Housing market Archives - Hanover Mortgages

April 25, 2021

Bank of America Refinancing Under Making Home Affordable Program

Last updated on February 2nd, 2018

bankofamericarates

Bank of America said today it has begun processing refinance applications under the Treasury’s “Making Home Affordable” program, with nearly 200,000 customers contacting the company to determine eligibility.

“Combined with historically low interest rates, this program has generated significant interest from borrowers seeking the benefit of lower mortgage payments,” said Barbara Desoer, president of Bank of America Mortgage, Home Equity and Insurance Services, in a release.

“We are proud to be one of the first lenders to take loans from application to closing under the Treasury’s plan, providing the opportunity for more Americans to save money on their monthly mortgage payments and supporting efforts to stabilize the nation’s housing market.”

However, the bank seems to be focused on specific applicants, namely those with Bank of America or Countrywide serviced loans and no mortgage insurance on their current loans.

The bank said additional customers will be served “as systems become operational.”

In the next two weeks, the company expects to begin offering trial loan modifications under the Treasury Department’s “Home Affordable Modification” program, and has extended its foreclosure moratorium on potentially eligible loans until April 30.

Bank of America, since snatching up former top mortgage lender Countrywide Financial, services roughly one out of five mortgages in the United States.

I’ve been told by my friends in the industry that Bank of America has been offering mortgage rates much lower than the competition, effectively pricing out them out in the process.

The company is also planning to roll out a jumbo mortgage program focused on loan amounts between $730,000 and $1.5 million, with 30-year fixed mortgage rates beginning in the upper five-percent range.

Apparently there are profits to be made in mortgage.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

April 23, 2021

5 Mortgage REITs for a Yield-Starved Market

Income is a scarce commodity these days, and that has investors looking for yield in some lesser-traveled areas of the market. And that includes mortgage REITs (mREITs).

Even after months of rising yields, the rate on a 10-year Treasury is a paltry 1.6%. That’s well below the Federal Reserve’s targeted inflation rate of 2%, meaning that investors are all but guaranteed to lose money after adjusting for inflation.

The story isn’t much better with many traditional bond substitutes. Taken as a sector, utilities yield only about 3.4% at current prices, according to data compiled by income-focused index provider Alerian, and traditional equity real estate investment trusts (REITs) yield only 3.2%.

If you’re looking for inflation-crushing income, give the mortgage REIT industry a good look. Unlike equity REITs, which are generally landlords with brick-and-mortar properties, mortgage REITs own leveraged portfolios of mortgages, mortgage-backed securities and other mortgage-related investments.

In “normal” economic times, mortgage REITs have a license to print money. They borrow money at cheap, short-term rates, and invest the proceeds in higher-yielding longer-term securities. A steep yield curve in which longer-term rates are significantly higher than shorter-term rates is the ideal environment for mREITs, and that’s precisely the scenario we have today.

Mortgage REITs are not without their risks. Several mREITs took severe and permanent losses last year when they were forced by nervous brokers to make margin calls. Investors worried that the COVID lockdowns would result in a wave of mortgage defaults, leading them to sell first and ask questions later. And many have a history of adjusting the dividend not just higher, but lower, as times require.

But here’s the thing. Any mortgage REIT trading today is a survivor. They lived through the apocalypse. Whatever the future might hold, it’s not likely to be as traumatic as a once-in-a-century pandemic.

Today, let’s take a good look at five solid mortgage REITs that managed to survive and thrive during the hardest stretch in the industry’s history.

Data is as of April 21. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

1 of 5

Annaly Capital Management

Market value: $12.3 billion
Dividend yield: 10.0%

We’ll start with the largest and best-respected mREIT, Annaly Capital Management (NLY, $8.80). Annaly is a blue-chip operator with a $12 billion-plus market cap that has been publicly traded since 1997. This is a company that survived the bursting of the tech bubble in 2000, the implosion of the housing market in 2008 and the pandemic of 2020, not to mention the inverted yield curves and nonstop Fed tinkering of the past two decades.

Annaly was hardly immune to last year’s turbulence. But able to skate by the turbulence of last year due to large part to its concentration in agency mortgage-backed securities (MBSes), or those guaranteed by Fannie Mae and Freddie Mac. Investors were confident that, no matter what unfolded, mortgages backed by government-sponsored entities were likely to get paid.

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At current prices, Annaly yields 10% on the nose, which is about average for this stock. In its two decades of trading history, Annaly has yielded as much as 22% and as little 3% – in part because of price variance, but also because NLY isn’t shy about making dividend adjustments in boom and bust times. But it always seems to come back to the 9% to 10% range.

Still, if you’re new to mortgage REITs, Annaly is a good place to start.

2 of 5

AGNC Investment

Market value: $9.3 billion
Dividend yield: 8.3%

Along the same lines, AGNC Investment (AGNC, $17.44) is a solid, no-drama income option.

Take a minute and say “AGNC” out loud. It sounds like “agency,” doesn’t it?

That’s no coincidence. AGNC Investment specializes in agency mortgage-backed securities, making it one of the safest plays in this space.

For most of AGNC’s history, the stock has traded at a premium to book value. This makes sense. AGNC can borrow cheaply to juice its returns, and we as investors pay a premium to have access. But during the pits of the pandemic, AGNC dipped deep into discount territory. That discount has closed over the past year, but shares remain about 2% below book value.

The yield is a very competitive 8.3% as well. That’s a little lower than some of its peers, but remember: We’re paying for quality here.

3 of 5

Starwood Property Trust

Market value: $7.3 billion
Dividend yield: 7.6%

For something a little more exotic, give the shares of Starwood Property Trust (STWD, $25.38) a look.

