Fewer applications show borrowers’ demand for mortgage loans fell this week, despite a decline in rates due to concerns of an economic recession, according to the Mortgage Bankers Association (MBA).
The survey, which includes adjustments to account for the long Fourth of July weekend, shows mortgage applications down 5.4% for the week ending July 1, compared to a week earlier.
“Mortgage rates decreased for the second week in a row, as growing concerns over an economic slowdown and increased recessionary risks kept Treasury yields lower,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a statement. But he added: “Rates are still significantly higher than they were a year ago, which is why applications for home purchases and refinances remain depressed.”
The Refinance Index decreased 7.7% from the previous week and was 76% lower than the same week one year ago, as homeowners still have reduced incentive to apply for the product.
The seasonally adjusted Purchase Index fell 4.3% from the previous week and 7.8% compared to the same week in the previous year because borrowers face an ongoing affordability challenge and a low inventory problem.
The trade group estimates the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) decreased to 5.74%, from 5.84% the previous week, falling 24 basis points during the past two weeks. Jumbo mortgage loans (greater than $647,200) went from 5.42% to 5.28%.
Another index, the Freddie Mac PMMS, showed purchase mortgage rates dropped 11 basis points last week to 5.70%, ending a two-week climb.
Refis were 29.6% of total applications last week, decreasing from 30.3% the previous week, the survey shows.
The adjustable-rate mortgages (ARM) share of applications declined from 10.1% to 9.5%, still demonstrating continued popularity among borrowers. According to the MBA, the average interest rate for a 5/1 ARM fell to 4.62% from 4.64% a week prior.
The FHA share of total applications remained unchanged at 12%. Meanwhile, the V.A. share went from 11.2% to 11.1%. The USDA share of total applications remained at 0.6%.
The survey, conducted weekly since 1990, covers 75% of all U.S. retail residential mortgage applications.
More than any time since before the Great Financial Crisis, the disconnect between Washington policy makers and the actual reality in the mortgage markets is widening. The lack of real-world knowledge and comprehension by key agency heads in the Biden Administration begs the question whether Washington is a help or a hindrance as the industry grapples with rising interest rates and mounting credit loss expenses.
For example, Consumer Financial Protection Bureau head Rohit Chopra said in May that “a major disruption or failure of a large mortgage servicer really gives me a nightmare.” He made these intemperate comments during CBA Live 2023, a conference hosted by the Consumer Bankers Association.
Like his predecessor Richard Cordray, Chopra’s focus is political rather than on any real threat. But of course, progressive solutions require problems. Three large and mismanaged depositories failed in the first quarter of 2023, yet progressive partisans like Chopra, Treasury Secretary Janet Yellen, and Federal Housing Finance Agency head Sandra Thompson ignore the public record and continue to fret about nonexistent risk of contagion from mortgage servicers. Really?
The big risk posed by mortgage servicers, of course, is to shareholders and creditors, not to consumers. Witness the abortive auction for Specialized Loan Servicing by Computershare of Australia. The offering of private label servicer Select Portfolio Servicing byCredit Suisse and now UBS AG is another example of shareholder value destruction. Homepoint was basically a liquidation from the 2021 IPO.
When progressive politicians in Washington yowl about risk in the financial markets, it is usually really about risk to the personalities in question and financing their careers. There is no appreciable risk to consumers or the taxpayer from mortgage servicers, which like Black Rock and UBS are basically asset managers working for a fee. Bureaucrats like Chopra simply raise operating costs.
More than any real world problem posed by IMBs, it is the government in all of its manifestations that poses a significant risk to the world of mortgage finance and the housing sector more generally. Washington regulatory agencies seek to stifle the markets, limit liquidity and impose additional capital rules, strictures that must inevitably reduce economic growth and access to affordable housing.
The good news, of course, is that many of the proposals from the FHFA, HUD and other agencies are effectively modified or rolled back entirely (such as the debt-to-income calculation for loan-level pricing adjustments) once the industry trades and large issuers engage.
In this case, Washington listened, but only after taking an inordinate amount of time and resources from private issuers, resources that are badly needed elsewhere. Would it be too much to ask for government agencies to vet ideas thoroughly before a public proposal?
In other cases, however, as with the risk based capital rules proposed by Ginnie Mae and the capital rules already approved for the GSEs, Washington is definitely not listening. But then again, the industry did a lousy job of pushing back on the capital rules for Fannie Mae and Freddie Mac, to our great disadvantage.
Despite the withdrawal of the LLPAs, personnel at the GSEs are still pressing issuers for “mission loans,” meaning loans to underserved and generally low-quality borrowers that are sought by the Biden Administration. Some issuers approaching the GSE cash windows have been told that they will not receive attractive pricing unless the pools include mission loans.
But sadly, there are few cases where a lender could or should advise a consumer to take out a conventional loan vs. FHA/VA. And the execution from the GSEs is hardly attractive.
