-year fixed mortgage was lower, at 6.88 percent.

At the current average rate, you’ll pay a combined $678.11 per month in principal and interest for every $100k you borrow. That’s $10.12 higher compared with last week.

The 30-year mortgage is the most popular option for homeowners, and this type of loan has a number of advantages, including:

  • Lower monthly payment. Compared to a shorter term, such as 15 years, the 30-year mortgage offers lower, more affordable payments spread over time.
  • Stability. With the 30-year, you lock in a consistent principal and interest payment. That predictability lets you plan your housing expenses for the long term. Keep in mind: Your monthly housing payment can change if your homeowners insurance and property taxes go up or, less likely, down.
  • Buying power. Because you have lower payments, you can qualify for a bigger loan and a more expensive house.
  • Flexibility. Lower monthly payments can free up some of your monthly budget for other goals, like building an emergency fund, contributing to retirement or college tuition, or saving for home repairs and maintenance.
  • Strategic use of debt. Some argue that Americans focus too much on paying down their mortgages rather than adding to their retirement accounts. A 30-year mortgage with a smaller monthly payment can allow you to save more for retirement.

15-year mortgage rate trends upward,+0.19%

The average rate for the benchmark 15-year fixed mortgage is 6.61 percent, up 19 basis points since the same time last week.

Monthly payments on a 15-year fixed mortgage at that rate will cost approximately $877 per $100k borrowed. The bigger payment may be a little more difficult to find room for in your monthly budget than a 30-year mortgage payment would, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much more quickly.

5/1 adjustable rate mortgage moves upward, +0.13%

The average rate on a 5/1 adjustable rate mortgage is 6.00 percent, adding 13 basis points over the last 7 days.

Adjustable-rate mortgages, or ARMs, are mortgage terms that come with a floating interest rate. To put it another way, the interest rate can change periodically throughout the life of the loan, unlike fixed-rate mortgages. These loan types are best for people who expect to refinance or sell before the first or second adjustment. Rates could be considerably higher when the loan first adjusts, and thereafter.

While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.

Monthly payments on a 5/1 ARM at 6.00 percent would cost about $600 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan’s terms.

Current jumbo mortgage rate moves upward, +0.11%

The current average rate you’ll pay for jumbo mortgages is 7.20 percent, up 11 basis points from a week ago. This time a month ago, the average rate on a jumbo mortgage was below that, at 6.96 percent.

At the current average rate, you’ll pay a combined $678.79 per month in principal and interest for every $100,000 you borrow. That’s an additional $7.43 per $100,000 compared to last week.

Recap: How mortgage rates have shifted

  • 30-year fixed mortgage rate: 7.19%, up from 7.04% last week, +0.15
  • 15-year fixed mortgage rate: 6.61%, up from 6.42% last week, +0.19
  • 5/1 ARM mortgage rate: 6.00%, up from 5.87% last week, +0.13
  • Jumbo mortgage rate: 7.20%, up from 7.09% last week, +0.11

Interested in refinancing? See rates for home refinance

Current 30 year mortgage refinance rate trends upward, +0.13%

The average 30-year fixed-refinance rate is 7.25 percent, up 13 basis points over the last week. A month ago, the average rate on a 30-year fixed refinance was lower, at 6.99 percent.

At the current average rate, you’ll pay $682.18 per month in principal and interest for every $100,000 you borrow. That’s $8.80 higher compared with last week.

Where mortgage rates are headed

The days of sub-3 percent mortgage interest on the 30-year fixed are behind us, and rates have so far risen beyond 7 percent in 2022.

“Low interest rates were the medicine for economic recovery following the financial crisis, but it was a slow recovery so rates never went up very far,” says McBride. “The rebound in the economy, and especially inflation, in the late pandemic stages has been very pronounced, and we now have a backdrop of mortgage rates rising at the fastest pace in decades.”

Comparing mortgage options

The 30-year fixed-rate mortgage is the most popular loan for homeowners. This mortgage has a number of advantages. Among them:

  • Lower monthly payment: Compared to a shorter term, such as 15 years, the 30-year mortgage offers lower payments spread over time.
  • Stability: With a 30-year mortgage, you lock in a consistent principal and interest payment. Because of the predictability, you can plan your housing expenses for the long term. Remember: Your monthly housing payment can change if your homeowners insurance and property taxes go up or, less likely, down.
  • Buying power: With lower payments, you can qualify for a larger loan amount and a more expensive home.
  • Flexibility: Lower monthly payments can free up some of your monthly budget for other goals, like saving for emergencies, retirement, college tuition or home repairs and maintenance.
  • Strategic use of debt: Some argue that Americans focus too much on paying down their mortgages rather than adding to their retirement accounts. A 30-year fixed mortgage with a smaller monthly payment can allow you to save more for retirement.

