Mortgage applications declined 0.3% from a week earlier for the seven-day period ending Feb. 24, the Mortgage Bankers Association said.
The results were adjusted to account for the Presidents Day Holiday.
The decline in the MBA's market composite index shows mortgage applications down overall with refinancing activity falling 2.2% for the survey period.
During the same week, the seasonally adjusted purchase index grew 8.2%.
Still, activity overall slowed as the refinance share of mortgage activity fell to 77.9% from 80.1% the previous week.
"Mortgage rates remained near survey lows last week, but refinance volume fell slightly," said Michael Fratantoni, vice president of research and economics at the Mortgage Bankers Association. "According to survey participants, more than 20 percent of refinance applications were for HARP loans. The HARP share of total refinance applications has increased over the past month. Purchase application volume increased over the week, but remains within the narrow and anemic range of activity we have seen since the expiration of the homebuyer tax credit in May 2010."
The average interest rate for a 30-year FRM with a conforming loan balance of $417,500 or less declined from 4.09% to 4.07%. In addition, the average contract interest rate for the 30-year, FRM with a jumbo loan balance increased from 4.32% to 4.34%.
The 30-year, FRM backed by the FHA fell from 3.87% to 3.86%........
Wednesday, February 29, 2012
Thursday, February 16, 2012
How the Government Paid for the Payroll Tax Cut
Before the end of the year, Congress and the President agreed to extend the payroll tax cut. In that bill, there were two items of interest for those involved in real estate.
1.) The hike in the Guarantee Fees charged by the GSEs Fannie Mae and Freddie Mac.
The 10 basis point increase in the fees has translated to a .375% to .5% increase in mortgage rates for conventional loans. Many customers who started their loans a couple of months ago are being “surprised” with higher than expected rates. Heck, everything you read in the papers says rates are at historic lows and will likely stay there through 2014. Many consumers feel as if their lender is being unscrupulous. However, your lender has fallen victim to the increase in Guarantee Fees and how the secondary market is passing on the cost. What looks like possible lender greed is just a passing on of the increased expense imposed by the government. Sadly, the increased revenue isn’t even being used to help aid an ailing Fannie Mae or Freddie Mac. It is being turned over to the US Treasury to cover the temporary extension of the payroll tax cut.
2.) Permission for HUD to increase the insurance premiums they charge on FHA loans.
If you remember, HUD charges two insurance premiums – a monthly one and an up-front one that is usually added into the loan. Most recently, they reduced the up-front mortgage insurance premium (UFMIP) and dramatically raised the monthly fee (MMIP). It is widely anticipated that, maybe as soon as April, we will see a hike in the UFMIP with no adjustment to the MMIP. While this will help shore up the reserves in the insurance fund, it will simultaneously make buying a home more expensive. No one knows the effective date or amount of the increase. Buyers should look to buy before the increase in fees.
We always hear how our government officials tuck away things in their bills. In this case, while the headlines during the holidays praised Washington for preserving the payroll tax cut, they may have hurt us more in the long run.
1.) The hike in the Guarantee Fees charged by the GSEs Fannie Mae and Freddie Mac.
The 10 basis point increase in the fees has translated to a .375% to .5% increase in mortgage rates for conventional loans. Many customers who started their loans a couple of months ago are being “surprised” with higher than expected rates. Heck, everything you read in the papers says rates are at historic lows and will likely stay there through 2014. Many consumers feel as if their lender is being unscrupulous. However, your lender has fallen victim to the increase in Guarantee Fees and how the secondary market is passing on the cost. What looks like possible lender greed is just a passing on of the increased expense imposed by the government. Sadly, the increased revenue isn’t even being used to help aid an ailing Fannie Mae or Freddie Mac. It is being turned over to the US Treasury to cover the temporary extension of the payroll tax cut.
2.) Permission for HUD to increase the insurance premiums they charge on FHA loans.
If you remember, HUD charges two insurance premiums – a monthly one and an up-front one that is usually added into the loan. Most recently, they reduced the up-front mortgage insurance premium (UFMIP) and dramatically raised the monthly fee (MMIP). It is widely anticipated that, maybe as soon as April, we will see a hike in the UFMIP with no adjustment to the MMIP. While this will help shore up the reserves in the insurance fund, it will simultaneously make buying a home more expensive. No one knows the effective date or amount of the increase. Buyers should look to buy before the increase in fees.
We always hear how our government officials tuck away things in their bills. In this case, while the headlines during the holidays praised Washington for preserving the payroll tax cut, they may have hurt us more in the long run.
