mortgage Archives - Page 2 of 8 - Real Estate News and Commentary

November 21, 2018April 25, 2019

Real Estate Thanksgiving

Thanksgiving is a time to take stock and be thankful. Although the original Thanksgiving may have had a religious purpose, today’s secular holiday is about traditions. However, it seems as if the tradition of enjoying a peaceful meal with family and friends has been increasingly difficult over the past few years. But since the election is over, let’s try to talk about something worthy of discussion (at least until the next election cycle begins), such as real estate and housing. Yes, it’s a “Real Estate Thanksgiving.”

Why shouldn’t we focus on something we all can get behind? There is a good chance that your dinner guests will include someone will be moving next year. Whether they are buying, selling, or renting a home, someone at the dinner table will be affected by such issues as housing affordability, mortgage rates, and availability of homes.

Things to talk about during your Real Estate Thanksgiving might be about mortgages, home sales, home prices, rent, maintenance, etc. The topics are seemingly endless.

Talking about mortgages during the Real Estate Thanksgiving. The current news is about mortgage interest rates. How high will mortgage rates go? Housing experts agree that mortgage rates will likely be about 5 percent next year (although the Fed just announced they may hold off on interest rate hikes after spring). Paying more interest on your mortgage may not be your idea of positively affecting home sales. However, increasing mortgage rates typically moderate home price growth because of affordability. Another silver lining of increasing interest rates is a stimulated lending environment. As a result, mortgage companies will likely further loosen lending requirements, which will increase the home buyer pool.

Real Estate Thanksgiving and home sales could focus on the reasons for the fall slowdown. Will home sales rebound this spring? You’re probably aware that home sales have dropped off during the fall. Major media outlets have grasped the news and created the meme depicting “housing bubble 2.0.” You can’t really blame them because there are many economists who are projecting bleak home sales to continue through spring.

The main reason for a disappointing 2019 forecast given by many industry insiders is affordability. I contend that this rationale is shallow and one-dimensional. There is no doubt that rising interest rates and increasing home prices are on the minds of home buyers. However, the lack of home sale inventory is a dimension that is often forgotten when discussing home sales and rentals. The lack of available homes for buyers and tenants to choose has forced many into fierce competition. The result has been upward pressure on home prices and rents.

You have to also consider the economy at your Real Estate Thanksgiving. The strength of the economy is an aspect affecting the housing market that many haven’t discussed. Whether you want to admit it or not, the economy is the strongest it has been in decades. Consumer outlook is optimistic. Home buyers and renters have expressed confidence about their job prospects too. Employers are competing for talent, influencing the highest wage increases in over a decade.

Commenting on the economy, First American chief economist Mark Fleming believes that the economy will be a major force in the housing market (How Will a Potential September Rate Hike Impact Existing-Home Sales?; blog.firstam.com; September 18, 2018). One of the features of his analysis for 2019 is “It’s the Economy and First-Time Home Buyer Demand, Stupid.” He described a pent-up demand from a wave of millennial of first-time home buyers who will be in the market next year.

Fleming explained that home sales slump during an adjustment period that home buyers undergo when interest rates increase. The same thing occurred in 2010 when rates increased from 4.5 to 5 percent. However, the economy was struggling at that time, and home sales were stagnant. Fleming described First American’s positive housing forecasts overcoming rising interest rates, saying,

“According to our Potential Home Sales Model, the boost from the strong economy and first-time home buyer demand should overcome any downward pressure from rising rates on home sales.”

Original article is published at https://dankrell.com/blog/2018/11/21/real-estate-thanksgiving/

If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.

Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

March 29, 2018July 16, 2019

Interest rate increase – Don’t panic

Last week, the Federal Open Market Committee (FOMC) decided to raise the federal funds rate. The federal funds rate is the interest rate that is charged to banks for borrowing overnight funds to maintain the required target funds. Although the Fed interest rate increase means that a banks’ business is getting more expensive, it doesn’t necessarily mean that mortgage interest rates increase in kind.

If mortgage rates are not always affected by the Fed’s interest rate increase, then what is?

Katherine Reynolds Lewis pointed out that the FOMC’s interest rate hike indirectly influences jobs, wages, prices of the things we buy, and other items (7 ways the Fed’s decisions on interest rates affect you; bankrate.com; March 20, 2018). She states, “Sometimes mortgage rates go up when the Fed increases short-term rates, as the central bank’s action sets the tone for most other interest rates. But sometimes mortgage rates fall after the Fed raises the federal funds rate.” An example of this is the seventeen rate increases during 2004-2005 when mortgage interest rates initially dropped, then slightly increased a year later. And most recently, the three Fed rate increases during 2017 when mortgage interest rates remained stable.