That said, shorter-term loans have gained popularity as rates have been historically low. Although they have higher monthly payments compared to 30-year mortgages, there are some big benefits if you can afford the upfront costs. Shorter-term loans can help you achieve:

  • Greatly reduced interest costs: Because you pay off the loan faster, you’ll be able to pay less interest overall.
  • Lower interest rate: On top of less time for that interest to compound, most lenders price shorter-term mortgages with lower rates.
  • Build equity faster: The faster you pay off your mortgage, the faster you’ll own value in your home outright. That’s especially handy if you want to borrow against your property to fund other spending.
  • Debt-free sooner: A shorter-term mortgage means you’ll own your house free and clear sooner than you would with a longer-term loan.

Determining how much house you can afford

If you’re not sure how much of your income should go toward housing, follow the traditional 28/36 percent rule. Most financial advisers agree that people should spend no more than 28% of their gross income on housing (i.e., your mortgage payment or rent), and no more than 36% of their gross income on total debt, including mortgage payments, credit cards, student loans, medical bills and the like. Calculate how much house you can afford and determine your monthly payments.

Keep reading:

Featured lenders for today, May 29, 2023

Source: bankrate.com

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Apache is functioning normally

May 31, 2023 by Brett Tams

Welp, it’ll be nice to close out 2020 and look ahead to a brand-new year that hopefully features a lot less drama and much more good news.

While the housing market actually absorbed both the COVID-19 pandemic and the presidential election surprisingly well, we can probably thank the record low mortgage rates for that. And the continued lack of inventory.

That has been the silver lining for existing homeowners, but it’s created an even wider divide between the haves and the have-nots, otherwise known as homeowners and renters.

So what does 2021 look like when it comes to mortgages and the housing market? Let’s dust off the old crystal ball and make some predictions.

1. Mortgage rates will hit new record lows

As of this writing, mortgage rates hit 14 new all-time lows in 2020. And there’s a decent chance they’ll hit a 15th before the year is complete.

This has many pundits calling for an end to the low rates. Sound familiar? It does because every single year they call for higher rates, only to be proven wrong over and over.

I expect mortgage rates to hit new all-time lows in 2021, though the caveat is that they may not remain there.

In other words, we could see 30-year fixed mortgage rates reach levels never seen before in the first half of the year, before they rise back above lows seen this year.

The good news is rates should remain low throughout the year if the 2021 mortgage rate predictions hold true.

And that means those who haven’t yet taken advantage of a rate and term refinance can do so and save some dough.

2. Lenders will stay really busy, but won’t break 2020 records

Thanks in part to those ultra-low mortgage rates, banks and lenders will continue to be absolutely slammed.

This is wonderful news for loan originators and mortgage brokers, but not so great for consumers.

Simply put, things will still be slow, so be patient. It may take months to close your mortgage as opposed to 3-4 weeks.

This is just the way things are going right now and you should set realistic expectations if you’re currently shopping for a new home loan.

In terms of loan volume, 2020 mortgage originations will likely surpass the massive totals seen back in 2003.

The question is where does the mortgage industry go from here? While rate and term refis will inevitably become less prevalent in 2021, record home purchase volume of more than $1.5 trillion is expected.

That should keep the party going for mortgage lenders focused on home purchase financing, but it could prove challenging to those that are refinance-heavy.

3. The cash out refinance will re-emerge as a popular product

That being said, while rate and term refis will fade into 2021, the emergence of the cash out refinance could pick up the slack.

Ultimately, borrowers are sitting on a ton of home equity at the moment, the most in history I believe.

At some point, it’s going to be tapped via cash out refinance loans, even if borrowers are forced to take a slightly higher interest rate in the process.

The other big question related to this is will lenders loosen underwriting standards to make up for any decline in new business?

That’s where things went so badly wrong a decade ago, especially as home prices were peaking.

But maybe the Qualified Mortgage (and still decent affordability) will be the difference maker this time around.

4. Mortgage brokers will grab more market share

Now let’s talk about mortgage brokers. Largely forgotten post-housing crisis a decade ago, they’ve been making major strides lately.

In fact, the second largest mortgage lender in the nation, after Quicken Loans, is United Wholesale Mortgage (UWM).

And Quicken also runs a massive wholesale lending division as well, so there’s a good chance you’ll be working with a mortgage broker in 2021 and beyond.

Brokers had a near-35% market share back in 2008 before it fell to around 7% in 2011. Today, it’s closer to 16% and likely to grow back to 20%+ sooner rather than later.