Tuesday, February 14, 2012
Who Are you Working With?
I have long been a proponent of referrals when choosing whom to do business with. But even with a referral, you owe it to yourself to do some homework. In terms of a mortgage, you have always had the Better Business Bureau and local regulators (like state banking departments) that you could contact. Over the past few years, the internet search engines have become popular ways of finding information beyond a company’s or a loan officer’s website. Two other places I strongly recommend you visit online (one for the company and one for loan officers) are:
A compare ratio of 100% means “average” performance. Numbers greater than 100% are below average. And a ratio under 100% is above average. Understand that the Neighborhood Watch numbers measure the quality performance of FHA loans only. Further, be aware that HUD recently stated that lenders with compare ratios over 200% were subject to suspension from being able to participate in the FHA Program, and lenders between 150-199% were going to be scrutinized very closely and subject to audit. Be wary of “riskier” lenders.
When you go to the website, click on the “Early Warnings” tab and either research an individual lender or look for a list of lenders in an area, and then just follow the instructions. Remember, many lenders nationally have similar names, so make sure you have the right lender.
Make sure you are dealing with a loan officer who is licensed! Ask questions if they have a lot of job changes.
There has been a cleansing in the mortgage industry over the past few years, but there are always a few bad apples in any large group. These websites may help you identify mistakes you can avoid when choosing whom you do business with.
As always, check out www.MyLenderNate.com and call me if you need assistance with your mortgage.
1.) https://entp.hud.gov/sfnw/public
This is the website for HUD’s Neighborhood Watch. Neighborhood Watch is where HUD publishes a lender’s loan performance on FHA loans and how it compares to the national and local averages.A compare ratio of 100% means “average” performance. Numbers greater than 100% are below average. And a ratio under 100% is above average. Understand that the Neighborhood Watch numbers measure the quality performance of FHA loans only. Further, be aware that HUD recently stated that lenders with compare ratios over 200% were subject to suspension from being able to participate in the FHA Program, and lenders between 150-199% were going to be scrutinized very closely and subject to audit. Be wary of “riskier” lenders.
When you go to the website, click on the “Early Warnings” tab and either research an individual lender or look for a list of lenders in an area, and then just follow the instructions. Remember, many lenders nationally have similar names, so make sure you have the right lender.
2.) www.nmlsconsumeraccess.org
Here you can search for loan officer and company licensing status. Recognize that loan officers are individually licensed now. Those who have taken the required courses, passed the required tests and been approved by their respective state licensing authority have all that information verified on this website, along with their employment history. Loan officers who work for federally chartered institutions (like banks) have not yet been required to take the classes and pass exams and are listed on the site with their license number and their employment history.Make sure you are dealing with a loan officer who is licensed! Ask questions if they have a lot of job changes.
There has been a cleansing in the mortgage industry over the past few years, but there are always a few bad apples in any large group. These websites may help you identify mistakes you can avoid when choosing whom you do business with.
As always, check out www.MyLenderNate.com and call me if you need assistance with your mortgage.
Monday, February 13, 2012
National Mortgage Settlement: Why is Inventory down? Where is it headed?
Last week, the Federal government and 49 state governments (Oklahoma being the exception) agreed to a $25 billion settlement regarding robo-signing and the challenges it created in the foreclosure process. We want to give a synopsis of the settlement and some perspective on what effect it will have on the housing market in 2012.
$17 Billion National Commitment to Foreclosure Relief Efforts
The servicers collectively agree to commit a minimum of $17 billion directly to borrowers through foreclosure relief effort options, including principal reduction for qualifying borrowers, short sales, anti-blight measures, and enhanced homeowner transition programs.
$3 Billion National Commitment to Underwater Mortgage Refinancing Program
The servicers collectively agree to commit $3 billion to refinance “underwater” homes (when a homeowner owes more on a mortgage than a home’s current market value). To qualify, borrowers must be current on their mortgage payments on a mortgage owned by one of the five banks.
$5 Billion Payment to States and Federal Government
The servicers’ $4.25 billion payment to the states includes $1.5 billion for payments to borrowers who lost their home to foreclosure by one of the five servicers…$750 million of the state-federal payment will go to the federal government to resolve federal claims.
For further details on the settlement you can go to the official website.
