Residential real estate is generally valued by comparable neighborhood sales. When a property sells for a new high price, it doesn’t just affect the value of that property, it impacts the value on all similar properties within a mile of the new sale. During the housing bubble, neighbors cheered each new higher comp because it added to their (illusory) net worth. With unrestricted access to equity with no-doc loans and 100% LTV HELOCs, everyone near a new high comp was basically given free money.
The late arrivals all eagerly waited a greater fool to come along and buy at an even higher price so they could get their share of the HELOC booty too. Obviously, under such circumstances, the desire for real estate was very high, and with no impeding lending standards and an eagerness from investors to fund new loans, actual demand as measured by dollars was very high as well. We ended up with a massive housing bubble.
Since the housing bubble collapsed, prudent lending standards were put back in place, and prices dropped precipitously largely because buyers could not borrow the prodigious sums previously made available to them to bid up prices. This put the banks in a bind because the huge reduction in collateral value backed the bad loans they made during the bubble era. The price collapse put between a quarter and a third of American loanowners underwater, and if the banks were forced to liquidate, it would cause hundreds of billions in losses bankrupting our banking system and triggering a deep economic depression. Something had to give.
The US government and the federal reserve took a number of steps to solve the problem. First, in early 2009, regulators relaxed mark-to-market accounting rules allowing banks to hold bad loans on their books at a fantasy value to avoid loss recognition. This bought the banks time. Further, in order to placate pressure from loanowners to “do something” and to provide lenders with a few additional debt service payments on these bad loans, the government embarked on a series of failed loan modification programs. These were sold to the public as ostensibly helping struggling borrowers, but they were really designed to allow banks to kick-the-can on loan recognition and squeeze a few more payments out of hopeless borrowers before they imploded. These programs have been an abject failure for loanowners, but it has been successful for bankers in getting a little operating cash while delaying loss recognition.
Ultimately, banks don’t want to recognize losses. They would far rather delay their necessary foreclosures until the loans had collateral backing which will allow them to recover their capital. However, since potential buyers of these properties couldn’t afford to pay an amount which would recover the outstanding debt, the bubble needed to be reflated before the foreclosures could go forward.
To facilitate reflation of the housing bubble, the federal reserve lowered interest rates to zero, and embarked on a program of buying 10-year Treasuries (operation Twist) and directly buying mortgage-backed securities to ensure the flow of capital into the housing market and dramatically lower mortgage interest rates. At the peak of the housing bubble, mortgage interest rates were between 6% and 6.5%. They are 3.35% today — a near 50% reduction. These super-low interest rates give today’s buyers the ability to borrow amounts commensurate with peak prices under stable loan terms.
The stage was set to reflate the bubble and allow lenders to foreclose and recover capital at peak prices. There was only one problem. Due to the collapse of prices when the housing bubble burst, comparable sales were far below peak prices, and continued foreclosure processing was keeping prices down. The solution was simple; stop foreclosure processing and restrict inventory until the housing bubble reflates. That’s were we are today.
Lenders stopped foreclosure processing to dry up the inventory. Loanowners are in no hurry to list their properties because if they wait, they might get out without a ding to their credit scores, so both foreclosures and short sales are in short supply. Foreclosures used to be a third of the market, and with 25% of owners underwater, more than half the supply has been removed. The few organic sellers are also have incentive to wait because they will make more money by selling later. The result is a huge decline in inventories and rapidly rising prices.
How much higher can prices go?
A shortage of inventory alone is not enough to make prices go up. Buyers also have to be able to raise their bids. With 3.5% interest rates, buyers can raise their bids. Even the OC housing market has significant room for prices to rise before affordability becomes a problem. The OCHN housing market report has a page devoted to valuations. I took the stable values from 1993 to 1999 as a basis and compare the current cost of ownership relative to those norms. Nearly every market in Orange County is significantly undervalued by this metric, most by 25% or more.