The changes in GSE loan pricing and other policy changes reflect the FHFA’s focus on implementing the enterprise capital requirements put into place by Thompson, even while paying lip service to progressive goals. Garrett Hartzog, Principal of FundamentalAdvisory and Consulting notes in a comment in NMN:
“The Enterprise Regulatory Capital Framework is going to dramatically transform GSE pricing in ways the industry hasn’t begun to contemplate. Understanding the ERCF means being able to mentally reconcile increasing risk-based pricing (the DTI-based fee) and decreasing the level of risk-based pricing (the credit score/LTV matrices). What’s more, people need only read Fannie Mae and Freddie Mac’s comment letters during the rulemaking process to understand that g-fees will ultimately experience a dramatic increase as a result of the ERCF.”
If FHFA raises guarantee fees for the GSEs in line with the capital rule, then Fannie Mae and Freddie Mac will no longer be competitive for larger, high-FICO loans. But poor execution at the cash window and higher g-fees are just some of the issues facing the GSEs as defaults rise and loan put backs also increase.
A number of issuers complain about an increasing tide of loan repurchase requests coming from the GSEs, Fannie Mae and Freddie Mac. One prominent industry CEO known for his ability to “see around corners” laughs at the fuss so far and told NMN: “The GSEs are just practicing for the real push back. This is just a dress rehearsal.”
Meanwhile, the FHFA has just rolled out a new program whereby all large conventional issuers must have pre-funding quality control (QC) in place for all loans going through their systems by Labor Day. For larger correspondent shops, this could mean dozens of new hires and hundreds of thousands in new annual expenses. Apparently the QC personnel at the GSEs did not know about the change.
One angry issuer tells NMN: “If your volume is mostly FHA/VA, it does not matter to the FHFA. They want QC on all loans. If my volume is mostly delegated correspondent, it does not matter. I’m buying closed loans, but it does not matter.”
Most issuers contacted by NMN say they cannot comply with the new QC edict from FHFA. The lack of appreciation for market realities within the FHFA mirrors the situation in much of official Washington, with regulators working against the best interests of consumers and the entire private mortgage and housing industry by reducing volumes and liquidity.
Ironically, even as the FHFA is becoming the focus of increased industry concerns, Ginnie Mae President Alanna McCargo is now focused on problems faced by issuers. The new partial claim regime put in place by the FHA to help finance loss mitigation for Ginnie Mae servicers evidences this concern.
The CEO of one lender that focuses on underserved communities told NMN: “Ginnie Mae understands that they need to let us run our businesses as delinquency rates rise. Until interest rates fall and volumes improve, this is a war of attrition among lenders.”
Lenders hoping for lower rates in 2023 and that are dragging their feet on cost cutting will not survive in many cases. With the markets extending spreads on late vintage production, the MBS with 6% and 7% coupons, higher for longer seems to be the plan in residential mortgages in 2023. Hope is not a strategy.
Nestled on the picturesque Gulf Coast of Florida, Naples has long been regarded as a captivating destination renowned for its pristine beaches, vibrant cultural scene, and luxurious lifestyle. As you contemplate the idea of moving to Naples, it is crucial to weigh the pros and cons of living in this sun-drenched city. From its flourishing economy and abundant recreational opportunities to its high cost of living and occasional natural hazards, there is a lot to consider. In this Redfin article, we will delve into the 10 most significant pros and cons of living in Naples. So whether you’re looking at apartments for rent in Naples, FL, browsing homes for sale, or you’re just curious about the area – keep reading to learn if Naples is right for you.
1. Breathtaking beaches
Naples, the gem of Florida’s Paradise Coast, offers a beach lover’s paradise with miles of pristine, soft, white sands lapped by turquoise waters. Not only are these beaches stunning, but they are also well-maintained and offer a serene place to relax, sunbathe, or engage in water sports. Naples’ shoreline delivers a visual feast and the quintessential coastal Florida lifestyle, from the picturesque Barefoot Beach Preserve to Lowdermilk Beach Park.
2. Vibrant arts and culture scene
For the culturally inclined, Naples won’t disappoint. The city brims with a rich and lively arts scene that echoes in its many galleries, performance venues, and arts festivals. Institutions such as the Naples Philharmonic and the Baker Museum host a variety of world-class performances and exhibitions. Art shows, craft fairs, and cultural festivals are staples in the local calendar, offering regular opportunities for residents to immerse themselves in a diverse tapestry of artistic expression.
3. A unique resort lifestyle
Living in Naples feels like an endless vacation with dozens of unique things to do, courtesy of its resort-like ambiance. From high-end shopping districts and gourmet dining venues to luxury spas, the city rolls out a sophisticated lifestyle that mirrors the world’s most popular resort destinations. The array of well-manicured golf courses, lavish residential communities, and top-notch services create a distinct sense of living in a luxurious retreat, offering residents the perks of a holiday year-round.
4. Endless outdoor adventures
Naples is an outdoor enthusiast’s dream, with a smorgasbord of activities. The city’s adjacency to the Everglades presents fantastic kayaking, hiking, bird watching, and wildlife spotting opportunities. Fishing and boating enthusiasts will love the accessibility to the Gulf of Mexico’s bountiful waters. Whether it’s a serene bike ride along the city’s picturesque paths or an exhilarating jet ski adventure, Naples caters to all shades of outdoor passions.
