Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Over the past two years, the Federal Reserve has raised interest rates to a range of 5.25% to 5.5%, marking a 22-year high, in a bid to cool rapid inflation. The policy resulted in the effective rate on a 30-year mortgage soaring above 8% last year, though it has declined from that peak in subsequent … [Read more…]
In a statement released after market close, Washington Mutual said it will have to set aside far more than expected for loan losses, leading to a fourth quarter loss and massive restructuring.
The Seattle-based thrift and mortgage lender plans to cut more than 3,000 jobs and slash its dividend by 73 percent, while also offering $2.5 billion in convertible preferred stock in a bid to raise capital.
“A substantial infusion of new capital, significant expense reductions, the major change in our home loans business, and our planned dividend reduction all combine to further fortify WaMu’s strong capital and liquidity position,” said WaMu Chairman and Chief Executive Officer Kerry Killinger.
“These actions will also better position us to pursue various initiatives, particularly in our leading retail banking business — which is at the core of our business strategy.”
WaMu will discontinue all lending through it subprime mortgage channel, closing roughly 190 of 336 home loan centers and sales offices, and nine Home Loans processing and call centers.
The layoffs will affect 22 percent of its Home Loans staff, or roughly 2,600 employees, along with 550 corporate jobs and support positions.
The thrift will also close WaMu Capital Corp., its institutional broker-dealer business, as well as its mortgage banker finance warehouse lending operation.
The cost of these so-called “expense reduction measures” will result in approximately $140 million in additional expenses in the fourth quarter.
The restructuring will be accompanied by an increase in retail mortgage lending via its many banking branches nationwide, a route many large banks are leaning towards.
The banking giant will take a fourth quarter after-tax charge of approximately $1.6 billion for the writedown of all the goodwill associated with the Home Loans business, and now expects its fourth quarter provision for loan losses to be between $1.5 and $1.6 billion.
The company currently expects its first quarter 2008 provision for loan losses to range between $1.8 to $2.0 billion, and to remain elevated through 2008.
WaMu believes total U.S. mortgage loan origination will fall to $1.5 trillion in 2008, the lowest level in eight years, from an estimated $2.3 trillion to $2.4 trillion this year.
Shares of Washington Mutual fell $1.59, or 8.00%, to $18.29 in after hours trading.
Update: WaMu upped their preferred stock offering to $3 billion.
Source: thetruthaboutmortgage.com
A strong U.S. economy will be a boon for the housing market, Mortgage Bankers Association’s (MBA) chief economist said on Thursday, as it will buoy demand and as inflation continues to fall, mortgage rates will decline as well making home loans more affordable for buyers.
The U.S. economy accelerated at a faster-than-expected clip in the fourth quarter of 2023 at 3.3 percent, the Commerce Department’s Bureau of Economic Analysis revealed on Thursday.
Meanwhile, the personal consumption expenditures (PCE) price index—the Federal Reserve’s preferred measurement of inflation’s progress—jumped by 1.7 percent during the quarter. Core PCE, which excludes the often volatile food and energy prices, increased by 2 percent.
These dynamics bode well for the housing market that has been struggling under the weight of record-high mortgage rates, sparked in part by the Fed’s hiking of rate at the most aggressive clip since the 1980s to fight soaring inflation.
The Fed’s funds rate currently sits at 5.25 to 5.5 percent—the highest they have been in two decades—and policymakers have signaled that they will slash rates should inflation come down to their 2 percent target.
But an economy that may avoid a recession as inflation moderates without the Fed’s tight monetary policy doing too much damage to the jobs market would help the housing sector.
“Stronger economic growth will benefit the housing market, keeping demand robust,” Mike Fratantoni, MBA’s chief economist, said in a statement shared with Newsweek. “Moreover, today’s report also showed further reductions in inflation, which will enable the Federal Reserve to cut rates later this year—as they have been hinting.”
Mortgage rates ticked up slightly for the week ending January 25, Freddie Mac said on Thursday, with the 30-year fixed rate averaging 6.69 percent.
“The 30-year fixed-rate has remained within a very narrow range over the last month, settling in at 6.69% this week,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
Rates look to have stabilized, Khater suggested, encouraging buyers to jump off the fence.
“Despite persistent inventory challenges, we anticipate a busier spring homebuying season than 2023, with home prices continuing to increase at a steady pace,” he said.
A slowdown in rates could have a negative impact on home buyers, some analysts say.
A decline in the cost of home loans would encourage more purchases, and this increase in demand will spark competition at a time when there is a limited supply of homes for sale.
More buyers who can afford mortgages entering the market will push up prices, analysts from Goldman Sachs said this week.
The investment bank’s experts project prices to soar by 5 percent in 2024, a marked revision from their earlier expectation of a 2 percent jump. That trend will continue through next year when prices are forecast to increase by nearly 4 percent, which is also a change from a previously estimated increase of close to 3 percent.
Amid the price increases, Goldman Sachs analysts anticipate that rates will fall to 6.63 percent for the year. This drop in rates from the near 8 percent highs of November 2023, will make house loans more affordable, sparking more demand for properties.
“We have very low inventory of houses for sale, which is generally supportive of prices, along with generally stable demand that is coming from things like household formation,” Roger Ashworth, senior strategist on the structured credit team at Goldman Sachs, said this week.
On Thursday, new home sales climbed up by 8 percent in December, according to government data, while prices declined to two-year lows. The fall in prices and a rise in sales was partly due to builders offering inducements to buyers, according to Yelena Maleyev, a senior economist at KPMG.
“Builders have pivoted to building smaller homes and offering more discounts and concessions, such as mortgage rate buydowns, to bring in buyers sidelined by rising mortgage rates,” she said in a note shared with Newsweek.
But the data from the U.S. Census Bureau also showed that inventory of newly built homes fell last month after going up the previous months. There were 453,000 houses available for sale at the end of December, which accounts for 8.2 months’ worth of supply.
This constituted a 3.5 percent decline from the same time a year ago, Maleyev pointed out.
The lack of inventory also comes at a time when the used homes market has struggled. Sales are down in that segment amid a lack of supply of homes as sellers are reluctant to give up their low rates for new home loans hovering in the mid-6 percent.
This lack of supply will be key to how prices shake out and the outlook for the year is not encouraging.
“If mortgage rates fall below 6 [percent] in 2024, more owners will feel comfortable listing their homes for sale, alleviating some of the shortages, but not enough to close the supply gap,” Maleyev said.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
U.S. economy: According to the latest estimate of U.S. economic growth for Q3 2023, the economy grew at a seasonally adjusted annualized rate (SAAR) of 4.9%, slightly slower than the second estimate but still the fastest since Q4 2021— and among the fastest growth in the last 20 years. Consumption spending growth was revised down from a SAAR of 3.6% in the second estimate to 3.1% in the final estimate. This was mainly led by a decline in spending on services but remained the largest contributor to growth at 2.1 percentage points. After nine consecutive quarters of negative growth, residential investment growth came in much stronger than the initial estimates at a SAAR of 6.7%.
