Mortgage News

Apache is functioning normally

Apache is functioning normally

Here’s a little nugget of potentially good news that may materialize out of the fiscal cliff.

The Treasury Department is reportedly floating a new initiative, referred to as the “Market Rate Modification Program,” which will allow underwater borrowers with non-agency mortgages to do a rate and term refinance to take advantage of today’s low interest rates.

As it stands, if Fannie Mae, Freddie Mac, or Ginnie Mae don’t back your mortgage, getting a loan modification is difficult, if not impossible.

And while most newly originated loans are now backed by these government agencies, many non-agency mortgages, also referred to as private-label mortgages, were originated during the housing boom.

As a result, millions of Alt-A loans, subprime loans, option arms, jumbo loans, and so forth are not eligible for the existing government refinance and modification programs, such as the popular HARP II.

The Treasury Department has determined that “Significantly Underwater Borrowers,” characterized as those with loan-to-value ratios of 125% or higher who have such loans are more likely to default, despite being current on payments.

In short, these borrowers are unable to get the assistance fellow Americans (or even neighbors) receive because their loans aren’t backed by Fannie, Freddie, or the FHA/VA, so the Obama Administration fears they may walk.

Obviously, the last thing we need is more foreclosures, especially now that everyone seems to think we’ve “turned the corner.”

How the Market Rate Modification Program Would Work

It all sounds quite simple. If you’re one of those “Significantly Underwater Borrowers” that is current on mortgage payments, all you’d need to do is provide a hardship affidavit with your application.

The letter is meant to prove a “reasonably foreseeable default” under mortgage securitization rules to appease investors who might otherwise prefer their higher original yield.

From there, if approved, participating loan servicers would lower your mortgage rate to the “current market rate,” as determined by the Freddie Mac Primary Mortgage Market Survey.

At last check, the going rate for a 30-year fixed was a very attractive 3.32%, a far cry from the 6-7% rates seen during the housing run-up.

Surely that reduction in mortgage payment would make homeowners think twice about hating their “now worthless” properties.

Each month during the five years after the modification took place, the Treasury would pay loan servicers the difference in interest between the borrower’s old rate and new.

After the five years are up, the Treasury would stop compensating servicers, regardless of whether said loans were above water or not, and the borrower’s interest rate would remain at the lower rate.

Apparently this would appease investors while also providing much needed relief to homeowners thinking of throwing in the towel.

It would also provide much needed stability to the housing market, which is surely not yet on solid ground.

Why It’s Important

Back in 2009, I wrote about private-label mortgages, which while only making up a small percentage of total mortgages outstanding, accounted for 62% of the delinquencies.

If these bad loans continue not to be addressed, the resulting defaults and foreclosures could hamper a housing recovery for everyone, including those with agency-backed loans.

So this is a very important initiative, and one that could make the impending fiscal cliff a little less painful.

For the record, House Democrats are also working on a bill that would provide principal reductions for those with Fannie and Freddie backed loans.

Of course, the more they attempt to stuff into negotiations, the longer it will take to reach a resolution.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

Well, another year has passed, and unlike previous years, 2012 was a fairly decent year for the housing market.

After all, 30-year fixed mortgage rates chalked their “lowest annual average in at least 65 years,” per Freddie Mac.

Home prices also increased, which created a number of positives for the market. So what can we expect in 2013? I’ll take a crack at it.

1. Mortgage rates will move sideways

The direction of mortgage rates always seems to top the list, largely because tracking them is about as fun as gambling.

Currently, the 30-year fixed is averaging an amazingly low 3.35%. Back in January, it averaged 3.91%, a rate most thought wouldn’t go any lower.

We continued to be pleasantly “surprised” in 2012, but I don’t see that trend continuing in 2013. Sorry folks. This may be as good as it gets.

Look for mortgage rates to stay close to current levels, though there may be some ups and downs in the first half of the year as uncertainty looms.

In the latter half of 2013 expect mortgage rates to rise, though not by any material amount.

2. Home prices will rise slightly

While mortgage rates could tick higher as the year progresses, home prices should also extend their recent rise.

They already appeared to hit bottom in many metros throughout the United States, though some cities may experience further declines before things turn around.