5. Golf capital of the world
For golf lovers, Naples is nothing short of paradise. Fondly known as the “Golf Capital of the World,” the city offers a stunning array of meticulously designed courses that cater to beginners and experts alike. With over 90 golf courses and glorious golfing weather that lasts almost all year, the city delivers an unmatched golfing experience–a compelling reason to consider Naples your new home.
Cons
1. High housing costs
One significant downside of living in Naples, Florida is the high cost of housing. The allure of the city’s stunning natural beauty and upscale amenities comes at a price, and that price often translates into steep housing costs. When it comes to Naples, Florida real estate, you’ll find that housing prices are considerably higher compared to other cities in Florida. As of April 2023, the median sales price in Naples reached $725,000 In comparison, the median sale price in Orlando stood at a more affordable $360,000, while in Tampa, it amounted to $420,000.
The demand for housing in this desirable location, coupled with limited available land for development, has resulted in a tight housing market and elevated prices. Additionally, the cost of living, in general, tends to be higher in Naples, which can further strain budgets and impact overall affordability.
2. Crowds of tourists
Being a popular tourist destination, Naples can get quite crowded, especially during the winter when ‘snowbirds’ from colder states flock to enjoy the balmy Florida weather. The influx of tourists can lead to overcrowded beaches, long wait times at restaurants, and a general increase in the hustle and bustle around the city, potentially hampering the tranquil lifestyle some residents seek.
3. Danger of hurricanes
Naples’ tropical paradise charm is somewhat tarnished by its vulnerability to hurricanes. Like much of Florida, the city faces an annual threat of these severe storms. This year alone, on average, floods have caused $1,399 in property damage for homeowners. While modern infrastructure and advanced warning systems mitigate the risks, residents must be prepared for potential evacuations, property damage, and the stress associated with hurricane season.
4. Low walkability
Despite its many charms, Naples falls short of walkability. The city has a below-average Walk Score of 35, indicating a strong dependence on cars. This can be a downside for those who prefer a lifestyle where amenities are within walking distance.
5. Scorching summer heat
Summers in Naples can be intensely hot and humid. The city’s tropical monsoon climate means that summer temperatures frequently rise into the 90s (Fahrenheit), with high humidity levels adding to the discomfort. Those not used to such weather might find the summer months challenging and need to consider this aspect before moving.
Is Naples, Florida a good place to live? The bottom line
With its breathtaking natural beauty, lively cultural scene, and endless opportunities for outdoor adventure, Naples certainly has its merits. However, there are downsides to be mindful of. The high cost of housing can pose a challenge for those on a budget, and the risk of hurricanes and occasional tourist crowds can be drawbacks. Ultimately, the decision to make Naples your home depends on your priorities, financial situation, and tolerance for the mentioned considerations. By carefully evaluating these factors, you can determine if Naples is the right fit for your desired lifestyle and aspirations.
Engel & Völkers of East Greenwich announced today that Andrew Hogan has joined its brokerage as a real estate advisor on the DiSpirito Team, bringing a specialty in investment properties and assisting first-time homebuyers to this new role.
Andrew is an Accredited Buyer Representative (ABR). His proven property management experience has given him a keen eye for finding ideal properties that generate cash flow. Andrew also offers property management services to his investment clients who don’t want to handle the day-to-day maintenance that often comes with managing a rental property.
“It’s all about finding the right property, in the right area, with tenants who are going to protect your investment,” says Andrew. “My job is to properly screen and vet these tenants, as well as work in tandem with them to ensure that the property is being well-maintained and is generating income.”
Andrew has several out-of-state clients and he specializes in helping first-time investors. Andrew advocates on behalf of his clients to ensure they are making a safe investment, while also setting realistic expectations.
“I have clients who were initially nervous about making the jump into residential property ownership, but after buying with me and having me manage their property, my clients have created very sustainable, cash-flowing businesses for themselves,” says Andrew.
Andrew received his real estate license in 2020 after becoming property manager at Cousins Property Management. He joins Engel & Völkers from NextHome Ocean State Realty Group.
Prior to becoming a real estate advisor, Andrew served as an executive sous chef at a private golf club in Placid, Florida, where he gained invaluable experience catering to luxury clients and delivering a high level of service. The real estate industry felt like a natural fit when Andrew moved back to Rhode Island because of his ability to provide an exceptional customer experience, even in high-pressure situations.
Andrew is a member of the Rhode Island Association of Realtors. He is licensed in RI and MA.
“We are thrilled to welcome Andrew to the DiSpirito Team at Engel & Völkers,” says Emilio DiSpirito, co-owner of Engel & Völkers. “He brings an impressive track record in the real estate industry and we are confident that he will be a valuable asset to our brokerage. Andrew is a true professional and we have no doubt that he will make an immediate and positive impact on our team and our clients. We look forward to witnessing his continued success and contributions to our growing brokerage.”
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Real estate has the power to change your life for the better, but it can do so much more than that. Today’s guest, Jen McConnell, used her commissions to fight pediatric cancer, and she later created a foundation to help further the cause. On this podcast, Jen shares how real estate changed her life and has given her the ability to impact the lives of countless others. Jen also covers the advantages of running your own brokerage, ways to deliver five-star customer service, and more.