The labor market remained much stronger than expected in 2023 and defied expectations of a slowdown. The economy added 216,000 jobs in December, bringing the total jobs added in 2023 to 2.7 million.1 While total jobs added in 2023 was lower than the historical highs of 2021 and 2022, job growth was still remarkable given the high interest rate environment the economy faced. The unemployment rate remained unchanged in December at 3.7% compared to November 2023, but moved up 0.3 percentage points over the year.
While job growth remained significant over the year, some indications of a softer labor market are starting to creep in. The labor force participation rate as well as employment to population ratio decreased 0.3 percentage points over the month to 62.5% and 60.1% respectively. Downward revisions to October and November job growth meant the 3-month average job gain in the fourth quarter of 2023 was the lowest since the third quarter of 2019, if we exclude the 2020 recession. However, the torrid pace of job growth was unlikely to be sustained and employment growth is approaching levels consistent with a balanced labor market. Heading into 2024, we might see a moderation in job growth, which would be more consistent with long-run growth in the U.S. labor force. Job openings edged down slightly to 8.8 million in November 2023, according to the Bureau of Labor Statistics (BLS) Job Openings and Labor Turnover Survey. The ratio of job openings to unemployed, a metric that the Federal Reserve has been tracking to gauge the strength of the labor market, declined from a high of around 1.8 in January 2023 to 1.4 in November.
Inflation continues to trend towards the Federal Reserve’s target rate of 2%. The preferred measure of inflation of the Federal Reserve, the Core Personal Consumption Expenditure (PCE) measure increased at a rate of 3.2% year over year, the smallest annual increase since May 2021.2 While inflation has been moderating as the labor market normalizes, a reacceleration of home prices along with still high average hourly earnings growth at 4.1% year over year, could mean that getting to the 2% target might take longer than expected.
U.S. housing market: The housing market felt the impact of higher rates in 2023 with total annual home sales on track to be the lowest since 2012. Total (existing and new) home sales reached 4.4 million units in November 2023, down 1.2% as compared to October 2023 and 6.2% below November 2022. Total home sales averaged around 4.8 million from January through November 2023. Existing home sales were at 3.8 million as of November 2023 and averaged 4.1 million through November 2023.3 The existing housing inventory grew 15.3% year to date in November but the level of inventory (1.1 million homes available for sale in November) remains extremely low by historical standards.4 The rate-lock effect, which was the main driver of the lack of existing inventory, continued to push buyers towards the new home market. The number of new homes available for sale increased 2.7% year-to-date and was up 2.5% from the previous month. Overall, the sales of new homes averaged 666,000 in 2023 as compared to 637,000 in 2022.5
Falling interest rates have spurred the confidence of both potential homebuyers as well as the homebuilders. The Housing Market Index, which had decreased since August increased in December 2023. While existing home sales increased in November, pending home sales for November were still weak and saw a 5.2% decrease from the previous year. The FHFA Purchase-Only Home Price Index indicated that as of October of 2023, home prices rose 6.1% year to date, and as more home buyers enter the market amidst the lack of inventory, the pressure on prices could increase further.
U.S. mortgage market: Mortgage rates were on an upward trajectory for most of 2023, reaching 23-year highs in October. However, since the last week of October, rates have been declining mainly on the expectation of rate cuts by the Federal Reserve along with easing inflationary pressures. The average 30-year fixed-rate mortgage, as measured by Freddie Mac’s Primary Mortgage Market Survey® (PMMS®), fell almost one percentage point from the last week in October through mid-December. Despite the decline in recent weeks, mortgage rates are 13 basis points higher than they were at the beginning of the year. Mortgage activity also declined with purchase applications down almost 12% in 2023 and total applications down 7% even as refinance applications increased 15% over the year.6
Tighter financial conditions and higher overall interest rates are starting to impact mortgage delinquency rates. Total mortgage delinquency rates were up 0.25 percentage points from 3.37% in Q2 2023 to 3.62% in Q3 2023 according to the MBA’s National Delinquency Survey. The delinquency rate on conventional mortgages increased from 2.29% to 2.5% in Q3 2023 while the delinquency rate of VA loans was up from 3.7% to 3.76% over the same period. The largest increase was in the delinquency rate of FHA loans which increased 0.55 percentage points from 8.95% in Q2 to 9.5% in Q3. Interestingly, serious delinquency rates (90+ DQs) went down across the board between Q2 and Q3. Foreclosure starts increased from 0.13% in Q2 to 0.19% in Q3 2023 but remain low compared to its historical average.
The U.S. economy exhibited tremendous resilience last year on strong consumer spending. We expect economic growth to slow this year as consumer spending starts to fade. Under our baseline scenario, with a slowing economy, the unemployment rate will see a modest uptick, and inflation will continue to moderate.
With inflation remaining above the Federal Reserve’s target rate of 2%, we do not expect the Federal Reserve to start cutting the federal fund rates immediately. However, it will continue to pause on interest rate hikes. We expect rate cuts in the second half of the year if the job market cools off enough to keep inflation muted. Under this scenario, we expect mortgage rates to ease throughout the year while remaining in the 6% range.
Falling rates will breathe some life into the housing market with some recovery in home sales. However, home sales are expected to grow only modestly due to a lack of inventory in the market. The demand for housing, however, will remain high based on a large share of Millennial first-time homebuyers looking to buy homes, which will push home prices up. We forecast home prices to increase 2.8% in 2024 and 2.0% in 2025 nationally.
Under our baseline scenario, we expect increases in both purchase and refinance volumes this year and into 2025. On purchase originations, higher home sales and growth in home prices will drive the dollar volumes of purchase originations up. However, we do not expect purchase origination volumes to reach the levels seen in 2021 and 2022 as lack of inventory will limit home sales. The drop in mortgage rates will push refinance originations up, as buyers who obtained higher interest rates in 2023 will likely refinance into lower rates. However, rates remaining around the 6% range will not provide enough refinance incentives to millions of homeowners who currently have rates below 6%. And therefore, we expect refinance volume to grow only modestly this year. Overall, we forecast total origination volumes to improve this year and into the next.
Mortgage rates, as measured by Freddie Mac’s PMMS®, increased significantly in 2023 compared to the record lows of the past few years. On October 26, 2023, the average 30-year fixed-rate mortgage stood at 7.79%, a 23-year high. Since then, mortgage rates have moderated, but remain high by recent historical standards. These higher mortgage rates led many borrowers to make the decision to pay points in order to lower the rate when purchasing a house or refinancing an existing mortgage. During the low interest rate environment, few borrowers opted to pay discount points when obtaining a mortgage, but as rates started creeping up in the early 2022, we saw more borrowers paying discount points to lower their rate.