The reason why a FOMC interest rate increase doesn’t always affect mortgage interest rates is because mortgage interest rates are tied to the bond market. The bond market is typically a bellwether of the economy. It is highly likely that the bond market baked in last week’s Fed’s rate increase prior to the FOMC announcement. Bond yields have already been increasing due to an improving economy, which pushed mortgage rates higher in recent weeks.

In fact, the Freddie Mac Press release the day after the Fed’s announcement indicated that mortgage rates increased one basis point (freddiemac.com; March 22, 2018):

“The Fed’s decision to raise interest rates by a quarter of a percentage point puts the federal funds rate at its highest level since 2008. The decision, while widely expected, sent the yield on the benchmark 10-year Treasury soaring. Following Treasurys (sic), mortgage rates shrugged off last week’s drop and continued their upward march. The U.S. weekly average 30-year fixed mortgage rate rose 1 basis point to 4.45 percent in this week’s survey.”

Immediately following the Fed’s interest rate increase, NAR’s chief economist, Lawrence Yun, stated “We are in the middle innings of monetary policy normalization (nar.realtor, March 21, 2018).” Yun believes that the labor market is pushing the Fed to act to stave off inflation. He stated that consumers should expect more rate increases throughout 2018. However, he believes that increased new construction can belay future Fed rate increases:

“Housing costs are also rising solidly and contributing to faster inflation. The one thing that could slow the pace of rate increases would be to tame housing costs through an increased supply of new homes. Not only will more home construction lead to a slower pace of rate hikes, it will also lead to faster economic growth. Let’s put greater focus on boosting home construction.”

Yun’s call to home builders to increase housing stock is preaching to the choir. The housing market’s tight sale inventory should already be spurring home builders to crank out new homes. But there are challenges. The latest new construction statistics released by the US Census (census.gov) indicated that building permits issued during February were 5.7 percent lower than January’s permits, but 6.5 percent higher than last February.

By Dan Krell
Copyright © 2018

Original published at https://dankrell.com/blog/2018/03/29/interest-rate-increase-dont-panic/

If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector

February 8, 2018July 30, 2019

Mortgage Choice Act good or bad?

Monday’s Reuters “exclusive” report about the Consumer Financial Protection Bureau dropping their investigation on the Equifax data breach caused quite a stir in DC (Exclusive: U.S. consumer protection official puts Equifax probe on ice – sources: reuters.com February 5, 2018). The exclusive cited unnamed sources. However, a spokesperson for Transunion (a credit repository) suggested that cybercrime is not within the jurisdiction of the CFPB.

Later that day, Reuters cited Democratic Senators’ concerns and outrage over the alleged investigation pullback (Senators urge Trump administration to resume Equifax probe; reuters.com February 6, 2018).

The next day, Reuters reported that Treasury Secretary Mnuchin desired to meet with CFPB’s Acting Director Mick Mulvaney, based on its initial reports of dropping the Equifax investigation (Treasury’s Mnuchin says he wants answers on Equifax breach; reuters.com February 6, 2018) . In the same report, Reuters cited the CFPB’s spokesperson saying that the CFPB was working with other government agencies on the Equifax data breach.

The veracity of Reuters’ unnamed sources in the report is not clear. However, there may be something to the fact that cybersecurity falls under the domain of the FBI and Homeland Security. Additionally, there are many other agencies investigating the Equifax data breach, as Housing Wire reported on Monday (CFPB reportedly pulling back from Equifax data breach investigation: Reuters reports that bureau is not aggressively pursuing investigation; housingwire.com; February 5, 2018). The FTC appeared to be the lead agency investigating the matter when the data breach became public news. Additionally, the House and Senate Financial Committees, as well as all fifty states attorney generals are investigating.

Mortgage Choice Act goes under the radar…

News created drama, such as the Reuters’ CFPB story, allows real consumer issues to fly under the radar. Consumers should take note that the once dead Mortgage Choice Act has come back to life. Much like a scene out of Tin Men, the revived legislation is being promoted by the likes of the National Association of Realtors® under the guise of being good for the consumer.

According to the CBO (cbo.gov/publication/53497):

“Under current law, a ‘qualified mortgage’ has certain characteristics that make it more affordable…To meet the qualified-mortgage definition, certain costs that are incidental to the loan and that are paid by the borrower…cannot exceed 3 percent of the total loan amount. Lenders offering “high-cost mortgages” (home mortgages with interest rates and fees that exceed certain thresholds) must make certain additional disclosures to borrowers and must comply with restrictions on the terms of such loans.” The Mortgage Choice Act “…would exclude insurance premiums held in escrow and, under certain circumstances, fees paid to companies affiliated with the creditor from the costs that would be considered in determining whether a loan is a qualified mortgage or a high-cost mortgage.”