The median home price relative to rental parity is undervalued, and this also shows up in the comparison of the current cost of ownership to rents.
It’s not just Orange County. San Diego county is even more undervalued.
The banks are set to hugely benefit from a rapid increase in prices brought about by their policy of restricting foreclosures. Each new sale in a neighborhood raises the comps. One man’s mortgage debt is an entire neighborhood’s equity. New higher comps provides equity for many, but of much greater interest to the banks, higher prices provides an increased collateral value behind a delinquent mortgage loan. When they do finally foreclose, they will recover more money. That’s why inventory is low and will likely stay that way until we see peak prices in most markets, which may happen sooner than most think.
Nearly four years squatting
The amend-extend-pretend dance is most prevalent at prices above the conforming limit. As I demonstrated on Monday, Delinquent jumbo loans in Coastal California pollute bank balance sheets. Today’s featured property was purchased by some Ponzis back in 2002. The extracted about $250,000 in HELOC booty before they quit paying, but the real benefit has been the nearly four years without making any payments. Their first NOD was issued on 4/20/2009 which means they quit paying sometime in 2008. They were given a loan modification in 2009, but they quickly quit paying and had a new NOD issued in mid 2010. From there it took another two years before the bank finally booted them. If they avoided a $4,000 mortgage for 48 months, that’s another $192,000 in value they extracted from the property.
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Proprietary OC Housing News home purchase analysis
$874,900 …….. Asking Price
$650,000 ………. Purchase Price
8/15/2002 ………. Purchase Date
$224,900 ………. Gross Gain (Loss)
($69,992) ………… Commissions and Costs at 8%
============================================
$154,908 ………. Net Gain (Loss)
============================================
34.6% ………. Gross Percent Change
23.8% ………. Net Percent Change
2.8% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$874,900 …….. Asking Price
$174,980 ………… 20% Down Conventional
3.47% …………. Mortgage Interest Rate
30 ……………… Number of Years
$699,920 …….. Mortgage
$167,634 ………. Income Requirement
$3,131 ………… Monthly Mortgage Payment
$758 ………… Property Tax at 1.04%
$108 ………… Mello Roos & Special Taxes
$219 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$114 ………… Homeowners Association Fees
============================================
$4,331 ………. Monthly Cash Outlays
($696) ………. Tax Savings
($1,107) ………. Equity Hidden in Payment
$192 ………….. Lost Income to Down Payment
$129 ………….. Maintenance and Replacement Reserves
============================================
$2,849 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$10,249 ………… Furnishing and Move In at 1% + $1,500
$10,249 ………… Closing Costs at 1% + $1,500
$6,999 ………… Interest Points
$174,980 ………… Down Payment
============================================
$202,477 ………. Total Cash Costs
$43,600 ………. Emergency Cash Reserves
============================================
$246,077 ………. Total Savings Needed
The property above is available for sale on the MLS.
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41 Responses to “One man’s mortgage debt is an entire neighborhood’s equity”
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Go ahead…… buy a home to live-in, just don’t call it an investment.
The Real Housing Recovery Story
“While the belief was that the Government, and Fed’s, interventions would ignite the housing market creating an self-perpetuating recovery in the economy – it did not turn out that way. Today, these repeated intrusions are having a diminished rate of return
http://advisorperspectives.com/dshort/guest/Lance-Roberts-130122-The-Real-Housing-Recovery-Story.php
Only housing bears and housing bulls think a home is an “investment.” We bought in 2007 for a lot of reasons, but “investing” was not one of them.
It will the “source” of retirement savings for most people in the OC.
“We bought in 2007 for a lot of reasons, but “investing” was not one of them.”
You are an anomaly in OC.
Check this out for spin and optimism bias. The fact is that sales volumes dropped significantly in December, a bad sign. Also, the market is dominated by investors as owner-occupant sales are well below normal, also a bad sign. All they offer is hope about tomorrow.