Using Freddie Mac closing data, we examined how often borrowers pay discount points and how many points they pay. For this analysis, the points we are focusing on are for permanent interest rate reductions throughout the life of the loan.7 To that end, we looked at a borrower profile that roughly matches our PMMS® population: mortgage for a home purchase or refinance of a one-unit, single-family owner-occupied property with a fully amortizing 30-year fixed-rate mortgage. We further restricted our sample to borrowers with conforming loans, and with credit scores 740 or above and a loan-to-value (LTV) ratio between 75 and 80 (inclusive).
We found that the share of borrowers who paid discount points increased in 2023 (Exhibit 1). For example, about 58.8% of purchase mortgage borrowers paid discount points in 2023, compared to 31.3% and 53.6% of purchase borrowers in 2021 and 2022 respectively. The share paying discount points was higher for noncash- out and cash-out refinance borrowers, 59.9% and 82.4%, respectively. Also, conditional on paying points, refinance borrowers tended to pay much higher points: 0.99 points for purchase borrowers compared to 1.16 and 1.76 points for non-cash-out and cash-out refinance borrowers, respectively.
It is interesting to note, however, that the interest rate differential between borrowers who pay discount points and those who do not pay discount points is very small. Through November 2023, the average effective rate on purchase loans for borrowers who did not pay discount points was 6.69% versus 6.86% for those who did pay points. This result seems to suggest that paying discount points may not be worth it from the consumers’ point of view. Indeed, some academic research8 has shown that in many circumstances paying discount points can be a poor financial decision. However, while our tabulation shows that borrowers who do not pay points generally receive lower mortgage rates compared to similar borrowers who do pay points, we do not control completely for borrower observed and unobserved attributes. Therefore, we cannot say with certainty that for any particular borrower, the relationship between discount points paid and interest rate is negative.9
Exhibit 2 compares the quarterly average discount points paid by Freddie Mac borrowers (home purchase, owner occupied, one-unit properties). From 2018 through 2021, borrowers that matched the PMMS® profile, (borrowers with origination LTV between 75 and 80 and FICO score 740 or higher) paid about the same average amount of points compared to all purchase borrowers. Starting in 2022 and continuing through 2023, higher credit quality borrowers tended to pay fewer points compared to all borrowers. In 2023, borrowers that matched the PMMS® profile paid on average about 0.06 less points or about 10% less compared to all purchase borrowers.
Prime borrowers who pay discount points on average have higher incomes and are obtaining higher loan balances when purchasing a home compared to borrowers who do not pay points. For example, in 2023 the average loan amount for purchase loans with points paid at origination was $360,000, compared with an average loan amount of $370,000 for mortgages where the borrowers did not pay points. In 2023, the average annual income of a “no discount points” borrower was $148,000, higher than the $140,000 average annual income for borrowers who paid points.
Our analysis on the closing files data shows that there is a difference in borrower behavior across the U.S. when it comes to paying discount points and origination fees. For example, in 2023 over 70% of prime purchase borrowers in HI, NM, WV, OR, WA, and DE paid discount points when closing on their mortgage while less than 50% of borrowers paid discount points in VT, IA, MA, IL, NE, ND, and WI. Exhibit 3 below shows the breakdown by state in 2023.
Our analysis shows that mortgage borrowers in 2023 were more willing to pay discount points than in previous years, and that the likelihood of paying points was greater for lower credit quality borrowers compared to the high-quality mortgage borrowers captured in our PMMS® profile population. We also saw that borrowers in the Midwest were less likely to pay points compared to borrowers in the Pacific and Mountain West. If interest rates stabilize in 2024, it will be interesting to observe whether borrowers opt to pay fewer points, or if the recent uptick in paying discount points is a more permanent shift in the mortgage market.
1 Non-Farm Employment, Bureau of Labor Statistics
2 BEA
3 National Association of Realtors (NAR)
4 From January 1999 through December 2019 the average number of existing homes available for sale averaged 2.2 million, about double the number of homes available for sale in November 2023.
5 U.S. Census Bureau and U.S. Department of Housing and Urban Development
6 Mortgage Bankers Association (MBA)
7 For an analysis of temporary buydowns see our previous Research Brief: https://www.freddiemac.com/research/insight/20230731-temporary-mortgage-rate-buydown-activity-spiked-in.
8 See for example: Agarwal, S., Ben-David, I. and Yao, V., 2017. Systematic mistakes in the mortgage market and lack of financial sophistication. Journal of Financial Economics, 123(1), pp. 42-58.
9 For a more detailed analysis see: Mota, N., Palim, M. and Woodward, S., 2022. Mortgages are still confusing… and it matters—How borrower attributes and mortgage shopping behavior impact costs. Fannie Mae Working Paper. https://www.fanniemae.com/media/45841/display
Prepared by the Economic & Housing Research group
Sam Khater, Chief Economist
Len Kiefer, Deputy Chief Economist
Ajita Atreya, Macro & Housing Economics Manager
Rama Yanamandra, Macro & Housing Economics Manager
Penka Trentcheva, Macro & Housing Economics Senior
Genaro Villa, Macro & Housing Economics Senior
Lalith Manukonda, Finance Analyst
www.freddiemac.com/research
Source: freddiemac.com
Mortgage rates at their lowest level in three weeks led to an increase in borrowers’ demand for home loans last week, spreading some optimism in the industry in the first few weeks of 2024. To prove it, analysts are already discussing a potential refi recovery.
Overall, mortgage applications rose by 10.4% in the week ending Jan. 12, compared to one week earlier, on a seasonally adjusted basis, per the Mortgage Bankers Association‘s (MBA) weekly mortgage applications survey. The MBA survey, conducted weekly since 1990, covers over 75% of all U.S. retail residential mortgage applications.
“Mortgage rates declined across all loan types as Treasury yields moved lower last week on incoming inflation data, which helped to support a rise in mortgage applications. The 30-year fixed mortgage rate decreased six basis points to 6.75%, the lowest rate in three weeks,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement.
The MBA survey shows the average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.75% last week from 6.81% the prior week. Rates on jumbo loans (greater than $766,550) fell to 6.86% from 6.98% on a weekly basis.
At HousingWire’s Mortgage Rates Center, the Optimal Blue data shows the rate at 6.60% on Tuesday for conforming loans, down from 6.68% the previous Tuesday. Rates for jumbo loans were at 7.23%, down from 7.27% in the same period.
According to Kan, purchase and refinance applications were up last week compared to a holiday-adjusted week. The conventional market heavily drove the increases.
The MBA data shows that purchase apps increased by 9% from one week earlier on a seasonally adjusted basis, and refis were up 11% in the same period. Refis comprised 37.5% of the total applications last week, down from 38.3% the previous week.
The Federal Housing Administration’s (FHA) share of total applications decreased to 14.3% last week from 14.4% the week prior. The U.S. Department of Veterans Affairs (V.A.) share fell to 14.2% from 16.3% in the same period. The U.S. Department of Agriculture (USDA) share increased to 0.5% from 0.4%.