Unlike Annaly and AGNC, which both focus on plain-vanilla single-family home mortgage products, Starwood focuses on commercial mortgage investments. Starwood is the largest commercial mortgage REIT by market cap with a value north of $7 billion.

Approximately 60% of Starwood’s portfolio consists of commercial loans, with another 9% in infrastructure lending and 7% in residential lending. And unlike most mortgage REITs, Starwood also has a property portfolio of its own, making up about 14% of the portfolio. This makes Starwood more of an equity REIT/mortgage REIT hybrid than a true mREIT, though clearly the business leans heaviest toward “paper.”

This time last year, Starwood’s property portfolio had its points of concern. As a commercial mortgage REIT, it had exposure to hotels, offices and other properties hit hard by the pandemic. But as life gets closer to normal by the day, those concerns are evaporating. And frankly, they were always overstated. Starwood runs a conservative portfolio, and the loan-to-value ratio for its commercial portfolio is a very modest 60%. So, even if delinquencies had become a major problem, Starwood would have been able to liquidate the portfolio and safely be made whole.

Today, Starwood is an attractive post-COVID reopening play with a 7%-plus dividend yield. Not too shabby.

4 of 5

Ellington Residential Mortgage REIT

Market value: $148.6 million
Dividend yield: 9.3%

For a smaller, up-and-coming mortgage REIT, consider the shares of Ellington Residential Mortgage REIT (EARN, $12.04). Ellington began trading in 2013 and has a market cap just shy of $150 million.

Ellington runs a portfolio consisting mostly of agency MBSes, but the company also invests in private, non-agency-backed mortgage securities and other mortgage assets. As of the company’s latest earnings report, the portfolio was weighted almost exclusively to agency securities. The REIT held $1.1 billion in agency residential MBSes and had just $17 million in non-agency. Ellington opportunistically snapped up non-agency MBSes when prices collapsed last year and has been slowly taking profits ever since.

Despite being a small operator, Ellington navigated the COVID crisis better than many of its larger and more-established peers. Its stock price lost 65% of its value during the March 2020 selloff, but by the beginning of the third quarter, Ellington had already recouped all of its gains.

Today, the shares yield a mouth-watering 9.2% and trade at a respectable 10% discount to book value. Considering that the industry itself trades very close to book value, that implies a healthy discount for EARN shares.

5 of 5

MFA Financial

Market value: $1.9 billion
Dividend yield: 7.0%

Some mortgage REITs had it worse than others last year. A few really took damage as they were forced to sell assets into an illiquid market to meet margin calls. But some of these less fortunate mortgage REITs now represent high-risk but high-reward bargains.

As a case in point, consider MFA Financial (MFA, $4.26). MFA got utterly obliterated during the COVID crisis, dropping from over $8 per share pre pandemic to just 32 cents at the lows. Today, the shares trade north of $4.

MFA will never fully recoup its losses. By liquidating its assets at fire-sale prices during the margin calls, the REIT took permanent damage. But today’s buyers can’t worry about the past; we can only look to the future.

At current prices, MFA could be a steal. The shares trade for just 77% of book value. This means that management could liquidate the company and walk away with a 23% profit (assuming they took their time and weren’t forced to sell at unfavorable prices). They also yield an attractive 7%.

There is no guarantee that MFA returns to book value any time soon. But we’re being paid a very competitive yield while we wait for that valuation gap to close.

Source: kiplinger.com

April 23, 2021

The Cost of Living in Atlanta in 2021

It’s hard to resist Atlanta’s charm, food and culture — but how does it stack up against your budget?

Atlanta is widely known for its busy airport, pollen counts, mild weather and most recently, for lending itself as the background for several Hollywood movies.

Despite being a big city, Atlanta’s southern charm remains intact as it welcomes many transplants every year. It’s hard to resist a move to Georgia capital with its diversity and robust culture, but what does that entail from a budget standpoint?

While others look to more expensive hubs like Los Angeles and New York City, Atlanta’s cost of living remains significantly more affordable while still providing a thriving economy and amenities.

Right now, for example, Atlanta rents are 49.23 percent lower on average than in New York. However, while its cost of living is 1.1 percent above the national average, this is quickly changing as housing demand increases with newcomers. Get to know the cost of living in Atlanta, from transportation to goods and services.

Housing costs in Atlanta

Atlanta’s housing market — whether you’re renting or buying — is not for the faint of heart. The average rent in Atlanta has gone up 0.11 percent to $1,655 per month for a one-bedroom in the past year. This average rent fluctuates dramatically per neighborhood and amenities offered.

Midtown, Old Fourth Ward and Buckhead are among the most expensive neighborhoods with average rents between $2,180 and $2,500 per month for a one-bedroom. Neighborhoods close to the average rent in Atlanta include Morningside, Westside, Home Park, Kirkwood, Edgewood and Lindbergh.

But if you’re looking to stay inside the city and save a little, you can find an apartment in Ormewood Park for $1,382 a month on average or Embry Hills at $1,260 per month.

The average home price in Atlanta at this time is $380,418. However, this is mainly dependent on the neighborhood. As of March 2021, home prices are up 7.7 percent compared to last year, according to Redfin. Most homes sell in less than 30 days.

cost of living in atlanta - brunch

Food costs in Atlanta

We can’t talk about Atlanta without food. The city currently houses incredible chefs across every cuisine, thanks to its diverse population. You can find anything from Southern fare to authentic Thai, Malaysian, Filipino, Mexican and more locally.

Atlanta’s cost of living for groceries is about 5 percent above the national average. Expect to see eggs for $1.25, ground beef for $4.61 a pound and bread for $3.65.

Utility costs in Atlanta

In the South, we love porch weather. Thanks to Atlanta’s mild winters, you get to enjoy the outdoors most of the year.

But, the city didn’t get its nickname “Hotlanta” for nothing, so know that in the summer, your energy bill will go up.