Monthly Drop in Home Sales No Cause for Despair
As the National Association of Realtors reported, home sales dropped in December.
However, Capital Economics warns this should be no cause for despair.
Additionally, while cash buyers and investors continue to make up a large portion—about half of all sales—Capital Economics suggests rising prices lifting many homeowners above water will lead to increased activity from owner-occupants.
“[M]onthly changes are volatile,” the analytics firm stated Tuesday, adding that three-month averages are often more indicative of market trends and the numbers from a single month.
“On this basis, existing home sales are still rising,” Capital Economics said, also pointing out that December sales are 12.8 percent above their year-ago level.
Patrick Newport of IHS Global Insight said the most compelling numbers from NAR’s December report are the inventory numbers. At 1.82 million, total inventory reached its lowest level since since January 2001.
Single-family inventory also reached an 11-year low at 1.6 million, or 4.4 months’ supply, IHS noted.
The low inventory is causing higher prices, which “in turn, are bringing more builders into the game,” according to Newport.
Capital Economics also notes the low inventory but rationalizes, “it’s normal for supply to fall at this time of year, and after seasonal adjustment supply was probably above the two million mark.”
Regardless, the firm admits, “supply is very tight,” and prices are likely to continue to rise.
Newport advises taking the 11.5 percent rise in median price with a grain of salt as distressed sales, the mix of types of homes sold, and regional trends “can distort the headline numbers.”
“Suffice it to say, all of the well known home price indicators agree that home prices are rising nationally and in the majority of cities and states,” Newport said.
Rising prices allowed about 1.4 million homeowners to rise above water last year, and Capital Economics anticipates some of these borrowers will “begin to play more of a role in housing demand before too long.”
2007 called and they want their headline back.
Are hedge funds pulling back? If so, that was fast.
Hedge funds will stop buying as soon as prices reach thresholds where the cash returns no longer make sense. Many markets have already reached this point, specifically Phoenix and Atlanta.
Zillow: Slower Home Price Appreciation in 2013
U.S. home values in 2012 rose 5.9 percent over 2011, according to data in Zillow’s latest Home Value Index (HVI).
The 5.9 percent appreciation rate is the largest annual gain since August 2006, near the peak of the housing bubble.
While the market still has some ground to cover before it’s completely healthy again, Zillow said in a release that 2012’s appreciation rate “far exceeded yearly rates of appreciation typically associated with healthy markets,” which “can expect annual home value appreciation of roughly 3 percent on average.”
Looking ahead, the Zillow Home Value Forecast projects an appreciation rate of 3.3 percent in 2013, more in line with historic norms. …
Though the recovery in home values appears to be widespread, it’s not balanced among metros, Zillow said. According to the report, growth rates ranged from a high of 22.5 percent yearly appreciation in Phoenix to a low of 0.2 percent depreciation in Cincinnati and Chicago. Seven of the top 30 largest metros posted annual home value appreciation of 10 percent or higher.
“We expected 2012 to be a good year for housing, and it delivered in spades,” said Zillow chief economist Dr. Stan Humphries. “Strong demand paired with limited inventory in many markets helped fuel a robust and often rapid recovery in overall home values, good news for homeowners after years of poor performance.”
While home value appreciation is expected to slow down in 2013, Humphries said the anticipated 3.3 percent annual appreciation rate is “more sustainable.” That said, consumers should be careful to temper their expectations accordingly.
“It’s important to be cautious moving forward, even as we celebrate the undeniably positive end to 2012, and be careful that consumers don’t grow to expect such high appreciation as the norm,” Humphries said. “Buying a home should be a long-term decision, and these swings between a deep housing recession and higher-than-normal appreciation rates can give consumers whiplash and cause some to lose sight of that.”