Either way, don’t expect home prices to rise at their current clip. A panel of 107 economists polled by Zillow predicts home prices will rise just 3.1% in 2013.

That compares to a 4.6% rise this year, something that doesn’t appear to be sustainable moving forward.

However, that could change, and economists still see prices rising at a healthy three percent annual rate through 2017.

3. The mortgage interest deduction will be altered

House values aren’t necessarily safe at all price points. There’s a great chance some kind of change will come to the hotly contested mortgage interest deduction (MID).

It’s unclear what that change might be, but there’s a decent likelihood it could limit deductions to just $500,000 in loan amount.

If that’s the case, higher-priced homes could actually experience some depreciation next year.

But only time will tell on that one…

4. The Mortgage Debt Relief Act will be extended

There’s also a lot of fear surrounding the expiration of the Mortgage Debt Relief Act of 2007, which has been extended each year since inception.

But with the fiscal cliff looming, there’s been more uncertainty about its future.

Still, with millions of short sales on standby, it’s unlikely the IRS rule that forgives homeowners for selling short won’t be extended.

If it’s not, the housing market will surely be rattled, with less harmful short sales quickly turning into a nasty flood of foreclosures.

That would throw everything out of whack, and result in home price declines.

5. Housing inventory will continue to be tight

Speaking of home prices, any price movement will likely be limited by a continued lack of inventory.

If you haven’t looked at available homes for sale lately, I’ll save you the time and effort. There is NOTHING out there, at least in desirable areas of the country.

Don’t expect a flurry of sellers to appear in 2013 either. Why sell on the way up if we’re just beginning to experience the start of a long recovery?

6. Refinances will slow, purchases will rise

While purchases might not go haywire in 2013, they should represent a larger share of the mortgage market as refinancing wanes.

Let’s face it; most homeowners have already taken advantage of the low interest rates available, and with rates predicted to hold steady or even rise, it would be silly to expect similar volume in 2013.

The MBA sees refinance volume falling from $1.2 trillion in 2012 to $785 billion in 2013, while purchase activity is slated to rise from $503 billion to $585 billion.

In other words, the total mortgage market will contract fairly significantly in 2013.

7. Mortgage layoffs will rise

As a result of lower loan origination volume forecasts, a decent number of those who were hired for the refinance boom will likely need to be transferred or laid off.

Still, there are a handful of mortgage companies that are expanding, so opportunities will present themselves in the industry.

Old names like Nationstar Mortgage and Impac Mortgage are growing rapidly, as are newcomers like PennyMac, which is essentially a reincarnation of Countrywide.

8. FHA will tighten lending standards

This isn’t so much of a prediction as it is a reality, though it’s not entirely clear what changes may come to the under-pressure FHA.

It already announced a few changes for FHA loans in 2013, including higher mortgage insurance premiums, higher down payment amounts for certain loans, and higher credit score requirements.

New FHA borrowers may also be subject to paying mortgage insurance for as long as the FHA insures the loans, which would increase the true cost of such mortgages considerably.

9. More previously foreclosed borrowers will take out mortgages

Now that some time has passed since the mortgage crisis, borrowers who were previously foreclosed on will be eligible to get back in the game.

After all, Fannie and Freddie only require a five-year waiting period, and the FHA only requires three years to have passed.

This means many of those who walked away or were simply foreclosed on will be able to purchase new homes, assuming they have steady employment and improved credit scores.

Hopefully more homeowners will get it right this time around…

10. No more mortgage assistance will be granted

Lastly, I don’t expect any new assistance to arrive for at-risk homeowners. It seems the government has used all the weapons in its arsenal, including the FHA streamline refinance, HAMP, HARP II, HAFA II, etc.

Not to mention the artificially low mortgage rates, thanks to aggressive Fed buying of mortgage securities.

There have been plenty of stirrings of a modification or refinance program for mortgages not backed by Fannie or Freddie (or the FHA), but such a plan keeps falling on deaf ears.

The latest proposal would be part of successful fiscal cliff negotiations.

It’s possible, but not probable, especially seeing that so much time has passed since things took a turn for the worse.

If borrowers have made it this far, throwing them a lifeline now seems a lot less likely.

So that’s that. Let’s all hope for the best in 2013. Happy New Year!