Thankfully, Atlanta’s utility prices are 15.3 percent below the national average. You can expect your total energy costs to be around $120.82 each month.

For the internet, the city has a limited amount of providers, but your bill will hover around $67.49 a month.

Atlanta skyline.

Transportation costs in Atlanta

Yes, the rumors are true — Atlanta’s infamous traffic is real. The city takes a spot on the worst traffic listicles year after year. The average commute is 35 minutes, according to a recent study. However, once you’re off the highway, the stress tends to diminish as you have more options to get out of your car and get around.

Hop on MARTA, Atlanta’s public transportation system, and use the rail and bus system to navigate the city. The options amount to a 49 transit score. It’s not as expansive as the subway in New York, but it makes your commute a little easier to Buckhead, Midtown, the airport and OTP (outside the perimeter).

MARTA allows frequent riders to save by offering a 7-day pass for $23.75 and a monthly pass for $95.

MARTA also connects with the Atlanta Streetcar that navigates the downtown and Edgewood neighborhoods with 12 stops. A round-trip Breeze card will cost $5 (with up to four transfers), and one ride on the Streetcar costs $1 (with no free MARTA transfers).

Atlanta’s bike score is 46, but some neighborhoods are more bike-friendly than others. Midtown, Old Fourth Ward, Inman Park and Cabbagetown have bike lanes all over that quickly drop you on the Atlanta BeltLine Eastside Trail. The BeltLine loop connects all of the city’s 45 neighborhoods. With a walk score of 55, you can also get to know the City in a Forest via foot.

If you decide to drive, motorists are wasting up to $1,043 annually and 50 hours searching for parking. You’ll also spend on average $2,233 a year on gasoline.

All in all, the cost of living for transportation in Atlanta is about 2 percent above the national average.

Atlanta skyline in Piedmont Park.

Healthcare costs in Atlanta

Whether it’s a routine check-up or a more serious health mishap, navigating healthcare systems is never easy. Since everyone’s health situations are different, it’s difficult to come up with overall healthcare spend in Atlanta, but here are some cost guidelines.

In Atlanta, you have access to quality healthcare at Emory University and Grady Memorial Hospital. Atlanta healthcare costs are 2 percent above the national average.

A regular doctor visit costs $119.80 on average while a prescription drug can set you back $459.02 on average (without insurance of some kind). You can pick up ibuprofen at your local pharmacy for $8.71 on average.

Goods and services costs in Atlanta

Beyond essential bills, Atlanta remains on par with the national average across different categories. You’ll goods and services will hover around 2.3 percent above the national average.

Atlanta’s neighborhoods are very pet-friendly, so if you get a pup to walk around the city with you, vet services cost $56.23 per visit on average.

More a movie buff? A ticket to a new release on average costs $14.15.

For exercise, you have plenty of choices from pilates, yoga studios, kickboxing and even 24/7-access facilities. A yoga class will average more than $17, but many luxury apartments in the city include a small gym as an amenity if you’re looking to stay on budget.

Luckily, you can have a great time for free as well around the city with plenty of outdoor opportunities at city parks like Piedmont Park and the Atlanta BeltLine.

Ponce City Market in Atlanta, cost of living in atlanta

Taxes in Atlanta

Understanding what county and part of the city you live in will make it easier to decipher your taxes. In Atlanta, the sales tax rate is 8.9 percent — that’s 7 percent for DeKalb and Fulton counties and 1.90 percent additional for the city of Atlanta. In this case, if you spend $100 shopping at Ponce City Market, you’ll pay $8.90 in sales tax.

The state has two sales tax holidays a year, including a back-to-school event. Georgia does not tax grocery items. However, prepared food, alcoholic beverages, dietary supplements, drugs, over-the-counter drugs and tobacco all require taxes applied to purchases. The state’s income tax rate is 5.75 percent for the highest bracket currently.

How much do I need to earn to live in Atlanta?

Most financial advisors recommend keeping your rent payment at 30 percent of your gross income or less. You would need to make at least $66,200 annually to afford a one-bedroom apartment on average in Atlanta. Currently, a one-bedroom costs $1,655 per month on average.

For perspective, an average Atlanta resident makes around $69,000 a year. Want to know where you stand with your current budget? Use our rent calculator to get a high view of how it would change after moving to Atlanta.

Living in Atlanta

Everyone says come to Atlanta in the fall for its beautiful autumn colors, crisp 70-degree weather and outdoor hiking. Yes, it’s not always “Hotlanta.” The cost of living in Atlanta offers access to big city amenities while still finding small corners for recreation and the outdoors. The city’s technology, supply chain and other industries are quickly growing for more job opportunities.

Find great apartments for rent or homes to buy in Atlanta today.

Cost of living information comes from The Council for Community and Economic Research.

Rent prices are based on a rolling weighted average from Apartment Guide and Rent.com’s multifamily rental property inventory of one-bedroom apartments in April 2021. Our team uses a weighted average formula that more accurately represents price availability for each individual unit type and reduces the influence of seasonality on rent prices in specific markets.

The rent information included in this article is used for illustrative purposes only. The data contained herein do not constitute financial advice or a pricing guarantee for any apartment.

Source: rent.com

April 23, 2021

Why Is the Housing Market So Hot?

Real estate Q&A: “Why Is the Housing Market So Expensive Right Now?”

If you asked me this same question a few years ago, I would have had the same basic answer I’m about to explain.

And since that time, home prices have surged much, much higher, which basically tells me the same fundamentals have been at play for quite a while now.

Additionally, they may continue to more years to come.

Similar to a market downturn, when things are hot, they remain hot for years, which is why it can pay to hold on, just like those who didn’t sell their bitcoin at first-profit.

Reason #1: There Is Very Limited Inventory and Lots of Buyers

The top reason why the housing market is so high right now has to do with limited inventory, or supply.