HARP success could trickle down to non-agency borrowers
By Christina Mlynski January 22, 2013 • 5:01pm
With the success of the Home Affordable Refinance Program for Fannie and Freddie borrowers, there is an expected push on the part of the Obama Administration to offer performing borrowers falling outside the agency’s purview a way to lower their mortgage payments – through either a refinance or loan modification, Amherst Securities Group said.
Amherst’s latest Mortgage Insight Report focuses on the implications of both Sen. Jeff Merkley’s plan for refinancing underwater borrowers and the Treasury proposal for modifying mortgages in private-label securitizations.
The mechanics of the refinance plans are different in that under the Merkley Plan and other refinancing proposals, the loan is removed from the private label securitization trust (PLS trust), whereas under the Treasury plan, the mortgage loans remain in the PLS trust. Sen. Jeff Merkley, D-Ore., introduced his plan last year, proposing that the government would buy underwater mortgages from banks, reduce the principal for eligible borrowers and refinance the loan into a new Federal Housing Administration-backed mortgage.
“We show that the cost/benefit methodology for both programs are very similar for PLS investors: the benefit from the lower default rate must be weighed against the cost of the forgone coupons on the mortgages that would not have defaulted. We find, under plausible assumptions, both programs are modestly net-present-value (NPV) negative to investors,” Amherst analysts noted.
The refinancing analysis is heavily dependent upon the discount rate that is used – the lower the discount rate the greater the value of the forgone coupon and the more negative the program. With the increase in price on PLS securities over the past year, the discount rate is considerably lower than a year ago.
To test if the Merkley Plan was net present value positive for the PLS trust, the loans were divided into four categories: always current; missed payments in the past that now meet HARP requirements; no missed payments in the past six months; more than one late payment in the past year; and loans that are current for less than six months.
“To summarize—for PLS investors, a universal refinance program would not necessarily be NPV positive at this point in time,” Amherst noted.
In regards to the implementation of the proposed Treasury plan, borrowers with loan-to-value ratios greater than 125 would automatically be eligible while those with LTVs in the 100-to-125 range would need to show “hardship,” to see a modification.
The Treasury program has much less sensitivity to the discount rate than a universal refinance program, reflecting that since the loan remains in the pool, the discount rate is simply the rate at which the coupon differentials are discounted.
“By contrast, in a universal refinance program, the forgone coupon cost is itself discount rate dependent. In addition, in the Treasury Plan the forgone coupon cost for investors only includes the amount beyond the 5-year Treasury subsidy,” the analysts stated.
While many investors like the idea of a universal refinance program, in which loans are removed from the PLS, many dislike the Treasury’s modification program, where loans would remain in the pools.
However, the report reveals the universal refinance is no longer as beneficial to investors as it was last year—even though, investors have yet to recognize this.
cmlynski@housingwire.com
The HARP program may have had limited success, but the Home Affordable Modification Program (HAMP) has really failed to meet expectations. Although $50 billion was allocated to HAMP to provide assistance to struggling homeowners, approximately $4 billion has been spent – significantly less than expected more than three years after the program began.
Check out other reasons why the program is failing to meet the needs of home owners by reading “A Look at the Home Affordable Modification Program.”
I totally get the analysis versus rental parity in most communities, and how the monthly outlays may be lower in almost every community in OC, that makes sense. In practical terms though, even with ridiculously low interest rates, I don’t think many (myself included) can take advantage of it because the single biggest hurdle is the inability for enough people to have sufficient savings. Today’s featured home example, for an $875K house, to truly afford it you need to have $246K in savings to afford the closing costs, down payment, maintenance reserve, etc. How many people truly have a quarter million liquid dollars lying around? Maybe a few prudent move-up buyers (pre-2002 bubble era) can extract their previous equity upon sale, but then that predicates that they are then re-enslaving themselves to an additional 30 years of mortgage payments.