One thing helping brokers today is the abundance of technology that has leveled the playing field.

Even a one-woman shop can offer a better customer experience than a billion-dollar bank thanks to the many tools now readily available.

That, along with access to wholesale mortgage rates from dozens of lending partners, could give brokers the edge going forward.

5. COVID-19 related foreclosures will free up some inventory

Everyone and their grandmother knows that housing inventory is abysmal. There’s just nothing out there no matter where it is you’re trying to buy a home.

Once something does come on the market, it’s being scooped up in record time by desperate home buyers.

The National Association of Realtors recently noted that properties typically remained on the market for just about 20 days in October, down from closer to 40 a year ago.

My expectation is that 2021 will be no different – it’s going to be a seller’s market yet again, which means you really need to do your homework and be prepared to make an offer immediately.

The only possible relief could come from COVID-19 related foreclosures, assuming those actually transpire once forbearance options fizzle out.

NAR also said distressed sales (foreclosures and short sales) represented less than 1% of home sales in October, which was down from 2% in October 2019.

Take the time to research how mortgages work and get pre-approved so you’re ready to make your move at a moment’s notice. But also still do your due diligence and don’t buy a home sight-unseen.

6. Home prices will continue to surge higher

That critical lack of inventory, coupled with the still-low mortgage interest rates will lead to even higher home prices in 2021.

It’s pretty simple really, just a matter of supply and demand.

Speaking of, unsold inventory remains at an all-time low of 2.5-months at the current sales pace, which is well below the near-4-month figure seen a year ago, per NAR.

As such, the Realtor group expects existing home prices to rise a further 5.7% in 2021, and that might be conservative given the red-hot housing market combined with an ongoing pandemic.

Again, excellent news for those who already homes, but another unwelcome development for the many prospective first-time home buyers out there.

7. iBuyers will regain market share and usurp real estate agents

Despite a housing market that will remain on fire in 2021, I expect iBuyers to continue to gain market share.

They got derailed last spring thanks to the emergence of COVID-19, and actually stopped purchasing homes in many markets.

But now they’re not only returning to market, but also expanding to new metros nationwide.

Folks love convenience, even if there’s a cost. And when it comes to iBuying, the cost is likely a lower sales price, meaning you walk away with less.

However, home sellers may be skittish about letting others into their homes, so going with a sure thing from an iBuyer could be just the ticket.

It also allows home sellers to pivot to a replacement property without dealing with contingencies, which are basically a no-go right now with competition so fierce.

8. Remote closings and distanced real estate transactions will be the norm

To that same end, I expect the temporary measures to keep real estate distanced will become more of a mainstay in 2021.

So those remote closings, appraisal waivers and other flexible appraisal options, along with new methods to document income and verify employment before loan closing should continue.

Additionally, we should see more technology that supports these efforts, which is a nice silver lining of the pandemic.

All the promises about making the mortgage process easier may come to fruition a lot sooner because no one wants to be near each other.

However, as noted, it’ll still take a while to get a home loan because lender capacity will remain an issue well into 2021.

9. Home remodeling will remain white-hot as homeowners stay put and spend more time at home

One trend that we saw this year will also extend into 2021, and could in fact become even more popular. I’m talking about home remodeling.

Have you tried to book a contractor lately? Good luck! They’re all busier than ever because homeowners are spending more and more time in their properties.

That has made many of us question if we should upgrade our digs, or get to those projects we’ve been putting off for years.

Most existing homeowners don’t seem to be going anywhere, as evidenced by that lack of inventory and those low mortgage rates, so they’re fixing up what they’ve got.

While you might be considering a home equity line of credit to pay for your home improvements, a cash out refinance that features a fixed interest rate could be the better option.

10. The exodus out of urban centers to the suburbs will stay on trend

Lastly, I expect the urban exodus to continue in 2021, even if the vaccine proves successful and we get our heads back above water.

The damage of 2020 on our psyches is already done, which means some just won’t consider the urban lifestyle anytime soon, or ever again.

Once forgotten, the suburbs are back with a vengeance thanks to COVID-19, and the pandemic perhaps served as a not-so-gentle reminder that more space and fresh air isn’t such a bad thing.

Sure, urban living has its advantages, but its fragility has also been exposed big time.

And with remote work and less commuting no longer just a trend, it makes a lot more sense to be anywhere, even far from a city center.