“Although purchase activity is lagging year-ago levels, refinance applications have improved from their recent low point and have been showing year-over-year gains, albeit at low levels. If rates continue to ease, MBA is cautiously optimistic that home purchases will pick up in the coming months,” Kan said.
In a report to investors on Wednesday, analysts at Jefferies said mortgage rates remain “relatively high to the point where housing supply remains tight by historical standards.”
Still, the analysts “view the forward curve and recent reductions in the 30-year mortgage rate as signs of life for a potential refi recovery.”
But don’t expect a refi boom like the one during the COVID years.
“We do not anticipate a large cycle over the near/intermediate term and believe the rate-term refinance pipeline consists of loans originated since May 2022, or $2 trillion, while the majority of loans outstanding still have coupons well below today’s rates.”
Source: housingwire.com
This week’s Afford Anything blog post is a well-balanced diet:
The Robert Who Cried Wolf
Famed investor Robert Kiyosaki, author of Rich Dad, Poor Dad, recently caused an internet stir by predicting “the start of the biggest crash in history.”
Of course he did.
Kiyosaki is constantly crying wolf. It’s good for (his) business.
Bad news travels faster than good news.
People who prioritize attention over truth will use that to their advantage. Kiyosaki is a shrewd businessman. He understands the profit potential in strategic pessimism.
But that’s bad news for his followers. Per the law of large numbers, it’s reasonable that some people have kept their cash on the sidelines, rather than investing in the markets, after heeding his warnings. And that has massive lifelong ramifications on their wealth and retirement.
Lesson: Beware of anyone who peddles *negativity bias* in order to stay relevant.
These economic fear-mongerers don’t hold accountability for their track record of wrong predictions.
Their followers are the ones who suffer.
This is why it’s critical to choose your mentors carefully — and it’s precisely why you should never blindly enroll in an online class that’s taught by some random person whose ideas you haven’t vetted.
If you’re curious how often Kiyosaki has made the wrong call, note that Stanford-trained data scientist Nick Maggiulli, our guest on Episode 375 of the Afford Anything podcast, shared this illustration on X:
Pessimism has a visceral appeal. It’s evolutionarily advantageous to be hyper-aware of threats.
Our ancestors didn’t survive the jungle or savanna by appreciating the beautiful flowers. They survived by staying hyper-vigiliant of danger. This explains why negativity bias is so innate, so intrinsic. It’s a survival mechanism.
But in the modern developed world, pessimism keeps us overly conservative. We choose the “safe” major. We take the “steady” job. We tilt too heavily into conservative investments when we’re young, and we panic when our 401k’s start to decline. We avoid real estate investing and starting side businesses because these seem too risky.
Pessimism stifles innovation, entrepreneurship, and creativity. It locks us into mundane careers and middling investments as we muddle through risk-averse lives. In the end, we haven’t endured huge losses, but neither have we *embraced a shot* of winning.
As Episode 284 podcast guest Morgan Housel eloquently said:
“Pessimists get to be right. Optimists get to be rich.”
No, The Fed Lowering Interest Rates by 25 Basis Points Is Not Going to Flood the Market with New Housing Inventory 🙄
A little history lesson:
Once upon a time, in 2008, there was a Great Recession. It scared many investors and homebuilders, and they stopped making new homes.
In the decade that followed the Great Recession, new construction reached its lowest point since the 1960’s.
By 2019, the housing shortage amounted to 3.8 million units. This means there were 3.8 million more families and individuals who wanted a place to live — either to rent or buy — than there were homes available.
Then the pandemic struck. The prices of copper, lumber and other construction items shot through the roof (no pun intended). Builders had to raise home sale prices due to higher materials costs. Prices soared.
In 2020 and 2021, people across the internet cried, “Why are they charging so much more than the home is worth?!” — not realizing that “worth” is a function of the cost of labor + the cost of materials + the premium of scarcity.
And when supply is curtailed — as it was by 3.8 million units as of 2019 — there’s an ample scarcity premium.
Then inflation climbed. The Federal Reserve raised interest rates 11 times during their 2022-2023 cycle, resulting in a rapid escalation of mortgage rates.
This created a “lock-in effect” among existing homeowners. Nobody wants to trade a mortgage with a 3 percent fixed interest rate for an alternate mortgage with a 7 percent rate.
Existing homeowners with a mortgage have a huge incentive to hold.
Sellers who *need* to get rid of their property — for example, because they’re moving to another country — list their homes on the market. But homeowners who simply *want* to upsize or downsize are, for the most part, staying put.
This has created even more housing supply pressure.
Meanwhile, homebuilders — who must borrow money to finance their operations — are seeing the cost of capital skyrocket. Many have curtailed new construction, putting further pressure on the supply pipeline.
So we have a long-running confluence of factors that, piece by piece, keep exacerbating the housing supply crunch.
And this leads to today’s takeaway:
No, this problem will not magically solve itself the moment that the Fed reduces interest rates.
The Fed is meeting today and tomorrow. They’re widely expected to hold rates steady. (They’ll make an official announcement at 2 pm on Wednesday.)
There’s rampant speculation that the Fed will lower interest rates in Q1 or Q2 of next year.
— And —
There seems to be a pervasive myth that once interest rates decline, those “locked-in” homeowners will rush to list their homes for sale, flooding the market with new inventory.
The supply-demand imbalance will tilt in the buyer’s favor, home prices will plummet, and housing will become affordable once again.
Yet that is pure fantasy, disconnected from the data.
Imagine 10 people. Nine of them have mortgage rates that are less than 6 percent. The stat is 91.8 percent of mortgaged homeowners, to be precise.
Wait.
Imagine those same 9 people, the 9 out of 10 who have a sub-6 percent interest rate. Here’s how they break down:
Let me say that again:
Six out of 10 mortgaged homeowners have an interest rate that’s below 4 percent.
Meanwhile:
One-half of mortgaged homeowners (49 percent) say they’d consider listing their home only if interest rates fell below 4 percent, according to a Redfin survey conducted by Qualtrics.
So this myth that if the Fed lowers interest rates, the market will get flooded with new inventory? — That scenario isn’t likely to happen for a long, long, looooong time.
As of Dec 12, 2023, the current average 30-year fixed rate for a buyer with a 740-760 credit score is 7.4 percent. Multiple reductions in interest rates won’t begin to approach the sub-4 percent rates of yesteryear.
The “lock-in effect” will last for longer than you might expect.
Lesson: Don’t wait to buy a home based on speculation about the market. If you have both the money and desire to buy a home, DO IT NOW. Homes are likely going to get more expensive in the future, not less.
How to Not Flush AS MUCH Money Down the Toilet This Holiday Season
Yeah, I know.
The holiday season is custom-built for parting with your money. Every store is promoting sales, discounts, offers. Limited time only.
It’s scarcity on steroids.
Holiday deals tap into the part of our brain that says — “this deal is only available now; I should snag it while I still can.”
Our FOMO creates jobs and drives the economy.
Since holiday spending is human nature, let’s forgo the guilting, shaming and finger-wagging that’s so endemic to the personal finance and FIRE community.