That also means even the most resourceful of people, say a 25-year old who bought 11+ years ago before the bubble inflated will then have been making mortgage payments for over 40 years before actually owning his property outright in the future. The average person/couple in the OC will then literally be 70-75 years old before they can own a property free and clear. I know this is assuming their income doesn’t rise substantially over 30 more years, but even if economic conditions improve, this trend doesn’t bode well for O.C. How long can the imbalance go on? Perhaps I am naive, but it seems like a lot of boomers are going to wake up one day and try to sell their home to a generation of buyers that simply don’t exist.
“it seems like a lot of boomers are going to wake up one day and try to sell their home to a generation of buyers that simply don’t exist.”
That’s happening right now. Who do you think is benefiting the most from reflating the housing bubble? For many boomers, their house is the only form of retirement savings they have.
The dilemma of down payments is the biggest barrier to sales in the jumbo market. Below $750,000, people can get an FHA loan and only put 3.5% down. Many high wage earners have $30,000 available. However, the jump to a $900,000 home requires a $180,000 down payment plus expenses, and very few have that. Call it a down payment cliff or wall, but the barrier is very real, and it isn’t likely to go away soon.
People become resourceful. If you want to live in a home well beyond your means, you rent-out rooms to strangers. I know quite a few people who have done this over the last few years (one finally gave-up and lost her house recently). You can have a parent or grandparent move in and pay rent. You can get your inheritance early from parents for the downpayment.
If you can’t or won’t do these things, then you better have a large income and the ability to save a large percentage of it. You also need to be reasonably certain your large income will endure for the next three decades of the mortgage. That’s the tough forecast.
“You also need to be reasonably certain your large income will endure for the next three decades of the mortgage.”
Or be reasonably certain the government will bail you out. That’s almost a given now.
Mortgage delinquencies tick up in December
By Kerri Ann Panchuk January 23, 2013 • 8:19am
Mortgage delinquencies overall remain well below 2011 levels, but the U.S. loan delinquency rate still edged up 0.74% from November to December, Lender Processing Services said Wednesday.
The mortgage data and analytics firm released its LPS First Look Mortgage Report for December, revealing a 7.17% mortgage delinquency rate in the U.S. This means 7.17% of all U.S. mortgages analyzed by LPS, excluding those in foreclosure, were at least 30 days past due last month.
The positive news is delinquencies are still down year-over-year, dropping 9.11% from December of 2011.
The nation’s foreclosure inventory also declined 1.99% from November and fell 18.05% from last year, with the pre-sale foreclosure inventory rate hitting 3.44% in December 2012.
The number of properties that are 30 or more days past due, but not in foreclosure, reached 3.5 million last month, while mortgages that are seriously delinquent – or 90 or more days past due – hit 1.54 million.
States with the highest percentage of non-current loans include Florida, Mississippi, New Jersey, Nevada and New York.
Furthermore, LPS says the states of Alaska, Montana, North Dakota, South Dakota and Wyoming have the lowest percentage of delinquent mortgages.
kpanchuk@housingwire.com
In two months, the delinquency rate will be up year-over-year.
All year, reporters have been spouting crap like this: “The positive news is delinquencies are still down year-over-year, dropping 9.11% from December of 2011.”
The fact is that delinquency rates have flatlined since February of 2012 when the settlement agreement kicked in and banks stopped processing foreclosures. This fact has been hidden by reporters who only report on the YoY decline. They won’t have this cover in two more months.
ability to borrow amounts commensurate with peak prices under stable loan terms.
The bubble has been reflated.
My question is how long and how much can the federal reserve print money to keep these interest rates. When will we really hit the law of diminishing return? This year or in future years?
If it’s $85 billion now a month, will it be $150 billion a month by summers end? At that point it must trigger huge increases inflation, because now you are talking about a $1.85 trillion increase in the fed’s balance sheet per year.
Maybe we get someone that cares after Bernanke, but if we get a clone then I think they will print money until they inflate prices.
The returns have already been diminishing.