It’s one of those fundamental concepts even a child can comprehend. When you have a small or finite amount of something, and people want it, its value goes up.

This is basically what’s been going on with real estate since the market bottomed in 2012.

In reality, supply has been tight ever since the market peaked and the foreclosure crisis took hold because banks were careful to flood the market.

Even back then, it was difficult to scoop up a property because many of them were either foreclosure sales, which aren’t for novice home buyers, or short sales, which took bank approval and months and months to close.

I remember looking at homes in 2012 and it wasn’t much different than today. Sure, home prices were significantly lower, but inventory wasn’t all that great.

Much of what was listed either needed work or wasn’t in the most desirable area. For me, that hasn’t changed over the past decade.

Yes, a good property comes on the market here and there, but if and when it did/does, it becomes a “hot home” and a bidding war ensues.

It’s for this main reason that home prices are at all-time highs nationwide, with the median home valued at roughly $273,000, up from $215,000 in early 2007, per Zillow.

Reason #2: Record Low Mortgage Rates

Despite a recent uptick mortgage rates are lower than they were a year ago
This has allowed purchasing power to stay strong while home prices rise
The only increased burden is a higher down payment for prospective buyers
It may remove some buyers from the picture but not enough to lower prices

Now if reason number one weren’t reason enough for real estate to be booming, sprinkle in some record low mortgage rates.

To get this straight, there’s a short supply of something people want and it’s on sale from a financing point of view. No wonder everyone is going wild.

While the listing price might be quite a bit higher than it was five or 10 years ago, the fact that mortgage rates are roughly half the price they were then is huge.

This has kept home purchasing power intact despite a big run-up in home prices, basically only making the required down payment an issue for some prospective buyers.

And remember, because there’s a limited supply of homes available, it doesn’t really matter if some would-be buyers are shut out of the market due to affordability constraints.

There are still enough willing and able buyers to come in and pick up any slack, of which there isn’t much of to begin with.

So the bidding war might only have 20 participants instead of 30 – that’s not going to make any impact whatsoever on the final sales price.

Reason #3: Rising Incomes and Inflation

home price affordability

Lastly, we can’t simply look at unadjusted (nominal) home prices and say whoa, they’re even higher than they were back in 2006 when real estate was in a massive bubble. They must crash!

Yes, unadjusted home prices are about 22.2% above the peak seen in 2006 when the housing market last boomed, per First American (see the blue line above).

But that alone isn’t enough to determine whether the market is overvalued or not.

Ultimately, you have to factor in inflation, mortgage rates, and wages to get a complete picture.

Speaking of wages, median household income rose 6.2% year-over-year in January and is up 74.8% since January 2000.

Meanwhile, real house prices (those adjusted for inflation) were about 25.6% less expensive to begin the year than in January 2000.

And so-called “house-buying power-adjusted house prices” are still 47.8% below their 2006 housing boom peak, meaning rather incredibly, there’s still a lot of room to run.

Just check out the chart above – from October 1993 to December 1994, nominal home prices barely budged one percent, but the Real House Price Index (RHPI green line) increased over 20% because purchasing power decreased by 16% due to rising mortgage rates.

Then from January 2005 to March 2006, nominal house prices surged about 13% while mortgage rates remained mostly steady, pushing the RHPI up a big 15%.

At that time, affordability was eroded because nominal home price appreciation far outpaced purchasing power.

Finally, nominal home prices increased more than 13% year-over-year in January 2021, but house-buying power (yellow line) jumped 19% as the RHPI fell nearly five percent.

Why did housing affordability improve despite rising home prices? Because median household income increased and the 30-year fixed fell from 3.62% in January 2020 to 2.74% in January 2021, per Freddie Mac.

In other words, you can’t look at nominal home prices in a vacuum, aka firing up the Redfin app and saying OMG, that $500,000 home from last year is now selling for $600,000!

You need to consider the big picture and factor in wages and how cheap/expensive financing is.

If you look back at that chart, nominal home prices (blue line) have risen steadily since around 2012, and are now above the scary 2006 housing peak levels.

But the RHPI has reached its lowest point since the series got started in 1990, and at the same time the House-Buying Power Index has surged higher, especially recently.

All of this may explain why despite double-digit year-over-year gains and nominal home prices that might be up nearly 100% from 2006, the buyers are still coming. And they’re bidding over asking!

It also supports the idea that the next housing crash (or beginning of a decline) won’t happen for a while still, perhaps my longstanding prediction of 2024.

In other words, if you’re a prospective home buyer, don’t get your hopes up for a discount anytime soon, though if mortgage rates do rise, we might see a moderation in home price appreciation and perhaps less competition.

But the only real relief will come from increased home building, which is beginning to ramp up as housing starts and housing completions are both up significantly year-over-year.

As to how real estate could go from red hot to ice cold again, picture a scenario a few years out when home builders overshoot the mark and mortgage rates are back at 4-5% for a 30-year fixed.

Oh, and asking prices are up another 10-20% from today’s levels. That’s where you can start to imagine another major correction, especially if the wider economy hits another snag.

Obama Slashes Costs for FHA Streamline Refinances to Boost Market

Last updated on August 29th, 2018

In another effort to buoy the flagging housing market, the Obama administration announced today that it would essentially be removing the upfront mortgage insurance premium on streamlined FHA refinances.

So homeowners who currently hold an FHA loan, looking to refinance into another FHA loan to lower their mortgage rate, will pay just 0.01% in upfront mortgage insurance premiums.

This represents a huge discount compared to the 1% upfront premium currently charged.

The annual mortgage insurance premium will also be slashed in half to 0.55%, which together with the upfront premium reduction is estimated to save the average FHA borrower roughly a thousand dollars annually.