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

Well now that the Super Bowl is over, it’s time to look forward toward spring and the rest of 2013.

The holidays have passed and now many individuals are determining what their financial goals are for the year.

Is this the year to finally sell a home, buy a home, or just continue to sit tight?

While all those questions may have different answers, depending upon your current position, it’s clear that it’s a seller’s market right now.

It’s not a traditional seller’s market, largely because most homeowners don’t have much home equity, but the current environment does favor sellers because inventory is just so tight.

There’s also voracious demand at the moment, thanks to the perception that the worst is now behind us, and that if you buy in now, you’ll get a cheap home with an even cheaper mortgage.

Unfortunately, this herd mentality often precedes a bubble, that is, an unwarranted surge in price before a sudden and dramatic correction.

Housing Bubble Part Deux?

So, are we in for more trouble, now that seemingly every pundit, analyst, government official, interested party, and American is in on the supposed recovery?

The few who believe we are in for another bubble basically think the Fed created artificial demand for housing by pushing mortgage rates to new record lows, via quantitative easing like QE3.

It’s hard to argue with that fact – mortgage rates did indeed fall to unprecedented levels, and with that seemed to come a newfound demand for housing.

But even though demand is up, home sales are still lower than they have been historically.

All the recent “killer numbers” are only good, or improved, relative to the preceding dismal years.

And one could argue that home prices are on the mend because they’re cheap, not because rates are low. After all, plenty of recent sales have gone to cash buyers who could care less about rates.

If you look at the historical relationship of home prices and mortgage rates, it’s not what you’d think.

There’s not much of a correlation, and higher mortgage rates could actually come with higher home prices as a result of an improving economy.

It’s not as if the moment rates rise home prices will plummet, though the current situation is a little unprecedented.

Additionally, home prices are only up from the “bottom,” and nowhere close to fully recovered, assuming they eventually match the prices seen during the previous bubble, which history tells us they will.

In other words, inventory shortages and low prices are the real driver of demand at the moment, not necessarily low rates.

The low rates are more a boon to those looking to refinance their now expensive mortgages, not reason alone to purchase a home.

Housing bears also believe unemployment will continue to hinder a real recovery, and that there just aren’t any real buyers, only speculators.

The reasoning here is that there aren’t any first-time homebuyers because the economy is in the dumps, and there aren’t any move-up buyers because existing owners don’t have equity.

I think this is a convenient way of summing things up, but doesn’t represent reality. There are plenty of individuals who “missed” the first bubble, and have been patiently waiting to get in this time around.

There are also millions of existing owners with plenty of equity that want to buy again, especially at much lower prices.

What About Mortgage Quality?

To further argue against another housing bubble, the quality of mortgages this time ‘round is night and day.

Can you really compare a 30-year fixed at 3.5% to an option arm with a 1% teaser rate, which after five years, will reset to a fully-indexed and variable rate of 6% or higher.

Or a more straightforward interest-only ARM that becomes fully amortizing (and fully indexed) after 10 years, pushing a homeowner to the brink of default?

Oh, and those types of loans were also taken out at the height of the market, making mortgage payments that much more unsustainable.

Today, borrowers are taking out mortgages they can truly afford, with more skin in the game and no surprise resets in the future. Surely that will make for a more bubble-resistant housing market going forward.

But don’t be surprised if there are some hiccups along the way, because there will always be ups and downs.

Read more: What caused the housing crisis?

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

A new report released this week revealed that the majority of loan originators make $100,000 or more annually.

This was one of the major takeaways from Mortgage Daily’s 2012 Loan Originator Survey, which included 175 originators (120 who completed ALL questions).

Per the survey, nearly 60% of respondents indicated that they made at least $100,000, which is about double the median household income in the United States.

Additionally, many noted that they would have made even more if it weren’t for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

However, a small share said they profited from the new requirements, perhaps because of fewer competitors in the space.

The biggest complaint from originators had to do with appraisal requirements, and the fact that many appraisals are coming in low these days (sign of the times).

Most of those surveyed do not work for banks, and more than a quarter are self-employed, meaning many could be mortgage brokers.

A study back in 2011 found that mortgage brokers generated average revenue of 2.25 mortgage points per loan, before the new compensation rules took effect, and predicted that number wouldn’t change.