Listen to today’s show and learn:
Jen McConnell’s start in real estate [1:34]
What agents learn selling homes for builders [5:31]
The Charleston real estate market [6:47]
McConnell Real Estate Partners’ sales and team structure [8:04]
The advantages of running your own brokerage [13:32]
Social media as a tool for real estate agents [15:20]
The financial crisis compared to this correction [17:17]
About The McConnell Foundation and donating to causes that matter [18:33]
Restarting in real estate after major life challenges [22:18]
Advice on starting a non-profit foundation [26:53]
Advice for agents on giving five-star service to get referrals [27:29]
Jen’s favorite CRM: Follow-Up Boss [30:19]
The post-closing checklist: When to follow up with buyers [31:13]
Transitioning from paid leads to referrals [34:42]
Where to find and follow Jen McConnell [36:25]
Jen McConnell
Jen was fortunate enough to start her real estate career when she was a junior in college. Now with over 17 years of experience in the industry, she has a particular expertise in luxury real estate and custom home building. She moved to Charleston in 2006 after receiving her B.A. in Marketing from Ashland University. In 2022 Jen was awarded the South Carolina Women in Business Award, and chosen as a Top 40 Under 40 Real Estate Agent in Charleston. Jen has also been featured on Charleston Home Showcase & Lowcountry Live and has been featured in Charleston Real Producers Magazine, Charleston Style & Design Magazine, Southern Living Magazine, The Post & Courier, Charleston City Paper, Charleston Regional Business Journal, Charleston Daily, Greenville Business Journal, Columbia Business Journal and many others. She is a Certified Luxury Home Marketing Specialist through the Institute for Luxury Home Marketing where she has been awarded the prestigious Million Dollar Guild award. Jen has also earned the coveted Realtor of Distinction Award achieving the highest rank possible as a Platinum Award winner through the Charleston Trident Association of Realtors. The Platinum Award places Jen in the Top 2% of agents in Charleston.
Jen is the Co-Founder of King Tide Investment Group and Blue Ocean Investments, both residential real estate investment companies based in Charleston, SC and Greenville, SC respectively. In 2021 Jen and her husband Josh opened their own brokerage on Isle of Palms and formed McConnell Real Estate Partners where she is the broker-in-charge.
Jen met her husband, Josh, in Charleston and was married at Wild Dunes on Isle of Palms in 2010. They now live on Isle of Palms and welcomed their daughter Bennett in 2016 and their son Bodhi in 2017. They have embraced all Charleston has to offer but most especially the outdoor living, the amazing restaurants and long summer days at the beach. The McConnell’s are avid Clemson Tigers, strong supporters of MUSC Children’s Hospital, the South Carolina Aquarium, Pet Helpers Adoption Center and are members of First United Methodist Church on Isle of Palms.
Jen prides herself on being persistent, utilizing her experience to always find the most advantageous terms for her clients, and providing unparalleled professionalism and expertise for her clients in each and every transaction. Whether you’re looking to buy, sell or invest in real estate throughout the Charleston area, Jen would love to share her passion and market knowledge with you.
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It might go without saying, but I’m going to say it anyway: We really value listeners like you. We’re constantly working to improve the show, so why not leave us a review? If you love the content and can’t stand the thought of missing the nuggets our Rockstar guests share every week, please subscribe; it’ll get you instant access to our latest episodes and is the best way to support your favorite real estate podcast. Have questions? Suggestions? Want to say hi? Shoot me a message via Twitter, Instagram, Facebook, or Email.
If you have a mortgage, you may be unknowingly participating in a mortgage-backed security (MBS). That is, your humble home loan may be part of a pool of mortgages that has been packaged and sold to income-oriented investors on the secondary market.
Being part of an MBS won’t change much (if anything) about how you repay your home loan, but it’s helpful to understand how these investment products work and how they impact the mortgage and housing industries.
Key takeaways
A mortgage-backed security is an investment product that consists of thousands of individual mortgages.
Investors can purchase MBSs on the secondary market from the banks that issued the loans.
When MBS prices fall, residential mortgage rates tend to rise – and vice versa.
What is a mortgage-backed security?
A mortgage-backed security (MBS) is a type of financial asset, somewhat like a bond (or a bond fund). It’s created out of a portfolio, or collection, of residential mortgages.
When a company or government issues a traditional bond, they are essentially borrowing money from investors (the people buying the bond). As with any loan, interest payments are made and then principal is paid back at maturity. However, with a mortgage-backed security, interest payments to investors come from the thousands of mortgages that underlie the bond — specifically, the repayments in interest and principal the mortgage-holders make each month.
Mortgage-backed securities offer key benefits to the players in the mortgage market, including banks, investors and even mortgage borrowers themselves. However, investing in an MBS has pros and cons.
How do mortgage-backed securities work?
While we all grew up with the idea that banks make loans and then hold those loans until they mature, the reality is that there’s a high chance that your lender is selling the loan into what’s known as the secondary mortgage market. Here, aggregators buy and sell mortgages, finding the right kind of mortgages for the security they want to create and sell on to investors. This is the most common reason a borrower’s mortgage loan servicer changes after securing a mortgage loan.
