Tag Archives for " Housing "

Falling Mortgage Interest Rates Not Enough to Signal Housing Market Recovery

In spite of falling interest rates and low home pricing, sales hit a 14-year low this year. Analysts project home sales for 2011 to fall short about one million homes from what would indicate a healthy market. The median sales price since the same time last year dropped five percent, bringing the median down to roughly $163 thousand dollars. Although first time home buyers have slightly increased to 36%, that is still 4% below what is considered an indication to recovery.

A backlog of foreclosures and government regulations have prevented the flooding of the housing market to avoid flooding housing inventory and further decreasing pricing. 2011 is expected to bring 20 percent more homes lost to foreclosures over the previous year. As the home market inventory increased to just under 4 million homes, an equal increase in demand has not been the case. The time expected to sell home inventory has increased 33 percent, going from six months to over nine. Consumer knowledge of increasing foreclosures may lead to hesitation on purchases in anticipation of further depreciation.

Home mortgage interest rates have fallen .02 percent on a both 30 and 15 year loans since late last year, but have not been enough to signal a healthy housing market recovery.

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Sweat Equity Grants to Fund Affordable Low-Income Housing

The U.S. Department of Housing and Urban Development (HUD) announced in October it has allocated nearly $27 million in grants to go toward producing nearly 1,500 homes for low-income families.
This large sum of money, funded by HUD’s Self-Help Homeownership Opportunity Program (SHOP), will be given in the form of “sweat equity” grants. Sweat equity grants award money to individuals or organizations on the condition the recipient will literally work alongside the money in order to obtain the product the grant is funding.
In this case, organizations that receive grant money will be administering new home loans to low-income families.
The homebuyers are required to contribute a minimum of 100 hours of “sweat equity” to the construction of their homes. Sweat equity can be in the form of painting, roofing, carpentry, trim work, dry walling or any other duty homebuyers find themselves capable of doing in contribution to the final product of their own home.
Houses funded by the SHOP grants are expected to stay around $15,000 due to the volunteer and sweat equity work that will be put into them.
HUD secretary Shaun Donovan stated in a release that “These grants are about families devoting their own sweat and labor into their American Dream.”
The four organizations selected to receive SHOP funds are Habitat for Humanity International in Georgia, Tierra del Sol Corporation in New Mexico, Community Frameworks in Washington state and the Housing Assistance Council in Washington, D.C.

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HUD Announces Permanent Housing for Homeless Vets

The U.S. Housing and Urban Development (HUD) and the U.S. Department of Veterans Affairs (VA) came together in an announcement stating that $2.4 million will be provided to public housing agencies to build permanent housing and case management for homeless military veterans.
The funding announced by these two organizations will allow for 435 housing vouchers across 18 communities. These vouchers act as prepaid home loans, wherein the veterans will not need to finance their home.
This is but another step in fulfilling the Obama Administration’s pledge to end veteran homelessness by 2015.  Since the administration decided to tackle the problem of homeless vets, more than 33,000 homeless veterans have received permanent housing and supportive services.
“During this season of giving, I’m thrilled to announce that we have evidence that this funding is making a real difference  to get homeless veterans off the street and into homes they can their own,” said HUD Secretary Shaun Donovan in a press release. “Thanks to the work done by HUD, and agency partners across the Obama Administration, the most recent homeless estimate shows veteran homelessness fell by nearly 12 percent in just one year.”
It’s estimated that 12 percent of the homeless veteran population equates to 8,834 people.
“This program provides critical assistance to those who have worn our nation’s military uniforms and are in need of a home,” said VA Secretary Erik Shinseki. “VA and HUD will continue to work in partnership to end homelessness among veterans.”
The $2.4 million allocated to this round of vouchers is a small drop in the $50 million appropriated to ending veteran homelessness in 2011. This year’s allocation of money to HUD and VA hopes to provide housing to a total of 7,250 homeless veterans.
Through the VA, U.S. homeless veterans in Guam and Puerto Rico may also receive support and prepaid home loan vouchers.