On a $200,000 loan, we’re talking $4,500, less expense. So for the broker originating numerous loans monthly, you can see how it all adds up.

This figure probably used to be a lot higher during the boom, back when loan officers and brokers could get paid excessive amounts by both the lender and the borrower, not just one.

Is the Survey Skewed?

While this survey gives us a little insight into how much some originators are making these days, the number of participants is a bit limited.

Additionally, you have to wonder how many of the low-producing originators chose to take part in the questionnaire.

Those who aren’t having a banner year might not be keen on filling out a survey.

And salaries are always going to display an enormous range in the real estate business, mainly because there are those who work part-time, those who just entered the fray, and those who have been in business for decades that are well connected.

Just look at real estate agents, excuse me, Realtors, who made a median $34,100 in 2010.

The median salary for those in business for two years or less was just $8,900, while it was $47,100 for those in business 16 years or more, per NAR.

And 16% earned a six-figure income, revealing the major disparity among agents.

Fifth Third Providing Employment Solutions to Unemployed Mortgage Borrowers

Here’s a little something related, as it has to do with employment. Fifth Third Bank said it partnered with NextJob, a “nationwide reemployment solutions company,” to find jobs for its unemployed mortgage borrowers.

The program, which was piloted in 2012, targets bank customers who are at serious risk of default on their mortgages.

Of those who took part so far, 40% were fully employed after six months, making the program a novel way for both the bank and borrowers to avoid foreclosure.

NextJob helps borrowers create an effective resume and cover letter, carry out a targeted job search, and train and prepare for interviews.

Perhaps banks and lenders should consider hiring these at-risk borrowers in their own lending departments, seeing that they’re all having capacity constraints.

That could solve two problems in one, and by the sound of it, the compensation ain’t too shabby. But in all seriousness, if you’re a Fifth Third mortgage customer in need of assistance, check it out.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

Well, 2012 is now in the rear-view mirror, and looking back, it was a good year for housing, if the numerous recent research reports are any indication.

The latest shot of good news came from Zillow, which reported Monday that U.S. home prices increased 5.9% last year.

Their Home Value Index (ZHVI) increased to $157,400 in the fourth quarter, up a strong 2.5% from the third quarter.

In 2012, home values increased in all four quarters thanks to relatively low asking prices and limited inventory.

The biggest gains were seen in the hardest-hit areas, including Phoenix, AZ, where prices jumped a staggering 22.5% last year.

They’re expected to climb another 8.5% this year, though one should keep in mind that they fell 56.2% from peak to trough.

The Las Vegas and Miami metros have also been winners over the past few years, though they too experienced nasty home price drops post-crisis.

Projected Winners for 2013

The biggest gainers for 2013 are expected to be Riverside, CA (12.5%), Sacramento, CA (11.9%), Phoenix (8.5%), San Francisco (7.3%), and Los Angeles (7.3%).

The bottom five include Chicago, where home prices are expected to drop 0.6%, and St. Louis, where prices are slated to dip by a meager 0.1%.

Home price appreciation is also projected to be quite poor in Charlotte, NC (0.1%), Cincinnati, OH (0.4%), and New York City (0.5%).

So as always, the outlook is local and regional, though home prices are still expected to rise in most areas nationwide.

Existing Sales Up Nearly 10%

Today, the National Association of Realtors also announced that existing home sales increased 9.2% last year compared to 2011.

The preliminary annual count was 4.65 million sales, up from 4.26 million a year earlier.

It was the highest annual total since 2007, and also the biggest year-over-year increase since 2004.

Meanwhile, inventory is still rock bottom. As of the end of December, total inventory fell 8.5% to 1.82 million existing homes available for sale, a 4.4-month supply at the current sales pace.

That’s down from 4.8 months in November, and represents the lowest housing supply since May 2005, which was close to the apex of the housing boom.

Another Housing Bubble?

Unfortunately, the near-six percent appreciation rate was much higher than the “healthy” norm, representing the largest annual increase since 2006, when the market was on the cusp of going bust, per Zillow.

The company noted that the historic standard for home price gains is around three percent annually. So are we repeating history again?