Mortgage-backed securities consist of a group of mortgages that have been organized and securitized to pay out interest like a bond. MBSs are created by companies called aggregators, including government-sponsored entities such as Fannie Mae or Freddie Mac. They buy loans from lenders, including big banks, and structure them into a mortgage-backed security.
Think of a mortgage-backed security like a giant pie with thousands of mortgages thrown into it. The creators of the MBS may cut this pie into potentially millions of slices — each perhaps with a little piece of each mortgage — to give investors the kind of return and risk they demand. Mortgage-backed securities typically pay out to investors on a monthly basis, like the mortgages underlying them.
Types of mortgage-backed securities
Mortgage-backed securities may have many features depending on what the market demands. The creators of MBSs think of their pool of mortgages as streams of cash flow that might run for 10, 15 or 30 years — the typical length of mortgages. But the bond’s underlying loans may be refinanced, and investors are repaid their principal and lose the cash flow over time.
By thinking of the characteristics of the mortgage as a stream of risks and cash flows, the aggregators can create bonds that have certain levels of risks or other characteristics. These securities can be based on both home mortgages (residential mortgage-backed securities) or on loans to businesses on commercial property (commercial mortgage-backed securities).
There are different types of mortgage-backed securities based on their structure and complexity:
Pass-through securities: In this type of mortgage-backed security, a trust holds many mortgages and allocates mortgage payments to its various investors depending on what share of the securities they own. This structure is relatively straightforward.
Collateralized mortgage obligation (CMO): This type of MBS is a legal structure backed by the mortgages it owns, but it has a twist. From a given pool of mortgages, a CMO can create different classes of securities that have different risks and returns (like different size slices, if we use our pie metaphor again). For example, it can create a “safer” class of bonds that are paid before other classes of bonds. The last and riskiest class is paid out only if all the other classes receive their payments.
Stripped mortgage-backed securities (SMBS): This kind of security basically splits the mortgage payment into two parts, the principal repayment and the interest payment. Investors can then buy either the security paying the principal (which pays out less at the start but grows) or the one paying interest (which pays out more but declines over time). These structures allow investors to invest in mortgage-backed securities with certain risks and rewards. For example, an investor could buy a relatively safe slice of a CMO and have a high chance of being repaid, but at the cost of a lower overall return.
How do mortgage-backed securities affect mortgage rates?
The cost of mortgage-backed securities has a direct impact on residential mortgage rates. This is because mortgage companies lose money when they issue loans while the market is down.
When the prices of mortgage-backed securities drop, mortgage providers generally increase interest rates. Conversely, mortgage providers lower interest rates when the price of MBSs goes up.
So, what causes mortgage-backed securities to rise or fall? Everything from stock market gains to higher energy prices and even unemployment numbers have the ability to influence the prices. A variety of factors that affect the course of mortgage-backed securities, and lenders are constantly monitoring it.
Mortgage-backed securities and the housing market
Why do mortgage-backed securities make sense for the players in the mortgage industry? Mortgage-backed securities actually make the industry more efficient, meaning it’s cheaper for each party to access the market and get its benefits:
Lenders: By selling their mortgages, lenders save on maintenance costs, and receive money they can then loan out to other borrowers, allowing them to more efficiently use their capital. They often require borrowers to meet conforming loan standards so that they can sell mortgages to aggregators. They can also sell the loans they might not want to keep, while retaining those they prefer.
Aggregators: Aggregators package mortgages into MBSs and earn fees for doing so. They may give mortgage-backed securities features that appeal to certain investors. A steady supply of conforming loans allows aggregators to structure MBSs cheaply.
Borrowers: Because aggregators demand so many conforming loans, they increase the supply of these loans and push down mortgage rates. So, borrowers may be able to enjoy greater access to capital and lower mortgage rates than they otherwise would.
Of course, easier access to financing is beneficial for the housing construction industry: Developers can build and sell more houses to consumers who are able to borrow more cheaply.
Investors like mortgage-backed securities, too, because these bonds may offer certain kinds of risk exposure that the investors, mainly big institutional players, want to have. Even the banks themselves may invest in MBSs, diversifying their portfolios.
While the lender may sell the loan, it may also retain the right to service the mortgage, meaning it earns a small fee for collecting the monthly payment and generally managing the account. So, you may continue to pay your lender each month for your mortgage, but the real owner of your mortgage may be the investors who hold the mortgage-backed security containing your loan.
Pros and cons of investing in MBSs
No investment is without risk. MBS have their advantages and disadvantages.
For instance, mortgage-backed securities typically pay out to investors on a monthly basis, like the mortgages behind the securities. But, unlike a typical bond where you receive interest payments over the bond’s life and then receive your principal when it matures, an MBS may often pay both principal and interest over the life of the security, so there won’t be a lump-sum payment at the end of the MBS’ life.
Here are some of the other advantages and disadvantages of investing in MBSs.