The NAR is urging support for this legislation, as well as issuing an open letter to Congress. The NAR’s rationale is that the Mortgage Choice Act:

“… will enhance competition in the mortgage and title insurance markets, and ensure that consumers will be able to choose the lenders and title providers best suited for their home buying needs.”

This sounds virtuous, but in reality it’s a play to allow broker affiliated lenders and title insurers to charge consumers more without additional disclosures. NAR says that lenders and title insurers would still be subject to RESPA (which prohibits steering and kickbacks). But charging consumers excessive fees and affiliated businesses giving kickbacks are not mutually exclusive. Meaning that a lender charges can be excessive independent of the lender providing a kickback to the broker. (the CFPB has recently fined brokers and lenders for kickbacks).

Is NAR interested in building consumer trust?

The NAR has for years tried to influence public opinion of Realtors® and the industry. The NAR Code of Ethics has been used as a focal point to increase positive sentiment towards Realtors®. However, NAR’s desire to implement a Code of Excellence may have been a beginning shift towards building public trust.

The Code of Excellence, like the Code of Ethics, is a desire to increase competence and proficiency. But research has demonstrated that showing off accolades and awards doesn’t instill value, nor does it increase sales (Valsesia, Nunes, & Ordanini: What Wins Awards Is Not Always What I Buy: How Creative Control Affects Authenticity and Thus Recognition (But Not Liking). Journal of Consumer Research. Apr2016, Vol. 42 Issue 6, p897-914).

Value, along with quality and price, has much higher regard than ethics in a consumer’s mind. This was demonstrated by Carrigan & Attalla’s ground breaking consumer research (The myth of the ethical consumer – do ethics matter in purchase behaviour? The Journal of Consumer Marketing. 2001.. 18(7),560-577.)

If the NAR is truly interested in building consumer trust, the NAR leadership should get on the correct side of this issue and provide value to consumers instead of giving lip service.

By Dan Krell
Copyright © 2018.

If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.

December 15, 2017October 9, 2018

Mortgage lender shell game

Realtors and other real estate professionals eagerly look forward to the annual Profile of Home Buyers and Sellers. The Profile, published by the National Association of Realtors, provides insight into the preferences and decisions of home buyers and sellers. After thirty-five years of publication, the Profile has become somewhat of an important contribution to housing trends and economics. But did you know that the mortgage lender and the mortgage industry has a survey of their own?

The National Mortgage Database (NMDB) is a multiyear project conducted by the Federal Housing Finance Agency (fhfa.gov) and the Consumer Financial Protection Bureau (consumerfinance.gov). The NMDB project incorporates two consumer surveys, the National Survey of Mortgage Originations and the American Survey of Mortgage Borrowers. The NMDB is meant to provide statutory guidance and lending policy direction. The database has yielded interesting data about how and why borrowers choose their mortgage lender, as well as their experiences and interactions during the mortgage process.

The NMDB has produced a colossal amount of data across many aspects of the consumer-mortgage lender relationship. The preliminary analysis indicated that consumers don’t really shop for a lender. Many home buyers use the mortgage lender recommended by their agents and others. Most notable is that about half of the home buyers surveyed only considered one mortgage lender. Not a surprise is that the small percentage of home buyers who apply to more than one lender are typically motivated by better terms (such as interest rate).

The mortgage lender is an important aspect of the home buying process. Unfortunately, the NMDB suggests that home buyers are not doing their homework, and possibly choosing their mortgage lenders for the wrong reasons. The mortgage process is an intricate dance between the buyer, the loan officer/processor and the underwriter. The mortgage lender can either provide a smooth and “stress free” closing, or a bumpy process that can cause anxiety and delays.

When you’re buying a home, “time is of the essence” (it states that on the first paragraph of your contract). Choosing the wrong lender can cause delays and potentially cost you money. Issues can occur with any mortgage lender at any time during the mortgage process. Problems can sometimes stem from the inexperience of the loan officer/processor, who does a poor job communicating what is needed from you. More often, issues arise during the underwriting process because of a slow turnaround time.

Believe it or not, many mortgage lenders have their loan officers, processors, and underwriters separated in different offices. Sometimes the different offices are located in different cities, which can add time to the process. Sometimes. lenders have their processing and underwriting all in the same office, which helps facilitate communication and a loan approval.