In order to qualify for the new program, your FHA loan must have been originated prior to June 1, 2009.

The Obama administration believes about 2-3 million FHA borrowers will be eligible to benefit from this initiative, but only time will tell how many are really helped.

Are Future Homeowners Eating the Cost?

While this is great news for those who currently hold FHA loans, it makes you wonder if future homeowners will wind up paying for it.

Last week, the FHA announced that it would be raising upfront mortgage insurance premiums from 1% to 1.75%, beginning in April.

Additionally, the agency said it would raise the annual mortgage insurance premium by 0.10 percent for loan amounts under $625,500, and 0.35 percent for loans between $625,500 and $729,750.

The measures were taken to meet the congressionally mandated minimum for the FHA’s Mutual Mortgage Insurance (MMI) fund, which has been depleted thanks to all the recent losses on bad loans. It is expected to boost the fund by $1 billion through fiscal year 2013.

So essentially first-time homebuyers and other current homeowners who do not hold FHA loans will pay a premium to take out an FHA loan.

It seems like a bit of a shift in wealth, though it will likely result in fewer new homeowners going to the FHA for mortgage financing, which is probably the end goal.

The FHA exploded in popularity in recent years as subprime lending fell by the wayside, but the agency bit off more than it could chew. So this is likely a bid to return to a more normalized mortgage market funded by private capital.

[FHA loan vs. conventional loan]

Still, it seems a little unfair for those who don’t hold FHA loans, regardless of what good it may do.

But if you have an FHA loan, this is a great time to inquire about a streamline refinance to lower your mortgage rate and your monthly mortgage payment, without being subject to steep closing costs.

Reviewing Servicemember Foreclosures

The White House also announced that it will conduct a review of all servicemembers foreclosed on since 2006 to identify any wrongdoings.

Those found to be wrongly foreclosed on will receive compensation equal to a minimum of lost home equity, plus interest and $116,785, paid for by the nation’s top loan servicers, who were involved in the National Mortgage Settlement.

Additionally, those who were wrongfully denied a refinance will be refunded any money lost as a result.

And those who were forced to sell their homes for less than the mortgage balance due to a Permanent Change in Station will also be provided with some form of relief.

Finally, the major loan servicers will pay $10 million into the Veteran Affairs fund, which guarantees funding for the VA loan program, and certain foreclosure protections will be extended to prevent future failings.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

April 18, 2021

Do I Qualify for the National Mortgage Settlement?

Last updated on February 10th, 2012

In case you haven’t heard by now, the so-called “National Mortgage Settlement” was finalized today.

It’s the largest multi-state settlement since the Tobacco Settlement back in 1998, related to robosigning allegations that took place over the past several years.

Essentially, some of the nation’s largest loan servicers routinely signed off on foreclosure documents without doing their due diligence, and/or without the presence of a notary.

It will provide more than $25 billion in assistance to homeowners, participating states and the federal government.

For the record, all 50 states participated except for lonely old Oklahoma.

The offending parties in the National Mortgage Settlement include:

– Ally/GMAC
– Bank of America
– Citi
– JPMorgan Chase
– Wells Fargo

These are the nation’s five largest mortgage loan servicers.

Benefits will be provided to both borrowers whose loans are owned by the settling banks as well as to borrowers whose loans they service.

In other words, your mortgage may have been originated by another company and sold to one of these companies to be serviced. So be sure to check your loan documents if you think you may be eligible.

Where the Settlement Money Will Go

The bulk of the money, at least $10 billion, will go toward principal balance reductions. In other words, those who hold underwater mortgages will see their balances drop to get them above water.

But the assistance will only be directed toward those who are either delinquent or at imminent risk of default as of the date of the settlement.

The principal reduction will likely be facilitated via a loan modification, so borrowers will ideally end up with a smaller loan balance and a lower mortgage rate, which will certainly make mortgage payments much more affordable.

State attorneys general believe principal reductions will prove beneficial, and as a result, will be employed by other mortgage lenders not involved in the settlement.

Another $7 billion or more will be used for short sales and transitional services, forbearance of principal for unemployed borrowers, anti-blight programs, and benefits for service members forced to sell their homes at a loss as a result of a “Permanent Change in Station” order.

Loan servicers will also have at least another $3 billion at their fingertips to provide refinancing to borrowers who are current, but underwater on their mortgages.

These homeowners will be able to take advantage of the record low mortgage rates that were previously out of reach due to loan-to-value ratio restraints.

Additionally, $1.5 billion will be distributed to roughly 750,000 borrowers who have already lost their homes to foreclosure.

The states involved will also receive immediate payments of roughly $3.5 billion to help fund consumer protection and state foreclosure protection programs.

How and When Can You Get Help?

If you think you qualify for assistance, you can contact the offending mortgage servicer directly, although they should be contacting you…

For borrowers who lost their homes between January 1, 2008 and December 31, 2011, a claim form should be sent to you for one of those shiny checks.

You can also contact your individual Attorney General’s office to check eligibility, or to provide a current address assuming you moved and/or have been foreclosed on.

Unfortunately, relief won’t be immediate under the settlement. Over the next 30-60 days, settlement negotiators will be selecting an administrator to oversee the program.

And over the next six to nine months, this administrator will work with attorneys general and loan servicers to identify relief recipients.

It is expected to take three years to execute the entire settlement, so patience is a virtue here.

Who is Left Out of the National Mortgage Settlement?

Borrowers with Fannie Mae and Freddie Mac owned mortgages. And those with FHA loans.

This is more than half of the homeowners with mortgages in the United States.

So quite a few borrowers are missing out. But they can still get assistance via HARP 2.0, even if they are severely underwater. Or via the Broad Based Refinancing Plan currently in the works.

Additionally, those that have positive home equity likely won’t see any relief from this settlement.