Up next is the tide turning on the bond market. That’s the beginning of the end. And I’m not joking or speaking in hyperbole. We are in uncharted territory and a dollar endgame type scenario is here. Everyone is loaded up with cash and bonds (and repurchase and reverse repurchase agreements) due to ZIRP. These are the Florida condos of 2013 – sovereign debt and derivatives thereof. And insurance on them.
Anyone spouting recovery simply lacks understanding of how leveraged the banks are, nationwide and worldwide. Everyone is minimum 35X leveraged with these OTC derivatives. Goldman is several hundred times leveraged and backed by you and I. By everyone, I not only mean the banks but I mean the 50% of our country who pays taxes and the 50% of our country who only pays consumptive taxes and the inflation tax. Your 401K or pension fund, annuity, mutual fund may very well have a healthy percentage of this crap in its portfolio. It took down MF global. It took down Italy’s oldest bank:
http://www.zerohedge.com/news/2013-01-23/oldest-bank-world-plunges-halted-chairman-resigns-aftermath-latest-derivatives-fiasc
We needed a Volker and double digit interest rates years ago, but the savior obama has done the exact opposite. He is the definition of economic rot – Zero Interest Rate Policy. Do the math, double digit interest rates consume 100% tax revenue, assuming a slight pullback in GDP and a slight rise in national debt. We are past critical mass.
“When” is the million dollar question. Sooner than most think.
Central banks all over the world are buying gold, as well as printing money like crazy:
http://www.kitco.com/reports/KitcoNews20130107AL_2013outlook.html
Do they know something we don’t? More importantly, if we start to see an emerging dollar crisis, what will they do with that gold?
Illusionary RE increases in values translated into real RE tax increases.
If you sold and re-purshased, that made the down payment requirement on a larger house, but more real taxes need to be paid unless you’re over 65 y.o.
The people that benifited were those that too a fee off the percentage of the sale or stated values (RE agents, brokers, bankers, tax assessor, etc). The people the lost were the renters and the new buyers. We all know who the govt cares for and who they claim to care about. They are 2 very different groups.
Illusions create delusions.
Very well put.
I’d add that inflation in general creates a situation where people are pushed into higher tax brackets as well as paying higher nominal capital gains.
In real terms, the effect is a net lower standard of living, but nominal increases in tax revenue and the illusion/delusion of increased wealth.
Nobody speaks for renters or future home buyers. Their interests are completely ignored in Washington. They are being asked to pay the bills for the bailouts required by irresponsible loanowners.
Why would anyone? They don’t even speak for themselves. They had the chance last November to speak their mind — and they chose Forward! They’ve seen the iceberg — nobody could mistake it now — and ordered flank speed ahead, figuring (I guess) that the ice will chicken out first. I’ve no sympathy.
The two up for election were just the flip side of the same coin. Just a black OHB and a white OHB IMHO. Overall policies were the same. Just the white version seems friendlier to business but would of likely had similar bailout $ for the banksters.
Well, you didn’t pay much attention then. If nothing else, Romney was very clear years ago that the right medicine for the housing market was widespread foreclosure and prompt restoration of sane pricing, and he was also clear that Bernanke would not be reappointed and QE would stop.
Also that balancing the budget and reforming entitlements was a top priority, and it would be done by cutting spending — no more two or three years of freaking unemployment, no more 20% annualized growth in disability Social Security for “back pain” and “depression”, no more ignoring the exploding Medicare problem — and by flattening and simplifying the tax code — fewer deductions, lower overall rates, the same formula used successfully by countries around the world who’ve goosed economic growth. He was 100% clear his priority was jobs, while Obama was equally clear his priority was “fairness.”
You voted for “fairness.” You didn’t vote for jobs. Not only is the outcome just what you wanted, it’s just what you deserve. Enjoy.
I don’t we have a couple of attorneys that comment in the post.
Servicing, lending rules prompt hunt for compliance experts
By Kerri Ann Panchuk January 23, 2013 • 12:22pm
The job market could become easy street for compliance experts with deep knowledge and experience in the financial services industry.