Pros
Pay a fixed interest rate
Typically have higher yields than U.S. Treasuries
Less correlated to stocks than other higher-yielding fixed income securities, such as corporate bonds
Cons
If a borrower defaults on their mortgage, the investor will ultimately lose money
The borrower may refinance or pay down their loan faster than expected, which can have a negative impact on returns
Higher interest rate risk because the cost of MBSs can drop as soon as interest rates increase
History of mortgage-backed securities
The first modern-day mortgage-backed security was issued in 1970 by the Government National Mortgage Association, better known as Ginnie Mae. These mortgage-backed securities were actually backed by the U.S. government and were enticing because of their guaranteed income stream.
Ginnie Mae began providing mortgage-backed securities in an effort to bring in extra funds, which were then used to purchase more home loans and expand affordable housing. Shortly after, government-sponsored enterprises Fannie Mae and Freddie Mac also began offering their version of MBSs.
The first private MBS was not issued until 1977, when Lew Ranieri of the now-defunct investment group Salomon Brothers developed the first residential MBS that was backed by mortgage providers, rather than a federal agency. Ranieri’s MBSs were offered in 5- and 10-year bonds, which was attractive to investors who could see returns more quickly.
Over the years, mortgage-backed securities have evolved and grown significantly. As of May 2023, financial institutions have issued $493.9 billion in mortgage-backed securities.
Mortgage-backed securities today
While mortgage-backed securities were notoriously at the center of the global financial crisis in 2008 and 2009, they continue to be an important part of the economy today because they serve real needs and provide tangible benefits to players across the mortgage and housing industries.
Not only does securitization of mortgages provide increased liquidity for investors, lenders and borrowers, it also offers a way to support the housing market, which is one of the largest engines of economic growth in the U.S. A strong housing market often bolsters a strong economy and helps employ many workers.
Mortgage Market
Bankrate insights
As of 2021, 65% of total home mortgage debt was securitized into mortgage-backed securities.
Bottom line on mortgage backed securities
While you might not deal with a mortgage-backed security in your daily life, your mortgage may be part of one. And if so, it’s a cog in the machinery that keeps the financial system running and helps borrowers access capital more cheaply. It can be useful to understand that the MBS market ultimately has a powerful influence over qualifications for mortgages, resulting in who gets a loan — and for how much.
All 12 Federal Reserve districts have seen issues with a lack of housing inventory, which is largely due to existing homeowners holding back on listing their homes after previously locking in low mortgage rates.
Demand from the buyer side has remained steady or increased, however, and new home builders have responded to inventory shortages by increasing speculative inventory production, according to the Federal Reserve Beige Book, released Wednesday.
The Beige Book is a compilation of data and interviews with bank and branch directors, community organizations and economists from on or before May 22.
“Residential real estate activity picked up in most Districts despite continued low inventories of homes for sale,” the report states.
The Beige Book also notes that “home prices and rents rose slightly on balance in most Districts, after little growth in the prior period.”
In return, the lack of inventory of homes for sale pushed demand for rental properties in some areas — including New York, Chicago, St. Louis, Kansas City Federal Reserve districts.
Following are excerpts of statements on housing conditions from each of the 12 Federal Reserve districts.
***
Boston – Contacts around the District attribute the still-low sales numbers to low inventories more than to weak demand, as slightly lower mortgage rates have helped bring more buyers to the market.
House price appreciation has slowed on average but remains slightly positive, with the exception that home prices in Massachusetts (not including Boston) have experienced modest declines from a year earlier. The modest price growth in the Boston area marks a trend reversal from the preceding few months.
Contacts anticipate that, despite healthy buyer demand, home sales are likely to experience only a modest seasonal increase moving forward, owing to extremely low inventory levels.
New York – The residential sales market has been strong across the District. A New York City-area contact reports that the sales market in and around New York City has picked up strongly in recent weeks after a brief pause in early April, which was due to uncertainty in the banking sector.
After a slow start to the year, housing markets in upstate New York have also started to pick up, with bidding wars and multiple offers becoming more common. Inventory remains exceptionally low and is restraining sales activity in much of the District. A key factor suppressing new listings is the prevalence of homeowners with historically low interest rates on their existing mortgages, reducing the incentive to sell and move.
A strong economy and relatively high mortgage rates have pushed some movers to the rental market, boosting demand.
Philadelphia – High interest rates have continued to dissuade existing homeowners from listing their house and losing their low interest rate. Existing home sales have fallen moderately in this district, and prices have continued to rise as the market heats up again. New home builders have benefited from the unseasonably modest sales of existing homes as the resale market has slowed.
Cleveland – Demand for residential construction and real estate has stabilized in this District, and contacts attribute this stabilization to the arrival of spring and flattening interest rates.
Homebuilders have reported an increase in speculative construction projects in this District, as many buyers want to purchase and move into homes immediately, in part to avoid further rises in interest rates.
Richmond – Residential real estate respondents indicate in the report that the spring market is off to a good start, with sales prices continuing to appreciate, but not at the same pace as last year. For-sale inventory remains constrained due to fewer people putting their homes on the market, but buyer traffic has been steady while the days on market has increased slightly in the last month.
However, fluctuations in mortgage rates have caused buyers to pull back, with pending sales and closed sales both down in this District. Builders have been offering strong incentives to close deals.