Source: thetruthaboutmortgage.com

Posted in: Mortgage News, Renting Tagged: 2, 2021, 30-year, 30-year fixed mortgage, About, affordability, air, All, Appraisal, ball, Bank, banks, before, big, book, borrowers, Broker, brokers, business, Buy, buy a home, buyers, chance, city, closing, Closings, commuting, Competition, Consumers, contingencies, Convenience, cost, covid, COVID-19, COVID-19 pandemic, Credit, Crisis, Customer Experience, Development, Distressed, due diligence, Employment, equity, estate, existing, existing home prices, expectations, experience, Features, Financial Wize, FinancialWize, financing, fire, fixed, Forbearance, Foreclosures, Free, good, great, Grow, history, hold, home, home buyers, home equity, home equity line of credit, Home Improvements, home loan, home prices, home purchase, Home Sales, home sellers, homeowners, homes, hot, Housing, housing crisis, Housing inventory, Housing market, Housing Market Predictions, iBuyers, improvements, in, Income, industry, interest, interest rate, interest rates, inventory, lenders, lending, Lifestyle, line of credit, Living, loan, Loans, low, low mortgage rates, low rates, LOWER, luck, Make, making, market, markets, More, Mortgage, Mortgage Broker, mortgage interest, Mortgage Interest Rates, mortgage lender, mortgage lenders, Mortgage News, Mortgage originations, MORTGAGE RATE, Mortgage Rates, Mortgages, Move, NAR, National Association of Realtors, new, new home, new year, News, offer, or, Originations, Other, pandemic, party, patient, Popular, predictions, pretty, price, Prices, projects, property, Purchase, rate, Rates, reach, ready, Real Estate, realtor, Realtors, Refinance, reminder, remodeling, renters, Research, right, rise, sales, save, second, seller, sellers, shopping, short, Short Sales, simple, single, slack, space, Spending, Spring, suburbs, Technology, time, tools, trend, Underwriting, united, United Wholesale Mortgage, upgrade, urban exodus, UWM, volume, wants, white, Wholesale Lending, will, woman, work, working, wrong

Apache is functioning normally

May 30, 2023 by Brett Tams

Over the weekend while attending my town’s Friday night football game, I struck up a conversation with an acquaintance of mine, and we started talking about the market. The fellow I was talking about was a believer in the market, and knew that the current crisis that we are in would eventually pass, and the market would continue to strive as it usually does. What he found most peculiar was with some of the sediments of his fellow co-workers, who were participating in the 401k. His co-worker’s belief was that with the market being as bad as they were, they were going to no longer defer to their 401k, and refrain from taking advantage of the pre-tax contributions into their retirement plan.  They were giving up free money! He was stunned by his co-worker’s remarks, and as equally as I, and compared that to a conversation that I had, with some other workers from another local employer.  It prompted me to write this blog in regards in to things you should not do when it comes to your 401k.

1. Do not stop contributing to your 401k no matter what.

Just because the markets are down does not mean you should not contribute. In fact if there was a time ever to contribute, this would be the time. The simplest reasons is that right now despite the market’s turmoils, currently the market is at a discount, and what that means is that there are a lot of great companies that exist out there, that are currently “on sale”. This is a time to buy stocks, at a cheap price in hopes to benefit from the appreciation in later years. This strategy can also be called dollar cost averaging, which means as long as you are contributing on a consistent or periodic basis, you’ll take advantage of buying shares at a lower price in down markets, and compare that to buying shares at a higher price in up markets, which should then all balance out for a dollar cost average.

If the market has you completely terrified, then consider changing all future contributions to short or intermediate bonds.  At least that way you’re money is making a little interest while the market tries to figure itself out.

2. Do not put all of your 401k into the money market.

While I understand the disbelief in the markets right now to where you want to shift all of your money into the money market, by doing this would be a great mistake. If you believe that making money in the market is to buy low and sell high, then by shifting your money into the money market from your other investments, it would be the exact opposite; buying high and selling low. If you’ve seen your 401k depreciate in the last several months, the only way to get that back is by staying exactly where you’re at. Now, I understand for those nearing retirement, that this can be a compromising situation, but if you visit the rule of 72, meaning that you take 72 divided by the interest rate on your investments, and that will tell you how long it will take to double your money. That also, too, will give you an indicator how long it will take you to recoup the losses that you have incurred. By shifting to the money market, chances are, you are making somewhere in the 2% interest rate, which means it would take you almost 20 to 30 years just to double your money, and to recoup your other money that you’ve lost, would be a great time.

3. Do not borrow against your 401k.

This can be said in an up market or down market, but I had to throw it in there. Borrowing against your 401k is never advisable, especially in a down market. Look to start an emergency fund of some kind so that you can have that to fall back on in case of an emergency. If you don’t have an emergency fund, start one now. There’s no sense in contributing to your 401k if you have to pull it out just pay the bills.

Source: goodfinancialcents.com

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