Essentially, those that paid down their mortgages, or came up with a reasonable down payment, won’t qualify for assistance under this settlement.

While it seems like they’re losing out, they aren’t. This settlement is about shoddy foreclosure practices, so those that weren’t affected obviously wouldn’t receive any benefit.

However, they may receive the indirect benefit of a healthier housing market and higher home prices if the settlement works as it should.

It’s worth noting that the banks involved are still accountable for claims that may arise out of any other wrongdoings committed during the lead up to the mortgage crisis.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

April 16, 2021

Obamaâs Broad Based Refinancing Plan

It took a few weeks, but we’ve finally got concrete details regarding the Obama Administration’s so-called “Broad Based Refinancing Plan.”

First off, homeowners with Fannie Mae and Freddie Mac-backed mortgages who are unable to refinance their mortgage to take advantage of the near-record low mortgage rates will be able to go through HARP 2.0.

HARP 2.0 was introduced back in October to address the needs of homeowners who were too deeply underwater to meet the max loan-to-value ratio cap of 125 percent.

Borrowers with underwater mortgages backed by Fannie and Freddie will continue to go through this program assuming they meet the guidelines.

So nothing really changes here, except perhaps the actual adoption of the problem, which appears to have been sluggish thus far.

Refinancing Program for Non-GSE Mortgages

What about all the underwater borrowers with non-GSE mortgages, those that are not backed by Fannie and Freddie?

Well, Obama is “calling on Congress” to pass a new refinancing program geared toward these homeowners, managed by the FHA.

It would be open to all those with non-GSE mortgages (less jumbo mortgages) who have kept up with their mortgage payments.

The big distinction here is that it requires Congressional approval, which may be an uphill battle. So really it’s just an idea at this point, not a live program.

Still, these are the proposed guidelines:

Borrower is current on mortgage for past 6 months and hasn’t missed more than one payment in previous 6 months.
Minimum credit score of 580
Loan amount does not exceed max conforming loan amount
Loan is tied to a single-family, owner-occupied property

Borrowers who meet these very simple guidelines will apply via a streamlined process designed to make it easier and cheaper to refinance.

To determine eligibility, a borrower must only prove they are currently employed. However, even the unemployed can qualify if other requirements are met and they present “limited credit risk.”

A new tax return and appraisal is not necessary to refinance.

The Obama administration will work with Congress to set loan-to-value limits for loans submitted to the program.

While a number hasn’t been set, the Administration used 140 LTV as an example, noting that mortgage lenders could write down the balance of mortgages that exceed that number.

How Will the Refinance Program Be Paid For?

Good question. Well, the cost of the refinancing program is estimated to range anywhere from $5 to $10 billion (quite a range isn’t it).

To avoid any taxpayer burden, the refinancing plan will be fully paid for by the proposed “Financial Crisis Responsibility Fee,” which imposes a fee on the largest financial institutions.

This fee will be based on the size of the institution and risk of their activities.

The FHA, who is set to manage the program, will even pay for a borrower’s closing costs if they choose to go with a shorter-term mortgage, such as a 15-year mortgage.

Those who refinance into mortgages with terms of 20 years or less will have their closing costs paid for the FHA. The GSEs will do the same for HARP 2.0 borrowers.

The Administration hopes this will promote responsible borrowing and reduce the amount of time it takes for borrowers to get back above water.

HAMP Expansion

The existing Home Affordable Mortgage Program is also being expanded to help more borrowers receive assistance.

The first-lien mortgage debt-to-income ratio limit of 31% apparently eliminates certain borrowers from the program because it doesn’t address other monthly obligations.

So the program will consider secondary debt with more flexible debt-to-income criteria.

Additionally, rental properties will be added to the program so long as a tenant currently occupies them or the borrower intends to rent the unit.

Finally, the Treasury will offer bigger incentives to the owners of mortgages who agree to write down principal.

Currently, owners receive between 6 to 21 cents on the dollar for principal reductions. This amount will be tripled to 18 to 63 percent on the dollar.

Fannie Mae and Freddie Mac, who do not currently receive compensation for principal reductions on loan modifications, will also receive principal reduction incentives

The Losers

The obvious losers are holders of jumbo mortgages, who are more than likely homeowners in hard-hit states like California and Florida where home prices have plummeted.

There doesn’t appear to be any relief for this type of homeowner, which is certainly a concern.

Additionally, those behind on their mortgage payments won’t benefit from this new refinance program.

So really only borrowers who have been able to make their mortgage payment each month will benefit.

Also, investors who hold non-GSE loans won’t see any benefit. And those with poor credit scores will be out of luck.

In other words, plenty of homeowners will miss out here, but it’s a tall order to include everyone.

Homeowners Bill of Rights

For the record, the Obama Administration also introduced several other initiatives, including a “Homeowner Bill of Rights,” which will once again revamp and simplify mortgage disclosures.

This includes a foreclosure appeals process and guidelines that prevent conflicts of interest that wind up doing harm to homeowners, along with a joint investigation into loan origination and servicing abuses.

Major banks and the GSEs will also provide up to 12 months forbearance for unemployed borrowers.

Additionally, a pilot program that transitions foreclosed property into rental housing will be employed to stabilize neighborhoods and get the housing market out of its funk.

Final Thoughts

At first glance, it sounds like an awesome program to save housing once and for all. But upon closer inspection, a lot of homeowners are left out, as mentioned above.

Along with that, the borrowers that are targeted may not really be the ones that need help.

The reality is that millions of people who are currently behind on their mortgages are going to lose their homes. And this program won’t change that. It’s simply going to help those on the brink, or even those that don’t even necessarily need assistance to make their mortgage payments, but want to catch a break after buying at the wrong time.