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Canadian Housing Market Projected to Moderate

Reports released today state that Canada’s new housing market is expected to moderate in 2012 and 2013. Additionally, the existing housing market is expected to remain steady, at or slightly below inflation, according to the Canada Mortgage and Housing Corporation (CMHC).

The CMHC said housing starts will be in the range of 210,800 to 216,600 in 2012, with a point forecast of 213,700. Home construction is projected to continually slow into 2013, with ranges of 177,300 to 209,900 with a point forecast of 193,600. Existing home sales are projected to slow to a range of 449,200 to 465,600 with a point forecast of 457,400 units for 2012. Home sales, fueled by mortgage loans, are expected to increase in 2013, with a point forecast of 461,500 units.

“A weaker outlook for global economic conditions and the waning of the effect of pre-sales from late 2010 and early 2011, which contributed to support multi-family starts this year, will bring moderation in housing starts next year,” Mathieu Laberge, Deputy Chief Economist for CMHC, said in the agency’s fourth-quarter release. “Nevertheless, employment growth and net migration will help support housing starts activity going forward.”

But not everyone agrees with the forecasts.

Benjamin Tal, an economist with Canadian bank CIBC, reported this week that “in a final analysis, not all is well in the Canadian housing market.” According to Tal, prices have been overshot in cities such as Toronto and Vancouver. He predicts that slower sales will be followed by lowered prices in many Canadian cities.

Even with dismal and uncertain predictions, the outcome could be different than the American market. Currently, Canadians have more household debt than Americans did before the U.S. housing crash. As a preventative measure, the Canadian government has restricted mortgage lending rules four times in the past four years. As a result, the Canadian standards for mortgage loans have been higher. Additionally, borrowers and government agencies have been more cautious about mortgage loans. In 2011 and part of 2012, the housing market in Canada was strong. After the added restrictions by the government, the market slowed down.

Canada’s five major banks, which handle the majority of the country’s mortgage loans, have focused on other financial aspects in order to ride them through this time. Instead of focusing on mortgage loans, they have promoted credit cards and auto loans, according to Reuters.

The newest change in lending standards, which took effect in July, forced buyers to cut back on their budget. It also inhibited some buyers from even entering the market. Some economists and real estate agents in Canada approved the drastic measures by the government. Ron Carroll, a real estate agent in Toronto, applauded the move.

“It’s had a definite impact on first-time buyers. Money is almost free, but you shouldn’t give them too much rope,” he said to Reuters.

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Fed Causes Uncertainty and Increased Rates in Housing Industry

Forecasts that the Federal Reserve Bank of New York (Fed) will taper their asset purchases caused a steady increase of mortgage interest rates across the board.

All three mortgage interest rates increased by at least 0.1 percentage points for the week ending June 20, 2013.

The 30-year fixed-rate mortgage (FRM) averaged 4.02 percent, a significant increase from 3.87 percent reported last week.

The 15-year FRM averaged 3.11 percent. Last week that rate was 2.97 percent.

The 5/1 adjustable-rate mortgage (ARM) interest rate averaged 2.68 percent, a large shift upwards from last week’s rate of 2.53 percent.

Greg Cook, first time home buyer specialist for Platinum Home Mortgage, said the weekly mortgage interest rate increase is a reflection of the market’s uncertainty about what direction the Fed will take with quantitative easing (QE).

Yesterday, Fed Chief Ben Bernanke held a press conference stating that the agency is expected to decrease their asset purchases beginning in late 2013 or the middle of 2014. Bernanke said this will only occur if the economy acts according to the Fed’s moderately optimistic forecast.

Cook said the QE by the Fed has supported the housing market and driven mortgage interest rates down.

“The promise they will reduce their monthly purchases of mortgages has mortgage bond investors nervous,” he said. “Without a private sector alternative on the horizon to ease the minds of the investors, rates will continue to climb toward more normal levels.”

Howard Reback, senior vice president for Bailes & Associates, a commercial real estate firm, questioned Bernanke’s motivation for the press conference. He said that Bernanke can retract everything stated. Since the predictions are for late 2013 or early 2014, the speech was more of a “test.”