It’s counterproductive. Guilt and shame over holiday spending doesn’t change human behavior, it merely robs the joy from it.
It’s like chowing down a piece of chocolate cake while simultaneously fretting about the sugar.
You’re eating the cake regardless. You may as well enjoy it.
Instead, let’s accept that some degree of holiday spending is normal, and let’s focus on how to find the best deal possible.
Here are four pointers. (If you have more to add, please share these with the Afford Anything community) —
#1: If you’re buying an item at a mid-size company’s website (i.e., a merchant that’s bigger than a mom-and-pop shop, but not a big box retailer like Target or Amazon) — move your cursor near the “back” arrow on the browser.
This is called “exit intent,” and it often triggers pop-ups with discount codes.
#2: For online purchases: Create an account, put an item in your cart, and then leave the website.
This is called “abandoned cart,” and often triggers an automation in which the company emails you a limited-time-offer discount code.
#3: If you’re buying something expensive (over $500 – $1,000 or more), track the price for a few weeks, especially around the holidays. On sites like Wayfair, I’ve seen prices fluctuate daily.
#4: The least useful savings tip: Googling discount / promo codes or pulling these codes from mass aggregator websites.
You may get lucky, but typically 9/10 are expired or don’t work; they just yield a bunch of extra open tabs on your browser.
There’s an enormous selection of third-party websites and browser extensions that claim to help with this, with varying degrees of efficacy.
I’m not going to recommend any specific tools; recommendations are both dynamic and better crowdsourced. Please share your experience with the community.
Source: affordanything.com
Mortgage interest rates inched up this week, following nine straight declines totaling a decrease of 118 basis points (1.18%).
The average 30-year fixed rate mortgage (FRM) rose from 6.61% on Dec. 28 to 6.62% on Jan. 4, according to Freddie Mac.
“Given the expectation of rate cuts this year from the Federal Reserve, as well as receding inflationary pressures, we expect mortgage rates will continue to drift downward as the year unfolds,” said Sam Khater, Freddie Mac’s Chief Economist.
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Mortgage rates fluctuated significantly in 2023, with the average 30-year fixed rate going as low as 6.09% on Feb. 2 and as high as 7.79% on Oct. 26, according to Freddie Mac.
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The range can be largely attributed to the Federal Reserve’s ongoing fight against inflation, juxtaposed with uncertainty in the banking sector sparked by Silicon Valley Bank’s collapse. However, with duress permeating the financial market and the fallout from U.S. debt ceiling talks, the Fed may continue making hikes to bring interest rates down.
With the economy likely heading into a recession, it’s possible we’ve already seen the peak of this rate cycle. Of course, interest rates are notoriously volatile and could tick back up on any given week.
Experts from CoreLogic, Home Qualified, Realtor.com and others weigh in on whether 30-year mortgage rates will climb, fall, or level off in January.
Craig Berry, branch manager at Acopia Home Loans
Prediction: Rates will moderate
“As inflation is the no. 1 item on the Federal Reserve’s radar right now, the Feds may choose not to lower the federal funds rate until inflation comes down. And, while Fed rate cuts aren’t a must-have in order for mortgage rates to come down, interest rates are affected by the federal funds rate.
The Feds continue to seek a balance between inflation and maximum employment so as not to cause significant damage to the economy which could trigger a recession. Recent momentum has been positive, and as long inflation cooperates, mortgage rates may see a slight decline in January. However, it isn’t likely that we’ll see significant drops to longer-term rates until we get further into 2024.”
Ralph DiBugnara, president at Home Qualified
Prediction: Rates will fall
“Rates finally shifted down some in December and stabilized lower. U.S. payrolls came in lower than anticipated, unemployment was up and building of new homes was down. These are good signs that inflation may have reached its peak and could trigger a lowering of rates. I expect the Fed to stay neutral for the time being and possibly through the first quarter of the year with possible cuts coming only if we see a drastic shift in the economy. For January, I believe the average 30-year fixed will land at 7.125% and the 15-year fixed will be 6.75%.”
Selma Hepp, chief economist at CoreLogic
Prediction: Rates will fall
“Mortgage rates should continue to decline, albeit very gradually and given there are no surprises with inflation. We should see rates fall below 7% mark.”
Hannah Jones, senior economic research analyst at Realtor.com
Prediction: Rates will fall
“If inflation and employment data continue to show signs of slowing, mortgage rates are likely to ease in January, though at a slower clip than in recent weeks. As incoming data confirms that the economy is indeed cooling, the upward pressure on mortgage rates will continue to let up and buyers will enjoy lower rates than in recent months.
However, if inflation or employment data come in stronger than expected, we could see rates pick up steam once again. Investors expect the Fed to hold steady at the current target rate in next week’s meeting, which would signal the Committee’s confidence in the current policy stance to bring inflation down to the target 2%. As inflation reaches the target level, mortgage rates will continue to drift lower.”
Jess Kennedy, COO at Beeline
Prediction: Rates will fall
“We expect rates to continue to ease as we kick off 2024. You can see the signaling of a rate cut from the Fed in many ways. For example, it is harder to find long-term CDs at the higher interest rates we were seeing 45-60 days ago). Publicly traded companies are also seeing their stock prices move higher on the expectation of rate relief in 2024. All these signs signal rates start to tick down even ahead of an official rate cut.”
Odeta Kushi, deputy chief economist at First American
Prediction: Rates will fall
“In light of favorable trends in inflation and labor market data, the Federal Reserve appears to be on a path towards its goals, although achieving its 2% inflation target will take some time. Consequently, the Fed is expected to maintain a restrictive stance, which will keep mortgage rates elevated. However, given slowing inflation and a cooling labor market, and barring any unforeseen developments, modest reductions in mortgage rates are possible in January.”
Rick Sharga, CEO at CJ Patrick Company
Prediction: Rates will fall
“With inflation moving in the right direction, wage growth slowing, and the jobs market softening a bit, it seems likely that the Federal Reserve has finished rate hikes for this cycle. That, coupled with weakening bond yields, should create an environment where mortgage rates can start a gradual, but steady decline throughout 2024. January rates for 30-year fixed-rate loans will probably straddle 7% — ranging from 7.1% to about 6.9% as the market finds its footing to begin the year.”
As inflation ran rampant in 2022, the Federal Reserve took action to bring it down and that led to the average 30-year fixed-rate mortgage spiking in 2023.
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With inflation gradually cooling, the Fed adjusted its policies with smaller and skipped hikes. Additionally, the economy showing signs of slowing has many experts believing mortgage interest rates will gradually descend in 2024.
Of course, rates could rise on any given week or if another global event causes widespread uncertainty in the economy.
The 30-year fixed-rate mortgage averaged 6.62%% as of Jan. 4, according to Freddie Mac. All five major housing authorities we looked at project 2024’s first quarter average to finish above that.