Sure, if all goes well, it could reduce foreclosures to some extent, bolster home prices somewhat, and get more money flowing into the economy. But it still requires Congressional approval to work. And even then, we won’t see a housing recovery without meaningful economic improvement.

Source: thetruthaboutmortgage.com

April 16, 2021

Will Low Mortgage Rates Hurt Home Sales?

Last week, I argued that the super low mortgage rates could actually be contributing to strategic defaults.

The general idea being that the current low mortgage rates today make it even less desirable to hold a “high-rate” mortgage from the past.

The only positive from this assumption is that homeowners in this position may buy a new home and bail on the old one.

That’s a positive for them, minus the credit score hit, but a negative for the housing market and mortgage lenders (another foreclosure, more overpriced inventory that is difficult to unload).

And now it has occurred to me that the promise of low mortgage rates for the foreseeable future may have the unintended consequence of hurting home sales, at least in the near term.

Only 33% of Americans See Mortgage Rates Rising

You see, a new poll from mortgage financier Fannie Mae revealed that just 33 percent of consumers expect mortgage rates to rise in the next 12 months.

That figure is down from 45 percent a month ago, and is the lowest number Fannie has recorded since their monthly tracking began.

At first glance, it sounds like great news. Mortgage rates are going to stay at or near their record lows for longer than we thought.

Low mortgage payments for everyone who decides to dive in! Can’t argue with that.

But wait, why isn’t anyone buying a home? Well, if mortgage rates aren’t going anywhere fast, why not simply take a “wait-and-see” approach.

Kick back, see how the economic uncertainty plays out, watch for more home price declines, and buy next year instead.

You see, Americans also expect home prices to decline further. On average, they see a 1.1 percent decline over the next 12 months, which is the highest expected decline to date in the survey.

And only 18 percent believe home prices will increase over the next year, the lowest number reported to date.

So it’s a bit of a dilemma. If home prices are expected to keep slipping, and mortgage rates are forecast to hold steady, why buy now if you don’t have to?

[Home prices vs. mortgage rates]

Might as well just rent a little bit longer (or hang out in your parent’s basement) before making a move, especially since a lot of homeowners are pricing their homes higher as a result of the insanely low mortgage rates.

Of course, it’s still a relatively attractive time to buy as a first-time home buyer. And trying to time the bottom of the market is a pretty trick endeavor, if not impossible.

But with the traditionally slower portion of the home buying season ahead of us, holding out may lead to a discount over today’s prices.

Read more: Should you buy a house now or wait?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

April 16, 2021

When Will the Next Housing Market Crash Take Place?

I’ve noticed a trend lately. Everyone’s a real estate expert.

It seems the most recent crisis and recovery has turned just about every single person into a guru on all things to do with home buying and selling.

I suppose part of it has to do with the fact that the massive housing bubble that formed a decade ago swept the nation and was front page news.

It also directly affected millions of Americans, many who serially refinanced their mortgages, then found themselves underwater, then eventually short sold, were foreclosed upon, or held on for the ride back up to new heights.

It’s a common conversation piece these days to talk about your local housing market.

Thanks to greater access to information, folks are scouring Redfin and Zillow and coming up with theories about what that home should sell for, or what they should have listed it for.

Neighbors are getting upset when nearby listings are not to their liking for one reason or another. What were they thinking?!

A New Housing Bubble Mentality

Real estate is red-hot again thanks to limited supply and intense demand
It can feel like an ominous sign that we’re headed down a dark road again
But that alone isn’t reason enough for the housing market to crash again
There have to be clear catalysts and financial stress for another major downturn

All of this chatter portends some kind of new bubble mentality in my mind, though it seems everyone is just basing their hypotheses on the most recent housing bust, instead of perhaps considering a longer timeline.

One could look at the recent run-up in home prices as yet another bubble, less than a decade since home prices bottomed around 2012.

After all, many housing markets have now surged well beyond their previous lofty levels seen about 15 years ago when home prices peaked.

For example, Denver area home prices are about 86% higher than they were in 2006. And back then, everyone felt home prices were completely out of control.

In other words, home prices were haywire, and are now nearly double that.

Meanwhile, the typical U.S. home is currently valued around $273,000, per Zillow, which is about 27% higher than the peak of $215,000 seen in early 2007.

It’s also nearly 70% higher than the typical home price of $162,000 back in early 2012, when home prices more or less bottomed.

So if want to look at home prices alone, you could start to worry (though you also have to factor in inflation which will naturally raise prices over time).

But they say bubbles are financially driven, and we’ve yet to see a return to shoddy underwriting.

I will say that there’s been a recent return of near-zero down financing, with many lenders taking Fannie and Freddie’s 97% LTV program a step further by throwing a grant on top of it.

This means borrowers can buy homes today with just 1% down payment, and even that tiny contribution can be gifted from someone else.

So things might be getting a little murky, especially if you consider the increase in prices over the past four or five years.

One could also argue that affordability is being supported by artificially low mortgage rates, which history tells us won’t be around forever.

There’s also a general sense of greed in the air, along with a feeling amongst homeowners that they’re getting richer and richer by the day.

That type of attitude sometimes breeds complacency and unnecessary risk-taking.

But When Will Home Prices Crash Again?!

real estate cycle

If you believe in cycles, which seem to be pretty evident in real estate and elsewhere
We will see another housing crash at some point relatively soon
There appears to be an 18-year cycle that has been observed for the past 200 years
This means the next home price peak (and then bust) might begin in 2024

All of those recent home price gains might make one wonder when the next housing market crash will take place.

After all, home prices can only go up for so long before they drop again, right?

Well, the answer to that age-old question might not be as elusive as you think.

The real estate market apparently moves in cycles that some economists think can be predicted to a relatively high degree.

While not a perfect science, there seems to be “a steady 18-year rhythm” that has been observed since around the year 1800.