“If there is a strong negative reaction then he will possibly change his course of action,” Reback said. “He may push it out even further.”

If the Fed does proceed as forecasted, Reback said mortgage interest rates will increase because there will be “less fluidity in the secondary market.”

Moving past the Fed’s actions, Cook said that due to a peak in the current buying season, demand is high and inventory remains scarce. This should continue to force housing prices upwards.

The only warning Cook provides is when institutional investors state that “enough is enough” and sell the multitudes of homes they have acquired in an attempt to cash in on their investments. 

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Interest Rates Calm While the Housing Market Strengthens

Mortgage loan interest rates relaxed this week after a recent surge according to reports provided by loans.org.

For the week ending July 3, 2013, the 30-year fixed-rate mortgage (FRM) averaged 4.19 percent. This was a decrease from 4.34 percent seen last week.

The 15-year FRM averaged 3.26 percent, a decrease from 3.38 percent reported last week.

The 5/1 adjustable-rate mortgage (ARM) interest rate averaged 3.22 percent, a small decrease from last week’s rate of 3.29 percent.

All three rates have calmed since the surge seen in the previous two weeks. The rapid increase was caused by a Federal Reserve Bank of New York (Fed) announcement stating that the Fed will likely reduce and then eliminate bond purchases. This announcement caused uncertainty and forced the mortgage loan interest rates to rise by several percentage points.

Donald Frommeyer, president of the National Association of Mortgage Brokers (NAMB), said that the rising rates will cause lenders to be more selective.

“Anytime the rates go up, it affects debt ratios,” he said.

Borrowers are approved for new mortgage loans only when their debt-to-income ratios fall within a specific lender’s spectrum. Frommeyer said that when rates increase, it eliminates those potential borrowers who are on the threshold of their debt-to-income ratios.

This week’s lower rates have helped keep homeowner affordability strong in most of the United States. A June report by Freddie Mac found that despite recent increases, the interest rates would need to exceed 7 percent in order for homeowners making the median income to be unable to afford a median price home.

“While rising interest rates will reduce housing demand, rates would have to increase considerably more before the reduction in demand for home purchases would be substantial across the country,” the report stated.

Frommeyer believes that mortgage loan interest rates will remain calm in the coming weeks and hopes that Fed chairman Ben Bernanke will make a logical decision about when to reduce and then stop bond purchases.

“If this is done too quickly, it is going to hurt the home market,” he said. “If you raise the rates too high, you are going to be right back to where they were in 2006 and 2007.”

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Economist Predictions About Fed Barely Affect Housing Rates

All three mortgage loan interest rates moderately increased this week according to rate reports provided by loans.org. Although the weekly rates have stayed relatively stable over the past month, this week economists predicted that the Fed’s bond purchase reduction will begin in a month’s time.

For the week ending August 15, 2013, the 30-year fixed-rate mortgage averaged 4.37 percent, a decent increase from 4.25 reported last week.

The 15-year FRM averaged 3.34 percent. This rate grew from 3.27 percent set last week.

The final monitored mortgage loan interest rate increased 10 basis points. The 5/1 adjustable-rate mortgage averaged 3.24 percent this week, up from 3.14 percent last week.

Despite the few changes, mortgage loan interest rates do change state-by-state. For example, borrowers in Maine face average interest rates at 4.44 percent while those in Florida have lower than national averages of 4.35 percent.

Frank Nothaft, vice president and chief economist for Freddie Mac, said the fixed rates have been “bouncing around” for several weeks due to market speculation about the Fed.

The announcement that the Fed would reduce and then eliminate bond purchases caused consumer concern and large rate spikes in the housing economy this summer. For weeks since the announcement, a formal timeline has not been released. Despite the lack of information, economists are confident when a formal decision will be made.

According to a recent survey by Bloomberg, 65 percent of economists expect the Fed to reduce their bond purchases during the September 17-18 committee meetings. The survey discussed the Fed’s potential plans with 48 separate economists.

The survey predicts that the monthly bond purchases will likely reduce by $10 billion to a $75 billion per month pace. The economists further predict that bond purchases will be eliminated completely by the middle of 2014.