The National Association of Home Builders sits at the low end of the group, predicting the average 30-year fixed interest rate to settle at 7.04% for Q1. Meanwhile, Fannie Mae had the highest forecast of 7.6%.
Housing Authority | 30-Year Mortgage Rate Forecast (Q1 2024) |
National Association of Home Builders | 6.77% |
Wells Fargo | 6.85% |
Fannie Mae | 7.00% |
Mortgage Bankers Association | 7.00% |
National Association of Realtors | 7.50% |
Average Prediction | 7.02% |
Mortgage rates came down for the ninth consecutive week.
The average 30-year fixed rate increased from 6.61% on Dec. 28 to 6.62% on Jan. 4 The average 15-year fixed mortgage rate fell, going from 5.93% to 5.89%.
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Month | Average 30-Year Fixed Rate |
December 2022 | 6.36% |
January 2023 | 6.27% |
February 2023 | 6.26% |
March 2023 | 6.54% |
April 2023 | 6.34% |
May 2023 | 6.43% |
June 2023 | 6.71% |
July 2023 | 6.84% |
August 2023 | 7.07% |
September 2023 | 7.20% |
October 2023 | 7.62% |
November 2023 | 7.44% |
December 2023 | 6.82% |
Source: Freddie Mac
After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024. Whatever happens, interest rates are still below historical averages.
Dating back to April 1971, the fixed 30-year interest rate averaged around 7.8%, according to Freddie Mac. So if you haven’t locked a rate yet, don’t lose too much sleep over it. You can still get a good deal, historically speaking — especially if you’re a borrower with strong credit.
Just make sure you shop around to find the best lender and lowest rate for your unique situation.
Many mortgage shoppers don’t realize there are different types of rates in today’s mortgage market. But this knowledge can help home buyers and refinancing households find the best value for their situation.
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The best mortgage for you depends on your financial situation and your goals.
For instance, if you want to buy a high-priced home and you have great credit, a jumbo loan is your best bet. Jumbo mortgages allow loan amounts above conforming loan limits, which max out at $ in most parts of the U.S.
On the other hand, if you’re a veteran or service member, a VA loan is almost always the right choice. VA loans are backed by the U.S. Department of Veterans Affairs. They provide ultra-low rates and never charge private mortgage insurance (PMI). But you need an eligible service history to qualify.
Conforming loans and FHA loans (those backed by the Federal Housing Administration) are great low-down-payment options.
Conforming loans allow as little as 3% down with FICO scores starting at 620. FHA loans are even more lenient about credit; home buyers can often qualify with a score of 580 or higher, and a less-than-perfect credit history might not disqualify you.
Finally, consider a USDA loan if you want to buy or refinance real estate in a rural area. USDA loans have below-market rates — similar to VA — and reduced mortgage insurance costs. The catch? You need to live in a ‘rural’ area and have moderate or low income to be USDA-eligible.
Mortgage rates displayed their famous volatility in 2023. Uncertainty in the banking sector led to downtrends, but ongoing inflation battles, Fed hikes and a hot job market drove growth.
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At its September and November meetings, the central bank held off on a rate hike, preferring to see if the economy would keep cooling organically. In December, the FOMC skipped a hike and projected cuts for 2024. As always, the committee said it would adjust its policies as necessary — which could mean additional hikes or possibly none at all.
Here are just a few strategies to keep in mind if you’re mortgage shopping in the coming months.
Indecision can lead to failure or missed opportunities. That holds true in home buying as well.
Although the housing market is becoming more balanced than the recent past, it still favors sellers. Prospective borrowers should take the lessons learned from the last few years and apply them now even though conditions are less extreme.
“Taking too long to decide to make an offer can lead to paying more for the home at best and at worst to losing out on it entirely. Buyers should get pre-approved (not pre-qualified) for their mortgage, so that the seller has some certainty about the deal closing. And be ready to close quickly — a long escrow period will put you at a disadvantage.
And it’s definitely not a bad idea to work with a real estate agent who has access to “coming soon” properties, which can give a buyer a little bit of a head start competing for the limited number of homes available,” said Rick Sharga.
Buyer demand is lower than a typical year, but the market usually heats up in spring and summer. Being decisive (and prepared) should only play to your advantage.
Since interest rates can vary drastically from day to day and from lender to lender, failing to shop around likely leads to money lost.
Lenders charge different rates for different levels of credit scores. And while there are ways to negotiate a lower mortgage rate, the easiest is to get multiple quotes from multiple lenders and leverage them against each other.
“For potential home buyers, it’s important to get quotes from multiple lenders for a mortgage, as rates can vary dramatically, especially during such a volatile period,” said Odeta Kushi.
As the mortgage market slows due to lessened demand, lenders will be more eager for business. While missing out on the rock-bottom rates of 2020 and 2021 may sting, there’s always a way to use the market to your advantage.
Rate shopping doesn’t just mean looking at the lowest rates advertised online because those aren’t available to everyone. Typically, those are offered to borrowers with great credit who can put a down payment of 20% or more.
The rate lenders actually offer depends on:
To figure out what rate a lender can offer you based on those factors, you have to fill out a loan application. Lenders will check your credit and verify your income and debts, then give you a ‘real’ rate quote based on your financial situation.
You should get three to five of these quotes at a minimum, then compare them to find the best offer. Look for the lowest rate, but also pay attention to your annual percentage rate (APR), estimated closing costs, and ‘discount points’ — extra fees charged upfront to lower your rate.
This might sound like a lot of work. But you can shop for mortgage rates in under a day if you put your mind to it. And shaving just a few basis points off your rate can save you thousands.
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Current mortgage rates are averaging 6.62% for a 30-year fixed-rate loan and 5.89% for a 15-year fixed-rate loan, according to Freddie Mac’s latest weekly rate survey. Your individual rate could be higher or lower than the average depending on your credit score, down payment, and the lender you choose to work with, among other factors.
Mortgage rates could decrease next week (Jan. 8-12, 2024) if the mortgage market takes a cautious approach to a possible recession. However, rates could rise if lenders account for the Federal Reserve taking measures to counteract inflation or if a global event brings economic uncertainty.
If inflation continues to dissipate and the economy cools or goes into a recession, it’s likely mortgage rates will decrease in 2024. Although, it’s important to remember that interest rates are notoriously volatile and are driven by many factors, so they can rise during any given week.
Mortgage rates may continue to rise in 2024. High inflation, a strong housing market, and policy changes by the Federal Reserve have all pushed rates higher in 2022 and 2023. However, if the U.S. does indeed enter a recession, mortgage rates could come down.
Freddie Mac is now citing average 30-year rates in the 7% range. If you can find a rate in the 5s or 6s, you’re in a very good position. Remember that rates vary a lot by borrower. Those with perfect credit and large down payments may get below-average interest rates, while poor-credit borrowers and those with non-QM loans could see much higher rates. You’ll need to get pre-approved for a mortgage to know your exact rate.