Not so fast. Sure, home prices have increased quite a bit, but they’re still nowhere near where they were in 2006 – 2007.

And home price appreciation is expected to temper quite a bit this year, falling back in line with the historic average, with a 3.3% increase anticipated in 2013.

Last year, home prices probably rose a lot more than normal because of the record low mortgage rates and severe inventory shortages.

But thanks to recent home price gains, a lot more inventory has essentially been “created.”

I’m talking about the many underwater homeowners who were essentially trapped in their homes.

In the third quarter alone, roughly 100,000 homeowners gained positive equity enlightenment, meaning they can now pursue standard sales instead of selling short.

At the same time, short sales are expected to be quicker and more commonplace, so there should be plenty of housing inventory.

Yes, it means home prices won’t continue to surge, but it also means healthier growth, not just another short-term bubble.

And with today’s mortgages of much better quality than their pre-crisis brethren, it bodes very well for the future of housing.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

Here’s an interesting little piece of mortgage news.

According to an internal presentation obtained by Bloomberg, top mortgage lender Wells Fargo plans to incentivize loan officer pay based on loan quality.

While I wasn’t able to track down the presentation, the publication noted that mortgage salespeople would receive extra compensation for submitting “complete loan applications” to loan processors and mortgage underwriters within a five-day period.

In return for their speed and organization, Wells Fargo would pay salespeople an additional 0.03% on each loan that meets the requirements for the new rule.

On the example $400,000 loan included in the article, it would bump pay up another $120, on top of the $1,720 they reportedly earn before the bonus.

For the record, that $1,720 equates to 0.0043%, in case you were wondering how much Wells Fargo reps make for originating your home loan.

Of course, that’s just an example, and it could well vary quite a bit depending on a number of factors, such as the type of loan, volume, position, etc.

Sign of the Times

The move by Wells is clearly a sign of the times, which is a mix of both extraordinary demand for mortgages and much more stringent underwriting guidelines.

Back in the day, before the boom turned to crisis, many lenders provided incentives to loan officers who originated the riskiest types of loans, largely because they were sold off on the secondary market in a game of hot potato.

So loan officers and mortgage brokers who chose to throw a borrower in an option arm, or tack on a five year hard prepayment penalty, were given the largest yield spread premium (commission).

Clearly this led to one of the worst economic downturns we’ve seen in years, which is why the mortgage game has changed as much as it has.

Now it appears as if the San Francisco-based bank is focused on quality and turn times, as opposed to the type of loan originated.

For one, there aren’t really any risky types of home loans left, and most borrowers opt for fixed mortgages nowadays.

It’s also illegal to steer borrowers into higher-priced loans, so the focus has shifted to getting the loan closed properly in a short window.

Complete Loan Files Key

It’s clear that with demand so high, and personnel so low, mortgages are taking a very long time to close.

In order to speed up this process, submitting complete loan packages is key to closing in a timely manner.

This is actually a good lesson for borrowers as well – you need to get all your ducks in a row long before applying for a mortgage.

That means organizing income and asset documents, ensuring your credit score is where it should be, and addressing any potential red flags if you’ve got anything funky going on.

Assuming you handle all these issues prior to application, your loan process should be relatively quick and painless.

And now that your loan officer is on board, incentives are finally properly aligned, which is surely a good thing for the under-fire industry.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

It’s looking more likely that there will be a government shutdown beginning October 1st, which begs the question, what happens to mortgage rates?

Do they go up even more, do they fall, or do they do nothing at all?

At first glance, you might think that they’d rise because of the uncertainty involved with a shutdown.

After all, if no one is quite sure of the outcome, or duration, banks and lenders might price their rates defensively.

That way they don’t get burned if rates shoot higher. But history seems to tell a different story.

Bond Yields Tend to Fall During Government Shutdowns

As a quick refresher, mortgage rates track 10-year bond yields pretty consistently. So if the 10-year yield falls, long-term 30-year fixed rates often fall as well.

Conversely, if 10-year yields rise, which they have quite a bit lately, mortgage rates also increase.

The 10-year yield began 2022 at around 1.80 and is around 4.60 today. Since that time, the 30-year fixed has climbed from roughly 3% to 7.5%.

So there’s a pretty strong correlation between the two, though the spread between them has widened over the past couple years as well.