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Experts State Low Rates Increase Housing Competition

Home loan interest rates dropped lower this week and increased competition for buyers according to rate reports and interviews provided by loans.org.

Interest rates have drastically declined for the past two weeks since the Fed announced that they would not start to reduce their bond purchase program. Last week the initial shock from this inaction sent the home loan interest rates down. This week, the rates continued their decline.

For the week ending Sept. 26, 2013, the 30-year fixed-rate mortgage averaged 4.11 percent. This was a decrease from 4.31 percent reported last week.

Although the rates are higher than historic lows, they have calmed significantly in the past month. Rate reports on Aug. 22, 2013, merely one month ago, showed the 30-year rate at 4.55 percent. The recent interest rate reduction could save borrowers thousands of dollars over the course of an average mortgage loan term of 30 years.

If a borrower took out a $250,000 mortgage at today’s average 30-year rate of 4.11 percent, his or her monthly payment would be $1,209.45. After 30 years, the borrower would pay a total of $435,402 in combined mortgage and interest costs.

If the same borrower took out a 30-year loan one month ago, when rates averaged 4.55 percent, he or she would pay $1,274.15 a month for a total repayment cost of $458,694. Taking out a loan today in comparison to one month ago would save a borrower $23,292.

The second home loan interest rate change reported this week is the 15-year FRM. It averaged 3.15 percent, another large decrease from 3.31 percent set last week.

Finally, the 5/1 adjustable-rate mortgage shifted downwards from 3.03 percent last week to 2.91 percent this week.

Gus Altuzarra, CEO of Vertical Capital Markets Group, said that the rates have moved substantially in a short period of time because the 10-year treasury index has been “extremely volatile.”

“The rates are heading in a direction that they need to if the government wants to keep the housing movement in the right direction,” he said.

Despite the decline after the Fed announcement, Altuzarra predicts that interest rates will not likely drop more than 10 basis points.

“I don’t think we are going to see a big continual drop because everybody knows that tapering is going to come,” he said. “It will be interesting to see what data is going to come out about the housing market in October.”

The quick and drastic changes to the housing market are positive for some buyers and harmful for others according to Allan Glass, president of ASG Real Estate.

He said there are three types of buyers in the housing market: cash buyers, buyers with large down payments and buyers with small down payments that utilize FHA products. This third group is most affected by the home loan interest rate changes.

Since the start of 2013, these three groups have fought for similar purchases, leaving those at the bottom, the FHA dependent buyers, out of luck.

“The groups that are being harmed the most need the most leverage,” Glass said.

Lower rates have increased the competition for all three groups of buyers, but it affected the bottom the most. Cash-only buyers are able to finalize a deal quickly whereas FHA-backed loans must be approved and borrowers could be rejected and lose their chance at the property.

The competition stimulates the housing recovery, but Glass said it “makes things difficult for buyers that are stretching every last dollar and barely qualifying to purchase.”

Altuzarra believes that despite the competition, there are still potential buyers that are waiting for a better lure to purchase a home. He said society is addicted to low interest rates.

“How do you wean people off it without bringing the housing market to a halt?” he questioned.

One cause is tight and unsensible underwriting regulations. He said that underwriting needs to be adjusted so that people are able to qualify for more loans because right now, consumers are “hamstringed by regulations.”

“If we stall this housing market, this economic recovery is going to take a lot longer,” Altuzarra said.

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Housing Experts Decry CFPB Rules

The CFPB’s new mortgage rules are schedule to go into effect beginning at the end of 2013 and through into 2014. These rules will affect home loan lenders, borrowers, and the housing market as a whole.

The rules can be summarised as follows but additional information can be found on the CFPB’s rule guide.