Atlanta – Housing demand throughout the District has remained strong despite interest rate and home price volatility. Though home sales are down compared to a year ago, sales in many markets in this District have increased on a monthly basis, as buyer sentiment has modestly improved.
The supply of existing homes for sale has remained low as homeowners have showed increased hesitancy to list homes for sale, especially if they financed at a low interest rate. Home prices remain down from peak levels but have recently shown month-to-month improvement.
New home builders have responded to inventory shortages by increasing speculative inventory production, and some have begun to reduce buyer incentives.
Chicago – Residential construction activity has been down modestly in this District. Contacts report that high-interest rates have led some projects to be postponed or canceled and that while construction costs had fallen, the decline isn’t enough to offset higher financing costs.
Residential real estate activity has decreased modestly as well. Prices and rents have declined, and the low inventory of homes for sale has helped to prevent larger declines.
However, there have been reports of rising retail rents in some areas because of a lack of high-quality new construction.
St. Louis – Rental rates for residential real estate have increased slightly in this District. The number of new listings in residential real estate have dropped sharply in Louisville since our previous report, while new listings in the Memphis and Little Rock regions have remained unchanged. Seasonally adjusted home sales have remained unchanged since the previous report.
Minneapolis – Residential construction has remained subdued. Single-family permitting in April was more than 40 percent lower year over year in the Minneapolis-St. Paul region; most other large markets in the District saw even bigger declines. Discounts have started to appear for some speculative developments.
Closed (residential real estate) sales in April fell notably year over year across the District, with many larger markets seeing declines of 30 to 50 percent. Median sale prices have declined in western and central Montana and have been flat in several other markets.
Kansas City – Housing rental rate growth has remained elevated in several western District states, but the pace of increases has declined broadly and swiftly from the growth rate experienced during the past year.
Dallas – Housing demand broadly has held up in the Dallas District, though sales have continued to be weaker than a year ago. Contacts have noted a decent spring selling season, with prices largely stable, and builders have been able to raise prices slightly in selected areas.
Outlooks have been cautious, however, with some voicing concern about whether demand would hold up beyond the spring selling season.
San Francisco – Activity in residential real estate has slowed further in this District. Contacts across the District have reported stable demand for single-family homes, although high mortgage rates have restrained prices. Existing single-family inventory has been low, and owners appeared hesitant to forego their existing low-rate mortgages by listing their homes.
Despite reported improvement in the availability and cost of materials, construction of new homes has been flat-to-down as developers responded to higher financing costs.
Officials on Friday released fresh details about the first Storyliving by Disney project, an ambitious effort in Riverside County to infuse a master-planned community with the Burbank entertainment giant’s trademark whimsy and wonder.
Among the newly unveiled features of the in-the-works Cotino community is the “Parr House” — a gathering space inspired in name, design and decor by the midcentury-style home of the superhero family in the Disney and Pixar film “Incredibles 2.”
Along with a main entertaining room featuring an indoor/outdoor rock fireplace, the Parr House will include an art studio, kitchen, dining room, boardroom and five bedrooms.
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It will also have an elevated patio featuring views of the nearby mountains, as well as the community’s 24-acre “grand oasis.”
Access to the Parr House, as well as other community features such as a designated beach area and certain events and activities will be open to those who opt to purchase membership in what Storyliving by Disney calls the Artisan Club.
“From Disney entertainment and events to spaces inspired by Disney stories, club members will truly experience Disney story living,” Claire Bilby, senior vice president and general manager of Disney Signature Experiences Emerging Businesses, said in a statement.
Club membership will be open to Cotino residents and nonresidents.
“A professionally managed public beach park will be accessible to local area residents and visitors to the Greater Palm Springs area with the purchase of a day pass,” the venture said in a statement.
Cotino is being built on 618 acres in the city of Rancho Mirage, near where Walt Disney Co.’s namesake founder once owned a home.
“Walt Disney was so inspired by this place — he called it his ‘laughing place,’” Amy Young, a Walt Disney Imagineering creative director, said in a video posted to the Disney Parks YouTube channel. “In a sense, we’re following Walt’s footsteps here. The same things that inspired him years ago, they inspire us today. The area has this real energy to it, and you can see why Walt loved it.”
For the project, Disney is collaborating with Arizona-based DMB Development, which specializes in planned communities.
Cotino will ultimately include somewhere in the neighborhood of 1,932 residential units. Sales are anticipated to begin in 2023, with the first homes expected to be complete in 2024.
Various home types will be available, including estates, single-family homes and condominiums. At least one section of the development will be designated for residents age 55 or older.
“Storyliving by Disney master-planned communities are intended to inspire residents to foster new friendships, pursue their interests and write the next exciting chapter in their lives,” the venture said.
Other locations are being explored for potential future projects, but no details have yet been publicly announced.
Disney, like many of its competitors, has faced pressure to rein in costs — particularly in the increasingly crowded streaming arena. Along with Disney+, the company also owns ESPN+ and two-thirds of Hulu.
The company’s chief executive, Bob Iger, on Monday provided more details of his plan to cut 7,000 jobs as part of a wider effort to rejuvenate its finances and reach profitability in its streaming business.