IHS Global Insights
Housing Wire
The Basics
The $25 billion in funds will be dispersed as follows:$17 Billion National Commitment to Foreclosure Relief Efforts
The servicers collectively agree to commit a minimum of $17 billion directly to borrowers through foreclosure relief effort options, including principal reduction for qualifying borrowers, short sales, anti-blight measures, and enhanced homeowner transition programs.
$3 Billion National Commitment to Underwater Mortgage Refinancing Program
The servicers collectively agree to commit $3 billion to refinance “underwater” homes (when a homeowner owes more on a mortgage than a home’s current market value). To qualify, borrowers must be current on their mortgage payments on a mortgage owned by one of the five banks.
$5 Billion Payment to States and Federal Government
The servicers’ $4.25 billion payment to the states includes $1.5 billion for payments to borrowers who lost their home to foreclosure by one of the five servicers…$750 million of the state-federal payment will go to the federal government to resolve federal claims.
For further details on the settlement you can go to the official website.
Will the Settlement Have a Major Impact on a Housing Recovery?
Probably not. Though it is a step in the right direction, it may be too little too late. Here are some opinions on the settlement:IHS Global Insights
“Like many previous plans to stem foreclosures, this agreement will help at the edges. The problem is too big for it to have a large impact, however…This agreement will help the housing market move ahead in 2012 in a small way. But it is hardly a game changer.”HSH.com
“While there is no doubt some benefit to formalizing and organizing the process of foreclosure and better monitoring of the process, the fact is that the settlement changes little.”Capital Economics
“While it is good that the settlement has been finalized and will offer principal reductions and refinancing schemes to borrowers, the bigger picture is that the settlement is not large enough to dramatically alter the outlook for the housing market or the wider economy.”
What about Foreclosures Moving Forward?
The settlement did bring clarity to one major issue – foreclosures. Banks have been holding off the foreclosure process on millions of homes over the last 18 months as they waited for the particulars of the settlement. They now know how they can move forward without penalty. The result will be an increase in foreclosures coming to the housing market.Housing Wire
“It will speed up processing, and perhaps mean that foreclosures that have been waiting around since robo-signing came to light in 2010 will now gain legitimacy.”Calculated Risk
“It does appear the number of completed foreclosures will increase following this settlement – especially in some judicial states with large backlogs – so there will probably be more REOs (lender Real Estate Owned) for sale.”Bloomberg News
“The $25 billion settlement with banks over foreclosure abuses may result in a wave of home seizures…Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year over allegations of faulty and fraudulent paperwork used to repossess homes. With yesterday’s agreement, banks are likely to resume property seizures.”Wells Fargo
“Mark Vitner, a senior economist at Wells Fargo Securities, said the settlement helps the housing market in the long run because it allows banks to proceed with millions of foreclosures that have been stalled. Many lenders have refrained from foreclosing on homes as they awaited the settlement.”
Wednesday, February 8, 2012
Where are Rents Headed?
People are delaying the decision to buy a home because they are not sure where prices are headed. If they buy and prices continue to soften, they feel that they will not have purchased at the optimal moment. They reason that, if they sit and wait, they can’t be hurt. This thinking assumes that a non-decision comes without consequence.
The normal retort to this thinking by people bullish on real estate is that prices may soon turn to the positive or that interest rates will start heading upward. Buy now before the cost of buying increases! Today, we want to look at this from a different angle. We want to alert our readers that their housing expense is about to increase if they continue to rent.
Currently, in Solano County and most of California, buying is less expensive than renting. Plus, purchasers can lock in their housing expense for the next thirty years by buying now. They will get a sensational price and a record low interest rate. What will happen if they continue to rent?
The normal retort to this thinking by people bullish on real estate is that prices may soon turn to the positive or that interest rates will start heading upward. Buy now before the cost of buying increases! Today, we want to look at this from a different angle. We want to alert our readers that their housing expense is about to increase if they continue to rent.
Currently, in Solano County and most of California, buying is less expensive than renting. Plus, purchasers can lock in their housing expense for the next thirty years by buying now. They will get a sensational price and a record low interest rate. What will happen if they continue to rent?
The Alternative to Buying
If a family continues to rent, they are looking at a housing expense which will rise with the market. Rental costs increase by 3% a year historically. But today’s rental market favors the landlord to a greater degree. Below is a graph of how rental prices have increased recently and where they are projected to go over the next few years based on a report from Marcus & Millichap.Bottom Line
Hoping to save by delaying the purchase of a home may result in higher housing costs while you’re waiting, thus achieving the exact opposite result. Feel free to give Nate Pina a Call or Email and he can write you up a rent vs. buy scenario for your proposed mortgage vs your current rent payments.Thursday, January 19, 2012
Does your Lender have what it takes? Nate Pina does!