For the most part, industry experts do not expect the housing market to crash in 2023. Yes, home prices are over-inflated. But many of the risk factors that led to the 2008 crash are not present in today’s market. Low inventory and massive buyer demand should keep the market propped up next year. Plus, mortgage lending practices are much safer than they used to be. That means there’s not a subprime mortgage crisis waiting in the wings.
At the time of this writing, the lowest 30-year mortgage rate ever was 2.65%. That’s according to Freddie Mac’s Primary Mortgage Market Survey, the most widely used benchmark for current mortgage interest rates.
Locking your rate is a personal decision. You should do what’s right for your situation rather than trying to time the market. If you’re buying a home, the right time to lock a rate is after you’ve secured a purchase agreement and shopped for your best mortgage deal. If you’re refinancing, you should make sure you compare offers from at least three to five lenders before locking a rate. That said, rates are rising. So the sooner you can lock in today’s market, the better.
That depends on your situation. It’s a good time to refinance if your current mortgage rate is above market rates and you could lower your monthly mortgage payment. It might also be good to refinance if you can switch from an adjustable-rate mortgage to a low fixed-rate mortgage; refinance to get rid of FHA mortgage insurance; or switch to a short-term 10- or 15-year mortgage to pay off your loan early.
It’s often worth refinancing for 1 percentage point, as this can yield significant savings on your mortgage payments and total interest payments. Just make sure your refinance savings justify your closing costs. You can use a mortgage calculator or speak with a loan officer to crunch the numbers.
Start by choosing a list of three to five mortgage lenders that you’re interested in. Look for lenders with low advertised rates, great customer service scores, and recommendations from friends, family, or a real estate agent. Then get pre-approved by those lenders to see what rates and fees they can offer you. Compare your offers (Loan Estimates) to find the best overall deal for the loan type you want.
Mortgage rates are rising, but borrowers can almost always find a better deal by shopping around. Connect with a mortgage lender to find out exactly what rate you qualify for.
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1Today’s mortgage rates are based on a daily survey of select lending partners of The Mortgage Reports. Interest rates shown here assume a credit score of 740. See our full loan assumptions here.
Selected sources:
Source: themortgagereports.com
Mortgage rates have plummeted in recent weeks, boosting the prospects of homebuyers previously stifled by high borrowing costs.
Many forecasters predict mortgage rates will drop further, however, since the Federal Reserve expects to cut its benchmark interest rate this year.
Those circumstances pose a quandary for buyers: Jump into a newly attractive market that promises thousands of dollars in gains or wait for the possibility of an even more favorable one.
Homebuyers would be well-served by a leap into the current market, since the movement of mortgage rates often proves difficult to predict and purchasers reserve the ability to refinance if rates continue to fall, experts told ABC News.
But that approach does carry risks, some experts added, noting the loss of additional time to pad one’s finances as well as the possibility of a decline in home value after the purchase if the market worsens.
“If you need to buy a property, go ahead and buy it,” Marti Subrahmanyam, a professor of finance and business at New York University, told ABC News. “Don’t try to time the market.”
Last year, mortgage rates reached their highest level in more than two decades.
But rates have declined sharply over the past few months. As of last week, the average interest rate for a 30-year fixed mortgage stood at roughly 6.6%, according to FreddieMac. That amounts to more than a percentage point drop from a peak reached in October.
Each percentage point decrease in a mortgage rate can take away thousands or tens of thousands of dollars in costs each year, depending on the price of the house.
The fall of mortgage rates coincided with an announcement from the Fed that it expects to cut interest rates this year by an amount equivalent to three quarter-point reductions.
Such plans would reverse a near-historic series of rate increases over the past year that sent mortgage rates soaring.
Mortgage rates closely track with 10-year treasury bond yields, which last month reached lows last seen in August. Those yields are highly sensitive to the Fed’s interest rate moves.
“Treasury rates are coming down — and as treasury rates come down, so will mortgage rates,” Susan Wachter, a professor of real estate at University of Pennsylvania’s Wharton School of Business, told ABC News.
Even though mortgage rates could continue to fall, experts said, it makes sense to jump into the market because shifts in rates often defy expectations.
“I would be wary of advising prospective homebuyers to delay their purchase in hopes of better terms in the future,” Julia Fonseca, a professor at the Gies College of Business at the University of Illinois at Urbana-Champaign. “It’s very hard to time the market.”
Lu Liu, a professor at the Wharton School at the University of Pennsylvania, echoed this view.
“Households should make their housing decisions in line with their needs,” Liu told ABC News. “It’s very hard to accurately predict long-term interest rates.”
Plus, experts added, homebuyers can opt to refinance their homes at relatively low cost if rates move further downward.
“It’s quite efficient to refinance,” Wachter said.
This approach does carry some downsides, however, some experts noted.
If homebuyers move quickly, they cut down the time available to add to their savings before taking on the significant expense of a mortgage.
Purchasers also run the risk of snatching up a house right before the market declines, in which case the home could lose value almost immediately.
“The risks are that housing prices may plummet,” Wachter said, noting that such an outcome would likely require a severe recession that triggers layoffs and tanks demand for homes.
Optimism has grown about the outlook for the U.S. economy, however. Experts widely expect the economy to slow but not shrink over the next year.
“That risk of significant declines in housing prices I believe is off the table,” Wachter said.
Ultimately, the decision to buy a house requires a case-by-case assessment of factors that extend well beyond borrowing costs, some experts said.
“Whether now is a good time to jump back in depends on your personal situation,” Liu said.
Source: abcnews.go.com
The Federal Housing Administration (FHA) faces a potential loss of roughly $7 billion in receipts in 2024, and a failure by Congress to come to terms on certain spending agreements could force across-the-board cuts to non-defense spending of roughly 5-to-9%.
This is according to a letter published this week by the Congressional Budget Office (CBO), submitted to the chairman and ranking member of the U.S. House of Representatives budget committee.
“This letter provides CBO’s assessment of the effects of the caps on discretionary funding in fiscal year 2024,” the letter reads. “Those effects will depend on the nature and timing of appropriation legislation and on decisions by [OMB]. If necessary, the caps will be enforced by OMB through sequestration, the process by which across-the-board reductions are applied to budgetary resources.”
If Congress is unable to come to a compromise on government funding — with current continuing resolutions in place in two phases — sequestration would force cuts to both defense and nondefense government spending. The latter would see far more severe cuts, according to CBO.
“In the scenarios CBO examined, if enacted funding equaled the annualized amount of funding under the continuing resolution, sequestration would be required and would result in across-the-board reductions ranging from 5 percent to 9 percent for nondefense funding and from zero to 1 percent for defense funding, depending on when appropriations were enacted and what form they took,” the letter said.
FHA’s lower expected receipts in 2024 are cited by CBO as one of the reasons that nondefense spending could see more severe cuts in 2024, but both housing groups and the agencies themselves have explained that additional resources from Congress are needed to adequately handle the housing challenges across the country today.