According to people familiar with the matter, the layoffs are spread throughout the company — affecting roles in the units formerly known as Disney General Entertainment and Disney Media and Entertainment Distribution, as well as corporate positions and jobs in the theme parks, experiences and consumer products business.
Times staff writer Ryan Faughnder contributed to this report.
Boston fintech firm Knox Financial plans to expand its lending business and loan products with $50 million in funding it received from a real estate advisory firm.
New York-headquartered Saluda Grade provided the funding in forward flow capital which Knox will use to expand its lending business into Georgia, Knox representatives said Wednesday. The fintech also will offer additional loan products, including home equity lines of credit (HELOCs), new purchase loans and cash-out refinancings.
“A homeowner’s best investment is the home they live in — far better than the returns we’ve seen from the stock market in 2022, and a great hedge against record-high inflation,” said David Friedman, co-founder and CEO of Knox Financial.
Established in 2018, Knox aims to help manage residential rentals with its algorithm-based platform. Its rental pricing and projection model also calculates the rate of return an investment property is expected to produce over time. When a property is enrolled in the platform, Knox automates and oversees the property’s finances and taxes, insurance, leasing, banking and bill pay, according to the company’s website.
The funding comes shortly after Knox launched its first mortgage product, dubbed the Knox equity access program (KEAP), in April. KEAP loans give homeowners access to capital, based on the equity in the home, to turn it into an investment property with Knox. Homeowners can then use their KEAP loan to fund a downpayment on their next home and to pay for repairs on their investment property.
In return, Knox charges an origination fee and third-party costs to the borrower. Knox also keeps 10% of the rental income generated from properties listed on its platform.
Prioritizing home equity solutions in a rising rate environment
The 2022 housing market has been underscored by interest rate spikes and refi decline and lenders are working hard to adjust to new borrower trends. HousingWire recently spoke with Barry Coffin, managing director of home equity title/close at ServiceLink, about the ways lenders can capitalize on these trends by revving up their home equity solutions.
Presented by: ServiceLink
Knox’s expansion comes amid a shrinking mortgage origination market. As mortgage rates began increasing this year, lenders, mortgage tech firms and real estate brokerages started laying off employees, often citing rapidly declining market conditions.
With rising mortgage rates, company representatives said Knox has seen growing interest in second lien products such as home equity loans or HELOCs from borrowers who have tappable equity but don’t want to refinance.
“As mortgage rates have risen, more inventory will become available at more competitive pricing,” said Matt Marra, chief growth officer at Knox.
Knox Financial raised $10 million in Series A funding in April 2021, led by G20 Ventures, following a $3 million seed round in January 2020. The largest markets for Knox are metropolitan areas of Boston, Atlanta, Houston, Dallas and Austin, Texas. According to Marra, Knox oversees a portfolio of $150 million in combined value.
Whether you’re looking to take your real estate business to the next level or are ready to start thinking about retirement, this episode is for you. On today’s podcast, Stephanie Heiser interviews Jessica and Justin Ball about succession planning for real estate agents. Tune in and learn more about one of the best lead sources in the business. In addition to talking about inheriting another agent’s book of business, Jessica and Justin explain why all agents should have a succession plan of their own.
Listen to today’s show and learn:
Commercial and residential real estate compared [3:48]
About The Jessica Ball Team [4:15]
Succession planning for real estate agents [7:00]
How Jessica and Justin wrote Succession Planning for Real Estate Agents [9:43]
Inheriting another agent’s sphere of influence [11:51]
About Jessica and Justin’s book on succession planning [13:47]
Why broker owners should know the ins and outs of succession planning [16:38]
Jessica and Justin’s experience inheriting other agents’ business [17:54]
How to find the right successor [26:22]
Jessica Ball’s start in real estate [31:00]
Co-marketing and co-branding [33:52]
Why all agents should consider a succession plan [34:54]
Bringing different skill sets together for a successful business [37:40]
Getting over the fear of growth [40:34]
Jessica and Justin’s goals for the future [49:19]
Where to learn more from Jessica and Justin Ball [51:45]
Jessica and Justin Ball
Jessica Ball is a Realtor, the president and team leader of The Jessica Ball Team – RE/MAX Traders Unlimited (BALL HOMES LLC) in Peoria, Illinois, a speaker at national conferences, and has worked through several succession plans with seasoned real estate agents to transition and monetize their books of business as they retire from actively selling real estate. Throughout the first succession plan, Jessica and her team were able to improve on the succession plan that her partner had gone through 15 years earlier when he had done a succession plan with another retiring agent. The planning for this succession is what really started this book as she realized the lack of information for other real estate agents, their successors, retirees and others in similar positions in the industry.
Justin Ball is a Realtor, a commercial broker with The Jessica Ball Team RE/MAX Traders Un-limited (Ball Homes LLC), and serves as a Vice President of Bradley University. His background in customer relationship management (CRM) systems, marketing, lead generation, and sales funnels supports the team as it continues to grow and as the industry of real estate changes faster than it ever has with the introduction of new technology. He contributes to succession planning most di-rectly in helping to facilitate co-branding and co-marketing efforts, as well as valuing the book of business for beginning to craft an initial succession plan contract.
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