Since mortgage bonds are inherently riskier than government bonds, there’s a premium, or spread that must be paid to investors.

You used to be able to price the 30-year fixed mortgage at about 170 basis points above the 10-year yield. Today it might be closer to 275 bps or even more.

Anyway, the 10-year yield seems to fall during government shutdowns because of the old flight to safety.

And here’s what Morgan Stanley had to say on the matter: “On average, during shutdowns since 1976, the 10-year Treasury yield has fallen 0.59% while its price has ticked up, suggesting that investors favor the safe-haven asset during these periods of uncertainty.”

In other words, if the 10-year yield falls during the shutdown, 30-year mortgage rates should also drift lower.

How much lower is another question, but if they continue to track the 10-year yields, a .50 drop in Treasuries might result in a .25% drop in mortgage rates.

Did Mortgage Rates Fall During Prior Government Shutdowns?

Now let’s look at some data to see if mortgage rates actually fall when the government shuts down.

The most recent government shutdown took place from December 21st, 2018 until January 25th, 2019.

It was the longest shutdown in history, lasting 34 days. There was one in early 2018, but it only lasted two days.

I did a little research using Freddie Mac mortgage rate data and found that the 30-year fixed averaged 4.62% during the week ending December 20th, 2018.

And it averaged 4.46% during the week ending January 31st, 2019.

Of course, the shutdown drama started earlier in the month of December 2018 when the 30-year fixed was priced closer to 4.75%.

So if we factor all that in, you might be looking at a 30-basis point improvement in mortgage rates.

Prior to that shutdown was the one that occurred on September 30th, 2013 and lasted 16 days.

The 30-year fixed averaged 4.32% during the week ending September 26th, 2013, and fell to 4.28% during the week ending October 17th, 2013.

Not much movement there, but it did continue to drift lower in following weeks and ended October at 4.10%.

You then need to go all the way back to December 15th, 1995 to get another shutdown, which took place under President Clinton.

It lasted 21 days, ending during the first week of 1996. During that time, the 30-year fixed fell from around 7.15% to 7.02%, per Freddie Mac.

Prior to these shutdowns, most only lasted a few days and thus probably didn’t have much of an impact, at least directly.

All in all, mortgage rates did improve each time, though not necessarily by a huge margin. Still, any .125% or .25% improvement in pricing is welcomed right now.

A Lack of Data Makes It a Guessing Game

If the government does in fact shut down this coming week, it’ll mean that certain data reports won’t get released.

This means we won’t see the Employment Situation, scheduled for next Friday, nor will we see CPI report the following week.

There are many other reports that also won’t be released between this time and beyond, depending on how long the shutdown goes on.

As such, we’ll all be flying in the dark in terms of knowing the state of the economy. And the direction of inflation, which has been top of mind lately.

The good news is the Fed’s preferred inflation gauge, the personal consumption expenditures price index (PCE), already came out.

And it was weaker than expected. Prior to that report, we were getting some signs that the economy was still running too hot.

So the timing might work here in terms of higher bond prices and lower yields, which in turn would drive mortgage rates down too.

After all, our last piece of information was that inflation and consumer spending rose less than expected, which is good for rates.

Read more: How the Government Shutdown Affects Various Types of Mortgages

Source: thetruthaboutmortgage.com

Apache is functioning normally

Apache is functioning normally

LAS VEGAS – With mortgage rates headed to 8%, the current housing slump is unlikely to reverse course until 2025, due to the Federal Reserve’s continued ratcheting up of interest rates, mortgage experts said at a conference in Las Vegas. 

Analysts continue to warn about overcapacity in the industry with too many lenders and employees to support current origination volumes. 

Federal Reserve Chair Jerome Powell signaled last week that interest rates need to stay higher for longer to tame inflation and that it could raise interest rates once more this year. The Fed’s policies have hit potential homebuyers the hardest as mortgage rates approach their highest levels in 23 years, analysts said.

“If the Fed keeps rates where they are today, then I think you’re going to easily see 8% mortgages because the survivors in the mortgage market — once we get rid of another 50% of capacity — are going to want to make money and that’s how they’re going to do it,” said Christopher Whalen, chairman of Whalen Global Advisors, on Tuesday at the National Mortgage News Digital Mortgage conference in Las Vegas.