Leaders in Congress have been entertaining the notion of a 1% cut to housing agencies. In December, leaders at housing advocacy groups including the Mortgage Bankers Association (MBA) and the National Reverse Mortgage Lenders Association (NRMLA) submitted a letter urging leaders in Congress to fully fund FHA and Ginnie Mae.
“The [budget agreement] enacted this past spring contained an overall discretionary spending level of 1% below FY 2023 spending levels,” the letter said. “At this time, it is unclear whether FY 2024 HUD funding will be approved through a traditional conference report, a continuing resolution, or a reversion to the budget agreement default process.”
FHA, the groups said, provides “the most important mortgage option for affordable mortgage loans for first-time, minority, and other underserved homebuyers – responsibly serving qualified borrowers with low down payment requirements or minor credit blemishes,” while Ginnie Mae maintains a “critical role” in the housing ecosystem with its mortgage-backed securities (MBS) program and its other important roles in rural housing and loans for veterans.
A one percent cut to these agencies, the letter said, would “prove inadequate and substantially undermine FHA’s ability to fulfill its baseline responsibilities and pursue the initiatives identified above,” and would “result in harmful mortgage market impacts and taxpayer risks” for Ginnie Mae.
A reduction in FHA’s budget could negatively impact the administration of the Home Equity Conversion Mortgage (HECM) program, but another reverse mortgage impact could be from potential cuts to Ginnie Mae due to liquidity challenges being faced in the reverse mortgage business.
After assuming control of Reverse Mortgage Funding (RMF)’s portfolio of HECM-backed securities late last year, Ginnie Mae officials explained throughout last year that the assumption of a large portfolio — estimated to contain as much as one-third of all HMBS issuance as of mid-2023 — necessitated more appropriations from Congress to adequately manage it.
In its 2024 budget request submitted to Congress last March, Ginnie Mae explained some of the challenges inherent in managing the RMF portfolio.
“We continue to spot new issues as we take the RMF portfolio in-house,” Ginnie’s budget request document said. “It has become clear that the HECM program requires enhanced governance across how Ginnie Mae makes decisions […] because the HMBS program presents a heightened set of operational risks for Ginnie Mae, we require additional staff to work through these issues.”
In an interview with RMD late in 2023, Ginnie Mae President Alanna McCargo spoke about some of the challenges in securing additional appropriations considering the narrow political majorities in both houses of Congress.
“We’ve been on a journey to right-size Ginnie Mae since I started, and then the acquisition of this portfolio and with the role we’re playing right now in the reverse industry, [that has] only accelerated our need to have more focus, more resources and more people to do the business that we have to do,” McCargo said.
While there has been some support shown for fully funding Ginnie Mae in Congress, operating off of a continuing resolution has stifled any potential growth in appropriations, she explained.
“Unfortunately, the [continuing resolution] that we’re currently operating under keeps us flat, so it really does slow down our ability to do the hiring and planning that we want and need to do,” McCargo said.
External to the budget issues, Ginnie Mae has taken steps to improve reverse industry liquidity by reducing the minimum size required to create HMBS pools to assist smaller issuers and changing certain pool eligibility requirements to ease some strain.
Source: housingwire.com
Top-10 mortgage lender Guaranteed Rate has filed a lawsuit against retail rival New American Funding over poaching. But this isn’t your standard poaching lawsuit: G-Rate alleges that NAF has wooed at least 30 employees since early 2023 via illegal loan officer compensation practices.
Despite the rise in poaching lawsuits in a competitive market, it’s the first time a large lender has publicly accused a competitor of violating the LO comp rule by allowing their salesforce to manipulate lead sources in order to reduce their rates and win more loans.
Industry experts told HousingWire for a December feature that the manipulation of lead sources is widespread among retail lenders, and there’s no enforcement.
Tara Castrejon, director of content marketing and public relations at NAF, said in an emailed response to HousingWire that the company does not comment on pending litigation.
A spokesperson for G-Rate did not immediately respond to a request for comments.
“Since February 2023, NAF has unlawfully raided GR’s branches nationwide, poaching over 30 GR employees from coast-to-coast,” the lawsuit states. “To achieve its goals, NAF uses illegal compensation practices to induce GR employees to resign from GR and join NAF, and incentivizes and encourages GR employees to solicit and recruit other GR employees to defect to NAF.”
The lawsuit, which seeks injunction relief and damages, was filed on Dec. 26 in the Circuit Court of Cook County, Illinois. G-Rate claims, among other accusations, tortious interference, violation of Illinois deceptive trade practice laws and misappropriation of confidential information.
NAF zeroed in on employees in Washington, Arizona, Texas, Georgia, Missouri, Florida, and Illinois, the lawsuit states. The departing employees included a divisional manager, branch and regional managers, and loan officers.
G-Rate claims that it all started when Gregory Griffin, a former regional manager and senior vice president of strategic growth, joined NAF as regional manager of strategic growth, where he was responsible for recruiting in the Midwest Region. Griffin had a “non-solicitation” agreement with his former employer, G-Rate claims.
“After Mr. Griffin’s hiring by NAF in January 2023, the dam broke, and NAF began to aggressively recruit and hire from GR. Prior to this point, NAF had not been able to successfully recruit from GR on such a massive scale,” the lawsuit states.
Griffin did not immediately return to a request for comments.
The lawsuit says that former employees who transitioned to NAF sent borrowers’ information to their emails, including pay stubs and bank statements. G-Rate’s research on publicly available data on closed loans shows “numerous customers took their business from GR to NAF in conjunction with the employee defections to NAF,” it says.
Among the more explosive claims is that NAF repeatedly violated Regulation Z, which prohibits loan officers from receiving payments based on the “terms of a transaction” other than the amount of credit extended.
The rule also prohibits reductions in LO comp to fund pricing concessions to consumers at the expense of the loan officer, which would be characterized as a change in transaction terms.
G-Rate claims NAF does not pay LOs “a fixed percentage of the loan amount or any other type of compensation permitted by applicable law and regulations.” Instead, the company supposedly offers different pricing buckets based on the source lead and allows LOs to play with them.
“Should the consumer dislike the loan pricing first offered using the ‘self-generated’ ‘bucket,’ the loan officer can freely switch the ‘bucket’ to ‘corporate generated’ or ‘connected generated’ instead, which, in turn, corresponds to lower compensation for the loan officer,” the lawsuit states.
“The lower ‘bucket’ results in new, lower pricing to the consumer. If the consumer likes the new pricing, and NAF ‘wins the deal’ with its lower pricing, the loan officer reduces the loan officer’s compensation to provide the consumer with a discount. Put another way; the loan officer is allowed to later (and falsely) change the source of the lead, allowing for lower loan officer compensation and a pricing advantage for NAF over competitors like GR. This approach is illegal.”
G-Rate claims the practice has caused millions of dollars in lost revenues, investment and future business opportunities. It also says NAF misrepresented to potential recruits that its illegal compensation arrangements were “audited” and approved by the Consumer Financial Protection Bureau (CFPB).
Source: housingwire.com