Rob Chrisman, a mortgage industry writer, noted in a recent blog that the release of the Consumer Financial Protection Bureau’s qualified mortgage rule and servicing standards “will cause massive increased costs on all loans serviced.” Chrisman sees these costs covering everything from “new staff, lawyers, tracking, lawsuits and regulatory actions.”
In other words, unemployment remains above 7% for the nation, but those with the right experience in mortgage lending or servicing compliance may find career opportunities in the near future.
“You are going to see these hires made in legal departments and compliance departments,” said Michael Waldron, a partner at Ballard Spahr, who says there will be some hiring emerge from the release of the CFPB rules. Other areas of potential recruitment include the addition of compliance specialists, regulatory analysts, and lawyers with backgrounds in banking regulation, enforcement and litigation, Waldron explained.
As for rookies entering the field, Waldron does not expect a surge of hiring for newly-minted, untrained compliance specialists or attorneys.
“It’s new in that the rules are new, but the concepts are not at all new. In reality, you need a certain base level of knowledge on how the industry works to truly digest all of these new rules and advise on how they should be implemented or operationalized,” he explained.
Waldron’s firm Ballard Spahr has already established itself as a law firm with a practice area focused on mortgage regulation, credit products and regulatory enforcement proceedings related to mortgage banking.
While he believes the CFPB’s final rules will spark more hiring or searches for experts in the space, Waldron says compliance-related hiring is not new, since the business has been growing its compliance and analysis footprint for a few years now.
“The bottom line is there are going to be very real costs associated with these final rules,” Waldron said. “It’s a very resource intensive process.”
“I can tell you in the past couple of years, there has been greater demand for expertise in this area. There are more third-party solution providers offering solutions, consulting firms that have developed a practice around it, and law firms that have come to the table wanting to advise people through the crisis,” Waldron said.
Still, he says, each new hire has to have the appropriate breadth of knowledge to deal with new rules in an already complex industry.
Waldron believes most of the new compliance-related positions will require someone with “a certain level of experience and expertise.”
He added, “The danger the industry runs into is whether or not, there is an appropriate vetting of the personnel that are being utilized to accomplish the goals that need be accomplished. That’s an issue whether you’re hiring outside counsel or a compliance consultant.”
kpanchuk@housingwire.com
Cheers!
Seller financing will be restricted under Frank-Dodd
By Madeline Schnapp | Jan 23, 2013
Despite promises to the contrary, government is systematically making it illegal, or at least completely impractical, for anyone other than a big bank to enjoy getting decent interest rates on their money.
According to The Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA), beginning January 21, 2013, the rules governing seller carryback financing are changing and will severely restrict this form of lending.
Specifically, the DFA states that no creditor may make a mortgage loan without making a reasonable or good faith determination that the customer has the ability to repay the loan based on eight statutory criteria. Further, the DFA requires that residential mortgage loans, including seller carryback financing, must be offered and negotiated by licensed loan mortgage originators. The DFA definition of mortgage originator exempts an individual (or an estate or trust) that provides mortgage financing for no more than three properties in any 12-month period. Regardless of the exemption, however, the DFA requires that financing must meet the following criteria:
1. The seller did not construct the home
2. The loan is fully amortizing (balloon payments are prohibited)
3. The seller determines that the buyer has a reasonable ability to repay the loan
4. The loan must have a fixed interest rate for a minimum of five years
5. The loan must meet other criteria set by the Federal Reserve Board
There is hope coming from several fronts. The National Association of Realtors will continue to seek to minimize the restrictions on seller financing. Also, a few days ago, a member of the U.S. House of Representatives proposed legislation that would amend a provision of DFA to allow certain loans that are not fully amortizing to be used in seller carry back financing.
What is so ironic to us is that these new government regulations were passed in the name of reigning in the big banks and protecting the individual. Instead, these laws make sure that only the largest banks are allowed to make decent returns.