Mortgage industry analyst Christopher Whalen, left, and Julian Hebron of the Basis Point, center, discuss housing policy with the former head of the Federal Housing Finance Agency Mark Calabria, right, during the National Mortgage News Digital Mortgage Conference on September 26 at the Wynn Resort in Las Vegas.

Whalen was joined by Mark Calabria, a senior advisor at the Cato Institute and the former director of the Federal Housing Finance Agency, in a debate about current public policy and its effect on the mortgage market.

Calabria said the main obstacle to buying a home is finding a house that is affordable. He  questioned the Biden administration’s public policy approach, which is focused primarily on providing access to credit to low and moderate-income communities at a time when mortgage rates are above 7% and home prices are still rising due to a lack of inventory.

“There’s just too much tension in Washington where the sense is that we’re going to make the mortgage market and mortgage policy the answer to all these other unrelated things which are real — there are very real social injustices we should fix —  but the mortgage market is not the solution for all of them,” Calabria said. “I worry that mortgage policy is bearing the weight of trying to fix a number of things that really have very little to do with the mortgage markets.”

Calabria, the author of “Shelter from the Storm: How a COVID mortgage meltdown was averted,” described how he resisted repeated calls for a bailout of mortgage servicers early in the pandemic. The Federal Reserve had stepped in with a broad array of actions including lowering interest rates, sparking a massive refinance boom in 2020 and 2021. Calabria then applied an adverse market fee to refinances but exempted lower-income borrowers. 

Julian Hebron, founder of the Basis Point, a consulting firm, and veteran mortgage executive, questioned whether the FHFA should be setting pricing in the mortgage market and asked whether it’s “appropriate for GSEs to raise fees to build capital to prepare for downturns.”

Calabria said the government-sponsored enterprises should be charging so-called g-fees for guaranteeing the timely payment of principal and interest on mortgage-backed securities because doing so covers projected credit losses from borrower defaults over the life of a loan. 

“Ultimately, I don’t think the regulator should be driving prices,” Calabria said.

He also said Fannie Mae and Freddie Mac will remain in conservatorship for the foreseeable future but also envisions a way out of government control — by having the GSEs raise fees.

“If you’re a CEO of one of these companies, it sucks being micromanaged, and I know that as somebody who micromanaged the CEOs,” he said. “If I was the CEO of one of these companies and I had the freedom to do it, I would jack up G-fees so I can build capital and get out two or three years earlier than I would otherwise. Because again, it sucks being in  conservatorship for these companies, at least at the top.”

Calabria took office in 2019 and sought to end government control over Fannie Mae and Freddie Mac, which guarantee 70% of the roughly $12 trillion U.S. mortgage market. Though Calabria was confirmed by the Senate to a five-year term, he was fired in 2021 by President Biden following a Supreme Court ruling. Biden named Sandra Thompson as Calabria’s successor. 

Whalen laid the blame for the current high interest rate environment squarely on the Fed and its actions in dropping rates in response to the pandemic. Roughly 90% of homeowners currently are locked in to mortgage rates below 6% and many are paying less than 4% on loans that were refinanced when the Fed held interest rates near zero. As a result, homeowners are not selling their properties, resulting in record-low inventory and a general gumming up of the mortgage market in a high-rate environment.  

“The trouble is that the Fed’s actions through COVID distortéd the market so much that lenders are losing 200 to 250 basis points on every loan they make,” said Whalen. “Even though the agencies and the FHA subsidize the cost of mortgages, that’s really what they do, it’s not about getting a mortgage, it’s about how much does it cost every month, which goes across every product in America.” 

Many forecasts that are well-founded in data have been upended by major events, such as COVID or a bank failure. Whalen said that the only way mortgage rates could get down to 6% or 6.5% in the near-term is if there is another bank failure. 

“If we see another surprise in the banking market, the Fed is going to be forced to back off,” said Whalen, adding that he is concerned that interest rates are making asset prices go down. “If we see another failure, they are going to probably have to turn to the Treasury for support or tax the industry to raise cash because there won’t be three or four buyers out in the room.”