For the longest time, I have listened to other loan officers talk about why people should do business with them; and 95% of the time their presentations boil down to three things – price, product, and service. On the pricing front, they talk about low interest rates and/or closing costs; on the product side, they position themselves as experts in a particular loan program (like a 203K or reverse mortgage); and on the
service side, they discuss turnaround
time or how available they are.
Let me just say that, in today’s marketplace, virtually every lender (and therefore, every loan officer) has very similar pricing, pretty much all the same products, and service is difficult to prove until you give them a loan to work on. My point being is that the changing lending landscape (tougher underwriting guidelines, loan officer licensing, stricter appraisals, and such) has eliminated virtually 70% of loan officers in America. The remaining people have been vetted and represent a very high quality group of professionals. (Not that there aren’t always a few bad apples, but there truly are very few.)
So, when borrowers shop for loans on the old “price/product/service model”, how does a consumer differentiate between loan officers?
If you go to www.mylendernate.com you can read testimonies that demonstrate that Nate Pina is the very best choice in Solano County for your mortgage lending needs!
service side, they discuss turnaround
time or how available they are.
Let me just say that, in today’s marketplace, virtually every lender (and therefore, every loan officer) has very similar pricing, pretty much all the same products, and service is difficult to prove until you give them a loan to work on. My point being is that the changing lending landscape (tougher underwriting guidelines, loan officer licensing, stricter appraisals, and such) has eliminated virtually 70% of loan officers in America. The remaining people have been vetted and represent a very high quality group of professionals. (Not that there aren’t always a few bad apples, but there truly are very few.)
So, when borrowers shop for loans on the old “price/product/service model”, how does a consumer differentiate between loan officers?
- Ask for referrals – If you have a friend, co-worker, or family member who had a good lending experience, ask who they used. Talk to people who deal with multiple lenders (real estate agents, attorneys, accountants, etc.) and leverage their comparative experience into making good choices. Loan officers who earn referrals typically go beyond price/product/service.
- Seek out a mortgage adviser – Even today, with limited loan programs, there are many factors to consider when choosing the right mortgage. Your future income, the length of time you expect to be in the home, and your risk tolerance should be discussed before ruling out adjustable rate mortgages, for example.
- Look for transparency – Demand a lender who freely and competently discusses rates and likely rate movements. Don’t buy into the idea that rates are conjured up in a mysterious way. Rates are derived by activities in the bond market and your loan officer should be able to explain, in layman’s terms, the factors that affect rates and upcoming events and economic reports, as well as, the most likely impact they will have.
- Accessibility of information – Are you looking for printed materials and/or videos to guide you through the process? How about online workshops or home buying seminars?
- Seek out a resource – You may need other professionals when buying a home (from insurance people, to home improvement people, to legal help). A good loan officer has a network of high quality referral partners to help you.
If you go to www.mylendernate.com you can read testimonies that demonstrate that Nate Pina is the very best choice in Solano County for your mortgage lending needs!
Tuesday, January 17, 2012
Real Estate Wealth
Several real estate economists have shown that the average homeowner accumulates more overall wealth than the average renter.[i] However, it is not clear how this is done. Is it that owned property usually appreciates at such a rate that, after considering leverage, returns to ownership are extraordinarily high? Said another way, might homeowners accumulate more overall wealth because ownership is a great levered equity creator through property appreciation? Or, is it that owners acquire greater wealth, on average, because they are systematically paying down a mortgage thereby creating equity thanks to loan amortization? In other words, paying off property creates wealth.
In ongoing research being conducted by Beracha and Johnson,[ii] these and other questions concerning home ownership and the accumulation of wealth are being investigated. In earlier research, Beracha and Johnson show that renting is the superior investment strategy; however, in this earlier strict horse race between buying and renting, a very bold assumption is made. Specifically, it is assumed that any rent savings (from lower rent versus mortgage payments) are reinvested without fail. Thereby, after balancing all of the costs and benefits from ownership and comparing them to renters’ portfolios from reinvesting rent savings, renting wins.
The question, however, very quickly becomes that, in a setting where Americans generally save less than 5% of their disposable income, is this assumption realistic and how might the removal of this reinvestment decision alter the outcome of the horse race between buy and renting? As part of their current research, this question is directly addressed. In particular, Beracha and Johnson find that after allowing renters to spend any rent savings on consumption (beer, cookies, healthcare, education, etc.), ownership leads to greater wealth accumulation, on average. The graph below highlights this finding.