This is the UNSEEN.
There are many who post on this blog who vote for increasing regulation. Here is your unintended consequence jackals. You are ANTI-small business, ANTI-competition, PRO-centralization of wealth, PRO-monopolization, PRO-too big to fail.
Our road to hell is being paved with your good intentions.
I wonder if this applies to second mortgages or only first mortgages? First mortgage seller financing is an opportunity for predatory lending. Second mortgage seller financing is not. If this applies to seconds, it will have a chilling effect on the market, particularly for properties that don’t appraise.
Apple bloodbath after hours…..
closed today 519; now 461.
Question is, how many of the 221 hedgefunds that own AAPL now have margin calls awaiting in their email inboxes. No doubt some of the cash many have parked in SFR rental props is about to be tapped, LOL!!!
Turn those machines back on!
I think only starry-eyed optimists and people who like bungee jumping buy AAPL as a hedge. I mean, come on. The company has never paid a dividend and never wil. Their guru is dead. Their client base of hipsters and twentysomethings is notoriously fickle, which matches their own contempt for both customers and shareholders. They have attracted fierce and competent competition from some very deep-pocketed and canny firms — Google, Amazon, Samsung. Their general business model over the decades resembles one of those “Vomit Comet” zero-gee training flights NASA uses for astronauts, where the KC-135 dives at Mach 0.6 into the ground, then pulls out at the last minute, then soars up 60,000 feet, repeat ad lib.
[...] here to read the rest: One man's mortgage debt is an entire neighborhood's equity » OC … Filed Under ACA, debt, government, ICE, loan modification, mba, PR, pro, Securitization This [...]
“Maybe we get someone that cares after Bernanke, but if we get a clone then I think they will print money until they inflate prices.”
Back in the 70s, the labor market was relatively tight, and unions more abundant, so inflation led to higher wages. And this wage inflation allowed higher house prices seen in the late 70s.
Do you think that in the present business/labor environment, inflation will lead to higher wages?
Not until unemployment declines. Even then, without a strong organized labor movement, inflation caused by rising wages doesn’t look likely. Ultimately, if they print enough money, everything will go up, including wages.
Wage increases driven by inflation always fail to keep up with inflation, so real wages decline in that scenario. That is, your employer (and all other producers) raise prices by 10%, and then they offer you a 6% raise, leaving you worse off.
The other scenario, where wages rise faster than inflation only occurs in a strong growth scenario, because it can only occur when sales volume and improving productivity are driving it. For example, your employers gets 10% more sales this year even though nobody new has joined the team (so your individual productivity has increased 10%), and on that basis he offers you a 10% raise. You then go out and bid up the prices of things you want with your new money, so prices rise 6% or so. This is the “good” kind of inflation. But it is caused by economic growth and rising real wages, not the cause of such things.
[...] I pointed out in One man’s mortgage debt is an entire neighborhood’s equity, the equity that would otherwise be accruing to homeowners is instead recollateralizing the bad [...]
[...] One man’s mortgage debt is an entire neighborhood’s equity. Let’s be realistic, this is all being done to bail out the banks. Prices will rise for the short term. They will go up until we reach the limits of income affordability. When this happens depends on mortgage interest rates. If rates remain at record lows over the next three years, prices locally could rise another 25%. If interest rates rise, then the price appreciation could flag much sooner. After that, it depends on wage growth. And with high unemployment, wages won’t be going up significantly any time soon. [...]
[...] One man’s mortgage debt is an entire neighborhood’s equity. Let’s be realistic, this is all being done to bail out the banks. Prices will rise for the short term. They will go up until we reach the limits of income affordability. When this happens depends on mortgage interest rates. If rates remain at record lows over the next three years, prices locally could rise another 25%. If interest rates rise, then the price appreciation could flag much sooner. After that, it depends on wage growth. And with high unemployment, wages won’t be going up significantly any time soon. [...]