As a home buyer, RESPA gives you the right to choose your mortgage lender. The process of choosing the best lender for you should not be much different than choosing your Realtor. Ask your agent and others whom you respect for referrals. Do your homework and consider at least three of the referrals, if not more.

In addition to comparing interest rates, compare the lender fees. Lender fees can vary and can add unnecessary cost to your closing. Since you will be communicating with the loan officer and processor a great deal through the home buying process, talk to them to get a feel for how they interact with you. Besides to asking about their company, ask the loan officer about their background and experience. Find out how their underwriter operates and ask about the underwriting turnaround time. And make sure the lender is licensed. You can check a lender’s licensing by checking with the consumer portal of the Nationwide Multistate Licensing System (also known also known as the Nationwide Mortgage Licensing System or the NMLS).

Original located at https://dankrell.com/blog/2017/12/15/mortgage-lender-shell-game/

If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.

October 27, 2017January 26, 2020

Blockchain, Bitcoin and real estate

Is a Bitcoin mortgage in your future? Probably not. Mortgages will not be in Bitcoin in the near future. But that doesn’t mean that the blockchain technology that underlies cryptocurrency won’t be making the real estate transaction cheaper and more efficient.

Brad Finkelstein reported on the difficulties of a Bitcoin mortgage (Virtually No Chance Soon for Any Bitcoin Denominated Mortgages; National Mortgage News, 2014). Cryptocurrencies have a history of volatility, Bitcoin most recently lost about a third of its value (see: Bitcoin at crossroads after shedding more than $27 billion in value; marketwatch.com; September 14, 2017). Instability of the currency is a major issue for a thirty-year mortgage. Finkelstein stated that such short-term losses could cause the mortgage holder to “lose their shorts,” and cause the borrower to default. He also pointed out that regulatory hurdles will be difficult to transcend, stating that mortgage rules and closing disclosures are calculated in dollars. Not to mention the difficulty of appraising a home’s value in Bitcoin. Additionally, all parties that are part of the transaction (such as appraisers) need to accept payment in Bitcoin.

Finkelstein also pointed out other cryptocurrency flaws. Unlike currencies such as the euro or yen, cryptocurrencies are not backed by a government that guarantee an exchange rate. Because of the lack of government backing, cryptocurrency values are easily manipulated. Cryptocurrencies have also been associated with illicit internet transactions.

Although cryptocurrency mortgages may not be feasible, Finkelstein noted that “cash” transactions conducted in Bitcoin is a possibility. Luke Stangel reported on a Miami mansion recently listed for sale in Bitcoin (Brother, Can You Spare a Bitcoin? Miami Mansion Is Listed for About 1,400 Bitcoins; realtor.com; September 6, 2017). Two real estate agents interviewed about the sale stated that some aspects of the transaction may still be traditional, such as an escrow being deposited as well as title transfer. However, the transferred funds would be Bitcoin.

Stengel’s report suggested that the interest in conducting real estate deals in cryptocurrencies is to speed up the sales process and provide a secure transaction. However, because of the associated processes that occur during a transaction, the timing of such a transaction may not differ much from any other cash transaction. Security is another issue and can be debated as Bitcoin and other cryptocurrencies have had their share of hacking too.

With so many issues and hurdles, cryptocurrency on its own may not be the (immediate) future of real estate. However, its underlying technology is of interest. The technology that makes Bitcoin and other cryptocurrencies possible is called blockchain.

Blockchain technology has the potential to revolutionize the real estate transaction by reducing the time and cost needed for processing a mortgage and title. Blockchain technology is essentially a chain of blocks. Each block records and holds information. When a block is recorded, it is encrypted and cannot be changed. The recorded information can be currency (such as a Bitcoin transaction), records, contracts, etc. The draw to blockchain is that it is decentralized, making it difficult to corrupt and easy to restore. Additionally, retrieving information is much faster because the chain of information is essentially available at your fingertips.

Many are skeptical of blockchain technology. Not so much because of its disruptive potential, but because it is not impervious to problems. Some issues include security, cost and complexity. A revealing critique of blockchain was written by Jason Bloomberg (Eight Reasons To Be Skeptical About Blockchain; forbes.com; May 31, 2017).

However, blockchain advocates still maintain that the technology provides ease of access and secure recording of blocks of information. The touted benefits are claimed to decrease the time of the average real estate transaction, and reduce the cost to the consumer as well.

Original published at https://dankrell.com

If you like this post, do not copy; instead please:
link to the article,
like it on facebook
or re-tweet.