Source: nationalmortgagenews.com

Apache is functioning normally

Apache is functioning normally

A huge panel of economists from banks, universities, and investment and research firms weighed in on the direction of U.S. home prices over the next five years.

The consensus was average home price appreciation of 21.99% through 2017, growth that exceeds what Zillow refers to as “pre-bubble rates,” which took place from 1987 to 1999.

During that time period, home prices appreciated annually at a rate of 3.6%, on average.

2013 Strongest of Next Five Years

The 118 panelists indicated that 2013 would be the strongest year in terms of home price appreciation, with values expected to climb an average of 4.6%.

That compares to the 5.5% gain seen in 2012, meaning there should be some moderation despite the positive sentiment.

In 2014, prices are expected to rise another 4.2%, and then dip to between 3.6% and 3.8% for 2015-2017.

All in all, it’s another sign that housing has indeed bottomed, and should slowly work its way back to previous highs seen before the crisis hit.

Who’s the Most Optimistic?

I decided to scour the list of panelists to see first who was included, and second what they thought.

There is an interesting mix of participants on the list, and an even more intriguing divergence of opinion.

Let’s start by looking at who is most confident about home prices going forward, with the cumulative total displayed below:

1. Ethan Penner, Managing Partner at Monday Real Estate Partners – 77.86%
2. David Wyss, Economist at Brown University – 41.53%
3. Christine Chmura / Xiaobing Shuai, Chief Economist / Senior Economist at Chmura Economics & Analytics – 40.22%
4. Rajeev Dhawan, Director, Economic Forecasting Center at Georgia State University – 38.46%
5. Jim Kleckley Director, Bureau of Business Research at East Carolina University – 37.75%
6. Joel Naroff, President at Naroff Economic Advisors Inc. – 37.10%
7. Aneta Markowska, Senior U.S. Economist at Societe Generale – 36.17%
8. Matthew Sippel, Senior Partner at Indus Capital Partners – 35.05%
9. Richard Dorfman, Managing Director at SIFMA – 33.81%
10. Constance Hunter Senior Advisor at International Solutions Network – 32.59%

[Tips for first-time home buyers.]

Who Are the Housing Bears?

Not all panelists were as optimistic as those listed above. In fact, some even feel housing prices will fall over the next five years.

Let’s take a closer look at who thinks housing isn’t the best investment at the moment:

1. John Brynjolfsson, Chief Investment Officer at Armored Wolf, LLC – (11.04%)
2. Mark Hanson, Founder at Hanson Advisors – (8.39%)
3. Gary Shilling, President at A. Gary Shilling & Co. – (5.05%)
4. Barry Ritholtz, CEO at FusionIQ – 7.15%
5. Alex Barron, Founder & Senior Research Analyst at Housing Research Center – 10.36%
6. Komal Sri-Kumar, President at Sri-Kumar Global Strategies, Inc. – 10.38%
7. Parul Jain, Chief Investment Strategist at MacroFin Analytics LLC – 10.41%
8. Paul Ballew, Chief Data and Analytic Officer at Dun & Bradstreet, Inc. – 10.84%
9. Ellen Zentner / Aichi Amemiya, Senior Economist / VP at Nomura Securities International, Inc. – 12.03%
10. Ihab Seblani, Economist at AIG Global Economics – 12.42%

As you can see, the panelists exhibit quite a range in outlook, with some so negative they actually expect home prices to be down five years from now.

However, the lion’s share of panelists sound pretty darn positive, if the numbers are any indication.

Overall, the most optimistic quartile of panelists predict a 6.1% increase in home prices this year, while the most pessimistic quartile sees an average increase of three percent.

When looking at the five-year cumulative total, projections ranged from 11.7% among the most pessimistic quartile to 34.2% among the most optimistic.

For the record, Zillow chief economist Stan Humphries sees home prices rising 18.42% over the five-year period.

You can see the complete list here. There are some other interesting names on the list not mentioned in this post.

As always, you should take anyone’s opinion with a grain of salt.  Plenty of so-called experts were wrong leading up to the past crisis, and many will be wrong again. That’s just life.

Also note that this covers national home prices, and that values will vary widely by city, region, etc.

Read more: Preparing for the seller’s market.

Source: thetruthaboutmortgage.com