  • Creditors will be required to make a reasonable, good faith determination of a consumer’s ability to repay home loans.
  • More types of home loans will be protected by the Home Ownership and Equity Protections Act (HOEPA). In addition, pre-loan counseling will be required.
  • Loan origination compensation will be regulated, as will be the process for becoming and remaining a loan originator. Depository institutions will also face stricter compliance procedures.
  • Lenders will be required to provide free copies of all appraisals and written valuations to applicants.
  • Higher risk mortgages must be appraised and high-interest home loans will be subjected to new standards.
  • Higher-priced home loans must be kept in escrow longer. Some home loans in rural or underserved areas will be exempt.
  • Home loan servicers will have to correct errors and provide certain requested information to borrowers. They will also have to provide protection to borrowers in connection to forced-placed insurance. Servicers will also have to establish reasonable policies and procedures for delinquent borrowers.

While the CFPB created these rules in response to the recent Housing Crisis, two housing industry insiders are filled with concern over how these rules can impact the economy, let alone borrowers and lenders.

More Rules, More Problems

Rick Sharga, Executive Vice President of Auction.com, said that none of these rules will be good for the housing market and that they were likely made simply to restrict lenders.

“The CFPB estimates that about 90 percent of the loans currently being issued would meet the new requirements,” he said. “But that means that 10 percent fewer borrowers will be eligible for loans in January 2014 when the new rules kick in.”

Since credit is unusually tight at the moment, Sharga expects most banks to focus their lending to qualified mortgages in order to avoid litigation and regulatory risk. Even more worrisome are rumors he’s heard that the FHFA will reduce the limits on home loans backed by Fannie Mae and Freddie Mac. As a result, home loans will be harder to come by for people in high-priced states such as California, New York, Florida, and Hawaii.

If such a gap in the market appears, all is not lost for prospective home loan borrowers.

“Eventually, non-bank lenders will enter the market with non-agency loans that don’t fit exactly within the QM rules and therefore don’t offer the same legal protection for the lenders to fill this void,” said Sharga. “But it’s likely that these loans will still be relatively hard to get, require significant down payments and have higher interest rates than qualified mortgage loans, making affordability a bit of an issue.”

Sharga noticed that rules concerning Qualified Mortgage and Ability-to-Repay were the most notable changes introduced by the CFPB.

This is because the Ability-to-Repay rules were designed to make sure that home loan lenders don’t lend to borrowers who are unable to repay. The CFPB will now require that home loan lenders view a borrower’s:

  • Current assets
  • Employment status
  • Monthly payment
  • Property taxes
  • Insurance
  • Other debts
  • Alimony
  • Child-support obligations
  • Debt-to-income ratio
  • Credit history

“Historically, most of these attributes were considered by lenders during the underwriting process, but during the real estate boom and the sub-prime lending explosion from 2000-2006, traditional underwriting standards were often overlooked,” said Sharga.

His analysis continued on into the CFPB’s qualified mortgage rules, which will now ban certain types of home loans and features.

For example, simply stating income will no longer be permissible. Applicants will have to have their income actually verified. Negative amortization and interest-only home loans are balloon payments are not allowed. All qualified mortgages will also be capped at 30 years and borrowers will not be able to sue home loan lenders for alleged predatory lending if the lenders prove that they issued financing under the guidelines of qualified mortgages.

Sharga is more worried that the CFPB’s interference in the housing market may actually stall the ongoing housing recovery.

“The CFPB’s mission isn’t to promote or stabilize home ownership,” he said. “It certainly doesn’t exist to protect home price appreciation.”

In Sharga’s estimation, the CFPB’s mandate to make loans both safe and available is difficult to fulfill.

While the new rules make home loans safer, they do so by making it harder for many consumers to qualify for them. As a result, he predicts home prices will soften in the early part of 2014 as demand dips.

Fortunately, the rules will end up protecting prospective homebuyers who are not financially ready to purchase homes. The downside though being that responsible borrowers with less-than-perfect records will have a difficult time purchasing homes, which will slow the housing recovery and broader economy.

“To be fair, the CFPB also isn’t putting policies in place that are intended to scuttle the housing market recovery,” said Sharga. “If anything, it’s trying to prevent the kind of behavior that led to the volatile ‘boom and bust’ cycle that we’re still recovering from.”