In ongoing research being conducted by Beracha and Johnson,[ii] these and other questions concerning home ownership and the accumulation of wealth are being investigated. In earlier research, Beracha and Johnson show that renting is the superior investment strategy; however, in this earlier strict horse race between buying and renting, a very bold assumption is made. Specifically, it is assumed that any rent savings (from lower rent versus mortgage payments) are reinvested without fail. Thereby, after balancing all of the costs and benefits from ownership and comparing them to renters’ portfolios from reinvesting rent savings, renting wins.
The question, however, very quickly becomes that, in a setting where Americans generally save less than 5% of their disposable income, is this assumption realistic and how might the removal of this reinvestment decision alter the outcome of the horse race between buy and renting? As part of their current research, this question is directly addressed. In particular, Beracha and Johnson find that after allowing renters to spend any rent savings on consumption (beer, cookies, healthcare, education, etc.), ownership leads to greater wealth accumulation, on average. The graph below highlights this finding.
The graph looks at the ratio of renters’ portfolio values to owners’ proceeds from sale for the entire U.S. between 1978 and 2010 both with strict reinvestment of rent savings and without reinvestment of rent savings.[iii] Clearly, numbers greater than 1 indicate that renting leads to greater wealth accumulations, while numbers less than 1 indicate that home ownership creates greater wealth, on average.
When renters are forced to reinvest (top line in the graph), the results confirm the earlier findings of Beracha and Johnson (2012). That is, in a strict horse race between buying and renting, renting wins in the vast majority of cases. However, when renters are allowed to spend rent savings on consumption (i.e. economically act like the typical American consumer), home ownership wins in virtually all instances. Notice that in the bottom line of the graph (no reinvestment), the renters’ portfolio values divided by owners’ sale proceeds is great than 1 for only four of the 32 years of the study. Thus, when renters are allowed to spend rent savings, home ownership is the clear winner in the wealth accumulation horse race.
Finally, in the same current research, Beracha and Johnson find that allowing for property appreciation rates to increase as much as 20% over their actual historic values results in virtually no change in the outcomes concerning wealth accumulation. That is, property appreciation contributes only marginally to wealth accumulation
Who says that Americans are horrible savers? Apparently, we are not. We have simply been saving through our homes rather than putting our savings in the bank.
When renters are forced to reinvest (top line in the graph), the results confirm the earlier findings of Beracha and Johnson (2012). That is, in a strict horse race between buying and renting, renting wins in the vast majority of cases. However, when renters are allowed to spend rent savings on consumption (i.e. economically act like the typical American consumer), home ownership wins in virtually all instances. Notice that in the bottom line of the graph (no reinvestment), the renters’ portfolio values divided by owners’ sale proceeds is great than 1 for only four of the 32 years of the study. Thus, when renters are allowed to spend rent savings, home ownership is the clear winner in the wealth accumulation horse race.
Finally, in the same current research, Beracha and Johnson find that allowing for property appreciation rates to increase as much as 20% over their actual historic values results in virtually no change in the outcomes concerning wealth accumulation. That is, property appreciation contributes only marginally to wealth accumulation
Implications
Without proof many have speculated about this outcome for years. However, there is now actual quantifiable evidence that home ownership is not the great levered equity creator that it has so often been touted to be. Instead, it appears that home ownership creates extra wealth mainly through its ability to force owners to save rather than through property appreciation. Thus, home ownership appears to be a self-imposed savings, which through time leads to greater wealth accumulation as compared to comparable renters. In short, buying a home makes Americans save.Who says that Americans are horrible savers? Apparently, we are not. We have simply been saving through our homes rather than putting our savings in the bank.
Endnotes
[i] Home ownership is the most viable path to wealth creation for the majority of Americans. See Engelhardt (1994), Haurin, Hendershott and Wachter (1996), and Rohe, Van Zandt and McCarhty (2002), among others.
[ii] Eli Beracha and Ken H. Johnson, 2012, Beer and Cookies Impact on Homeowners’ Wealth Accumulation, ongoing research.
[iii] The research assumes 8-year holding periods. When the holding period is allowed to vary between four and twelve years, the results change only marginally. Thus, holding period has very little to do with the results.
[iii] The research assumes 8-year holding periods. When the holding period is allowed to vary between four and twelve years, the results change only marginally. Thus, holding period has very little to do with the results.
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