Yes, for over 200 years we’ve seen the real estate market follow a familiar boom and bust path, and there’s really no reason to think that will stop now.

It puts the next home price peak around the year 2024, followed by perhaps a recession in 2026 and a march down from there.

How much home prices will fall is an entirely different question, but given how much they’ve risen (and can rise still), it could be a long, long way down.

And we might not have super low mortgage rates at our disposal to save us this time, which is a scary thought.

You’ll Never Get Back Into the Housing Market…

There are four main phases in a real estate cycle
A recovery period and an expansion period
Followed by hypersupply and an eventual downturn
Don’t believe the hype that if you don’t buy today, you’ll never get the chance!

Another housing bust in inevitable, despite folks telling us we’ll never get back in again if we sell our home today, or don’t buy one tomorrow.

There are four phases to this predictable cycle, including a recovery phase, which we’ve clearly experienced, followed by an expansion phase, where new inventory is created to satisfy demand. This is happening now.

At the moment, home builders are ratcheting up supply to meet the intense demand in the market, with some 45 million expected to hit the average first-time home buyer age this decade.

The problem is like anything else in life, when demand is hot, producers have a tendency to overdo it, creating more supply than is necessary.

That brings us to the next phase, a hypersupply period where builders overshoot the mark and wind up with too much new construction, at which point prices plummet and a recession sets in.

The good news (for existing homeowners) is that according to this theory, we won’t see another home price peak until around 2024.

That means another three years of appreciation, give or take, or at least no major losses for the real estate market as a whole.

So even if you purchased a home recently and spent more than you would have liked, it could very well look cheap relative to prices a few years down the line.

The bad news is that the real estate market is destined to stall again in just three short years, meaning the upside is going to diminish quite a bit over the next few years.

This might be especially true in some markets that are already priced a little bit ahead of themselves, which may be running out of room to go much higher.

But perhaps more important is the fact that home prices tend to move higher and higher over time, even if they do experience temporary booms and busts.

So if you don’t attempt to time the market you can profit handsomely over the long term, assuming you can afford the underlying mortgage.

And remember, there’s more to homeownership than just the investment.

Source: thetruthaboutmortgage.com

April 14, 2021

Mass Mortgage Refinancing Plan: Obamaâs Ace In the Hole

Last updated on January 25th, 2018

We’ve heard talk of mass refinancing plans for years now, but nothing has quite delivered.

Sure, the Home Affordable Refinance Program (HARP) was recently expanded to allow just about any homeowner to refinance, regardless of negative equity issues.

But since it was announced in late October, I haven’t heard too much about it. Perhaps because it’s voluntary for mortgage lenders and still comes with cumbersome underwriting requirements?

Now there’s word of a “true mass refinance program,” one that allows pretty much anyone to refinance to today’s super low mortgage rates with few, if any restrictions.

A blog post written by James Pethokoukis that appeared on the American Enterprise Institute website yesterday is grabbing some serious headlines at the moment regarding the supposed plan.

In short, it suggests that Obama is looking to replace the current FHFA director with one of his own, which will allow the President to implement such a program. Just in time for election season too (not that I want to get political about this).

And because the FHFA oversees both Fannie Mae and Freddie Mac, anyone with a mortgage guaranteed by the pair, which is most homeowners, will be able to participate.

How the Mass Mortgage Refinancing Plan Would Work

Apparently it would be modeled after a plan originally thought up by Columbia University economists Glenn Hubbard and Christopher Mayer.

Every homeowner with a Fannie/Freddie backed mortgage would be eligible to refinance their existing first mortgage to a fixed rate of 4% or less.

The only requirement would be that the homeowner is current on their mortgage, or that they become so for a minimum of three months.

Even those with FHA loans and VA loans would be eligible, though interest rates would be higher.

No other qualification criteria would be used – no appraisal requirement, no income verification, no asset documents, LTV limits, etc.

Homeowners would get the option of refinancing into a 30-year fixed or a 15-year fixed.

But only first mortgages can be refinanced, so any second mortgages would need to be resubordinated.

Why It Works

Fannie and Freddie would get higher guarantee fees for implementing the plan, and loan servicers would receive the right to originate/service the mortgages without being responsible for “reps and warranties” violations of past servicers.

Banks and mortgage lenders would be able to refinance the mortgages quickly and cheaply thanks to the lack of underwriting requirements.

Private mortgage insurers could continue to insure the mortgages, and with lower monthly payments the mortgages would be deemed safer.

Roughly 25 million homeowners would benefit from the program in the form of lower monthly mortgage payments, with estimated annual savings of $2,800 per homeowner, or $70 billion in aggregate reduced housing costs.

These lower mortgage payments would also serve to stabilize the housing market and reduce the risk of future defaults.

It could also motivate homeowners on the brink to stay current in order to participate, unlike many loan modification programs that only serve those who fall behind on payments.

This could effectively push home prices higher, easing home equity concerns for those “on the fence” about staying or going.

Additionally, taxpayers would stand to benefit because Fannie and Freddie would reduce their losses and lower mortgage payments would mean reduced mortgage interest deductions.

The only “loser” would be mortgage bondholders, which the economists argue have already benefited tremendously from government actions taken during the mortgage crisis.

Additionally, thanks to current roadblocks, the relatively slow rate of refinancing allowed these bondholders to benefit more than they would have historically.

So there you have it. A possible mass refinance program with very few constraints. Even ineligible borrowers would “benefit” indirectly if the housing market improved as a result.

Not that I’m sold on it. There are still a ton of question marks, namely those who can’t afford even a reduced housing payment, those already in foreclosure, the excess housing inventory, the impact of future mortgage rates, etc, etc.

Regardless, it’s clear housing policy will play a major role in the upcoming election.

(photo: KE Design)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com