Robin Hood in the Rules

Robert Spinosa, a Loan Agent for RPM Mortgage, said that the CFPB’s new rules are a net negative for most everybody in America and that it was a classic case of a complex problem being given a simple, but wrong, solution.

As far as Spinosa is concerned, the only people benefiting from the rules are the buyers who would purchase homes without properly educating themselves or understanding their loan documents.

One of his biggest problems with the looming rules is the anti-steering measure.

Anti-steering refers to ensuring that the borrower is made aware of all other available rates and programs at the time of locking in their chosen home loan rate. This allows the borrower to compare all of the interest rates and programs available to the offer that they are choosing to go with. In effect, “all the cards” are laid on the table. The goal of this is to ensure that the loan officer has not deliberately “steered” the borrower into getting a home loan that is in favor of the lender.

Spinosa predicts that the anti-steering measure in the rules will result in fewer buyers competing for home loans, thus hurting the recovery. This is because anti-steering measures tend to result in buyers having less access to credit. Since housing booms and recoveries rely on buyers being able to obtain home loans, naturally it is more difficult to see an increase in home purchases.

Another problem posed by the rules is that the requirements for a qualified mortgage applicant’s debt-to-income ratio is set at 43 percent.

“This number was derived arbitrarily and not from real data that shows this is a dramatic risk point for default,” said Spinosa. “So again, all borrowers bear the brunt.”

In an arguable sign of government mismanagement, Spinosa alleges that the CFPB will use its vast resources to audit home loan lenders instead of supporting a healthy workforce of loan officers who will now be forced to conduct business under the rules’ strict constraints.

“In the end, Dodd-Frank, when it comes to mortgage lending, is Robin Hood,” he said. “It takes from those who can to, wishfully, attempt to provide an environment for those who can’t.”

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Uncertainty Remains in Housing Market Despite Stabilized Rates

Non-existent or minimal changes for mortgage interest rates created some stability in the housing market this week.

Both fixed rates remained the same. For the week ending on Nov. 21, 2013, the 30-year fixed-rate mortgage flatlined at last week’s rate of 4.17 percent.

The 15-year FRM remained stable at 3.15 percent this week.

The only mortgage interest rate to change was the 5/1 adjustable-rate which increased minimally from 2.76 percent to 2.78 percent.

The recent stabilization of mortgage interest rates is positive according to Ted Ahern, CFO at Guaranteed Rate.

“When rates remain stable over a couple weeks or months, it’s a positive thing in that households and businesses can make sound decisions based on fundamentals and not have to be overly concerned with the future directions of interest rates,” he said.

Ahern said that homeowners and businesses are simply looking for stability in the fixed-income market. But it has been absent in the past six months due to mixed signals from the Federal Reserve Bank of New York. A Fed decision about reducing quantitative easing will not occur until the beginning of 2014 — creating a long-term period of uncertainty.

“People are trying to figure it out and how it applies,” Ahern said.

Other experts are worried about consistency outside of the housing market. Mike Arman, a retired mortgage broker, is concerned about the current employment rates.

“Unless people have jobs and income, they won’t be buying anything,” he said.

On a more localized scale, Arman is increasingly worried about a looming cost increase of flood insurance in Florida.

The state holds 60 percent of flood policies yet it only gets back about $4 for every $15 in premiums, Arman said. In order to make up for the loss, the cost of flood insurance in more vulnerable areas will greatly increase due to the Biggert-Waters Flood Insurance Reform Act of 2012. This Act requires that the National Flood Insurance Program (NFIP) increases rates to reflect the actual flood risk.

For homeowners in certain flood-prone areas of Florida, it will have a devastating impact on the area. Owners who are paying $300 a year will soon pay $4,000 to $5,000 per year in required flood insurance costs.

And this is not just happening in expensive areas. Arman explained that the homes most affected are older homes in the sub-$100,000 to $150,000 range. The areas labeled as flood zones will become unsellable.

A lawsuit has halted this Act, but Arman is worried it will continue in upcoming years with a vengeance.

“That’s gonna kill the housing market because nobody can afford that kind of an increase,” he said, explaining that for homes affected, they will become “unfinanceable, unsellable and unaffordable.”

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